Document ID: SEC-2015-1657-0001
Agency: sec
Document Type: Notice
Title: Applications: Fidelity Management and Research Co. and FMR Co., Inc.
Posted Date: 2015-10-15T04:00Z

[Federal Register Volume 80, Number 199 (Thursday, October 15, 2015)]
[Notices]
[Pages 62123-62125]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-26146]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IA-4220/803-00225]

Fidelity Management & Research Company and FMR Co., Inc.; Notice 
of Application

October 8, 2015.
AGENCY: Securities and Exchange Commission (``Commission'').

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

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Applicant: Fidelity Management & Research Company (``FMR'') and FMR 
Co., Inc. (``FMRC'' and, together with FMR, ``Applicants'').

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

Summary of Application: Applicants request that the Commission issue an 
order under section 206A of the Advisers Act and rule 206(4)-5(e) 
exempting Applicants from rule 206(4)-5(a)(1) under the Advisers Act to 
permit Applicants 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 Applicants to an official of the government 
entities.

Filing Dates: The application was filed on August 28, 2014, an amended 
and restated application was filed on May 11, 2015, and a second 
amended and restated application was filed on September 24, 2015.

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 November 2, 2015, and should be accompanied by proof of

[[Page 62124]]

service on the Applicants, in the form of an affidavit or, for lawyers, 
a certificate of service. Pursuant to rule 0-5 under the Advisers 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: Brent J. Fields, Secretary, Securities and Exchange 
Commission, 100 F Street NE., Washington, DC 20549-1090. Fidelity 
Management & Research Company and FMR Co., Inc., 245 Summer Street, 
Boston, MA 02210.

FOR FURTHER INFORMATION CONTACT: Kyle R. Ahlgren, Senior Counsel, or 
Holly Hunter-Ceci, Branch Chief, 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 either at http://www.sec.gov/rules/iareleases.shtml or 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.
    Applicants' Representations:
    1. Applicants are affiliated asset management companies registered 
with the Commission as investment advisers under the Investment 
Advisers Act of 1940 (the ``Act''). Applicants manage mutual funds 
offered as investment options in participant-directed plans sponsored 
by two Massachusetts government entities (``Client 1'' and ``Client 
2'', respectively, or collectively, the ``Clients''). Client 1 
initially entered into its agreement with FMR in 2007 and Client 2 
initially entered into its agreement with FMR and FMRC in 1994.
    2. Thomas Hense (the ``Contributor'') is a Group Chief Investment 
Officer of Applicants and a resident of Massachusetts. He assumed his 
current role in 2008, and is a ``covered associate'' of the Applicants, 
as such term is defined by rule 206(4)-5(f)(2)(i) due to his role as a 
supervisor of one or more employees who may solicit investment advisory 
business from government entities on behalf of each Client. The 
Contributor has very limited direct interactions with clients regarding 
their investments. The Contributor's primary role is to supervise a 
team of investment professionals who manage client funds and accounts. 
To the best of the Contributor's knowledge, the Contributor attended 
only two meetings with any Massachusetts government entities in the 
past two years, and neither of those meetings involved the solicitation 
of business or either of the Clients.
    3. The recipient of the Contribution was Jeffrey McCormick (the 
``Recipient''), an independent candidate for Massachusetts Governor. 
The investment providers and options of Client 1 (including the mutual 
funds to be offered as investment options to employees) are directly 
selected by a board that includes a majority of gubernatorial 
appointees. The investment decisions of Client 2 (including the 
selection of mutual funds to be offered as investment options to 
employees) are directly made by the Treasurer of Client 2 under 
oversight of the President of Client 2. The board of Client 2, which 
includes a majority of gubernatorial appointees, has authority to 
appoint the Treasurer and President of Client 2. As a result of these 
appointment powers with respect to the Clients, the Governor of 
Massachusetts and any candidate for that office (including the 
Recipient) is an ``official'' as that term is defined by rule 206(4)-
5(f)(6)(ii).
    4. On December 21, 2013 (the ``Contribution Date''), the 
Contributor made a contribution in the amount of $500 to the 
Recipient's campaign. Because the Contributor was a ``covered 
associate'' of Applicants, the Clients were ``government entities'' and 
the Recipient was an ``official'' as those terms are defined in rule 
206(4)-5(f), the Contribution triggered Rule 206(4)-5's prohibition 
against receiving compensation for advisory services provided to the 
Clients during the two years following the Contribution Date. At the 
time of the Contribution, Applicants were not discussing or 
anticipating any new arrangements with the Clients. No material changes 
in the relationship between any of the funds managed by Applicants and 
any participant-directed plans sponsored by the Clients or any other 
material changes in relevant investment patterns occurred after the 
Contribution.
    5. The Contributor lives and works in Massachusetts and has made 
prior donations to Massachusetts candidates for federal offices. The 
Contribution was consistent in size and motivation with those prior 
contributions. The Contributor decided to make the Contribution upon 
receiving an email solicitation form the Recipient's campaign. The 
Contributor's decision was based entirely on the personal friendship he 
maintained with the Recipient and the fact that he supported the 
Recipient in his efforts to run for Governor of Massachusetts. The 
reason for the Contribution was wholly unrelated to the investment 
advisory services provided to the Clients by the Applicants. The 
Contributor did not discuss the Contribution with the Recipient or with 
any of his staff, or with the Applicants or their other covered 
associates.
    6. Applicants implemented pay-to-play policies and procedures (the 
``Policies'') on March 8, 2011. In accordance with the Policies, the 
Contributor was required to pre-clear all contributions to federal, 
state or local candidates or organizations. The Contributor annually 
received training on the Policies. On January 6, 2014, the Contributor 
promptly self-reported the Contribution to the Applicants' Compliance 
Department upon completing his certification questionnaire in 
accordance with the Policies and realizing that he had failed to pre-
clear the Contribution. On January 7, 2014, the Contributor requested a 
full refund of the Contribution from the Recipient's campaign. The 
Contributor received a full refund on January 14, 2014.
    7. Applicants established an escrow account for the Clients and are 
currently segregating all compensation for advisory services paid to 
the Applicants attributable to the Clients' assets under management of 
the Applicants for the two-year period beginning on the Contribution 
Date.
    8. After learning of the Contribution, the Applicants took steps to 
limit the Contributor's contact with any representative of a Client for 
the duration of the two-year period beginning on the Contribution Date, 
including informing the Contributor that he could have no contact with 
any representative of a Client other than making substantive 
presentations to the Client's representatives and consultants about the 
investment strategies that the Applicants manage for the Clients.
    Applicants' Legal Analysis:
    1. Rule 206(4)-5(a)(1) under the Advisers 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 the government entity is made by the 
investment adviser or any covered associate of the investment adviser. 
Each Client 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 Advisers Act grants the Commission the 
authority to

