
[Federal Register Volume 76, Number 136 (Friday, July 15, 2011)]
[Notices]
[Pages 41829-41831]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-17816]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-29719; 812-13919]


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

July 11, 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 (``JPMS'') on 
July 8, 2011 by the United States District Court for the District of 
New Jersey (``Injunction'') until the Commission takes final action on 
an application for a permanent order. Applicants also have applied for 
a permanent order.

Applicants: JPMS; Bear Stearns Asset Management Inc. (``BSAM''), Bear 
Stearns Health Innoventures Management, L.L.C. (``BSHIM''), BSCGP Inc. 
(``BSGCP''), 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'') 
(each an ``Applicant'' and 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 JPMS 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'').

Filing Date: The application was filed on July 7, 2011 and amended on 
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July 11, 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 5, 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: JPMS, 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 Parkway, 
Columbus, OH 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: Jean E. Minarick, Senior Counsel, at 
202-551-6811 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 
summary of the application. The complete application may be obtained 
via the Commission's website by

[[Page 41830]]

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. JPMS, a limited liability company organized under the laws of 
Delaware, is registered as a broker-dealer under the Securities 
Exchange Act of 1934, as amended (the ``Exchange Act'') and is 
registered as an investment adviser under the Investment Advisers Act 
of 1940, as amended (the ``Advisers Act''). JPMS does not currently 
serve as investment adviser, sub-adviser, or depositor of any 
registered investment company, or principal underwriter for any 
registered open-end investment company, registered unit investment 
trust (``UIT'') or registered face amount certificate company, or 
investment adviser of any employees' securities company, as defined in 
section 2(a)(13) of the Act (``ESC'') (``Fund Service Activities''). 
``Funds'' refers to the registered investment companies or ESCs for 
which a Covered Person provides Fund Service Activities. The ultimate 
parent of JPMS is J.P. Morgan Chase & Co. (``JPMC''). JPMC is a 
financial services holding company whose businesses provide a broad 
range of financial services to consumer and corporate customers. JPMC 
is also the ultimate parent of the other Applicants, who, as 
subsidiaries of the same ultimate parent, are under common control with 
JPMS.
    2. BSAM is registered as an investment adviser under the Advisers 
Act and serves as investment adviser or sub-adviser to various Funds, 
including as a general partner that provides investment advisory 
services to various ESCs, which provide investment opportunities for 
highly compensated key employees, officer, directors and current 
consultants of JPMC and its affiliates.\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, 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 various Funds. JPMII is registered as a broker-dealer 
under the Exchange Act and serves as placement agent to various 
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 (``Trust'') with respect to three of its series. The 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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    3. On July 8, 2011, the United States District Court for the 
District of New Jersey entered a judgment, which included the 
Injunction, against JPMS (``Judgment'') in a matter brought by the 
Commission.\4\ The Commission alleged in the complaint (``Complaint'') 
that prior to at least 2005, JPMS engaged in fraudulent practices and 
made misrepresentations and omissions in connection with bidding on 
municipal reinvestment instruments. The Complaint alleged that JPMS 
engaged in fraudulent practices, misrepresentations, and omissions that 
affected the prices of certain reinvestment instruments, deprived 
certain municipalities of a presumption that their reinvestment 
instruments were purchased at fair market value, and/or jeopardized the 
tax-exempt status of certain securities. Based on the alleged 
misconduct described above, the Complaint alleged that JPMS violated 
section 15(c)(1)(A) of the Exchange Act. Without admitting or denying 
any of the allegations in the Complaint (other than those relating to 
the jurisdiction of the District Court over it and the subject matter, 
solely for purposes of this action), JPMS consented to the entry of the 
Injunction and other relief, including disgorgement, prejudgment 
interest, and civil monetary penalties.
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    \4\ U.S. Securities and Exchange Commission v. J.P. Morgan 
Securities LLC, Case No. 2:11-cv-03877-WJM (D.N.J. July 8, 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 investment company, registered UIT, or registered 
face-amount certificate company or as investment adviser of an ESC. 
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 JPMS is an 
affiliated person of each of the other Applicants within the meaning of 
section 2(a)(3) of the Act. Applicants state that, as a result of the 
Injunction, they would be subject to the prohibitions 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) of the Act if it is established that these provisions, as 
applied to the Applicants, are unduly or disproportionately severe or 
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. 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).
    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 engaging in Fund 
Service Activities. Applicants also state to the best of their 
knowledge (i) none of the current directors, officers, or employees of 
the Applicants (other than JPMS) that are involved in providing Fund 
Service Activities (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 provided a basis 
for the Injunction; and (ii) the personnel at JPMS 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 Fund Service Activities to the Funds on

[[Page 41831]]

behalf of the Applicants or other Covered Persons.
    5. Applicants state that the inability of the Applicants to engage 
in Fund Service Activities would result in potentially severe financial 
hardships for the Funds they serve and the Funds' shareholders or 
unitholders. Applicants state that they will distribute written 
materials, including an offer to meet in person to discuss the 
materials, to the boards of directors of the Funds (excluding for this 
purpose the ESCs) (the ``Boards''), 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 as defined in rule 0-
1(a)(6) under the Act, if any, describing the circumstances that led to 
the Injunction, any impact on the Funds, and the application. 
Applicants state that 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 
Fund Service Activities to registered investment companies and ESCs, 
the effect on their businesses and employees would be severe. 
Applicants state that they have committed substantial resources to 
establish an expertise in providing Fund Service Activities. Applicants 
further state that prohibiting them from providing Fund Service 
Activities would not only adversely affect their businesses, but would 
also adversely affect approximately 940 employees that are involved in 
those activities. Applicants also state that disqualifying certain 
Applicants from continuing to provide investment advisory services to 
ESCs is not in the public interest or in furtherance of the protection 
of investors. Because the ESCs have been formed for the benefit of key 
employees, officers, directors and current consultants of JPMC and its 
affiliates, it would not be consistent with the purposes of the ESC 
provisions of the Act to require another entity not affiliated with 
JPMC to manage the ESCs. In addition, participating employees of JPMC 
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. Applicants state that Applicants and certain other affiliated 
persons of the Applicants have previously received orders under section 
9(c) of the Act, 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, 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 the 
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 July 
8, 2011, until the Commission takes final action on their application 
for a permanent order.

    By the Commission.
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-17816 Filed 7-14-11; 8:45 am]
BILLING CODE 8011-01-P


