Document ID: SEC-2017-0392-0001
Agency: sec
Document Type: Notice
Title: Applications: Jeffrey LLC
Posted Date: 2017-03-13T04:00Z

[Federal Register Volume 82, Number 47 (Monday, March 13, 2017)]
[Notices]
[Pages 13533-13535]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-04813]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-32526; File No. 812-14624]

Jeffrey LLC; Notice of Application

March 7, 2017.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under section 6(c) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from all 
provisions of the Act and all rules and regulations thereunder.

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Summary of Application: Applicant requests an order for an exemption 
from all provisions of the Act and all rules and regulations 
thereunder, as Applicant is a private investment company wholly owned 
and controlled by a single family.

Applicant: Jeffrey LLC (``Applicant'').

Filing Dates: The application was filed on March 11, 2016 and amended 
on September 2, 2016, December 14, 2016, and February 9, 2017.

Hearing or Notification of Hearing: An order granting the requested 
relief 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 April 3, 2017, and should be accompanied by proof of 
service on applicant, 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 
St. NE., Washington, DC 20549-1090. Applicant: Jeffrey LLC, 100 East 
Broad Street, Suite 1700, Columbus, OH 43215.

FOR FURTHER INFORMATION CONTACT: James D. McGinnis, Senior Counsel, at 
(202) 551-3025, or Holly Hunter-Ceci, Acting Assistant Chief Counsel, 
at (202) 551-6825 (Chief Counsel's Office, Division of Investment 
Management).

SUPPLEMENTARY INFORMATION: The following is 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.

Applicant's Representations

    1. Applicant is a Delaware limited liability company. Applicant's 
managing member is The Jeffrey Company, an Ohio corporation (``TJC''). 
All of the outstanding shares of capital stock of TJC are owned by 
trusts for descendants of Joseph A. Jeffrey (1836-1928) (``J.A. 
Jeffrey''). Approximately 50% of the units of membership interest in 
Applicant (``units'') are owned by TJC as the managing member, with the 
remaining units being owned by trusts for descendants of J.A. Jeffrey. 
100% of Applicant's units are owned directly or indirectly by trusts 
for descendants of J.A. Jeffrey.
    2. J.A. Jeffrey created the Joseph A. Jeffrey Trust (the ``Trust'') 
on May 6, 1914, for the benefit of his descendants, and transferred 
virtually all of the TJC shares to the Trust. TJC was founded to 
manufacture the world's first coal-mining machines. TJC sold its 
operating assets to Dresser Industries in 1974 and became a pure 
investment enterprise. TJC thereafter relied on an exception from the 
definition of investment company pursuant to Section 3(c)(1) of the 
Investment Company Act of 1940, as amended (the ``Act''). In 2002, the 
Trust was divided into separate trusts, one for each current income 
beneficiary (each an ``Individual Trust''), but still operating 
pursuant to the terms of the instrument establishing the Trust. In 
2009, in connection with the formation of Applicant, TJC contributed 
marketable securities to Applicant in exchange for 100% of the units in 
Applicant, and immediately distributed the non-managing member units to 
TJC's shareholders. In 2010 and then again in 2011, TJC distributed 
marketable securities to its shareholders, who in turn contributed 
those securities to Applicant in exchange for additional units in 
Applicant.
    3. TJC contributed to Applicant, as of December 31, 2016, 100% of 
TJC's marketable securities and other assets (excluding its managing 
member units in Applicant and any assets associated with TJC's deferred 
compensation plans) in exchange for additional managing member units in 
Applicant.\1\ Applicant states that the number of additional units in 
Applicant issued to TJC as of December 31, 2016 was based on relative 
fair market value at that time. As a result of the contribution, 
Applicant holds essentially all of the family enterprise's investment 
assets.
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    \1\ As a result of such contribution, virtually all of TJC's 
assets consist of the managing member units in Applicant, which 
Applicant has determined are not securities. Applicant has stated 
that, as such, TJC itself can no longer rely on Section 3(c)(1) of 
the Act and does require the relief requested by the application.
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    4. On January 17, 2017, the Trust terminated pursuant to its terms, 
and the assets of each Individual Trust (substantially all of which 
consist of units in Applicant and shares of TJC) became distributable 
to the then-current