[[Page 62125]]

``conditionally or unconditionally exempt any person or transaction . . 
. from any provision or provisions of [the Advisers 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 Advisers Act].''
    3. Rule 206(4)-5(e) provides that the Commission may exempt 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 Advisers 
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. Applicants request an order pursuant to section 206A and rule 
206(4)-5(e), exempting them 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 (the ``Order'').
    5. Applicants submit 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.
    6. Applicants represent that the Clients determined to invest with 
Applicants and established those advisory relationships on an arm's 
length basis free from any improper influence as a result of the 
Contribution, and there was no connection between the Contribution and 
any past or potential business between the Clients and the Applicants.
    7. Applicants note that causing the Applicants to provide advisory 
services without compensation for a two-year period would result in a 
financial loss to the Applicants of approximately $2.7 million--an 
amount that is 5,400 times the amount of the Contribution. Applicants 
contend that such a result is greatly disproportionate to the violation 
and is not consistent with the protection of investors or a purpose 
fairly intended by the policies and provisions of the Act.
    8. Applicants note that they had adopted and implemented the 
Policies at the time of the Contribution and had the Policies in place 
at all times since the adoption of rule 205(4)-5. Applicants represent 
that they perform compliance testing and they have a rigorous and 
robust screening of prospective hires and internal employees being 
considered for covered associate positions.
    9. Applicants represent that at no time did any employees or 
covered associates of the Applicants, or any executive or employee of 
the Applicants' affiliates, other than the Contributor, know of the 
Contribution prior to the Contributor's self-report to Applicants' 
compliance personnel.
    10. Applicants represent that the Applicants and the Contributor 
took all available steps to promptly obtain a return of the 
Contribution after the Contributor's self-report to Applicants' 
compliance personnel, and the full amount of the Contribution was fully 
refunded within one week of the refund request. Applicants established 
an escrow account for all compensation for advisory services 
attributable to the Clients' assets under management of the Applicants 
for the two-year period beginning on the Contribution Date.
    Applicants' Conditions:
    Applicants agree that the Order will be subject to the following 
conditions:
    1. The Contributor will be prohibited from soliciting investments 
from any ``government entity'' client or prospective ``government 
entity'' client for which the Recipient is an ``official'' as defined 
in rule 206(4)-5(f)(6) until December 21, 2015 (the ``Restricted 
Period'').
    2. Notwithstanding Condition 1, the Contributor will be (i) 
permitted to respond to inquiries from, and make presentations to, any 
government entity client described in Condition 1 regarding accounts 
already managed by the Applicants as of December 21, 2013 and (ii) 
permitted to respond to inquiries from any government entity client 
regarding an account established with the Applicants by such government 
entity client after December 21, 2013. The Applicants will maintain a 
log of such interactions, which will be maintained and presented in an 
easily accessible place for a period of not less than five years, the 
first two years in an appropriate office of the Applicants, and will be 
available for inspection by the staff of the Commission.
    3. The Contributor will receive written notification of these 
conditions and will provide a quarterly certification of compliance 
through the Restricted Period. Copies of the certifications will be 
maintained and preserved by the Applicants in an easily accessible 
place for a period of not less than five years, the first two years in 
an appropriate office of the Applicants and will be available for 
inspection by the Staff of the Commission.
    4. The Applicants 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 Applicants, and will be 
available for inspection by staff of the Commission.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-26146 Filed 10-14-15; 8:45 am]
BILLING CODE 8011-01-P