SEC Division of Corporation Finance no-action letter: Lehman Brothers Inc.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON. DC. 20549
DIVISION OF
CORPORATION FINANCE October 3 1,2003
Raphael M. Russo, Esq.
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, New York 1001 9-6064
Re: Lehman Brothers Inc. -Waiver Request under Regulation A and Rule 505 of Regulation D Dear Mr. Russo:
This is in response to your letter dated October 31,2003, written on behalf of Lehrnan Brothers Inc. (the "Firm") and constituting an application for relief under Rule 262 of Regulation A and Rule 505@)(2)(iii)(C) of Regulation D under the Securities Act , 4 ( of 1933. You requested relief from discpalifications fiom'exkrhptioiis ~v&liible 'luide; Regulation A and Rule 505 of Regulation D that arise by virtue of the entry today of the injunction included in the Final Judgment in Securities and Exchange Commission v. Lehman Brothers Inc. (S.D.N.Y.) (the "Final ~ud~ment'"). You also requested relief under those provisions from disqualifications that arise by virtue of the entry of an order, judgment or decree of a U.S. state or territorial court addressing the same conduct and based on the same facts as the conduct and facts addressed in the comPraint that resulted in the entry of the Final Judgment. For purposes of hs letter, we have assumed as facts the representations set forth in your letter. We also have assumed that the Firm will comply with the Final Judgment and any such state or territorial court order, judgment or decree. On the basis of your letter, the Commission, pursuant to delegated authority, has determined that you have made a showing of good cause under Rule 262 and Rule 505(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 the entry of the Final Judgment or any state or territorial court injunction of the nature described above. Accordingly, the relief deschbed above horn the disqualifying provisions of Regulation A and Rule 505 of Regulation D is hereby granted. Sincerely, Mauri Osheroff Associate Director, Regulatory Policy

NOU 05 2003 19:01 FR PWRWZG 212 373 2085 TO 8123361861202942 P.02/05 PAUL. WEISS. RIFKIND. WHARTON 6 GARRISON LLP I ins AVENUE OF THE AMSRICCS NEW VORY. YEW VORY 10610-0084 TCLLlIlOMS (maLC57YX, FACSIMILE IPOU LC97120 Federal Express Gerald J. Lapone Chief, Office of Small Business Policy Division of Corporation Finance U.S. Securitiesand Exchange Commission - 450 Fifth Street, N.W.,Room 3501 d - Washington D.C.20$49;03 10 Re: Lehrnan bothers Inc. Dear Mr. Laporte:
We submit this letter on behalf of ow client, Lehman Brothers Inc. ('2ehmanm), in connection with a settlement agreement (the "Settlement") arising out of a joint investigation by the Securities and Exchange Commission (the "Commission"), the New York Stock Exchange. Inc. (the "NYSE"), NASD Regulation. Inc. ("NASDR) and various U.S.state and territorial regulatory agencies (the "States") into research analyst conflicts of interest at Lehrnan and several other large investment banking firms. Lehman below requests, pursuant to Rule 262 of Regulation A and Rule 505@)(2)(iii)(C) of Regulation D of the Commission promulgated under the Securities Act of 1933 (the "Securities Act"), a waiver of any disqualification hm exemptions .&&& under Regulation A and Rule 505 of Regulation D that may be applicable to Lehrnan and any of its affiliates as a result of the entry of thc Final Judgment (as definedbelow) and my related disqualifying order, judgment, or decree of a state or temtorial court -

