SEC Division of Investment Management staff letter: Wachovia Securities LLC

PAUL. WEISS, RIFKIND,
1285 AVENUE OF THE AMERICAS
NEW YORK. NEW YORK 10019-6064
TELEPHONE (212) 373-3000
FACSIMILE (212) 757-3990
LLOYD K. GARRISON (1946-1991 )
RANDOLPH E. PAUL (1946-1956)
SIMON H. R1FK1ND ( 1950-1995)
LOUIS S. WEISS (t 927-1950)
JOHN F. WHARTON (1927-1977)
WRITER'S DIRECT DIAL NUMBER
212-373-3124
WRITER'S DIRECT FACSIMILE
212-492-0124
WRITER'S DIRECT E-MAIL ADDRESS dhuntington@paulweiss.com WHARTON & GARRISON LLP 2001 K STREET, NW WASHINGTON, DC 20006-1047 TELEPHONE (202) 223-7300 FACSIMILE (202) 223-7420 FUKOKU SEIMEI BUILDING 2-2 UCHISAIWAICHO 2-CHOME CHIYODA-KU, TOKYO 100-0011, JAPAN TELEPHONE (81-3) 3597-8101 FACSiMILE 1.81-3) 3597-8120 UNIT 3601, FORTUNE PLAZA OFFICE TOWER A NO 7 DONG SANHUAN ZHONGLU CHAO YANG DISTRICT BEIJING 100020 PEOPLE'S REPUBLIC OF CHINA TELEPHONE (86-10) 5828-6300 FACSIMILE (86-10) 6530-9070/9080 12TH FLOOR, HONG KONG CLUB BUILDING 3A CHATER ROAD, CENTRAL HONG KONG TELEPHONE (852) 2536-9933 FACSIMILE (8521 2536-9622 ALDER CASTLE 10 NOBLE STREET LONDON EC2V 7JU, U,K TELEPHONE (44 20) 7367 1600 FACSIMILE 144 20) 7367 1650 February 17,2009 MATTHEW W, ABBOTT MARK H. ALCOTT ALLAN J. ARFFA ROBERT A. ATKINS JOHN F BAUGHMAN LYNN B. BAYARD DANIEL J. BELLER MITCHELL L. BERG MARK S. BERGMAN BRUCE BIRENBOIM H. CHRISTOPHER BOEHNING ANGELO BONVINO HENK BRANDS JAMES L. BROCHIN RICHARD J. BRONSTEIN DAVID W, BROWN SUSANNA M. BUERGEL PATRICK S. CAMPBELL* JEANETTE K CHAN YVONNE Y. F CHAN LEWIS R. CLAYTON JAY COHEN KELLEY A. CORNISH CHARLES E. DAVIDOW DOUGLAS R. DAVIS THOMAS V. DE LA BAsTI DE III ARIEL J. DECKELBAUM JAMES M. DUBIN ANDREW J. EHRLICH LESLIE GORDON FAGEN MARC FALCONE PETER L. FELCHER ROBERTO FINZI PETER E. FISCH ROBERT C. FLEDER MARTIN FLUMENBAUM ANDREW J. FOLEY HARRIS B. FREIDUS MANUEL S. FREY KENNETH A. GALLO MICHAEL E. GERTZMAN PAUL D. GINSBERG ERIC 5. GOLDSTEIN ERIC GOODISON CHARLES H. GOOGE, JR. ANDREW G. GORDON BRUCE A GUTENPLAN GAINES GWATHMEY, III ALAN S. HALPERIN CLAUDIA HAMMERMAN GERARD E HARPER BRIAN S, HERMANN ROBERT M HIRSH MICHELE HIRSHMAN JOYCE S. HUANG MEREDITH J. KANE ROBERTA A, KAPLAN BRAD 5. KARP JOHN C. KENNEDY ALAN W. KORNBERG DANIEL J, KRAMER NOT ADMITTED TO THE NEW YORh, BAR DAVID K. LAKHDHIR JOHN E. LANGE DANIEL J. LEFFELL XIAOYU GREG L1U JEFFREY D. MARELL JULIA TARVER MASON MARCO V. MASOTTI EDWIN S. MAYNARD DAVID W. MAYO TOBY S. MYERSON JOHN E. NATHAN CATHERINE NYARADY ALEX YOUNG K. OH JOHN J O'NEIL KELLEY D, PARKER ROBERT P. PARKER MARC E PERLMUTTER MARK F. POMERANTZ VALERIE E. RADWANER CAREY R. RAMOS CARL L, REiSNER WALTER G. RICCIARDI WALTER RlEMAN RICHARD A. ROSEN ANDREW N. ROSENBERG PETERJ ROTHENBERG JACQUELINE P RUBIN RAPHAEL M. RUSSO JEFFREY D sAFERSTEIN JEFFREY B. SAMUELS DALE M. SARRO TERRY E. SCHIMEK KENNETH M. SCHNEIDER ROBERT B, SCHUMER JAMES H. SCHWAB STEPHEN J. SHIMSHAK DAVID R. SrCULAR MOSES SILVERMAN STEVEN SIMKIN JOSEPH J. SIMONS MARILYN SOBEL TARUN M. STEWART ERIC ALAN STONE AIDAN SYNNOTT ROBYN F TARNOFSKY JUDITH R, THOYER DANIEL J. TOAL MARK A, UNDERBERG LIZA M VELAZQUEZ MARIA T. VULLO LAWRENCE G WEE THEODORE V. WELLS, JR BETH A. WILKINSON STEVEN J. WILLIAMS LAWRENCE I. WITDORCHIC JORDAN E. YARETT KAYE N. YOSH I NO TONG YU TRACEY A. ZACCONE T ROBERT ZOCHOWSKI, JR FIRST CLASS MAIL AND EMAIL Douglas J. Scheidt, Esq. Associate Director and Chief Counsel Division of Investment Management Securities and Exchange
Commission 100 F Street, NE Washington, DC 20549 Re: In the Matter of Auction Rate Securities Liquidity, Wachovia Securities, LLC (File No. C-7471); Securities and Exchange Commission v. Wachovia Securities, LLC (N.D.IlI. 2009) - Request for Relief under Rule 206(4)-3 under the Investment Adviser Act of 1940 Dear Mr. Scheidt:
