Document ID: SEC-2007-1353-0001
Agency: sec
Document Type: Notice
Title: Citi Investor Services, Inc. f/n/a The BISYS Group, Inc., et al.; Notice of Application and Temporary Order
Posted Date: 2007-10-01T04:00Z

[Federal Register: October 1, 2007 (Volume 72, Number 189)]
[Notices]               
[Page 55836-55838]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01oc07-100]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-27978; 812-13394]

 
Citi Investor Services, Inc. f/n/a The BISYS Group, Inc., et al.; 
Notice of Application and Temporary Order

September 24, 2007.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Temporary order and notice of application for a permanent order 
under section 9(c) of the Investment Company Act of 1940 (``Act'').

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Summary of Application: Applicants have received a temporary order 
exempting them from section 9(a) of the Act, with respect to an 
injunction entered against Citi Investor Services, Inc. f/n/a The BISYS 
Group, Inc. (``BISYS'') on July 27, 2007 by the United States District 
Court for the Southern District of New York (the ``Injunction''), until 
the Commission takes final action on an application for a permanent 
order. Applicants have requested a permanent order.

Applicants: BISYS, Heartland Investor Services, LLC, Mercantile 
Investment Services, Inc., ProFunds Distributors, Inc. and Victory 
Capital Advisers, Inc. (collectively, other than BISYS, the ``BISYS 
Underwriter Applicants,'' and, together with BISYS, the ``BISYS 
Applicants''); Citigroup Global Markets Inc. (``CGMI''), CEFOF GP I 
Corp. (``CEFOF''), CELFOF GP Corp. (``CELFOF''), Citibank, N.A. 
(``Citibank''), Citigroup Alternative Investments LLC (``Citigroup 
Alternative''), Citigroup Investment Advisory Services Inc. 
(``Citigroup Advisory''), SSBCP GP I Corp. (``SSBCP''), and SSBPIF GP 
Corp. (``SSBPIF'', and, together with CGMI, CEFOF, CELFOF, Citibank, 
Citigroup Alternative, Citigroup Advisory, and SSBCP, the ``Citigroup 
Applicants,'' and together with the BISYS Applicants, the 
``Applicants'').\1\
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    \1\ Applicants request that any relief granted pursuant to the 
application also apply to any other company of which BISYS is or 
hereafter may become an affiliated person in the future (together 
with the Applicants, the ``Covered Persons'').

Filing Date: The application was filed on June 6, 2007 and amended on 
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September 13, 2007 and September 20, 2007.

Hearing or Notification of Hearing: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving Applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on October 19, 2007, and should be accompanied by proof of service 
on Applicants, in the form of an affidavit, or for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1090. Applicants, BISYS, 105 
Eisenhower Parkway, Roseland, New Jersey 07068, the BISYS Underwriter 
Applicants, 100 Summer Street, 15th Floor, Boston, Massachusetts, 
02110, CGMI, 787 Seventh Ave., 32nd Floor, New York, New York 10019, 
CEFOF and CELFOF, 388 Greenwich Street, New York, New York 10013, 
Citibank, 153 East 53rd Street, 5th Floor, New York, New York 10043, 
Citigroup Alternative, 731 Lexington Avenue, 28th Floor, New York, NY 
10022, Citigroup Advisory, 787 Seventh Ave., 15th Floor, New York, New 
York 10019, SSBCP and SSBPIF, 338 Greenwich Street, New York, New York 
10013.

FOR FURTHER INFORMATION CONTACT: Shannon Conaty, Senior Counsel, at 
(202) 551-6827, or Janet M. Grossnickle, Branch Chief, at (202) 551-
6821, (Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a temporary order and a 
summary of the application. The complete application may be obtained 
for a fee at the Commission's Public Reference Desk, 100 F Street, NE., 
Washington, DC 20549-0102 (tel. 202-551-8090).

