Document ID: SEC-2011-1045-0001
Agency: sec
Document Type: Notice
Title: Applications and Temporary Orders: BAC Home Loans Servicing, LP, et al.
Posted Date: 2011-07-22T04:00Z

[Federal Register Volume 76, Number 141 (Friday, July 22, 2011)]
[Notices]
[Pages 44055-44057]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-18505]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-29726; 812-13910]

BAC Home Loans Servicing, LP, et al.; Notice of Application and 
Temporary Order

July 18, 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:  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 BAC Home Loans Servicing, LP (``HLS'') on 
May 31, 2011 by the United States District Court for the Central 
District of California (the ``Injunction''), until the Commission takes 
final action on an application for a permanent order. Applicants have 
requested a permanent order.

Applicants: HLS, BofA Advisors, LLC (``BofA Advisors''), BofA 
Distributors, Inc. (``BofA Distributors''), Bank of America Capital 
Advisors LLC (``BACA''), KECALP Inc. (``KECALP''), Merrill Lynch 
Ventures, LLC (``Ventures'') and Merrill Lynch Global Private Equity 
Inc. (``MLGPE'') (collectively, other than HLS, the ``Fund Servicing 
Applicants,'' and, together with HLS, 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 HLS is an 
affiliated person or may become an affiliated person in the future 
(together with the Applicants, the ``Covered Persons'').

DATES:  Filing Date: The application was filed on May 27, 2011 and 
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amended it on June 1, 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 August 12, 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, HLS, 6400 Legacy 
Drive, Plano, TX 75024; BofA Advisors, BofA Distributors and BACA, 100 
Federal Street, Boston, MA 02110; and KECALP, Ventures and MLGPE, 767 
Fifth Avenue, 7th Floor, New York, NY 10153.

FOR FURTHER INFORMATION CONTACT: Jaea F. Hahn, Senior Counsel, at (202) 
551-6870, or Daniele Marchesani, 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.gov/search/search.htm or by calling (202) 551-8090.

Applicants' Representations

    1. Each of the Applicants is a direct or indirect wholly-owned 
subsidiary of Bank of America Corporation (``BAC''). HLS is an entity 
that services mortgage loans and provides mortgage services, including 
conducting foreclosures on mortgages, on behalf of holders of 
residential mortgages and mortgage loan asset-backed certificates. HLS 
is not registered as a broker-dealer under the Securities Exchange Act 
of 1934 or as an investment adviser under the Investment Advisers Act 
of 1940 (the ``Advisers Act'').
    2. BofA Advisors is a registered investment adviser that serves as 
investment adviser and subadviser to certain money market funds 
registered under the Act. BofA Distributors, a limited purpose broker-
dealer registered with the Commission, serves as principal underwriter 
of some of the same money market funds. BACA is a registered investment 
adviser that serves as investment adviser to certain closed-end 
investment companies also registered under the Act.
    3. KECALP, Ventures and MLGPE each serves as investment adviser to 
certain employees' securities corporations within the meaning of 
section 2(a)(13) of the Act (``ESCs''). Of these three ESC advisers, 
only KECALP is registered as an investment adviser under the Advisers 
Act.
    4. On May 31, 2011, the United States District Court for the 
Central District of

[[Page 44056]]

California entered the Injunction against HLS, formerly Countrywide 
Home Loans Servicing LP, in a matter brought by The United States 
Department of Justice (``DOJ''). The complaint filed by DOJ 
(``Complaint'') alleged that, between 2006 and 2009, HLS wrongfully 
foreclosed without court orders on approximately 160 properties owned 
by servicemembers protected by the Servicemembers Civil Relief Act 
(``SCRA''). Additionally, the Complaint alleged that HLS, from 2006 
through May 31, 2009, failed to consistently determine the military 
status of mortgage loan borrowers in foreclosure. Denying any 
wrongdoing as alleged by the United States or otherwise, HLS consented 
to the entry of the Injunction against violating the SCRA.

