Document ID: SEC-2017-1737-0001
Agency: sec
Document Type: Notice
Title: Applications: Stephens Inc.
Posted Date: 2017-10-24T04:00Z

[Federal Register Volume 82, Number 204 (Tuesday, October 24, 2017)]
[Notices]
[Pages 49255-49257]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-22955]

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SECURITIES AND EXCHANGE COMMISSION

[Investment Advisers Act Release No. 4797; File No. 803-00238]

Stephens Inc.

October 18, 2017.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice.

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    Notice of application for an exemptive order under Section 206A of 
the Investment Advisers Act of 1940 (the ``Act'') and Rule 206(4)-5(e).

Applicant: Stephens Inc. (``Applicant'' or ``Adviser'').

Relevant Sections of the Act: Exemption requested under section 206A of 
the Act and rule 206(4)-5(e) from rule 206(4)-5(a)(1) under the Act.

Summary of Application: Applicant requests that the Commission issue an 
order under section 206A of the Act and rule 206(4)-5(e) exempting it 
from rule 206(4)-5(a)(1) under the Act to permit Applicant to receive 
compensation from certain government entities for investment advisory 
services provided to the government entities within the two-year period 
following a contribution by a covered associate of the Applicant to an 
official of the government entities.

Filing Dates: The application was filed on December 20, 2016, and an 
amended and restated application was filed on June 21, 2017.

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 Applicant with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on November 13, 2017, and should be accompanied by proof of 
service on Applicant, in the form of an affidavit or, for lawyers, a 
certificate of service. Pursuant to rule 0-5 under the Act, hearing 
requests should state the nature of the writer's interest, any facts 
bearing upon the desirability of a hearing on the matter, the reason 
for the request, and the issues contested. Persons may request 
notification of a hearing by writing to the Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street 
NE., Washington, DC 20549-1090. Applicant: Stephens Inc., 111 Center 
Street, Little Rock, AR 72201.

FOR FURTHER INFORMATION CONTACT: Rachel Loko, Senior Counsel, or Holly 
Hunter-Ceci, Assistant Chief Counsel, at (202) 551- 6825 (Division of 
Investment Management, Chief Counsel's Office).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site at http://www.sec.gov/rules/iareleases.shtml or 
by calling (202) 551-8090.

Applicant's Representations

    1. Applicant is a financial services firm established in Little 
Rock, Arkansas and registered with the Commission as an investment 
adviser under the Act. Applicant provides discretionary investment 
advisory services to a wide variety of investors.
    2. The individual who made the campaign contribution that triggered 
the two-year compensation ban (the ``Contribution'') is J. Bradford 
Eichler (the ``Contributor''). The Contributor is an Executive Vice 
President of the Applicant and is the head of Investment Banking for 
the firm. The Contributor's role focuses on oversight of the Adviser's 
corporate finance division. Applicant submits that, because the 
Contributor is and at the time of the contribution was, an executive 
officer of the Adviser, he is, and at all relevant times was, a covered 
associate.
    3. Three of the Adviser's clients are government entities of the 
City of Little Rock (the ``Clients''). Client A and Client B are city 
pension funds and Client C is a fund maintained by the city for certain 
expenses. The Clients are government entities as defined in Rule 
206(4)-5(f)(5)(i).
    4. The recipient of the Contribution was Capi Peck (the 
``Official''), who, at the time of the Contribution, was seeking the 
office of director on the Little Rock Board of Directors. The Board of 
Directors appoints a board member of Client A, appoints a city official 
with authority to hire an investment manager for Client B and has 
ultimate investment authority over Client C. Due to her position as a 
director, the Official is an ``official'' of the Clients as defined in 
Rule 206(4)-5(f)(6)(ii). As of the date of the application, the 
Official has not participated in the appointment of anyone with 
authority on Client A or Client B's decision to select an investment 
adviser, nor has she participated in a decision affecting Client C's 
investment with the Adviser.
    5. The Contribution that triggered rule 206(4)-5's prohibition on 
compensation under rule 206(4)-5(a)(1) was made online on October 17, 
2016 for the amount of $1,000. Applicant submits that the Contribution 
was not motivated by any desire to influence the award of investment 
advisory business. Applicant represents that the Contributor does live 
in Little Rock and has a longstanding friendship with the Official. The 
Contributor has known the Official for approximately 30 years and known 
her ex-husband and business partner for approximately 35 years. The 
Contributor and the official's ex-husband also have a shared interest 
in competitive swimming. The Contributor lived with them for a long 
time during college, worked at their restaurant and has maintained 
close relationships. His decision to make the Contribution was 
spontaneous and motivated by his longstanding friendship with the 
Official. Applicant submits that although the Contributor and the 
Official are friends, they have not discussed the Adviser's advisory 
business or the potential investments by the Clients. The Contributor 
did not seek or coordinate any other contribution for the Official. 
Applicant represents that the Contributor did not have any intention to 
seek, and no action was taken by the Contributor or the Applicant to 
obtain, any direct or indirect influence from the Official or any other 
person.
    6. The Adviser has been doing business with Little Rock, its home 
city,

