SEC Division of Corporation Finance no-action letter: Legg Mason Wood Walker, Incorporated

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
DlVlSlON OF
CORPORATION FINANCE
September 21,2005
Karrie McMillan, Esq.
Shearman & Sterling LLP
801 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2604
Re: In the Matter of Legg Mason Wood Walker, Incorporated-Waiver Request under Regulation A and Rule 505 of Regulation D Dear Ms. McMillan:
This is in response to your letter dated September 21,2005, written on behalf of Legg Mason Wood Walker, Incorporated ('"MWW") and constituting an application for relief under Rule 262 of Regulation A and Rule 505@)(2j(iii)(C) of Regulation D under the Securities Act of 1933. You requested relief from disquaIifications from exemptions available under Reguhtion A and Rule 505 of Regulation D that may arise by virtue of the order entered today by the Securities and Exchange Commission, pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 and Sections 9(b) and 9(f) of the Investment Company Act of 1940, naming LMWW as a respondent, censuring LMWW, ordering LMWW to cease and desist from committing or causing any violations or future violations of Section l7(a)(l) of the Securities Exchange Act and Rules 17a-3 and 17-4 thereunder, and Rule 22c-1(a) under the Investment Company Act of 1940, ordering LMWW to pay a civil money penalty in the amount of $1,000,000, and ordering that LMWW comply with the undertakings set forth in the order. Exchange Act Rel. No. 52478 (File No. 3-12048, Sept. 21,2005) (the "Order"). For purposes of this letter, we have assumed as facts the representations set forth in your letter and the findings supporting entry of the Order. We have also assumed that LMWW will comply with the Order. On the basis of your letter, 1 have determined that you have made showings of good cause under Rule 262 and Rule 5O5(b )(2)(iii)(C) that it is not necessary under the circumstances to deny the exemptions available under Regulation A and Rule 505 of Regulation D by reason of entry of the Order. Accordingly, pursuant to delegated authority, and without necessarily agreeing that such disqualifkations arose by virtue of entry of the Order, LMWW is granted relief from any disqualifications from exemptions otherwise available under Regulation A and Rule 505 of Regulation D that may have arisen as a result of entry of the Order. Very truly yours, Fuj? rald J. Laporte x+ Chief, Office of Small Business Policy

FAX: 202 508-8100 801 PENNSYLVANIA AVENUE, N.W ABU DHhBi WASHINGTON, DC 20004-2604 BEIJING WWW.SMEARMAN.COM BRUSSELS 202 508-8000 DUSSELDDRF FRANKFURT I-TONG KONG LONDON

WRITER'S DIRECT NUMBER. MANNIIEIM
MENLO PARK
MUNICH
202-508-8160 NEW YORK
PARIS
ROME
SAN FRANCISCO
PAUL0
WRITER'S EMAIL ADDRESS: SINGAPORE
TOKYO kmcmillan@shea~rman.corn
TORONTO
WASHINGTON, D C
September 21,2005
VIA HAND DELIVERY
Gerald Lapoi-te, Esq.
Chief, Office of Small Business Policy
Division of Corporation Finance
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: In the Master of Legg Mason Wood Walker, he. (P-0112) Dear Mr. Laporte:
On behalf of Legg Mason Wood Walker, Incorporated ("LMww"),' wc respecthlly request pursulmt to Rulc 262 of Regulation A and Rule 505(b)(2)(iii)(C) of Regulation D promulgated under thc Securities Act of 1933 (the 'Tecuriiies Act"), a waiver of any disqualjfication from exemptions under Regulation A and Rule 505 of Regulation D that may be applicable to LMWW and any of its affiliates as a result of the entry of an order by the Securities and Exchange Coinmission (the "'Commission") against L,MWW. LMWW respectfully requests that these waivers be made effective as of the date of Commission acceptance ofthe settlement described below. LMWW is a broker-dealerregistered with the Securities and Exchange Commission and is engaged in a fuhervice business, including retail and institutional sales, investment banking services, trading and research. I

Gerald Laporte, Esq.
September 2 1,2005
The staff of the Division of Enforcement engaged in settlement discussioils with LMWW in connection with the above-captioned proceeding, which was brought pursuant to Sections 15(b) and 2 1C of the Securities Exchange Act of 1934 (the "Exchange Act") and Sections 9(b) and 9(1-)of the Investment Company Act of 1940 (the "Investment Company Act"). As a result of these discussions, LMWW submitted an offer 01settlement in wllich, solely for tlie purpose of resolving the above-captioned proceeding a11d any other proceeding involving the same facts brought by or on behalf of the Commission or in wliich the Commission is a party, it consented to tlie entry of an order (the "Order") without admitting or denying the matters in the Order (other than those relating to the jurisdiction of the Commission). Under the Order, the Commission made findings, without admission or denial by LMWW, that LMWW's late processing of mutual fund orders violated Rule 22c-l(a) under the Investmeiit Company Act. Further, the Commission made findings, without admission or denial by LMWW, that by failing to maiiltain records reflecting the time it received brokerage orders, LMWW vioIated Section 17(a)(l) of the Exchange Act and Rules 17a-3 and B7a-4 thereunder. Based on these findings, the Commission censmcd LMWW, required LMWW to cease and desist from committing or causing any violations and any future violations of Section 17(a)(l) of the Exchange Act and Rules 17a-3 and 17a-4 thereunder, and Rule 22c-1(a) under the Investment Company Acl, and required LMWW to pay a civil money peilalty in the amount of $1,000,000 to the U.S. Treasury. In addition, pursuant to the Order, LMWW undertook to employ an independent consultant (the "Tndependent Consultant"), who is knowledgeable in all aspects of mutual hnd transactions, including, but not limited to, the pricing ofmutual funds and compliance with Rule 22c-1 under the Investment Company Act and keeping and preserving required books and records under Section 17(a)(l) of the Exchange Act, and not unacccptable to the staff or the Philadelphia District Office ("PDO). The Independent Consultant will (a) conduct a review to determine whether the changes to the policies and procedures (the "Policies and Procedures") that LMWW has adopted and implemented to correct the activities described in thc Order are reasonably designed to detect and prevent any future "late processing of orders" from LMWW registered representatives in violation of Rule 22c- 1 under the Investment Company Act and to ensure compliance with Section 17(a)(l) under the Exchange Act; (b) detennine whether and to whai extent there is a need for additional or amended Policies and Proccdures to detect and prevent, insofar as practical, 'late processing of orders" from LMWW registered representatives; and (c) recommend that LMWW adopt such additional Policies and Procedures which the Independent Consultmi believes are necessary to pi-wide reasonable assurance that LMWW can
detect and prevent "late processing of orders" from LMWW registered representatives. LMWW will also require the Independent Consultant to subinit to LMWW and the Coinmission staff a written report regarding LMWW's compliance with its Policies and Procedures and the adequacy ofthose Policies <andProceclures. LMWW undertook to adopt all recommendations contained in the report and to remedy any deficiencies in its Policies and Procedures, provided that LMWW may advise the Independent Consultant: and Commission staff in writing of any recommendations that it ~oiisidersto be unnecessary or inappropriate and propose an alternative

