Document ID: SEC-2010-1620-0001
Agency: sec
Document Type: Notice
Title: Applications: Citigroup Global Markets Inc., et al.
Posted Date: 2010-10-25T04:00Z

[Federal Register: October 25, 2010 (Volume 75, Number 205)]
[Notices]               
[Page 65534-65536]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25oc10-134]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. IC-29464; 812-13808]

 
Citigroup Global Markets Inc., et al.; Notice of Application and 
Temporary Order

October 19, 2010.
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: 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 Citigroup Inc. (``Citigroup'') on October 
19, 2010 by the United States District Court for the District of 
Columbia (the ``Injunction''), until the Commission takes final action 
on an application for a permanent order. Applicants also have applied 
for a permanent order.
    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''), Consulting Group Advisory Services LLC (``Advisory 
Services''), Citigroup Capital Partners I GP I Corp. (``CCP I''), and 
Citigroup Capital Partners I GP II Corp. (``CCP II'') (collectively, 
``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 Citigroup is or 
hereafter may become an affiliated person within the meaning of 
section 2(a)(3) of the Act (together with the Applicants, the 
``Covered Persons'').

DATES: Filing Date: The application was filed on July 29, 2010 and 
amended on July 30, 2010, and amended on October 19, 2010.
    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

[[Page 65535]]

by 5:30 p.m. on November 12, 2010, 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: CGMI, CEFOF, 
CELFOF, CCP I and CCP II, 388 Greenwich Street, New York, NY 10013; 
Citibank, 399 Park Avenue, New York, NY 10043; Citigroup Alternative, 
731 Lexington Avenue, 28th Floor, New York, NY 10022; and Advisory 
Services, 222 Delaware Avenue, Wilmington, DE 19801.

FOR FURTHER INFORMATION CONTACT: Laura J. Riegel, Senior Counsel, at 
(202) 551-6873, or Mary Kay Frech, 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 
via the Commission's Web site by searching for the file number, or for 
an applicant using the Company name box, at http://www.sec.gov/search/
search.htm, or by calling (202) 551-8090.

Applicants' Representations

    1. Each of the Applicants is either an indirect wholly-owned 
subsidiary of Citigroup or is owned by an entity in which Citigroup has 
an indirect interest. Citigroup is a global financial holding company 
whose businesses provide a broad range of financial services. CGMI is 
registered as a broker-dealer under the Securities Exchange Act of 1934 
(``Exchange Act'') and serves as principal underwriter for one or more 
registered investment companies (``Funds''). Citigroup Alternative and 
Advisory Services are registered as investment advisers under the 
Investment Advisers Act of 1940 and serve as investment advisers for 
one or more Funds. CEFOF, CELOF, Citibank, Citigroup Alternative, CCP I 
and CCP II (``ESC Advisers'') serve as investment advisers to certain 
employees' securities companies within the meaning of section 2(a)(13) 
of the Act, which provide investment opportunities for certain eligible 
employees, officers, directors and persons on retainer of Citigroup and 
its affiliates (``ESCs'' and included in the term ``Funds'').\2\
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    \2\ Greenwich Street Employees Fund, L.P., et al., Investment 
Company Act Release Nos. 25324 (Dec. 21, 2001) (notice) and 25367 
(Jan. 16, 2002) (order) (``ESC Order'').
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    2. On October 19, 2010, the United States District Court for the 
District of Columbia (``District Court'') entered a judgment against 
Citigroup (``Judgment'') in a matter brought by the Commission.\3\ The 
Commission alleged in the complaint (``Complaint'') that Citigroup had 
violated section 17(a)(2) of the Securities Act of 1933 and section 
13(a) of the Exchange Act and Exchange Act rules 12b-20 and 13a-11 in 
connection with disclosures made between July 2007 and October 2007 
about the subprime exposure in Citigroup's investment banking unit. 
Without admitting or denying the allegations in the Complaint, except 
as to jurisdiction, Citigroup consented to the entry of the Judgment 
that included, among other things, the entry of the Injunction, a civil 
penalty of $75 million, and certain undertakings requested by the 
District Court.
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    \3\ Securities and Exchange Commission v. Citigroup Inc., 
Judgment on Consent Against Defendant Citigroup Inc., Civil Action 
No. 1:10-cv-01277 (ESH) (D.D.C. October 19, 2010).
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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 or in 
connection with activities as an underwriter, broker or dealer, 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 unit investment 
trust 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 Citigroup is an affiliated person of each 
of the Applicants within the meaning of section 2(a)(3) of the Act. 
Applicants state that the entry of the Injunction results 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 them and Covered Persons from 
the disqualification provisions of section 9(a) of the Act.
    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, subadviser or depositor to a Fund, or principal 
underwriter for any Fund, and no such Funds bought or held any 
securities issued by Citigroup during the period of misconduct alleged 
in the Complaint, other than with respect to index Funds. Applicants 
also state that none of the current or former directors, officers, or 
employees of the Applicants participated in the violative conduct 
alleged in the Complaint, with the exception of one employee of an 
Applicant. Applicants further state that the personnel at Citigroup who 
were involved in the violations alleged in the Complaint are either no 
longer employed at Citigroup or have had no and will not have any 
future involvement in providing advisory, subadvisory or depository 
services to the Funds, or principal underwriting services to the Funds.
    5. Applicants state 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 financial 
hardships for the Funds and their shareholders. The 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 of each Fund, 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, regarding the 
Judgment, any impact on the Funds, and the application. The Applicants 
state they will provide the

[[Page 65536]]

Funds with all information concerning the 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 state that, if they were barred from continuing 
to serve as investment adviser or principal underwriter to the Funds, 
the effect on their businesses and employees would be severe. 
Applicants state that they have committed substantial resources to 
establish an expertise in providing services covered by section 9(a) of 
the Act to Funds. Applicants further state that prohibiting them from 
continuing to serve as investment adviser or principal underwriter to 
Funds would not only adversely affect their businesses, but would also 
adversely affect approximately 250 employees that are involved in those 
activities. Applicants also state that disqualifying the ESC Advisers 
from continuing to provide investment advisory services to ESCs is not 
in the public interest or in furtherance of the protection of 
investors. Because the ESCs have been formed for certain eligible, 
officers, directors and persons on retainer of Citigroup and its 
affiliates, it would not be consistent with the purposes of the ESC 
provisions of the Act or the ESC Order to require another entity not 
affiliated with Citigroup to manage the ESCs. In addition, 
participating employees of Citigroup and its affiliates subscribed for 
interests with the expectation that the ESCs would be managed by an 
affiliate of Citigroup.
    7. Applicants previously have received exemptions under section 
9(c) as the result of conduct that triggered section 9(a) as described 
in greater detail in the application.

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 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 any other Covered Persons are granted a temporary 
exemption from the provisions of section 9(a), solely with respect to 
the Injunction, subject to the condition in the application, from 
October 19, 2010, until the Commission takes final action on their 
application for a permanent order.

    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-26870 Filed 10-22-10; 8:45 am]
BILLING CODE 8011-01-P