
[Federal Register Volume 80, Number 169 (Tuesday, September 1, 2015)]
[Notices]
[Pages 52812-52814]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-21554]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IA-4182; 803-00223]


Starwood Capital Group Management, LLC; Notice of Application

August 26, 2015.
AGENCY: Securities and Exchange Commission (the ``SEC'' or 
``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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[[Page 52813]]


Applicant: Starwood Capital Group Management, LLC (the ``Adviser'' or 
``Applicant'').

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: Applicant requests that the Commission issue an 
order under section 206A of the Advisers Act and rule 206(4)-5(e) 
exempting it from rule 206(4)-5(a)(1) under the Advisers Act to permit 
Applicant to receive compensation for investment advisory services 
provided to a government entity within the two-year period following a 
contribution by a covered associate of Applicant to an official of the 
government entity.

Filing Dates: The application was filed on February 3, 2014, and 
amended and restated on August 4, 2014, January 22, 2015, May 6, 2015, 
and July 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 Applicant 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 21, 2015 and should be accompanied by proof of 
service on Applicant, 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. Applicant, 
Starwood Capital Group Management, LLC c/o Matthew Guttin, 591 West 
Putnam Avenue, Greenwich, CT 06830.

FOR FURTHER INFORMATION CONTACT: Parisa Haghshenas, Senior Counsel, at 
(202) 551-6723, 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.

The Applicant's Representations

    1. Starwood Capital Group Management, LLC is registered with the 
Commission as an investment adviser under the Advisers Act. Three of 
the Applicant's discretionary advisory clients are funds excluded from 
the definition of an investment company by section 3(c)(7) of the 
Investment Company Act of 1940 (the ``Funds'').
    2. One of the investors in the Funds is a public pension plan that 
is a government entity with respect to the State of Illinois (the 
``Client''). The investment decisions for the Client are overseen by a 
board of 13 trustees that includes six individuals appointed by the 
Governor of Illinois. Due to this power of appointment, a private 
citizen running for Governor of Illinois is an ``official'' of the 
Client as defined in rule 206(4)-5 under the Advisers Act.
    3. On April 29, 2013, Daniel Yih, the Applicant's Chief Operating 
Officer (the ``Contributor''), contributed $1,000 to the Bruce Rauner 
Exploratory Committee, a committee to support the candidacy of Bruce 
Rauner (the ``Official'') for Illinois Governor (the ``Contribution''). 
The Applicant represents that apart from that single contribution (and 
requesting its return), the Contributor did not interact with the 
Official about campaign contributions and did not solicit the Client or 
otherwise communicate with the Client or supervise anyone who solicited 
the Client. The Applicant further represents that the Contributor did 
not solicit any persons to make contributions to the Official's 
campaign or coordinate any such contributions.
    4. The Applicant represents that the Official and the Contributor 
have a long-standing personal and professional relationship. The 
Applicant represents that they used to work together at the private-
equity firm GTCR Golder Rauner. The Applicant further represents that 
they were previously neighbors and their children attend school 
together and are friends. At the time of the Contribution, the Official 
was a private citizen; he did not take office until January 2015. The 
Applicant represents that the Official and the Contributor have not 
discussed Starwood's investment advisory business or potential 
investments by the Client, except that the Contributor explained rule 
206(4)-5's implications when requesting the Official refund the 
Contribution.
    5. The Client's initial investment in the Funds predates the 
Contribution. Although the Client has made additional investments 
subsequent to the Contribution, they were all made prior to the 
Official taking office and after the Contribution was fully refunded. 
The Applicant represents that the Contributor was not involved in 
soliciting the Client and did not solicit or otherwise communicate with 
the Client on behalf of the Adviser with respect to the Client's 
initial or subsequent investments.
    6. The Applicant represents that five days after making the 
Contribution, the Contributor realized that pursuant to Adviser's Pay-
to-Play Policy (the ``Policy''), he was required to obtain pre-approval 
for his political contributions. The Applicant further represents that 
he contacted the Adviser's Chief Compliance Officer that night 
(Saturday, May 4, 2013) and the Chief Compliance Officer responded on 
Monday, May 6 that the Contribution was prohibited under the Adviser's 
compliance policy and rule 206(4)-5 and would need to be refunded. The 
Applicant represents that the Contributor requested a refund of the 
full $1,000 that day, and received the refund the next day. The 
Applicant represents that at no time did any employees of the Applicant 
other than the Contributor have any knowledge of the Contribution prior 
to the Contributor's notifying the Applicant's Chief Compliance Officer 
five days after the date of the Contribution.
    7. The Applicant represents that the Adviser established an escrow 
account into which it has been depositing an amount equal to the 
compensation received with respect to the Client's investment in the 
Funds for the two-year period starting April 29, 2013. Since the 
Contribution Date, the Applicant represents that there have been no 
distributions of carried interest from the Funds; however, to the 
extent any distributions of carried interest in respect to the Client's 
investments are to be paid to the Adviser in the future and the 
Commission has not granted an exemptive order to the Adviser, the 
portion of that carried interest attributable to investments of the 
Client during the two-year period following the Contribution Date will 
be placed in escrow. The Applicant represents that it notified the 
Client of the Contribution and the application prior to the filing of 
the second amendment to the application.
    8. The Applicant represents that the Adviser's Policy was initially 
adopted and implemented on February 1, 2008, prior to the effective 
date of rule 206(4)-5, to ensure compliance with state and local pay-
to-play laws. It was revised in light of rule 206(4)-5 and has been in 
place in its current form since the

