SEC Division of Corporation Finance no-action letter: J.P. Morgan Securities LLC, et al.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

D I V I SION OF
CORPORATION FINANCE January 8, 20 13
Gail S. Ennis, Esq .
W ilmer Cutler Pickering Ha le and Dorr LLP

1875 Pennsylvania Avenue, N W

Washington, DC 20006
Re: SEC v. J.P. Morgan Securities LLC, et al.

Civ. Action No. 1862 (D.D.C. Jan. 8, 2013)

Waiver Request under Regulation A and Rule 505 of Regulation D

Dear M s. E nnis:
This responds to your letter dated today, writte n on beha lfofJ.P. Morgan Securi ties LLC; EMC Mortgage, LLC; Bear Steams Asset Backed Securities I, LLC; Structured Asset Mortgage Investments II, Inc.; SACO I, Inc.; and J.P. Morgan Acceptance Corporation I (together the " Defendants"), and consti tuting an application for waiver re lief under Rule 262 ofRegulat ion A a nd Rule 505(b)(2)(iii)(C) of Regulation D under the Securities Act of 1933. You requested a waiver fro m disqualifications from exemptions available under Regulatio n A and Rule 505 that arose by reason ofthe Fina l Judgment as to the Defendants entered on January 8, 20 12 by the United States District Court for the District ofthe District of Columbia in SEC v. J.P. Morgan Securities LLC, et al., Civil Actio n No. 1862 (the "Judgment"). T he Judgment, amo ng other things, permanently enjoins the Defendants from committing vio lations of sectio ns 17(a)(2) and (3) ofthe Secur ities Act of 1933 in the offer or sale of any securi ty. For purposes of this letter, we have assumed as facts the representations set forth in your letter and the findings suppo rting entry o f the Judgment. We also have assumed that the Defendants will comply w ith the Judg ment. On the basis of your letter, I have determined that you have made showings ofgood cause under Rule 262 and Rule 505 that it is not necessary under the circums tances to deny the exempt ions availab le under Regulation A and Rule 505 by reason of entry of the Judgment against the Defendants. Accordingly, pursuant to delegated authority, o n beha lf of the Div ision ofCorporation F inance, I hereby grant a waiver of any disq ualifications fro m exemptio ns otherw ise ava ilable under Regulation A and Rule 505 that may have arisen by reason of entry ofthe Judgment aga inst the Defendants. Very truly yours,