[[Page 13534]]

income beneficiary of such Individual Trust, after all outstanding 
expenses and claims are satisfied. Upon the distribution of such 
assets, Applicant will be owned 100% by descendants of J.A. Jeffrey, 
either directly or through TJC.
    5. Applicant represents that, to date, Applicant has met the 
requirements of Section 3(c)(1) of the Act. Applicant has 62 non-
managing members, each of which is an Individual Trust, plus TJC as its 
sole managing member. Forty-eight of the 62 Individual Trusts are 
beneficial owners within the meaning of the Act, having made 
investments into Applicant in exchange for units in 2010 and 2011. The 
remaining fourteen Individual Trusts received their non-managing member 
units in Applicant involuntarily, after the 2011 investments were made 
and pursuant to the operation of the Trust, in accordance with Rule 3c-
6 under the Act. These fourteen Individual Trusts collectively stepped 
into the shoes of five former Individual Trusts that had made 
investments into Applicant in 2010 and 2011. Thus, the 62 Individual 
Trusts today represent 53 beneficial owners.\2\
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    \2\ Applicant states that TJC, as the sole managing member of 
the Applicant, is not treated as a beneficial owner by Applicant 
pursuant to guidance from the staff of the Division of Investment 
Management at the Commission.
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    6. Applicant will limit its security holders to ``family clients,'' 
as defined under Rule 202(a)(11)(G)-1 (the ``Family Office Rule'') 
under the Investment Advisers Act of 1940 (the ``Advisers Act''), with 
J.A. Jeffrey being the ``common ancestor'' for this purpose (``Family 
Clients''). Applicant further does not intend to offer to key employees 
or their entities the opportunity to invest in Applicant unless a key 
employee is also a ``family member,'' as defined under the Family 
Office Rule (a ``Family Member''). Thus, Applicant's owners will 
consist of a subset of Family Clients.
    7. Applicant would like to offer to such subset of Family Clients 
the opportunity to invest in Applicant (subject to securities law 
compliance, including complying with applicable federal and state 
exemptions from registration of its securities). Applicant states that 
the 100 beneficial owner limitation of Section 3(c)(1) of the Act 
potentially would cause family friction by denying to many Family 
Members the opportunity to invest in Applicant. Applicant states that, 
as of the date of the Application, there are approximately 350 Family 
Members.
    8. Units in Applicant have not been and will not be offered or sold 
to the public. Under Applicant's limited liability company agreement, 
sales or other transfers of units for value to any purchaser, other 
than to Applicant itself, are prohibited. Transfers for value to 
existing members or other Family Clients are prohibited.\3\ Applicant 
states that, as a result, a market will never develop for units in 
Applicant. Applicant states that the only exit strategies available to 
a Family Client will be to surrender units for redemption by Applicant 
at fair market value \4\ or to gift or contribute units to other Family 
Clients.
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    \3\ Applicant allows a very limited exception for estate 
planning transfers for value, such as installment sales to a grantor 
trust. Any such transfers will be made only to Family Clients. 
Additionally, investors are permitted to pledge units as collateral 
for a loan, but only if the pledge documents require, in lieu of 
foreclosure or other enforcement action in the event of a default, 
that the pledged units be redeemed by Applicant prior to any 
transfer of economic or voting rights. In the event that units are 
pledged, the party to which such units are pledged shall not receive 
direct economic benefit from the units nor can such party directly 
or indirectly vote the units.
    \4\ Investors are permitted to redeem their units in Applicant 
at the end of each calendar quarter.
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    9. TJC is the sole managing member of Applicant. TJC is managed by 
a board of directors (the ``Board''). At all times, a majority of Board 
directors will be Family Members; provided, however, that if by reason 
of the death, disqualification or bona fide resignation of any director 
or directors, a majority of the directors are not Family Members, the 
vacancy or vacancies will be filled in order to reestablish such 
majority within 90 days (consistent with Act Rule 10e-1(a)). The 
directors are paid on the basis of fixed fees and expenses, and do not 
receive any form of commission or performance-based compensation. None 
of the directors is affiliated with Applicant's investment advisers. 
All directors are elected annually, thereby providing an opportunity to 
evaluate the continued contribution of each director on an annual 
basis.
    10. Applicant has no employees of its own. Applicant has a 
management agreement with Katahdin Asset Management LLC (the ``Family 
Management Co.''). The Family Management Co. conducts the day-to-day 
operations of Applicant with the Family Management Co.'s own employees, 
subject to the direction of the Board. The Family Management Co. is 
wholly owned and controlled by the same individual who is TJC's chief 
executive officer, who also is a Family Member. Applicant states that, 
because the Family Management Co.'s owner is both a Family Member and a 
current income beneficiary of an Individual Trust, the Family 
Management Co.'s interests are aligned with those of fellow owners of 
Applicant. Applicant states that Applicant, TJC and the Family 
Management Co. together function like a cooperative association for the 
benefit of the owners.
    11. In addition to the Family Management Co., Applicant relies on 
Commission-registered investment advisers in managing its investments, 
subject to the oversight of the Board. Applicant states that currently, 
substantially all of Applicant's assets are managed by six unrelated 
investment advisers, all of which are registered with the Commission. 
Applicant states that all investment management fees paid by Applicant 
to these investment advisers are based on either a fixed or graduated 
fee calculated as a percentage of assets under management. Applicant 
further states that Applicant does not pay any performance-based fees.
    12. Applicant states that Applicant has provided detailed quarterly 
and annual reports to investors, and held Board meetings with family 
guests and frequent meetings with the current income beneficiaries of 
the Individual Trusts. The financial statements of Applicant are 
audited by a nationally recognized accounting firm annually.