We submit this letter on behalf of our client Wachovia Securities, LLC (the "Settling Firm") in connection with a settlement between the Settling Firm and the Securities and Exchange Commission (the "Commission") in the above referenced civil proceeding relating to the Settling Firm's sale of auction rate securities to its customers. The Settling Firm is an indirect subsidiary of Wells Fargo & Company ("Wells Fargo").] Through its direct and indirect subsidiaries, Wells Fargo offers banking, The Settling Firm is a subsidiary ofWachovia Securities Financial Holdings, LLC ("WSFH"), a joint venture between Wells Fargo (as a result of its merger with Wachovia Corporation) and Prudential Financial, Inc. ("Prudential"). Prudential's precise indirect ownership interest in WSFH, taking into account, among other things, Wachovia Corporation's 2007 acquisition of A.G. Edwards, Inc., is in the process of being determined. We request that any relief granted apply to Prudential and its affiliates to the extent that Prudential and any of its affiliates are deemed associated persons ofWachovia Securities. Ooc#: us 1:5292751 v8

PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP
Douglas J. Scheidt, Esq. Page 2 brokerage, advisory and other financial services to institutional and individual customers worldwide. The Settling Finn is an investment adviser, registered under Section 203 ofthe Investment Advisers Act of 1940, as amended (the "Advisers Act"), and currently engages in cash solicitation activities that are subject to Rule 206(4)-3 under the Advisers Act (the "Rule"). The Settling Finn seeks the assurance of the staff of the Division of Investment Management (the "Staff') that it would not recommend any enforcement action to the Commission under Section 206(4) ofthe Advisers Act, or the Rule, if an investment adviser pays the Settling Finn or any of its associated persons (as defined in
Section 202(a)(l7) of the Advisers Act) a cash payment, directly or indirectly, for the
solicitation of advisory clients, notwithstanding the existence of the Final Judgment (as defined below). While the Final Judgment does not operate to prohibit or suspend the Settling Finn from acting as or being associated with an investment adviser (except as provided in Section 9(a) ofthe Investment Company Act of 1940, as amended (the "Investment Company Act")),2 and does not relate to solicitation activities on behalf of investment advisers, the Final Judgment may affect the ability ofthe Settling Finn to receive cash payments for such activities. The Staff in many other instances has granted no-action relief under the Rule under similar circumstances. BACKGROUND The Settling Finn has engaged in settlement discussions with the staff of the Division of Enforcement in connection with the civil proceeding referenced above. As a result of these discussions, the Settling Finn has submitted an executed consent (the "Consent"). In the Consent, the Settling Finn has agreed to the entry of a judgment (the "Final Judgment") in the United States District Court for the Northern District of Illinois relating to a complaint (the "Complaint") filed by the Commission. Under the tenns of Under Section 9(a) of the Investment Company Act, the Settling Firm and its atliliated persons will, as a result of the Final Judgment, be prohibited from serving or acting as, among other things, an investment adviser or depositor of any regIstered investment company or principal underwriter for any registered open-end investment company or registered unit investment trust. As of the date of this letter, the Settling Firm does not serve or act in any of the foregoing capacities. The Settling Firm and affiliated persons of the Settling Firm who act in the capacities set forth in
Section 9(a) of the Investment Company Act have filed an application under Section 9(c) of the