Applicants' Representations

    1. BISYS, a Delaware corporation, directly and through wholly-owned 
subsidiaries, provides products and support services to financial 
institutions, including insurance companies, banks and mutual funds. 
Each of the BISYS Underwriter Applicants is an indirect, wholly-owned 
subsidiary of BISYS and serves as principal underwriter for one or more 
registered investment companies or series thereof (``Funds'').\2\ Each 
BISYS Underwriter Applicant is registered with the Commission as a 
broker-dealer under section 15 of the Securities Exchange Act of 1934 
(``Exchange Act'').
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    \2\ Neither BISYS nor any of the BISYS Underwriter Applicants 
serves as investment adviser or depositor for any Fund or as 
principal underwriter for any registered unit investment trust 
(``UIT'') or registered face amount certificate company.
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    2. On July 27, 2007, the United States District Court for the 
Southern District of New York entered the Injunction against BISYS in a 
matter brought by the Commission.\3\ The Commission alleged in the 
complaint (``Complaint'') that BISYS violated sections 13(a) and 
13(b)(2)(A) and (B) of the Exchange Act and rules 12b-20, 13a-1, 13a-11 
and 13a-13 thereunder when it engaged in improper accounting practices 
that resulted in an overstatement of BISYS's financial results for the 
fiscal years ended 2001 through 2003 by about $180 million. The alleged 
violations involved improperly recording commissions earned by 
companies before they were acquired by BISYS as its own revenue, the 
failure to adequately reserve against an aging receivable balance, 
improper accounting for renewal and bonus commissions, and other 
improper accounting entries. The Complaint alleged that the resulting 
inaccurate financial results were incorporated in public filings, 
annual reports to shareholders, press releases and offering

[[Page 55837]]

documents. Thus, the Complaint alleged that BISYS violated the 
financial reporting, books and records, and internal controls 
provisions of the Exchange Act. Without admitting or denying the 
allegations in the Complaint, except as to jurisdiction, BISYS 
consented to a final judgment (``Final Judgment'') that includes, among 
other things, the entry of the Injunction and the payment of 
disgorgement and prejudgment interest.
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    \3\ United States Securities and Exchange Commission v. The 
BISYS Group, Inc., 07-CIV-4010 (KMK) (S.D.N.Y. May 23, 2007).
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    3. On August 1, 2007, Citigroup Inc. (``Citigroup'') acquired BISYS 
(the ``BISYS Acquisition''). As a result of the BISYS Acquisition, 
BISYS is now an affiliated person of the Citigroup Applicants, which 
currently serve as investment advisers, depositors or principal 
underwriters to Funds. Certain of the Citigroup Applicants serve as 
investment advisers to employees' securities companies (included in the 
term ``Funds'').