[[Page 49256]]

since its founding in 1933. The investments were all made before the 
date of the Contribution and before the Official took office. The 
Clients current accounts were initiated between 2006 and 2014. 
Applicant represents that none of the Clients have materially increased 
the amounts of assets managed by the Adviser, initiated new investment 
mandates, or opened new accounts with the Adviser since the 
Contribution was made. Neither the Contributor nor anyone whom he 
supervises was in any way involved in soliciting the Clients with 
respect to any business.
    7. The Adviser became aware of the Contribution on November 16, 
2016 when the Contributor remembered that, pursuant to the Adviser's 
pay-to-play policy (the ``Policy''), he was required to obtain pre-
approval for his political contributions and, at his initiative, 
contacted the Adviser's general counsel to inform him about the 
Contribution. The Contributor requested a refund of the full $1,000 
that day and received the refund on November 18, 2016. The Adviser 
established an escrow account on December 5, 2016 into which it has 
been depositing an amount equal to the compensation received with 
respect to the Clients' investments since the date of the Contribution, 
October 17, 2016. Applicant submits that all management fees earned 
with respect to Clients' investments since the date of the Contribution 
have been placed in escrow and will continue to be placed in escrow 
pending the outcome of this application.
    8. The Policy was adopted on March 3, 2011. The Applicant submits 
that all contributions by the Adviser's managing members, executive 
officers and other ``covered associates,'' as well as those who could 
in the future become covered associates, to any person who was at the 
time of the contribution an incumbent, candidate or successful 
candidate for an elective office of a government entity must be 
precleared. There is no de minimis exception from the pre-clearance 
requirement. Under the existing Policy, the Adviser circulated 
reminders of the need to preclear. Employees subject to the Policy must 
certify quarterly their contributions. In addition, annual employee 
audit questionnaires ask about the employee's political contributions, 
the Adviser does internet searches for contributions and verifies the 
results of the quarterly certifications with its preclearance records.

Applicant's Legal Analysis

    1. Rule 206(4)-5(a)(1) under the Act prohibits a registered 
investment adviser from providing investment advisory services for 
compensation to a government entity within two years after a 
contribution to an official of a government entity is made by the 
investment adviser or any covered associate of the investment adviser. 
Each of the Clients is a ``government entity,'' as defined in rule 
206(4)-5(f)(5), the Contributor is a ``covered associate'' as defined 
in rule 206(4)-5(f)(2), and the Official is an ``official'' as defined 
in rule 206(4)-5(f)(6).
    2. Section 206A of the Act authorizes the Commission to 
``conditionally or unconditionally exempt any person or transaction . . 
. from any provision or provisions of [the Act] or of any rule or 
regulation thereunder, if and to the extent that such exemption is 
necessary or appropriate in the public interest and consistent with the 
protection of investors and the purposes fairly intended by the policy 
and provisions of [the Act].''
    3. Rule 206(4)-5(e) provides that the Commission may conditionally 
or unconditionally grant an exemption to an investment adviser from the 
prohibition under rule 206(4)-5(a)(1) upon consideration of the factors 
listed below, among others:
    (1) Whether the exemption is necessary or appropriate in the public 
interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act;
    (2) Whether the investment adviser: (i) Before the contribution 
resulting in the prohibition was made, adopted and implemented policies 
and procedures reasonably designed to prevent violations of the rule; 
and (ii) prior to or at the time the contribution which resulted in 
such prohibition was made, had no actual knowledge of the contribution; 
and (iii) after learning of the contribution: (A) Has taken all 
available steps to cause the contributor involved in making the 
contribution which resulted in such prohibition to obtain a return of 
the contribution; and (B) has taken such other remedial or preventive 
measures as may be appropriate under the circumstances;
    (3) Whether, at the time of the contribution, the contributor was a 
covered associate or otherwise an employee of the investment adviser, 
or was seeking such employment;
    (4) The timing and amount of the contribution which resulted in the 
prohibition;
    (5) The nature of the election (e.g., federal, state or local); and
    (6) The contributor's apparent intent or motive in making the 
contribution which resulted in the prohibition, as evidenced by the 
facts and circumstances surrounding such contribution.
    4. Applicant requests an order pursuant to section 206A and rule 
206(4)-5(e), exempting it from the two-year prohibition on compensation 
imposed by rule 206(4)-5(a)(1) with respect to investment advisory 
services provided to the Clients within the two-year period following 
the Contribution.
    5. Applicant submits that the exemption is necessary and 
appropriate in the public interest and consistent with the protection 
of investors and the purposes fairly intended by the policy and 
provisions of the Act. Applicant further submits that the other factors 
set forth in rule 206(4)-5(e) similarly weigh in favor of granting an 
exemption to the Applicant to avoid consequences disproportionate to 
the violation.
    6. Applicant contends that given the nature of the Contribution, 
and the lack of any evidence that the Adviser or the Contributor 
intended to, or actually did, interfere with any client's merit-based 
process for the selection or retention of advisory services, the 
Clients' interests are best served by allowing the Adviser and its 
Clients to continue their relationship uninterrupted. Applicant states 
that causing the Adviser to serve without compensation for a two- year 
period could result in a financial loss of approximately $1 million or 
1000 times the amount of the Contribution. Applicant suggests that the 
policy underlying rule 206(4)-5 is served by ensuring that no improper 
influence is exercised over investment decisions by governmental 
entities as a result of campaign contributions and not by withholding 
compensation as a result of unintentional violations.
    7. Applicant represents that the Policy was adopted and published 
in March 2011, well before the Contribution was made. Applicant further 
represents that, at all times, the Policy has conformed to the 
requirements of rule 206(4)-5 and has been more rigorous than rule 
206(4)-5's requirements as the Adviser does internet testing as part of 
its annual audit process and requires covered associates to certify 
their compliance with the Policy and disclose all contributions 
quarterly.
    8. Applicant asserts that at no time did any employee or covered 
associate of the Adviser other than the Contributor have any knowledge 
that the Contribution had been made before its discovery by the Adviser 
in November 2016 when the Contributor self-reported the Contribution to 
the Adviser.
    9. Applicant asserts that after learning of the Contribution, the 
Adviser caused

