Document ID: SEC-2008-1755-0001
Agency: sec
Document Type: Notice
Title: UBS Securities LLC, et al.; Notice of Application and Temporary Order
Posted Date: 2008-12-31T05:00Z

[Federal Register: December 31, 2008 (Volume 73, Number 251)]
[Notices]               
[Page 80452-80454]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31de08-102]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. IC--28569; 812-13609]

 
UBS Securities LLC, et al.; Notice of Application and Temporary 
Order

December 23, 2008.
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'').

-----------------------------------------------------------------------

    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 UBS Securities LLC (``UBS Securities'') and 
UBS Financial Services Inc. (``UBSFS,'' and together with UBS 
Securities, the ``Settling Firms'') on December 23, 2008 by the United 
States District Court for the Southern District of New York 
(``Injunction'') until the Commission takes final action on an 
application for a permanent order. Applicants also have applied for a 
permanent order.
    Applicants: UBS Securities; UBSFS; UBS Fund Advisor, L.L.C. 
(``UBSFA''); UBS Willow Management, L.L.C. (``UBS Willow''), UBS 
Eucalyptus Management, L.L.C., UBS Tamarack Management, L.L.C., UBS 
Juniper Management, L.L.C., and UBS Enso Management L.L.C. 
(collectively, ``UBSFA Advisers''); UBS Global Asset Management 
(Americas) Inc. (``UBS Global AM Americas''); UBS Global Asset 
Management (US) Inc. (``UBS Global AM US''); and UBS AG and UBS IB Co-
Investment 2001 GP Limited (``ESC GP'') (together, other than UBS 
Securities, ``Fund Servicing Applicants'' and together with UBS 
Securities, the ``Applicants'').\1\
---------------------------------------------------------------------------

    \1\ Applicants request that any relief granted pursuant to the 
application also apply to any other company of which either of the 
Settling Firms is or may become affiliated persons (together with 
the Applicants, the ``Covered Persons'').
---------------------------------------------------------------------------

    Filing Dates: The application was filed on December 16, 2008. 
Applicants have agreed to file an amendment during the notice period, 
the substance of which is reflected in this notice.
    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 January 15, 2009, 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: UBS Securities, 299 
Park Avenue, New York, NY 10171; UBSFS, 1200 Harbor Boulevard, 
Weehawken, NJ 07086; UBSFA, UBSFA Advisers, and UBS Global AM US, 51 
West 52nd Street, New York, NY 10019; UBS Global AM Americas, One North 
Wacker Drive, Chicago, IL 60606; and UBS AG and ESC-GP, 677 Washington 
Boulevard, Stamford, CT 06901.

FOR FURTHER INFORMATION CONTACT: John Yoder, Senior Counsel, at 202-
551-6878 or Julia Kim Gilmer, Branch Chief, at 202-551-6821 (Division 
of Investment Management, Office of Investment Company Regulation).

SUPPLEMENTARY INFORMATION: The following is a temporary order and 
summary of the application. The

[[Page 80453]]

complete application may be obtained for a fee at the Commission's 
Public Reference Room, 100 F Street, NE., Washington, DC 20549-1520 
(tel. 202-551-5850).

Applicants' Representations

    1. UBS AG is a bank established under the laws of Switzerland that 
directly or through its subsidiaries provides global wealth management, 
securities and retail and commercial banking services. Each of the 
Applicants are either directly or indirectly controlled by UBS AG. UBS 
Securities is a full service investment banking firm engaged in 
securities underwriting, sales and trading, investment banking, 
financial advisory services and investment research services. UBSFS, 
UBSFA, UBSFA Advisers and UBS Global AM Americas are registered as 
investment advisers under the Investment Advisers Act of 1940 and 
currently serve as investment advisers to registered management 
investment companies (``Funds''). UBSFS and UBS Global AM U.S. are 
registered as broker-dealers under the Securities Exchange Act of 1934 
(``Exchange Act'') and act as principal underwriter to various open-end 
Funds and unit investment trusts (``UITs''). UBSFS also serves as a 
depositor to UITs. UBS AG and ESC GP provide investment advisory 
services to employees' securities companies (``ESCs''), as defined in 
section 2(a)(13) of the Act, which provide investment opportunities for 
highly compensated key employees, officers, directors and current 
consultants of UBS AG and its affiliates.
    2. On December 23, 2008, the United States District Court for the 
Southern District of New York entered a judgment, which included the 
Injunction, against the Settling Firms (``Judgment'') in a matter 
brought by the Commission.\2\ The Commission alleged in the complaint 
(``Complaint'') that the Settling Firms violated section 15(c) of the 
Exchange Act in connection with the marketing and sale of auction rate 
securities (``ARS''). The Complaint alleged that the Settling Firms 
misled their customers regarding the fundamental nature and increasing 
risks associated with ARS that the Settling Firms underwrote, marketed 
and sold. The Complaint further alleged that the Settling Firms 
misrepresented to their customers that ARS were safe, highly liquid 
investments that were equivalent to cash or money-market funds. Without 
admitting or denying any of the allegations in the Complaint, except as 
to jurisdiction, the Settling Firms consented to the entry of the 
Injunction and other equitable relief, including undertakings to take 
various remedial actions for the benefit of purchasers of certain ARS.
---------------------------------------------------------------------------

