Document ID: SEC-2011-0936-0001
Agency: sec
Document Type: Notice
Title: Applications: J.P. Morgan Securities LLC, et al.
Posted Date: 2011-07-06T04:00Z

[Federal Register Volume 76, Number 129 (Wednesday, July 6, 2011)]
[Notices]
[Pages 39447-39449]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-16818]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-29711; File No. 812-13914]

J.P. Morgan Securities LLC, et al.; Notice of Application and 
Temporary Order

June 29, 2011.
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 J.P. Morgan Securities LLC (``J.P. Morgan 
Securities'') on June 29, 2011 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: J.P. Morgan Securities; Bear Stearns Asset Management 
Inc. (``BSAM''); Bear Stearns Health Innoventures Management, L.L.C. 
(``BSHIM''); BSCGP Inc. (``BSCGP''); Constellation Growth Capital LLC 
(``Constellation''); Constellation Ventures Management II, LLC 
(``Constellation II''); Highbridge Capital Management, LLC 
(``Highbridge''); JF International Management Inc. (``JFIMI''); 
JPMorgan Asset Management (UK) Limited (``JPMAMUK''); JPMorgan 
Distribution Services, Inc. (``JPMDS''); J.P. Morgan Institutional 
Investments, Inc. (``JPMII''); J.P. Morgan Investment Management Inc. 
(``JPMIM''); J.P. Morgan Latin America Management Company, LLC 
(``JPMLAM''); J.P. Morgan Partners, LLC (``JPMP''); J.P. Morgan Private 
Investments Inc. (``JPMPI''); OEP Co-Investors Management II, Ltd. 
(``OEP II''); OEP Co-Investors Management III, Ltd. (``OEP III'', and 
together with OEP II, the ``OEP Entities''); Security Capital Research 
& Management Incorporated (``Security Capital''); Sixty Wall Street GP 
Corporation (``Sixty Wall GP''); Sixty Wall Street Management Company, 
LLC (``Sixty Wall Management''); and Technology Coinvestors Management, 
LLC (``TCM'') (collectively, 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 J.P. Morgan 
Securities is or may become an affiliated person within the meaning 
of Section 2(a)(3) of the Act (together with the Applicants, the 
``Covered Persons'').
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    Filing Date: The application was filed on June 21, 2011 and amended 
on June 29, 2011.
    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 July 25, 2011, 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: J.P. Morgan

[[Page 39448]]

Securities, 338 Madison Avenue, New York, NY 10179; BSAM, BSHIM, BSCGP, 
Constellation II, JPMII, JPMIM, JPMLAM, JPMP, JPMPI, Sixty Wall GP, 
Sixty Wall Management, and TCM, 270 Park Avenue, New York, NY 10017; 
Constellation and Highbridge, 49 West 57th Street, 32nd Floor, New 
York, NY 10019; JFIMI, 21st Floor, Chater House, 8 Connaught Road 
Central, Hong Kong; JPMAMUK, 125 London Wall, London, UK EC2Y5AJ; 
JPMDS, 1111 Polaris Pkwy, Columbus, Ohio 43240; OEP Entities, 320 Park 
Avenue, 18th Floor, New York, NY 10022; and Security Capital, 10 South 
Dearborn Street, Suite 1400, Chicago, IL 60603.

FOR FURTHER INFORMATION CONTACT: Laura J. Riegel, at (202) 551-6873, or 
Dalia Osman Blass, 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 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 (other than Constellation and Highbridge) 
is either directly or indirectly a wholly-owned subsidiary of J.P. 
Morgan Chase & Co. (``JPMC''). Each of Constellation and Highbridge is 
an indirect, majority-owned subsidiary of JPMC. JPMC is a financial 
services holding company whose businesses provide a broad range of 
financial services. J.P. Morgan Securities is registered as a broker-
dealer under the Securities Exchange Act of 1934, as amended 
(``Exchange Act'') and is registered as an investment adviser under the 
Investment Advisers Act of 1940, as amended (the ``Advisers Act''). 
J.P. Morgan Securities does not currently serve as an investment 
adviser, sub-adviser, depositor or principal underwriter (as defined in 
section 2(a)(29) of the Act) for any of the registered investment 
companies (``Funds'') or employees' securities companies (``ESCs,'' and 
included in the term Funds), as defined in section 2(a)(13) of the Act. 
BSAM is registered as an investment adviser under the Advisers Act and 
serves as investment adviser or sub-adviser to various Funds, including 
as general partner that provides investment advisory services to 
various ESCs.\2\ BSHIM, BSCGP, Constellation II, the OEP Entities and 
TCM serve as general partners that provide investment advisory services 
to various ESCs. Constellation serves as a sub-adviser to various ESCs. 
Highbridge, JFIMI, JPMAMUK, JPMIM, JPMPI, and Security Capital are 
registered as investment advisers under the Advisers Act and serve as 
investment advisers or sub-advisers to various Funds. JPMLAM, JPMP, 
Sixty Wall GP and Sixty Wall Management are registered as investment 
advisers under the Advisers Act and serve as investment advisers or 
sub-advisers to ESCs. JPMDS is registered as a broker-dealer under the 
Exchange Act and serves as principal underwriter to certain Funds. 
JPMII is registered as a broker-dealer under the Exchange Act and 
serves as placement agent to certain Funds.\3\
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    \2\ Every Applicant that is a general partner that provides 
investment advisory services to one or more ESCs believes, for 
purposes of the application, that it is performing a function that 
falls within the definition of ``investment adviser'' in section 
2(a)(20) of the Act.
    \3\ JPMII serves as placement agent to JPMorgan Institutional 
Trust with respect to three series. JPMorgan Institutional Trust is 
an open-end investment company registered under the Act, but its 
shares are not registered under the Securities Act of 1933, as 
amended. JPMII believes, for purposes of the application, that it is 
performing a function that falls within the definition of 
``principal underwriter'' in Section 2(a)(29) of the Act.
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    2. On June 29, 2011, the United States District Court for the 
Southern District of New York entered a judgment, which included the 
Injunction, against J.P. Morgan Securities (``Final Judgment'') in a 
matter brought by the Commission.\4\ The conduct of J.P. Morgan 
Securities alleged in the Complaint involved an offering of a largely 
synthetic collateralized debt obligation (``CDO'') whose portfolio 
consisted primarily of credit default swaps referencing other CDO 
securities. The Complaint alleged that J.P. Morgan Securities 
represented in marketing materials that the collateral manager selected 
the CDO's investment portfolio but failed to disclose that a hedge fund 
that purchased the subordinated notes (or ``equity''), which also took 
the short position on roughly half of the portfolio assets, played a 
significant role in the selection process. The Final Judgment would 
restrain and enjoin J.P. Morgan Securities from violating sections 
17(a)(2) and 17(a)(3) of the Securities Act. Without admitting or 
denying any of the allegations in the Complaint, except as to personal 
and subject matter jurisdiction, J.P. Morgan Securities consented to 
the entry of the Final Judgment and other equitable relief including 
certain undertakings.
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    \4\ U.S. Securities and Exchange Commission v. J.P. Morgan 
Securities LLC (f/k/a J.P. Morgan Securities Inc.) Case No. 1:11-cv-
04206-RMB (S.D.N.Y. June 29, 2011).
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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 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 J.P. Morgan Securities 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 
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 other 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 them would be unduly and disproportionately 
severe and 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 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 for any Fund (including 
as general partner providing investment advisory services to ESCs) or 
as principal underwriter for any registered open-end company, 
registered unit investment trust or registered face-