Gerald Laporte, Esq.
September 21,2005 policy, procedure, or system designed to achieve the same objectlvc or purpose. If LMWW and the Independent Consultant are unable to agree on an alternative proposal acceptable to the Commission staff, LMWW will abide by the original recornme~zdation ofthc Tndepcmdent Consultant. Within 120 days of the date of the report, LMWW will submit an affidavit to the Commission staff, stating that it has implemented any and all actions recommended by the Independent Consultant ox explaining the circumstances under which it has not implemented such actions. Pursuant to the Order, LMWW shall not have the authority to terminate the Independent Consultant without the prior written approval of the Commission stalf. Discussion LMWW understands that the entry of the Order may disqualily it and its affiliated entities &omparticipating in certain offerings otherwise exempt under Regulation A and Rule 505 of Regulation D under the Securities Act because the Order may be deemed to cause LMWW to be subject to an order of the Co~nmission pursuant to Section 15(b) of the Exchange Act. Tlie Commission has authority to waive the Regulation A and Rule 505 of Regulation D exemption disqualifications upon a showing of good cause that such disqualifications are not necessary under the circ~rnstatmzs.~ Thus, LMWW requests that the Commission waive any disqualifying effccts that the Order may have under Regulation A and Rule 505 of Regulation D with respect to LMWW or its affiliates on the following grounds:
I. LMWW7sconduct addressed in the Order does not relate lo offerings under Regulation A
or D. Rather, the alleged violations are confined to the latc processing of mutual fund orders and the failure to maintain records reflecting the time LMWW received brokerage orders.
2. LMWW has implemented a number of enhancements to its systems, policies and
procedures and, as described above, agreed to employ an Independent Consultant.
3. The disqualification of LMWW from the exemptions under Regulation A and Rule 505
of Regulation D would, we believe, have an a.dverse effect on the third parties that have retained LMWW and its a.ffiliates in connection with transactions that rely on these exemptions.
4. The disqualification of LMWW from the exeinptions available under Regulation A and
Rule 505 of Regulation D would be unduly and disproporlionalely severe, given that: (a) the Order relates to activity lliat is uwelated to Regulation A and Rule 505 of Regulation D; (b) the disqualification could adversely affect the business operations of LMWW; and (c) LMWW must pay a civil money penalty in the amount of $1,000,000 pursuant to the Order. See Rule 262 of Regulation A and Rule 505(b)(2)(iii)(C) of Regulation D under the Securities Act. 2

Gera.ld Laporte, Esq.
September 21,2005
In light of the grounds for relief discussed above, we believc that disqualification is not necessary, in the public interest or for the protection of investors, and that LMWW has shown good cause that relief should be granted. Thus, we respectfully urge the Commission, pursuant to Rule 262 of Regulation A and Rule 505(b)(2)(iii)(C) of Regulation D, to waive the disqualification provisions in Regulation A and Rule 505 of Regulation D to the extent that they may be applicable lo LMWW and any of its affiliates as a result of the entry of the ~rder.~ If you have any questions regarding this request, please contact the undersigned at (202) 508-81 60. Sincerely yours,, @vrb h,;dhdpkfl4 cc: David S. I-Torowitz,Esq. We note in support of this requcst that the Cotnmission has in other instances granted relief under Rule 262 of Regulation A and Rule 505(b)(2)(iii)(C) oCRegulation D for similar reasons. See, eg., Merrili, Lynch, Pierce, Fenner & Smith, Incorpornted, SEC No-Actinn Letter (puh. avail. Oct. 31,2003); Morgan Sfanley & C'o. Iiworporrrted, SEC No-Action Letter (pub.avail Oct. 3 I, 2003); Credit Swisse First Boston Corporation, SEC No-Action Letter (pub. avail. Jan 29, 2002); Dain Rau,scher, hzcorporated, SSEC No￾Action Letter (pub, avail. Sept. 27, 2001); h the Matter of Certain Market-Making Activities on Nnscloq, SEC No-Action Letter (pub. avail. Jm. 11, 1999). 3