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U.S. Securities and Exchange Commission

Investment Advisers Act of 1940 — Rule 206(4)-3
Citigroup Global Markets, Inc.

December 23, 2008

RESPONSE OF THE OFFICE OF CHIEF COUNSEL
DIVISION OF INVESTMENT MANAGEMENT

IM Ref. No. 200898110
Citigroup Global Markets, Inc.
File No. 801-3387

We would not recommend enforcement action to the United States Securities and Exchange Commission (“Commission”) under Section 206(4) of the Investment Advisers Act of 1940 (“Advisers Act”) and Rule 206(4)-3 thereunder if any investment adviser that is required to be registered pursuant to Section 203 of the Advisers Act pays to Citigroup Global Markets, Inc. (“CGMI”) 1 or any of its associated persons, as defined in Section 202(a)(17) of the Advisers Act, a cash solicitation fee, directly or indirectly, for the solicitation of advisory clients in accordance with Rule 206(4)-3,2 notwithstanding an injunctive order issued by the United States District Court for the Southern District of New York (the “Judgment”) that otherwise would preclude such an investment adviser from paying such a fee, directly or indirectly, to CGMI or certain related persons.3

Our position is based on the facts and representations in your letter dated December 23, 2008, particularly CGMI’s representations that:

  1. it will conduct any cash solicitation arrangement entered into with any investment adviser required to be registered under Section 203 of the Advisers Act in compliance with the terms of Rule 206(4)-3, except for the investment adviser's payment of cash solicitation fees, directly or indirectly, to CGMI, which is subject to the Judgment;
  2. the Judgment does not bar or suspend CGMI or any person currently associated with CGMI from acting in any capacity under the federal securities laws;4
  3. it will comply with the terms of the Judgment, including, but not limited to, complying with its undertaking to offer to buy-back at par auction-rate securities that are not auctioning from all CGMI investors who purchased those securities from CGMI prior to February 11, 2008, and paying any civil money penalties ordered by the United States District Court for the Southern District of New York; and
  4. for ten years from the date of the entry of the Judgment, CGMI or any investment adviser with which it has a solicitation arrangement subject to Rule 206(4)-3 will disclose the Judgment in a written document that is delivered to each person whom CGMI solicits (a) not less than 48 hours before the person enters into a written or oral investment advisory contract with the investment adviser or (b) at the time the person enters into such a contract, if the person has the right to terminate such contract without penalty within 5 business days after entering into the contract.

Our position also is based on your representation that CGMI currently is not engaged in any cash solicitation activities that are subject to Rule 206(4)-3. This position applies only to the Judgment and not to any other basis for disqualification under Rule 206(4)-3 that may exist or arise with respect to CGMI or any of its associated persons.

Stephen Van Meter
Senior Counsel


Endnotes

The entry of the Judgment, absent the issuance of an order by the Commission pursuant to Section 9(c) of the Investment Company Act that exempts CGMI from the provisions of Section 9(a) of the Investment Company Act, would effectively prohibit CGMI and its affiliated persons from, among other things, acting as an investment adviser to any registered investment company. You state that, pursuant to Section 9(c) of the Investment Company Act, CGMI and certain affiliated persons, on behalf of themselves and future affiliated persons, submitted an application to the Commission requesting (i) an order of temporary exemption from Section 9(a) of the Investment Company Act and (ii) a permanent order exempting the Settling Firm, certain affiliated persons and future affiliated persons from the provisions of Section 9(a) of the Investment Company Act.

On December 23, 2008, the Commission issued an order granting CGMI, certain affiliated persons and future affiliated persons a temporary exemption from Section 9(a) of the Investment Company Act pursuant to Section 9(c) of the Investment Company Act, with respect to the Judgment, until the date the Commission takes final action on the application for a permanent order. In re Citigroup Global Markets, Inc., et. al., SEC Rel. No. IC-28572 (Dec. 23, 2008). Therefore, CGMI, certain affiliated persons and future affiliated persons are not currently barred or suspended from acting in any capacity specified in section 9(a) of the Investment Company Act as a result of the Judgment.

Incoming Letter

The Incoming Letter is in Acrobat format.

 

http://www.sec.gov/divisions/investment/noaction/2008/citigroup122308.htm

Modified: 12/29/2008