SEC Division of Corporation Finance no-action letter: Wells Fargo & Company

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
DIVISION OF
CORPORATION FINANCE
April 7, 2011
Ms. Karen Patton Seymour
Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004
Re: In the Matter of Wells Fargo Securities, LLC (HO-10776) Wells Fargo & Company- Waiver Request of Ineligible Issuer Status under Rule 405 of the Securities Act Dear Ms. Seymour:
This is in response to your letter dated December 29,2010, written on behalfofWells Fargo & Company (Company) and its subsidiary Wells Fargo Securities, LLC (flk/a Wachovia Capital Markets, LLC) (WFS) and constituting an application for relief from the Company being considered an "ineligible issuer" under Rule 405(1)(vi) ofthe Securities Act of 1933 (Securities Act). The Company requests relief from being considered an "ineligible issuer" under Rule 405, due to the entry on April 5, 2011, of a Commission Order (Order) pursuant to Section 8A ofthe Securities Act and Section 15(b) ofthe Securities Exchange Act of 1934, naming WFS as a respondent. The Order requires that among other things, WFS cease and desist from committing or causing any violations, and any future violations of Sections 17(a)(2) and (3) ofthe Securities Act. Based on the facts and representations in your letter, and assuming the Company and WFS comply with the Order, the Commission, pursuant to delegated authority has determined that the Company has made a showing of good cause under Rule 405(2) and that the Company will not be considered an ineligible issuer by reason ofthe entry ofthe Order. Accordingly, the relief described above from the Company being an ineligible issuer under Rule 405 ofthe Securities Act is hereby granted, and the effectiveness ofsuch relief is as ofthe date ofthe entry ofthe Order. Any different facts from those represented or non-compliance with the Order might require us to reach a different conclusion. Sincerely, • ~:ZI~-rd4{ Chief, Office ofEnforcement Liaison Division ofCorporation Finance

SULLNAN & CROMWELL LLP
TELEPHONE: 1-212-558-4000
FACSIMILE: 1-212-558-3588 125gJ~~ WWW.SULLCROM.COM ..Afew ey~~ JYlVI000/;-2/;.98 LOS ANGELES. PALO ALTO. WASHINGTON. D.C. FRANKFURT. LONDON. PARJS SEUING. HONG KONG·. TOKYO MELDOURHIi • SYDN&Y December 29,2010 By Hand Mary Kosterlitz, Esq. Chiefofthe Office ofEnforcement Liaison Division of Corporation Finance U.S. Securities and Exchange Commission 100 F Street, N.E. Washington, D.C. 20549 Re: In the Matter ofWells Fargo Securities, LLC (£'kIa Wachovia Capital Markets, LLC) (File No. 3-0) Dear Ms. Kosterlitz:
We are writing on behalfofour clients, Wells Fargo Securities, LLC (f/kla Wachovia Capital Markets, LLC) ("Wells Fargo Securities") and Wells Fargo & Company ("Wells Fargo"). Wells Fargo Securities is an indirect, wholly owned subsidiary ofWells Fargo and the settling party in the above-captioned administrative proceeding (the "Proceeding") brought by the U.S. Securities and Exchange Commission (the "Commission"). The Proceeding relates to alleged violations ofthe federal securities laws by Wells Fargo Securities in connection with the offer and sale of collateralized debt obligations ("CDOs") backed by residential mortgage securities. Wells Fargo is a financial services company and financial holding company, as defined in 12 C.F.R. § 225.81, that is publicly traded on the New York Stock Exchange. Wells Fargo qualifies as a well-known seasoned issuer. Wells Fargo hereby requests, pursuant to Rule 405 under the Securities Act of 1933 (the "Securities Act"), that the Division ofCorporation Finance, on behalfofthe Commission, detennine that Wells Fargo shall not be considered an "ineligible issuer" as defined in Rule 405 as a result ofthe cease-and-desist order to be entered in the Proceeding, as described below. Wells Fargo requests that this determination be made effective upon entry ofthat order. It is our understanding that the Division ofEnforcement supports our request for such a detenmnation.