Applicant's Legal Analysis

    1. Applicant is seeking an order pursuant to Section 6(c) of the 
Act for an exemption from all of the provisions of the Act and all 
rules and regulations thereunder, except as otherwise specified in the 
application. Applicant submits that Section 3(c)(1) of the Act 
evidences the intention of Congress to exclude ``private'' investment 
companies from the scope of the Act. Under Section 6(c) of the Act, the 
Commission may exempt any person, security, or transaction from any 
provision of the Act, 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. Applicant submits that the requested 
exemption from all provisions of the Act and all rules and regulations 
thereunder (except as otherwise specified in the application) meets 
these standards, as Applicant is a private investment company wholly 
owned and controlled by a single family.
    2. Applicant states that similarly situated companies typically may 
rely on Section 3(c)(1) of the Act for an exclusion from registration 
under the Act. Section 3(c)(1) excepts from the definition of 
``investment company'' any issuer whose outstanding securities are

[[Page 13535]]

beneficially owned by not more than 100 persons and which is not making 
and does not presently propose to make a public offering of its 
securities. Applicant submits that the descendants of J.A. Jeffrey are 
numerous and Applicant does not wish to exclude any Family Member from 
investing in Applicant.
    3. Applicant submits that the exemption requested 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 exemption 
requested is consistent with relief granted by the Commission to other 
private investment companies that have more than 100 beneficial owners 
and that are substantially owned and controlled by a single family.
    4. Applicant submits that one of the key purposes of the Act is to 
ensure that every investment company properly identifies and mitigates 
conflicts of interest and legal, compliance, financial, and operational 
risks. Applicant submits that the Board's structure and practice, 
including its review of compliance with legal and regulatory 
requirements, evaluation of operational risk management processes, 
establishment of a Code of Ethics (addressing, among other things, 
conflicts of interest) and provision of periodic reports to investors, 
are designed to protect Applicant's investors. Applicant submits that 
Applicant's ``co-op'' style, where no money is taken off the top for 
management (i.e., management does not receive a carried interest or 
other share of profits), no performance fees are paid, and management's 
incentives otherwise are aligned with clients, provides further 
protection. Applicant represents that its efforts to mitigate conflicts 
of interest are at least as robust as those the Commission historically 
has required in similar exemptive relief.

Applicant's Conditions

    Applicant agrees that the order of the Commission granting the 
requested relief shall be subject to the following conditions, which 
conditions shall continue for so long as Applicant seeks to rely on 
such relief:
    1. Interests in Applicant have not been and will not be offered or 
sold to the public. Applicant will neither admit as a new investor, nor 
permit the assignment or transfer of any interest in Applicant to, any 
individual or entity that is not a Family Client.
    2. Applicant at all times will be controlled by Family Members and/
or ``family entities'' (as defined under the Family Office Rule) that 
are Family Clients.
    3. Applicant will not have as an investment adviser any investment 
adviser other than (i) a Commission-registered investment adviser, (ii) 
a ``family office'' as defined in the Family Office Rule or (iii) an 
entity that has obtained an order from the Commission declaring it to 
be a person not within the intent of the Advisers Act to the extent 
that it cannot satisfy all of the conditions to be a ``family office'', 
as defined in the Family Office Rule.
    4. A majority of the Board will consist of Family Members; 
provided, however, that if by reason of the death, disqualification or 
bona fide resignation of any director or directors, a majority of the 
directors are not Family Members, the vacancy or vacancies will be 
filled in order to reestablish such majority within 90 days (consistent 
with Act Rule 10e-1(a) under the Act).
    5. Applicant will continue to hold annual meetings of its investors 
for the purpose of electing Board members and transacting such other 
business as may properly come before such meetings.
    6. The Board will meet no less frequently than quarterly to review 
Applicant's investment portfolio to review compliance with all 
applicable investment restrictions and policies.
    7. Applicant will not knowingly make available to any broker or 
dealer registered under the Securities Exchange Act of 1934, as 
amended, any financial information concerning Applicant for the purpose 
of knowingly enabling such broker or dealer to initiate any regular 
trading market in any interests in Applicant.
    8. Applicant will provide each investor in Applicant annual 
financial statements audited by an independent public accountant.
    9. Applicant will comply with the provisions set forth in 
subparagraphs (A)(i) and (B)(i) of Section 12(d)(1) of the Act as if 
Applicant were an investment company relying on the exemption set forth 
in Section 3(c)(1) of the Act.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-04813 Filed 3-10-17; 8:45 am]
 BILLING CODE 8011-01-P