/.I' NOV 05 2003 19:01 FR PWRWSG
I
', 1 PAUL. WElSS. RIFKIND. WHARTON B CARRISON Gerald J. Laporte LLP addressing the same conduct as is addressed m the Complaint (as defined below). Lehman also requests that these waivers be granted effective upon entry of the Final Judgment or such state or territorial court order, judgment, or decree. It is our understanding that the Division of Enforcement docs not object to the grant ofthe requested waivers by the Division of Corporate Finance. BACKGROUND The Commission, the NYSE,the NASDR and the States engaged in settlement discussions with Lehman in co~ectionwith the joint investigation described above. As a result of these discussions, the Commission has filed a complaint (the "Complaint") against Lehrnan in the United States District Court for the Southern District of New York (the "District Court") in a civil action captioned Securities and Exchanae Commission v. Lehman Brothers Inc. Lehman executed a consent and undertaking (the "Consent") in which Lehrnan neither admitted nor denied any of the allegations in the Complaint. except as to jurisdiction, but consmted to the entry of a fmal judgment against Lehman by the District Court (the "Final Judgment"). The Final judgment, entered by the District Court on October 31,2003, among other things, enjoins ,mq,directly or through its officers, directors, agents and employees, from violating rules cited in theFihaF ." ' 'r ' . ') f Judgment. Additionally, the Final Judgment orden Lchman to make payments aggregating$80million in settlement of the matters addressed in the Final Judgment, and to comply with tho undertakings set forth in tbc Final ~ud~ment.' DISCUSSION Lehman understands that tho entry of the Final Judgment could disqualify it and its affiliotcd entities f& participating in cwn offcripgs otherwise &&t under Regulation A and Rulc 505 of Regulation Dpromulgated under the Securities Act, insofar as the Final Judgment may bc deemed to cause Lehrnan to be subject to an order, judgment or decree of a court of competent jurisdiction enjoining Lehman From engaging in or continuing to engage in any conduct or practice in connection with the purchase or sale of a security. The Commission has the authority to waive the Regulation A and Rule 505 of Regulation Dexemption disqualifications upon a showing of good cause that such disqualifications are not necessary under the circumstances. See 17 C.F.R.§tj 230.262 and 230.50S(b)(2)(iii)(C). Lehman requests that the Commission waive any disqualifying effects that the Final Judgment may have under Regulation A and Rulc 505 of Regulation D with respect to Lehman or its affiliates on the following grounds:
I Lebman hrs additionallyentered into settlement ageemeats relating to the activities referred to in he Complaint with the relevant state and tmimrial agencies !the "Stnre Settlement Agreements"). To rhe - exlent that any N&State SeWement Agreement re-illb .n an injunction by a court of competent jurisdicrio%LthmM intend9 this request to cowr my resulting disqualificatioas uodcr Regulation A and Rule 505 of Regulation D.

NOU 05 2003 19:02 FR PLJRWRG 212 373 2085 TO 8123361861202942 P.04/05 PAUL, WEISS. RIFKIND. WHARTON B GARRISON LLP Gerald 1. Laporte

1. Lebman's conduct addressed in the Final Judgment and alleged in the
   Complaint does not relate to offerings under Regulation A or Rule 505 of Regulation D.
2. Lehman will undertake or has undertaken to improve and enhance its
   compliance and swcillance policies and procedures in a manner reasonably designed to ensure compliance with the provisions of the Final Judgment as outlined in Addendum A to the Final Judgment (the "Term Sheet").
3. The disqualification of Lehman from the exemptions under Regulation A
   and Rule 505 of Regulation D would, we believe, have an adverse impact on third parties that have retained, or may seek to retain, Lehman and its affiliates in connection with transactions that rely on these exemptions,
4. Thc disqualification of Lehman froin the exemptions available under
   Regulation A and Rule 505 of Regulation D would be unduly and disproportionately sevcrc, given that (i) the Final Judgment relates to activity which has aheady been addressed pursuant to recently adopted rules of the Commission, NY SE and NASDR and pursuant to the Term Sheet and (ii) the Commission staff has negotiated a settlement with Lehrnan and reached a satisfactory conclusion to this matter that will require Lehman lo make payments agjgegating $80 million in sertlement of the matters addressed in the Final Judgment and will require Lehman to make certain structural changes pursuant to the Term Sheet, as well as to make available to Lehrnan's customers certain research prepared by third-party research providcrs. In light of the foregoing, we believe that disqualification is not necessary, in the public interest or for the protection of investors, and that Lehman has shown good cause that relief should be granted. Accordingly, we respeclfully request the Commission, pursuant to Rule 262 of Regulation A and Rule 505(b)(Z)(iii)(C) of Regulation D, to waive, effective upon entry of the Final Judgment and any related disqualifying order, judgment, or decree of a U.S.state or temtorial court based on the same facts and addressing the same conduct as is addressed in the Complaint, the disqualification provisions in Regulation A and Rule 505 of Regulation D to the extent they may be applicable to Lehman and any of its affiliates as a result of the entry of the Final Judgmm and any such order, judgment, or decree2 2 We note in support of tbis request that the Commission has in other instancesgranted relief under Rule 262 of Regulation A and Rule 505@)(2Xiii)(C) ofRegulation D for similar reasons. See,cg.,Credit Suisse First Bastan Corporation, S.E.C.NeAction Letter (pub. avail. Jan. 29,2002); Dain Rauscher, Inco~poratcd,S.E.C.No-Action Lemr (pub. avail. Sept. 27,2001): Legg Won Wood Walker, Incorporated. S.E.C.No-Action Letter (pub. avail. June 11,2001); In the Matter of Certain Market-Making Activities. S.B.C.No-Action Letter (pub. avail. Jan. 11, 1999): Stephens Incorporated, S.E.C.No-Action Lena (pub. avail. Nov. 23. 1998). -

/ NOV 05 2003 19:02 FR PWRW8G 212 373 2085 TO 8123361061202942 P.05435 PAUL. WEISS. RIFKIND. WHARTON 8 GARRISON LLP Gerald J. Laporte Please do not hesitate to contact the undersigned at (212)373-3309or Audrey Woo at (212)373-3581regarding thisrequest.

Sincerely,
5G@Ad ~-%
Raphael M.Russo