[[Page 52814]]

effective date of the rule. The Applicant represents that the Policy is 
more restrictive than what was contemplated by the rule. The Applicant 
represents that the Contributor simply temporarily failed to seek 
preclearance for the Contribution and realized his error five days 
later. The Applicant represents that after the Contribution, it sent a 
reminder of the Policy to all employees.

The Applicant's 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. 
The 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). Rule 206(4)-5(c) provides that when a government entity 
invests in a covered investment pool, the investment adviser to that 
covered investment pool is treated as providing advisory services 
directly to the government entity. The Funds are ``covered investment'' 
pools as defined in rule 206(4)-5(f)(3)(ii).
    2. Section 206A of the Advisers Act grants the Commission the 
authority to ``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, among other factors, (i) 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; (ii) Whether the investment 
adviser: (A) Before the contribution resulting in the prohibition was 
made, adopted and implemented policies and procedures reasonably 
designed to prevent violations of the rule; and (B) prior to or at the 
time the contribution which resulted in such prohibition was made, had 
no actual knowledge of the contribution; and (C) after learning of the 
contribution: (1) 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 (2) has taken 
such other remedial or preventive measures as may be appropriate under 
the circumstances; (iii) 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; (iv) The timing and 
amount of the contribution which resulted in the prohibition; (v) The 
nature of the election (e.g., federal, state or local); and (vi) 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. The Applicant requests an order pursuant to section 206A and 
rule 206(4)-5(e), exempting it from the two-year prohibition on 
compensation imposed by rule 206(4)-5(a)(1) with respect to investment 
advisory services provided to the Client following the Contribution. 
The Applicant asserts that the exemption sought 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 Advisers Act.
    5. The Applicant maintains that the timing of the Contribution, at 
the time of the Contribution the Official's not having the authority to 
appoint anyone who participated in the Client's decision to invest with 
the Adviser, and the length of time in which the Contributor obtained a 
refund from the Official indicate that the Contribution was not part of 
any quid pro quo arrangement, but rather an inadvertent failure to 
follow the Adviser's Policy by the Contributor.
    6. The Applicant states that the Client determined to invest with 
Applicant and established an advisory relationship on an arm's length 
basis free from any improper influence as a result of the Contribution. 
In support of this argument, Applicant notes that the Client's 
relationship with the Applicant pre-dates the Contribution. 
Furthermore, the Client's subsequent investments were made after the 
Contribution was refunded and the Official had no role in the Client's 
subsequent investments, and he did not take office, had not been 
elected, nor obtained appointment power until 2015. Similarly, the 
Applicant represents that the Contributor did not solicit the Client 
with respect to the subsequent investments, nor did anyone whom he 
supervises. The Applicant respectfully submits that the interests of 
the Client are best served by allowing the Applicant and the Client to 
continue their relationship uninterrupted.
    7. The Applicant submits that the Contributor's decision to make 
the Contribution to the Official's committee was based on the personal 
and professional relationship between the two men and not any desire to 
influence with the Client's merit-based selection process for advisory 
services.
    8. The Applicant contends that although the Applicant's Policy 
required the Contributor to obtain prior approval for the Contribution, 
which he failed to do, the Contributor realized his error in less than 
a week. The Applicant further maintains that at the Contributor's 
request, the Contribution was refunded within nine days of the date it 
was made. The Contribution's discovery and refund were well within the 
time period required for an automatic exemption pursuant to rule 
206(4)-5(b)(3).
    9. Applicant further submits that the other factors set forth in 
rule 206(4)-5(e) similarly weigh in favor of granting an exemption to 
the Applicant to avoid consequences disproportionate to the violation.
    10. Accordingly, the Applicant respectfully submits that the 
interests of investors and the purposes of the Advisers Act are best 
served in this instance by allowing the Adviser and its Client to 
continue their relationship uninterrupted in the absence of any intent 
or action by the Contributor to interfere with the Client's merit-based 
process for the selection and retention of advisory services. The 
Applicant submits that an exemption from the two-year prohibition on 
compensation 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 Advisers Act.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-21554 Filed 8-31-15; 8:45 am]
BILLING CODE 8011-01-P