Mary Kosterlitz, Esq. -2
BACKGROUND
The conduct ofWells Fargo Securities alleged in the Order (defined below) involved the offer and sale ofCDOs to qualified institutional buyers in reliance on the exemption from registration under the Securities Act provided by Rule 144A thereunder, to accredited investors within the meaning ofRule 501(a) under the Securities Act and to non-U.S. persons in reliance on the safe harbor from registration provided by Regulation S under the Securities Act. Specifically, the alleged conduct relates to a) the markup on the sale ofthe preferred shares ofthe Grand Avenue II CDO to customers ofWells Fargo Advisors, LLC; and b) the disclosure ofthe purchase of assets by the Longshore 3 CDO. In connection with the Proceeding, Wells Fargo Securities and the Division ofEnforcement have reached an agreement in principle to settle the Proceeding as described below, and Wells Fargo Securities has submitted to the Commission an offer ofsettlement in which, for the purpose ofthis Proceeding, it consents to the imposition of a cease-and-desist order (the "Order") without admitting or denying the matters set forth in the Order (except as to the jurisdiction ofthe Commission). In the Order, the Commission will order Wells Fargo Securities to cease and desist from violating Section 17(a) ofthe Securities Act. The Order will also order Wells Fargo Securities to disgorge $6,750,000 and to pay a civil penalty in the amount of $4,450,000. DISCUSSION Under a number of Securities Act rules that became effective on December 1,2005, a company that qualifies as a ''well-known seasoned issuer" as defmed in Rule 405 is eligible, among other things, to register securities for offer and sale under an "automatic shelfregistration statement," as so defined, and to have the benefits of a streamlined registration process under the Securities Act. Companies that qualify as well-known seasoned issuers are entitled to conduct registered offerings more easily and with substantially fewer restrictions, which facilitates the raising of capital by these issuers. Pursuant to Rule 405, however, a company cannot qualify as a well-known seasoned issuer ifit is an "ineligible issuer." Similarly, the Securities Act rules permit an issuer and other offering participants to communicate more freely during registered offerings by using free-writing prospectuses, but only ifthe issuer is not an "ineligible issuer."· Being an ineligible issuer will disqualify an issuer under the definition of "well-known seasoned issuer," thereby preventing the issuer from using an automatic shelfregistration statement (see Rule 405) and limiting its ability to communicate with the market prior to filing a registration statement (see Rule 163). In addition, being an ineligible issuer will disqualify an issuer, whether or not it is a well-known seasoned issuer, under Rules 164 and 433, thereby preventing the issuer and other offering participants from using free-writing prospectuses during registered offerings of its
securities.

Mary Kosterlitz, Esq. -3
Ru1e 405 ofthe Securities Act makes an issuer an "ineligible issuer" if, during the past three years, the issuer or any entity that at the time was a subsidiary ofthe issuer "was made the subject of any judicial or administrative decree or order arising out of a governmental action" that, among other things, "(A) prohibits certain conduct or activities regarding, including future violations of, the anti-fraud provisions ofthe federal securities laws" or "(B) requires that the person cease and desist from violating the anti￾fraud provisions ofthe federal securities laws.,,2 Rule 405 also authorizes the Commission to determine, ''upon a showing ofgood cause, that it is not necessary under the circumstances that the issuer be considered an ineligible issuer.,,3 The Commission has delegated authority to the Division ofCorporation Finance to grant waivers from any ofthe ineligibility provisions ofthis definition.4 The Order may be deemed to be an order arising out ofgovernment action ofthe kind that wou1d resu1t in Wells Fargo becoming an ineligible issuer for a period of three years after the Order is entered. This resu1t would preclude Wells Fargo from· qualifying as a well-known seasoned issuer and having the benefit of automatic shelf registration and other provisions ofthe new ru1es for three years. This wou1d be a significant detriment for Wells Fargo. Being considered an ineligible issuer will preclude Wells Fargo from taking advantage ofmany ofthe benefits set forth in Rules 405 and 163 and will leave the company at a significant disadvantage to its peer firms and hinder necessary and periodic access to the capital markets through significantly increased time, labor and cost ofsuch access. Consequently, automatic shelfregistration and the other benefits available to a well-known seasoned issuer are significant for Wells Fargo. As described above, Ru1e 405 authorizes the Commission to determine that a company shall not be an ineligible issuer, notwithstanding that the company becomes subject to an otherwise disqualifying order arising out ofgovernment action. Wells Fargo believes that there is good cause, in this case, for the Commission to make such a detennination with respect to the Order on the following grounds:
The disqualification of Wells Fargo is not warranted given the nature of the alleged conduct described in the Order. The alleged conduct does not relate to Wells Fargo's disclosures in its own filings with the Commission, nor does it allege fraud in connection with Wells Fargo's offering ofits own securities. The disqualification of Wells Fargo from the benefits ofbeing a well-known seasoned issuer is undu1y and disproportionately severe, given that the Commission staffhas negotiated a settlement with Wells Fargo Securities and reached a satisfactory conclusion to this matter. 2 See 17 C.F.R. § 230.405. 3 Id 4 See 17 C.F.R. § 200.30-1. See also note 215 in Release No. 33-8591 (July 19,2005).

Mary Kosterlitz, Esq. -4

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In light ofthe foregoing, we believe that disqualification ofWells Fargo as an ineligible issuer is not necessary under the circumstances, either in the public interest or for the protection ofinvestors, and that Wells Fargo has shown good cause for the requested relief to be granted. Accordingly, we respectfully request that the Division of Corporation Finance, on behalfofthe Commission, pursuant to Rule 405, detennine that it is not necessary under the circwnstances that Wells Fargo be an "ineligible issuer" within the meaning ofRule 405 as a result ofthe Order. Ifyou have any questions regarding this request, please contact the undersigned at (212) 558-3196, Matthew Fitzwater at (212) 558-1632 or Christopher Viapiano at (202) 956-6985. Sincerely, /,~//~/~./ Karen Patton Seymour cc: Reid A. Muoio, Esq. Jeffrey Leasure, Esq. Brent Mitchell, Esq. (U.S. Securities and Exchange Commission) Barbara H. Wright, Esq.

(Wells Fargo Law Department)