Applicants' Legal Analysis

    1. Section 9(a)(2) of the Act, in relevant part, prohibits a person 
who has been enjoined from acting as a bank, or from engaging in or 
continuing any conduct or practice in connection with such activity, 
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 investment company, registered unit investment 
trust (``UIT'') or registered face-amount certificate company. Section 
9(a)(3) of the Act extends the prohibitions of section 9(a)(2) 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 HLS is, or may be considered to 
be, under common control with and therefore an affiliated person of 
each of the other Applicants. Applicants state that the entry of the 
Injunction may result in Applicants being subject to the 
disqualification provisions of section 9(a) of the Act because HLS is 
permanently enjoined from engaging in or continuing particular conduct 
or practice in connection with banking activity.\2\
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    \2\ See In the Matter of Bank of America, N.A., The Office of 
the Comptroller of the Currency Stipulation & Consent Order No. AA-
EC-11-12 (Apr. 13, 2011) and In the Matter of Bank of America 
Corporation, The Board of Governors of the Federal Reserve Consent 
Order, No. 11-029-B-HC (Apr. 13, 2011). Applicants state that the 
OCC Order deemed certain loan servicing activity as banking 
activity, and the loan servicing activity specified in the 
Injunction is a subset of the loan servicing activity deemed banking 
activity by the OCC Order. Therefore, Applicants believe that HLS is 
permanently enjoined from engaging in or continuing particular 
conduct or practice in connection with banking activity.
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    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 
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 the Applicants and the other 
Covered Persons from the disqualification provisions of section 9(a) of 
the Act. On June 1, 2011 the Applicants received a temporary 
conditional order from the Commission exempting them from section 9(a) 
of the Act with respect to the Injunction until the Commission takes 
final action on an application for a permanent order or, if earlier, 
July 29, 2011.\3\
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    \3\ Investment Company Act Release No. 29688 (June 1, 2011).
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    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 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 conduct giving rise to the Injunction 
did not involve any of the Applicants acting in the capacity as 
investment adviser, sub-adviser, or principal underwriter (as defined 
in section 2(a)(29) of the Act) for any registered investment companies 
(``RIC'') or ESCs (together, the ``Funds''). Applicants state that to 
the best of their knowledge none of the Applicants' current directors, 
officers or employees who is involved in providing services as 
investment adviser, subadviser or depositor for any Funds or principal 
underwriter (as defined in section 2(a)(29) of the Act) for any 
registered open-end company, UIT or registered face amount certificate 
company (collectively, the ``Fund Servicing Activities'') (or any other 
persons in such roles during the time period covered by the Complaint) 
participated in the conduct alleged in the Complaint that constitutes 
the violations that provide a basis for the Injunction. Applicants also 
state that the alleged conduct giving rise to the Injunction did not 
involve any Fund for which an Applicant provided Fund Servicing 
Activities.
    5. Applicants further represent that the inability of Applicants 
(except for HLS) to continue providing Fund Servicing Activities would 
result in potentially severe financial hardships for both the Funds and 
their shareholders. Applicants state that they will distribute written 
materials, including an offer to meet in person to discuss the 
materials, to the board of directors (the ``Boards'') of each Fund 
(excluding the ESCs), including the directors who are not ``interested 
persons,'' as defined in section 2(a)(19) of the Act, of such Fund, and 
their independent legal counsel as defined in rule 0-1(a)(6) under the 
Act, if any, regarding the Injunction, any impact on the Funds, and the 
application. The Applicants will provide the Funds with all 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 assert that, if the Applicants were barred from 
engaging in Fund Servicing Activities, the effect on their businesses 
and employees would be severe. The Applicants state that they have 
committed substantial resources to establishing expertise in providing 
Fund Servicing Activities.
    7. Applicants also state that disqualifying KECALP, Ventures and 
MLGPE from continuing to provide investment advisory services to their 
ESCs is not in the public interest or in furtherance of the protection 
of investors and would frustrate the expectations of eligible employees 
who invest in the ESCs that the ESCs would be managed by an affiliate 
of their employer.
    8. Applicants state that several Applicants and certain of their 
affiliates have previously received orders under section 9(c), 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

[[Page 44057]]

made the necessary showing to justify granting a temporary exemption.
    Accordingly,
    It is hereby ordered, pursuant to section 9(c) of the Act, that the 
Applicants and the other Covered Persons are granted a temporary 
exemption from the provisions of section 9(a), effective forthwith, 
solely with respect to the Injunction, subject to the condition in the 
application, until the date the Commission takes final action on their 
application for a permanent order.

    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-18505 Filed 7-21-11; 8:45 am]
BILLING CODE 8011-01-P