WILMERHALE

January 8, 2013 Gail S. Ennis
BY E-MAIL AND FEDERAL EXPRESS
+1 202 663 6014(t)
+1 202 663 6363 (f) gaal.enn•s@wilmerhale.com
Gerald J. Laporte, Esq.
Chief, Office of Small Business Policy
Division of Corporation Finance
U.S. Securities and Exchange Commission
100 F Street, N .E.
Washington, D.C. 20549
Re: Securities and Exchange Commission v. J.P. Morgan Securities LLC; EMC Mortgage, LLC; Bear Stearns Asset Backed Securities/, LLC; Structured Asset Mortgage Investments II, Inc.; SACO /,Inc.; and J.P. Morgan Acceptance Corporation I, Civ. Action No. I :12-cv-01862 (D.D.C.Jan.8,2013) Dear Mr. Laporte:
This letter is submitted on behalf of our clients, J.P. Morgan Securities LLC; EMC Mortgage, LLC; Bear Steams Asset Backed Securities I, LLC; Structured Asset Mortgage Investments II, Inc.; SACO I, Inc.; and J.P. Morgan Acceptance Corporation I (together the "Defendants"), the settling defendants in the above-captioned injunctive action brought by the Securities and Exchange Commission (the "Commission"). The Defendants hereby request, pursuant to Rule 262 of Regulation A and Rule 505(b)(2)(iii)(C) of Regulation D of the Commission promulgated under the Securities Act of 1933 (the ''Securities Act"), waivers of any disqualifications from relying on exemptions under Regulation A and Rule 505 of Regulation D that may be applicable as a result of the entry of a Final Judgment as to Defendants J.P. Morgan Securities LLC; EMC Mortgage, LLC; Bear Stearns Asset Backed Securities I, LLC; Structured Asset Mortgage Investments II, Inc.; SACO I, Inc.; and J.P. Morgan Acceptance Corporation I (the "Final Judgment") entered on January 8, 2013, which is described below. 1 The Defendants request that these waivers be granted effective upon the entry of the Final Judgment. The staff of the Division of Enforcement has informed the Defendants that it does not object to the Commission providing the requested waivers. BACKGROUND The staff of the Commission engaged in settlement discussions with the Defendants in connection with the above-captioned civil action. As a result of these discussions, the Defendants submitted a Consent to entry of Final Judgment (the ··consent") that was presented by the staff of the Commission to the United States District Court tor the District of Columbia (the "Court") when the Commission filed its complaint (the "Complaint") against the Defendants 1 Securities and Exchange Commission v. J.P. Morgan Securities LLC; EMC Mortgage, LLC; Bear Stearns Asset Backed Securities/, LLC; Structured Asset Mortgage Investments II, Inc.; SA CO /, Inc.; and J.P. Morgan Acceptance Corporation/, Civ. Action No. I: 12-cv-0 1862 (D.D.C. Jan. 8, 2013 ). Wilmer Curler Pickering Hak· and Dorr u.P, 1875 Pennsylvania Avenue NW, Washington, DC 20006 Be1jing Berlin Boston Brusse•s frankfurt London Los Angeles New York Oxford Palo Alto Waltham Washington

WILMERHALE
Gerald J. Laporte, Esq.
January 8, 2013 in a civil action captioned Securities and Exchange Commission v. J P. Morgan Securities LLC; EMC Mortgage, LLC; Bear Stearns Asset Backed Securities I, LLC; Structured Asset Mortgage Investments II, Inc.; SACO I, Inc.; and JP. Morgan Acceptance Corporation I, Civ. Action No. 1:12-cv-01862 (D.D.C. Nov. 16, 2012). In the Consent, solely for the purpose of proceedings brought by or on behalf of the Commission or to which the Commission is a party, the Defendants agreed to consent to the entry ofthe Final Judgment without admitting or denying the matters set forth therein (other than those relating to the jurisdiction of the district court over it and the subject matter solely for purposes of that action). The Final Judgment, which was entered on January 8, 2013, resolved the Complaint's allegations that the Defendants violated Sections 17(a)(2) and (3) of the Securities Act [15 U.S.C § 77q(a)(2), (3)] in connection with their alleged conduct related to certain offerings of residential mortgage-backed securities. The Final Judgment requires that the Defendants pay disgorgement in the amount of $177,700,000, prejudgment interest in the amount of$38,865,536, and a civil monetary penalty of$84,350,000 pursuant to Section 20(d) ofthe Securities Act. DISCUSSION The Defendants understand that the entry of the Final Judgment may disqualify them, affiliated entities, and other issuers from relying on certain exemptions under Regulation A and Rule 505 of Regulation D promulgated under the Securities Act. The Defendants are concerned that, should they or any of their affiliated entities be deemed to be a promoter, or the underwriter ofthe securities, of an "issuer" for the purposes of Securities Act Rule 262(b )(2), the Defendants, their issuer affiliates, and other issuers with which they are associated in one of those listed capacities and which rely upon or may rely upon these offering exemptions when issuing securities would be prohibited from doing so. The Commission has the authority to waive the Regulation A and D exemption disqualifications upon a showing of good cause that such disqualifications are not necessary under the circumstances. See 17 C.F.R. §§ 230.262 and 230.505(b )(2)(iii)(C). The Defendants request that the Commission waive any disqualifying etTects that the Final Judgment may have under Regulation A and Rule 505 of Regulation D as a result of its entry as to the Defendants on the following grounds:

1. The Defendants' conduct addressed in the Final Judgment does not pertain to
   offerings under Regulation A or D.
2. The Defendants have taken steps to address the conduct alleged in the Complaint.
   The alleged conduct related to bulk settlements has been discontinued. In addition, the

2
WILMERHALE

Gerald J. Laporte, Esq.
January 8, 2013
Defendants have taken and will be taking actions reasonably designed to prevent potential violations of Section 17(a)(2) and (3) in connection with the disclosure and offer and sale of residential mortgage-backed securities.
3. The disqualification of the Defendants and any of their affiliates from relying on the
exemptions under Regulation A and Rule 505 of Regulation D would, we believe, have an adverse impact on third parties that have retained the Defendants and their affiliates in connection with transactions that rely on these exemptions.
4. The disqualification of the Defendants and their affiliates from relying on the
exemptions available under Regulation A and Rule 505 of Regulation D would be unduly and disproportionately severe. given (i) the lack of any relationship between the transactions that are the subject of the Staffs allegations and any activity related to either Regulation A or D conducted by the Defendants and their affiliates, and (ii) the fact that the Commission staff has negotiated a settlement with the Defendants and reached a satisfactory conclusion to this matter that resulted in the entry of a Final Judgment compelling prospective compliance with specified federal securities laws and requiring the payment of a disgorgement in the amount of $177,700,000, prejudgment interest in the amount of $38,865,536, and a civil monetary penalty of $84,350,000. In light of the grounds for relief discussed above, we believe that disqualification is not necessary under the circumstances and that the Defendants have shown good cause that relief should be granted. Accordingly, we respectfully urge the Commission, pursuant to Rule 262 of Regulation A and Rule 505(b )(2)(iii)(C) of Regulation D, to waive, effective upon the entry of the Final Judgment, the disqualification provisions in Regulation A and Rule 505 of Regulation D to the extent they may be applicable as a result of the entry of the Final Judgment as to the Defendants.2 We note in support of this request that the Commission has granted relief under Rule 262 of Regulatio.n A and Rule 505(b)(2)(iii)(C) of Regulation D for similar reasons or in similar circumstances. See, e.g., H & R Block, S.E.C. No-Action Letter (pub. avail. May 2, 20 I2); GE Funding Capital Market Services, Inc., S.E.C. No-Action Letter (pub. avail. Jan. 23, 20 I2); Wachovia Bank, N.A. now know as Wells Fargo Bank. N.A., S.E.C. No-Action Letter (pub. avail. Dec. 9, 20 II); J.P. Morgan Securities LLC, S.E.C. No-Action Letter (pub. avail. July 8, 20 II); J.P. Morgan Securities LLC, S.E.C. No-Action Letter (pub. avail. June 29, 20 I I); UBS Financial Securities Inc., S.E.C. No-Action Lettter (pub. avail. May 9, 20 I I); Charles Schwab & Co., Inc., S.E.C. No-Action Letter (pub. avail. Jan. II, 20 II); Goldman Sachs & Co., S.E.C. No-Action Letter (pub. avail. Jul. 20, 20 I 0); In the Matter of Bane of America Investment Services, Inc. and Virginia Holliday, S.E.C. No-Action Letter (pub. avail. Oct. 23, 2009); General Electric Co., S.E.C. No-Action Letter (pub. avail. Aug. II, 2009); lnvestools Inc., S.E.C. No-Action Letter (pub. avail. Dec. 16, 2009); A.G. Edwards & Sons, S.E.C. No-Action Letter (pub. avail. May 31, 2006) (waiver after Securities Act Section I7(a)(2) violation); Bear, Stearns & Co., S.E.C. No-Action Letter (pub. avail. May 31, 2006) (same); Goldman, Sachs & Co., S.E.C. No-Action Letter (pub. avail. May 31, 2006) (same).

WILMERHALE

Gerald J. Laporte, Esq.
January 8, 2013
Please do not hesita te to call me a t the number lis ted above if you have any questions. Gail S. Ennis