Applicants'' Legal Analysis

    1. Section 9(a)(2) of the Act, in relevant part, prohibits a person 
who has been enjoined from engaging in or continuing any conduct or 
practice in connection with the purchase or sale of a security from 
acting, among other things, as an investment adviser or depositor of 
any registered investment company or a principal underwriter for any 
registered open-end investment company, registered UIT or registered 
face-amount certificate company. Section 9(a)(3) of the Act makes the 
prohibition in section 9(a)(2) applicable to a company, any affiliated 
person of which has been disqualified under the provisions of section 
9(a)(2). Section 2(a)(3) of the Act defines ``affiliated person'' to 
include any person directly or indirectly controlling, controlled by, 
or under common control with, the other person. Applicants state that 
BISYS is an affiliated person of each of the other Applicants within 
the meaning of section 2(a)(3) of the Act. Applicants state that the 
entry of the Injunction resulted in Applicants being subject to the 
disqualification provisions of section 9(a) of the Act.
    2. Section 9(c) of the Act provides that the Commission shall grant 
an application for exemption from the disqualification provisions of 
section 9(a) if it is established that these provisions, as applied to 
the Applicants, are unduly or disproportionately severe or that the 
Applicants' conduct has been such as not to make it against the public 
interest or the protection of investors to grant the exemption. 
Applicants have filed an application pursuant to section 9(c) seeking a 
temporary and permanent order exempting the Applicants and the other 
Covered Persons from the disqualification provisions of section 9(a) of 
the Act. On July 27, 2007, the Applicants received a temporary 
conditional order from the Commission exempting them from section 9(a) 
of the Act with respect to the Injunction until the Commission takes 
final action on an application for a permanent order or, if earlier, 
September 24, 2007. \4\
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    \4\ Investment Company Act Release No. 27915 (July 27, 2007).
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    3. Applicants believe they meet the standard for exemption 
specified in section 9(c). Applicants state that the prohibitions of 
section 9(a) as applied to the Applicants would be unduly and 
disproportionately severe and that the conduct of Applicants has been 
such as not to make it against the public interest or the protection of 
investors to grant the exemption from section 9(a).
    4. Applicants state that the alleged conduct giving rise to the 
Injunction did not involve any of the Applicants acting in the capacity 
of investment adviser, sub-adviser, depositor, or principal underwriter 
for any Fund and, with respect to the Citigroup Applicants, occurred 
prior to the BISYS Acquisition, when they were not affiliated with 
BISYS. Except as discussed in footnote 5, Applicants state that no 
director, officer or employee of any of the Applicants who is or was 
involved in providing investment advisory or underwriting services to 
the Funds was involved in the conduct which forms the basis of the 
Injunction.\5\ Applicants also state that the matters underlying the 
Injunction are unrelated to the Applicants' investment advisory, 
depository and principal underwriting activities. In addition, 
Applicants represent that no Funds to which any BISYS Underwriter 
Applicant currently provides underwriting services bought or held any 
securities issued by BISYS during the period of misconduct alleged in 
the Complaint, other than with respect to index funds and routine trade 
errors that were promptly corrected.
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    \5\ The Complaint contains general allegations relating to the 
conduct of former employees of the Fund Services Division of BISYS, 
but does not contain any specific allegations that any directors, 
officers or employees of any of the Applicants who is or was 
involved in providing underwriting services to the Funds 
participated in the conduct which resulted in the Injunction. To the 
best of the BISYS Applicants' knowledge and belief, any directors, 
officers or employees that allegedly participated in the conduct 
that resulted in the Injunction are either no longer employed by the 
Applicants or are not, and will not be, involved in providing 
investment advisory, depository or underwriting services to the 
Funds.
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    5. Applicants further represent that the inability of the 
Applicants to continue to serve as investment adviser, depositor or 
principal underwriter to the Funds would result in potentially severe 
hardships for the Funds and their shareholders. The BISYS Underwriter 
Applicants have distributed, or will distribute as soon as reasonably 
practical, written materials, including an offer to meet in person to 
discuss the materials, to the board of directors or trustees of each 
Fund (each, a ``Board'') for which the BISYS Underwriter Applicants 
serve as principal underwriter, including the directors who are not 
``interested persons,'' as defined in section 2(a)(19) of the Act, of 
such Fund, and their independent legal counsel as defined in rule 0-
1(a)(6) under the Act, if any. These written materials will concern the 
Final Judgment, any impact on the Funds, and the application. The 
Applicants will provide the Funds with all information concerning the 
Final Judgment and the application that is necessary for the Funds to 
fulfill their disclosure and other obligations under the federal 
securities laws.
    6. Applicants also assert that, if the Applicants were barred from 
serving as investment adviser, depositor or principal underwriter to 
the Funds, the effect on their businesses and employees would be 
severe. The Applicants state that they have committed substantial 
resources to establish an expertise in providing the services covered 
by section 9(a) of the Act to Funds. Applicants further state that 
prohibiting the Applicants from serving as investment advisers, 
depositors or principal underwriters to the Funds would adversely 
affect not only the viability of their businesses, but also the 
livelihoods of more than 100 employees. Applicants also state that none 
of the BISYS Applicants has ever previously applied for an exemption 
pursuant to section 9(c) of the Act.

Applicants' Condition

    Applicants agree that any order granting the requested relief will 
be subject to the following condition:

    Any temporary exemption granted pursuant to the application 
shall be without prejudice to, and shall not limit the Commission's 
rights in any manner with respect to, any Commission investigation 
of, or administrative proceedings involving or against, Covered 
Persons, including without limitation, the consideration by the 
Commission of a permanent exemption from section 9(a) of the Act 
requested pursuant to the application, or the revocation or removal 
of any temporary exemptions granted under the Act in connection with 
the application.

Temporary Order

    The Commission has considered the matter and finds that Applicants 
have

[[Page 55838]]

made the necessary showing to justify granting a temporary exemption.
    Accordingly,
    It is hereby ordered, pursuant to section 9(c) of the Act, that the 
Applicants and the other Covered Persons are granted a temporary 
exemption from the provisions of section 9(a), effective forthwith, 
solely with respect to the Injunction, subject to the condition in the 
application, until the date the Commission takes final action on their 
application for a permanent order.

    By the Commission.
Nancy M. Morris,
Secretary.
[FR Doc. E7-19282 Filed 9-28-07; 8:45 am]

BILLING CODE 8011-01-P