[Federal Register: September 30, 2004 (Volume 69, Number 189)]
[Notices]
[Page 58558-58560]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30se04-148]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-26620; 812-13124]
Deutsche Investment Management Americas, Inc., et al.; Notice of
Application and Temporary Order
September 24, 2004.
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'').
-----------------------------------------------------------------------
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 Deutsche Bank Securities, Inc. (``DBSI'') on
September 24, 2004 by the U.S. District Court for the Southern District
of New York (the ``Federal Injunction''), until the earlier of the date
the Commission takes action on an application for a permanent order, or
two years from the date of the Federal Injunction. Applicants have
requested a permanent order.
Applicants: DBSI, Deutsche Investment Management Americas, Inc.,
Deutsche Asset Management, Inc., Deutsche Asset Management
International GMBH, Deutsche Asset Management Investment Services,
Ltd., Investment Company Capital Corp., DB Investment Managers, Inc.,
Deutsche Investments Australia Limited, RREEF America, L.L.C., Deutsche
Asset Management (Japan) Limited, Deutsche Asset Management (Asia)
Limited, Deutsche Investment Trust Management Company Limited
(collectively, the ``Advisers''), and Scudder Distributors, Inc.
(``Scudder'') (together with the Advisers, the ``Applicants'').\1\
---------------------------------------------------------------------------
\1\ Applicants request that any relief granted pursuant to the
application also apply to any other company of which DBSI is or
hereafter becomes an affiliated person (included in the term
Applicants).
Filing Dates: The application was filed on September 3, 2004.
Applicants have agreed to file an amendment to the application during
the notice period, the substance of which is reflected in this notice.
Applicants also have agreed to file additional amendments to the
application reflecting the issuance of each State Injunction (as
---------------------------------------------------------------------------
defined below).
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 October 19, 2004, 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, Commission, 450 Fifth Street, NW., Washington, DC
20549-0609. Applicants: c/o Daniel O. Hirsch, Esq., Deutsche Asset
Management/Scudder Investments, 1 South Street, Baltimore, MD 21202.
FOR FURTHER INFORMATION, CONTACT: Courtney S. Thornton, Senior Counsel,
at (202) 942-0699, or Annette M. Capretta, Branch Chief, at 202-942-
0564 (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
for a fee at the Commission's Public Reference Branch, 450 Fifth
Street, NW., Washington, DC 20549-0102 (telephone 202-942-8090).
Applicants' Representations
1. Each of the Applicants is an indirect, wholly owned subsidiary
of Deutsche Bank AG, a global financial services company that provides
investment management, mutual fund, retail, private and commercial
banking, investment banking, and insurance services. Collectively, the
Advisers serve as investment advisers or subadvisers to approximately
200 registered investment companies or series thereof (``Funds'').
Scudder acts as the principal underwriter for all of the Funds.
2. On September 24, 2004, the U.S. District Court for the Southern
District of New York entered the Federal Injunction against DBSI in a
matter
[[Page 58559]]
brought by the Commission.\2\ The Commission alleged in the complaint
(``Complaint'') that DBSI violated section 17(b) of the Securities Act
of 1933 (``Securities Act'') and certain Conduct Rules of the National
Association of Securities Dealers (``NASD'') and Rules of the New York
Stock Exchange (``NYSE'') (the NASD Conduct Rules and NYSE Rules
together, the ``Exchange Rules'') by engaging in acts and practices
that created or maintained inappropriate influence by DBSI's investment
banking business (the ``Investment Banking Department'') over the
research analysts in DBSI's research department (the ``Research
Division''). The Commission also alleged in the Complaint that DBSI
violated section 17(b) of the Securities Exchange Act of 1934
(``Exchange Act'') by failing to timely produce e-mail that the
Commission had sought to examine during its investigation of DBSI's
research and investment banking practices. The Federal Injunction
enjoined DBSI directly or through its officers, directors, agents and
employees, from violating section 17(b) of the Securities Act, the
Exchange Rules cited in the Complaint, and section 17(b) of the
Exchange Act. Without admitting or denying the allegations in the
Complaint, DBSI consented to the entry of the Federal Injunction as
well as the payment of disgorgement and penalties and other equitable
relief, including undertakings by DBSI to adopt and implement policies
and procedures relating to certain research activities. Applicants
state that DBSI expects to enter into settlement agreements relating to
the activities referred to in the Complaint with certain state and
territorial agencies, which may result in an injunction by a court of
competent jurisdiction that is based on the same conduct and the same
facts as the Complaint (each, a ``State Injunction,'' and, together
with the Federal Injunction, the ``Injunctions''). Applicants request
that this application cover any disqualifications of the Applicants
under Section 9(a) of the Act resulting from the Injunctions.
