Document ID: SEC-2014-1356-0001
Agency: sec
Document Type: Notice
Title: Applications: Citigroup Global Markets Inc., et al.
Posted Date: 2014-08-12T04:00Z

[Federal Register Volume 79, Number 155 (Tuesday, August 12, 2014)]
[Notices]
[Pages 47160-47162]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-18983]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-31199; File No. 812-13970]

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

August 6, 2014.
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 Citigroup Global Markets Inc. (``CGMI'') on 
August 5, 2014 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:  CGMI, CEFOF GP I Corp. (``CEFOF''), CELFOF GP Corp. 
(``CELFOF''), Citibank, N.A. (``Citibank''), Citigroup Alternative 
Investments LLC (``Citigroup Alternative''), Citigroup Capital Partners 
I GP I Corp. (``CCP I''), Citigroup Capital Partners I GP II Corp. 
(``CCP II''), Citigroup Private Equity (Offshore) LLC (``CPE 
(Offshore)''), Citigroup First Investment Management Americas LLC 
(``CFIMA,'' and along with CGMI, CEFOF, CELFOF, Citibank, Citigroup 
Alternative, CCP I, CCP II, and CPE (Offshore), 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 CGMI 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'').

DATES: Filing Date: The application was filed on October 20, 2011 and 
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amended on August 5, 2014.

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 September 2, 2014, 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, CCP II, CPE (Offshore), CFIMA, 388 Greenwich Street, New York, 
NY 10013; Citibank, Citigroup Alternative, 399 Park Avenue, New York, 
NY 10043.

FOR FURTHER INFORMATION CONTACT:  Jill Ehrlich, Senior Counsel, at 
(202) 551-6819, or Mary Kay Frech, Branch Chief, at (202) 551-6821 
(Division of Investment Management, Chief Counsel's Office).

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 is an indirect wholly-owned subsidiary of 
Citigroup Inc. (``Citigroup''), a diversified financial services 
company. CGMI is a full service investment banking firm that engages in 
securities underwriting, sales and trading, investment banking, 
financial advisory and investment research services. CGMI is registered 
as a broker-dealer under the Securities Exchange Act of 1934 and as an 
investment adviser under the Investment Advisers Act of 1940 
(``Advisers Act''). It currently does not serve as principal 
underwriter or investment adviser of any Funds, but it may seek to do 
so in the future.\2\ CFIMA

[[Page 47161]]

is registered as an investment adviser under the Advisers Act and 
serves as investment adviser for one or more Funds. CEFOF, CELFOF, 
Citibank, Citigroup Alternative, CCP I, CCP II, and CPE (Offshore) 
(``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'').\3\
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    \2\ ``Funds'' refers to any registered investment company, 
business development company, or ESC (as defined herein) for which a 
Covered Person serves as an investment adviser, sub-adviser, general 
partner or depositor, or any registered open-end investment company, 
registered unit investment trust or registered face amount 
certificate company for which a Covered Person serves as principal 
underwriter.
    \3\ 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 August 5, 2014, the United States District Court for the 
Southern District of New York entered a judgment, which included the 
Injunction, against CGMI (``Final Judgment'') in a matter brought by 
the Commission.\4\ The conduct of CGMI, along with certain of its 
affiliates, (together, ``Citi'') alleged in the complaint 
(``Complaint'') involved Citi's role in the structuring and marketing 
of a largely synthetic collateralized debt obligation (``CDO'') whose 
investment portfolio consisted primarily of credit default swaps 
referencing other CDO securities with collateral consisting primarily 
of residential mortgage-backed securities. The Complaint alleged that 
the marketing materials for the CDO were materially misleading because 
they suggested that Citi was acting in the traditional role of an 
arranging bank, when in fact Citi had allegedly exercised influence 
over the selection of the assets and had retained a proprietary short 
position of the assets it had helped select, which gave Citi allegedly 
undisclosed economic interests adverse to those of the investors in the 
CDO. The Final Judgment would restrain and enjoin CGMI from violating 
sections 17(a)(2) and (3) of the Securities Act of 1933. Without 
admitting or denying any of the allegations in the Complaint, except as 
to personal and subject matter jurisdiction, CGMI consented to the 
entry of the Final Judgment and other equitable relief, including 
certain undertakings and the payment of a civil penalty.
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    \4\ Securities and Exchange Commission v. Citigroup Global 
Markets Inc., 11-CV-7387 (S.D.N.Y. Aug. 5, 2014).
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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 CGMI 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-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 
CGMI 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 
or depositary services (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 CGMI) 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 some of the Funds and their 
shareholders. Applicants state that they will, as soon as reasonably 
practicable, 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

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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 an 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 numerous 
employees who are involved in those activities. Applicants also state 
that disqualifying the ESC Advisers 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 
Citigroup 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 Order to require another entity not affiliated with 
Citigroup to manage the ESCs. In addition, participating employees of 
Citigroup and its affiliates likely subscribed for interests in the 
ESCs with the expectation that the ESCs would be managed by an 
affiliate of Citigroup.
    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 
August 5, 2014, until the Commission takes final action on their 
application for a permanent order.

    By the Commission.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-18983 Filed 8-11-14; 8:45 am]
BILLING CODE 8011-01-P