    \2\ Securities and Exchange Commission v. UBS Securities LLC and 
UBS Financial Services Inc., Judgment as to UBS Securities LLC and 
UBS Financial Services Inc., 1:08-CV-10754 (S.D.N.Y.) (entered Dec. 
23, 2008).
---------------------------------------------------------------------------

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, among others, any person directly or 
indirectly controlling, controlled by, or under common control, with 
the other person. Applicants state that the Settling Firms are 
affiliated persons of each of the other Applicants within the meaning 
of section 2(a)(3). Applicants state that, as a result of the 
Injunction, they would be subject to the prohibitions of section 9(a).
    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) of the Act if it is established that these provisions, as 
applied to Applicants, are unduly or disproportionately severe or that 
the conduct of the Applicants 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).
    3. Applicants believe that they meet the standards for exemption 
specified in section 9(c). Applicants state that the prohibitions of 
section 9(a) as applied to them 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 requested 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 or depositor to any registered 
investment company or in the capacity of principal underwriter for any 
open-end Fund or UIT (``Fund Service Activities''). Applicants note 
that none of the current or former directors, officers, or employees of 
the Applicants (other than the Settling Firms) had any involvement in 
the conduct alleged in the Complaint, except as noted in footnote 3.\3\ 
Applicants further state that the personnel at the Settling Firms who 
were involved in the violations alleged in the Complaint have had no 
and will not have any future involvement in Fund Service Activities.
---------------------------------------------------------------------------

    \3\ The Complaint alleges that several senior executives of the 
Settling Firms sold all or some of their personal auction rate 
securities holdings after becoming aware of undisclosed risk factors 
associated with the auction rate securities program, including 
concerns about the Settling Firms' ability and willingness to 
support the auctions. Certain of these officers or employees may 
also have been officers or employees of UBS AG. These officers or 
employees have had no involvement in Applicants' Fund Service 
Activities and are either no longer employed by the Settling Firms 
or UBS AG or are not and will not have any involvement in 
Applicants' Fund Service Activities.
---------------------------------------------------------------------------

    5. Applicants state that the inability of the Applicants to engage 
in Fund Service Activities would result in potentially severe financial 
hardships for the registered investment companies they serve and the 
registered investment companies' shareholders or unitholders. 
Applicants state that they will distribute written materials, including 
an offer to meet in person to discuss the materials, to the boards of 
directors of the Funds (the ``Boards''), including the directors who 
are not ``interested persons,'' as defined in section 2(a)(19) of the 
Act, of such Funds, and their independent legal counsel as defined in 
rule 0-1(a)(6) under the Act, if any, regarding the Injunction, any 
impact on the Funds, and the application. Applicants state that they 
will provide the Boards with all information concerning the Injunction 
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 providing 
Fund Service Activities to registered investment companies and ESCs, 
the effect on their businesses and employees would be severe. 
Applicants state that they have committed substantial resources to 
establish an

[[Page 80454]]

expertise in providing Fund Service Activities. Applicants further 
state that prohibiting them from providing advisory and distribution 
services would not only adversely affect their businesses, but would 
also adversely affect over 450 employees that are involved in those 
activities. Applicants also state that disqualifying UBS AG and ESC GP 
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 the benefit of key 
employees, officers, directors and current consultants of UBS AG and 
its affiliates, it would not be consistent with the purposes of the ESC 
provisions of the Act to require another entity not affiliated with UBS 
AG to manage the ESCs. In addition, participants in the ESCs have 
subscribed for interests in the ESCs with the expectation that the ESCs 
would be managed by an affiliate of UBS AG.
    7. Applicants state that UBS Securities and certain other 
Applicants have previously received an order under section 9(c) of the 
Act.\4\ Applicants also state that affiliated persons of UBS Securities 
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.
---------------------------------------------------------------------------

    \4\ UBS Securities L.L.C., et al., Investment Company Act Rel. 
Nos. 26245 (Oct. 31, 2003) (notice) and 27047 (Apr. 25, 2005) 
(order).
---------------------------------------------------------------------------

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 the 
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 
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 
December 23, 2008, until the Commission takes final action on their 
application for a permanent order.

    By the Commission.
Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-31087 Filed 12-30-08; 8:45 am]

BILLING CODE 8011-01-P