---------------------------------------------------------------------------
\2\ Securities and Exchange Commission v. Deutsche Bank
Securities, Inc., 04 CV 06909 (WHP) (S.D.N.Y., filed Aug. 26, 2004).
---------------------------------------------------------------------------
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 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 UIT 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 any person directly or indirectly controlling, controlled by,
or under common control with, the other person. Applicants state that
DBSI is an affiliated person of each of the other Applicants within the
meaning of section 2(a)(3) of the Act. Applicants further state that
the entry of the Injunctions would result 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
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 application.
Applicants have filed an application pursuant to section 9(c) seeking a
temporary and permanent order exempting them 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 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 Injunctions
did not involve any of the Applicants acting in the capacity of
investment adviser, subadviser, depositor, or principal underwriter for
a Fund. Applicants state that the Complaint did not expressly reference
the conduct of any current or former employee of any of the Applicants
who is or was involved in providing advisory, subadvisory or
underwriting services to the Funds advised or underwritten by
Applicants.\3\ While the Advisers' portfolio managers had access to
research reports issued by the Research Division, there is no
indication that the portfolio managers relied on these research reports
more than any other data that would have been considered by the
portfolio managers in making investment decisions for the Funds.
Although some of the Funds held securities in their portfolios at the
time that DBSI issued research reports concerning the issuers of such
securities, as far as the Advisers are aware, none of the officers,
portfolio managers, or any other investment personnel employed by the
Advisers had any knowledge of any non-public information relating to,
or had any involvement in, the conduct underlying the Final Judgment.
In addition, each of the Applicants that serve as an investment adviser
or subadviser to Funds has adopted policies regarding information
barriers (the ``Policies'') designed to protect the Funds from certain
conflicts of interest that may arise between portfolio managers and
other employees of DBSI. The Policies, which were in effect at the time
of the conduct described in the Complaint, restrict communications
between portfolio managers and certain other employees of DBSI.
---------------------------------------------------------------------------
\3\ The Complaint also refers to general practices regarding the
relationship between the Investment Banking Department and Research
Division of DBSI. It is possible that one or more current or former
personnel of the Applicants who is or was involved in providing
advisory, subadvisory or underwriting services to the Funds was at
some time involved in investment banking or research activities.
---------------------------------------------------------------------------
5. The Applicants will distribute written materials, including an
offer to meet in person to discuss the materials, to the board of
directors or trustees of each Fund (each, a ``Board''), including the
directors who are not ``interested persons,'' as defined in section
2(a)(19) of the Act, of the Fund, and their independent legal counsel,
if any, regarding the Federal Injunction, any impact on the Funds, and
this application.\4\ The Applicants will provide the Boards with all
information concerning the Injunctions and this application that is
necessary for the Funds to fulfill their disclosure and other
obligations under the federal securities laws.
---------------------------------------------------------------------------
\4\ Applicants state that they will advise the Boards of any
State Injunctions that are issued.
---------------------------------------------------------------------------
6. Applicants state that the inability to continue providing
advisory services to the Funds and the inability to continue serving as
principal underwriter to the Funds would result in potentially severe
hardships for the Funds and their shareholders. Applicants also assert
that, if they were barred from providing services to the Funds, the
effect on their businesses and employees would be severe. The
Applicants state that they have committed substantial resources to
establish an expertise in advising and
[[Page 58560]]
distributing the Funds. Bankers Trust Company and its affiliates
previously received an exemption under section 9(c) as the result of
conduct that triggered section 9(a), 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, Applicants,
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 the
Applicants are granted a temporary exemption from the provisions of
section 9(a), effective forthwith, solely with respect to the
Injunctions, subject to the condition in the application, until the
date the Commission takes final action on their application for a
permanent order or, if earlier, September 24, 2006.
By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-21880 Filed 9-29-04; 8:45 am]
BILLING CODE 8010-01-P