[[Page 49257]]

the Contributor to immediately obtain a full refund of the 
Contribution. Applicant submits that the Adviser reviewed its Policy 
and concluded that it was adequate for preventing impermissible 
contributions.
    10. Applicant states that after learning of the Contribution, it 
confirmed that the although the Contributor's job would not ordinarily 
cause him to interact with the Clients, after learning of the 
Contribution, the Adviser, out of an abundance of caution, instructed 
him not to solicit or otherwise communicate with the Clients for two 
years following the date of the Contribution.
    11. Applicant asserts that the Clients' decisions to invest with 
the Adviser occurred long before the Contribution was made, in October 
2016. Furthermore, no investments were made in the month-long period 
between the date of the Contribution and the day it was refunded. 
Applicant states that, at the time of the Contribution and at the time 
of the investments by the Clients, the Official has not had any role in 
the Clients' investment decisions. Applicant also submits that the 
apparent intent in making the Contribution was not to influence the 
selection or retention of the Adviser. Applicant represents that the 
Contributor and the Official have a long standing friendship as the 
Contributor worked at the Official's restaurant and lived with the 
Official and her ex-husband when he was in college. Applicant finally 
states that it was because of that relationship, and not any desire to 
influence the award of investment advisory business that the 
Contributor made the Contribution to the Official's campaign.
    12. Applicant submits that neither the Adviser nor the Contributor 
sought to interfere with the Clients' merit-based selection process for 
advisory services, nor did they seek to negotiate higher fees or 
greater ancillary benefits than would be achieved in arms' length 
transactions. Applicant further submits that there was no violation of 
the Adviser's fiduciary duty to deal fairly or disclose material 
conflicts given the absence of any intent or action by the Adviser or 
the Contributor to influence the selection process. Applicant contends 
that in the case of the Contribution, the imposition of the two-year 
prohibition on compensation does not achieve rule 206(4)-5's purposes 
and would result in consequences disproportionate to the mistake that 
was made.

Applicant's Conditions

    The Applicant agrees that any order of the Commission granting the 
requested relief will be subject to the following conditions:
    1. The Contributor will be prohibited from discussing the business 
of the Adviser with any ``government entity'' client for which the 
Official is an ``official,'' each as defined in Rule 206(4)-5(f), until 
October 18, 2018.
    2. The Contributor will receive a written notification of this 
condition and will provide a quarterly certificate of compliance until 
October 18, 2018. Copies of the certifications will be maintained and 
preserved in an easily accessible place for a period of not less than 
five years, the first two years in an appropriate office of the 
Adviser, and be available for inspection by the staff of the 
Commission.
    3. The Adviser will conduct testing reasonably designed to prevent 
violations of the conditions of the Order and maintain records 
regarding such testing, which will be maintained and preserved in an 
easily accessible place for a period of not less than five years, the 
first two years in an appropriate office of the Adviser, and be 
available for inspection by the staff of the Commission.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-22955 Filed 10-23-17; 8:45 am]
 BILLING CODE 8011-01-P