[[Page 39449]]

amount certificate company. Applicants also state that to the best of 
their knowledge, none of the current directors, officers, or employees 
of the Applicants that are involved in providing services as investment 
adviser or sub-adviser of the Funds (including as general partner 
providing investment advisory services to ESCs) or principal 
underwriter for any registered open-end company (or any other persons 
in such roles during the time period covered by the Complaint) 
participated in the conduct alleged in the Complaint to have 
constituted the violations that provide a basis for the Injunction. 
Applicants further represent that the personnel at J.P. Morgan 
Securities who participated in the conduct alleged in the Complaint to 
have constituted the violations that provided a basis for the 
Injunction have had no, and will not have any, involvement in providing 
advisory, depositary (including as general partner providing investment 
advisory services to ESCs) to the Funds or principal underwriting 
services to any registered open-end company, registered unit investment 
trust, or registered face-amount certificate company on the behalf of 
the Applicants or other Covered Persons. Applicants also represent that 
because the personnel of the Applicants (other than those at J.P. 
Morgan Securities) did not participate in the conduct alleged in the 
Complaint to have constituted the violations that provide a basis for 
the Injunction, the shareholders of those Funds were not affected any 
differently than if those Funds had received services from any other 
non-affiliated investment adviser or principal underwriter. Applicants 
state that the alleged conduct did not involve any Fund or the assets 
of any Fund.
    5. Applicants state that their inability to continue to provide 
investment advisory and subadvisory services to the Funds (including as 
general partner providing investment advisory services to ESCs) and 
principal underwriting services to any registered open-end company 
would result in potential hardship for the Funds and their 
shareholders. Applicants state that they will, as soon as reasonably 
practical, distribute written materials, including an offer to meet in 
person to discuss the materials, to the boards of directors of the 
Funds (``Boards'') (excluding, for this purpose, the ESCs) for which 
the Applicants serve as investment adviser, investment sub-adviser or 
principal underwriter, 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, if any, describing the 
circumstances that led to the Injunction and any impact on the Funds, 
and the application. Applicants state they will provide the Boards with 
the 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 
services to the Funds, the effect on their businesses and employees 
would be severe. Applicants state that they have committed substantial 
resources to establishing expertise in providing advisory and 
distribution services to Funds. Applicants further state that 
prohibiting them from providing such services would not only adversely 
affect their businesses, but would also adversely affect about 940 
employees who are involved in those activities. Applicants also state 
that disqualifying certain Applicants from continuing to provide 
investment advisory services to the ESCs is not in the public interest 
or in the furtherance of the protection of investors. Because the ESCs 
have been formed for certain key employees, officers and directors of 
JPMC and its affiliates, it would not be consistent with the purposes 
of the ESC provisions of the Act or the terms and conditions of the ESC 
orders to require another entity not affiliated with JPMC to manage the 
ESCs. In addition, participating employees of JPM and its affiliates 
likely subscribed for interests in the ESCs with the expectation that 
the ESCs would be managed by an affiliate of JPMC.
    7. Certain of the Applicants previously have applied for and 
received exemptions under section 9(c) as the result of conduct that 
triggered section 9(a) of the Act, 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 
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 June 
29, 2011, until the Commission takes final action on their application 
for a permanent order.

    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-16818 Filed 7-5-11; 8:45 am]
BILLING CODE 8011-01-P