Investment Company Act requesting the Commission to issue both temporary and permanent orders exempting them, and the Settling Firm's future affiliated persons should any of them serve or act in any of the capacities set forth in Section 9(a) III the future, from the restrictions of Section 9(a). The applicants believe that they meet the standards for exemptive relief under Section 9(c), and they expect that the Commission will issue a temporary order prior to or simultaneous with the Final Judgment, and a permanent order in due course thereafter. In no event will the Settling Firm or any of its atliliated persons act in any capacity enumerated in Section 9(a) unless and until the Commission issues an order pursuant to Section 9(c) of the Investment Company Act. exempting them from the prohibitions of Section 9(a) of the Investment Company Act resulting from the Final Judgment.

PAUL, WEISS, RIFKIND, WHARTON & CJARRISON LLP
Douglas 1. Scheidt, Esq. Page 3 the Consent, the Settling Finn will neither admit nor deny the allegations in the Complaint or the findings in the Final Judgment, except as to jurisdiction. The Complaint alleges that the Settling Finn violated Section l5(c) ofthe Securities Exchange Act of 1934, as amended (the "Exchange Act"), by selling auction rate securities to its customers without adequately disclosing the risks involved in purchasing these securities. As a result of widespread auction failures beginning in February 2008, many customers who thought they had acquired liquid securities (equivalent to cash) were left with no market for their auction rate securities and no means ofrealizing the par value of their auction rate securities. The Final Judb'1nent enjoins the Settling Finn from future violations of Section l5(c) ofthe Exchange Act and requires the Settling Firm to take certain other remedial measures. EFFECT OF RULE 206(4)-3 The Rule prohibits an investment adviser from paying a cash fee to any solicitor that has been temporarily or pennanently enjoined by an order, judb'111ent or decree of a court of competent jurisdiction from engaging in or continuing any conduct or practice in connection with the purchase or sale of any security. The Final Judgment will cause the Settling Finn to be disqualified under the Rule, and accordingly, absent no-action reliet~ the Settling Finn would be unable to receive cash payments, directly or indirectly, for the solicitation of advisory clients. DISCUSSION In the release adopting the Rule, the Commission stated that it "would entertain, and be prepared to grant in appropriate circumstances, requests for pennission to engage as a solicitor a person subject to a statutory bar.,,3 We respectfully submit that the circumstances present in this case warrant a grant of no-action relief. The Rule's proposing and adopting releases explain the Commission's purpose in including the disqualification provisions in the Rule. The purpose was to prevent an investment adviser from hiring as a solicitor a person whom the adviser was not pennitted to hire as an employee, thus doing indirectly what the adviser could not do directly. In the proposing release, the Commission stated that:
[b]ecause it would be inappropriate for an investment adviser to be pennitted to employ indirectly, as a solicitor, someone whom it might not be able to hire as an employee, the Rule prohibits payment of a referral fee to someone who ... has engaged in any of the conduct set forth in Section 203(e) of the [Advisers] Act ... and therefore could See Requirements Governing Payments of Cash Referral Fees by Investment Advisers. Inv. Adv. Act ReI. No. 688 (July 12. 1979), 17 S.E.C. Docket (CCH) 1293, 1295, at note 10.

PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP
Douglas J. Scheidt, Esq. Page 4 be the subject of a Commission order barring or suspending the right of such person to be associated with an investment adviser. 4 The Final Judgment does not expressly bar, suspend, or limit the Settling Finn or any person currently associated with the Settling Finn from acting in any capacity under the federal securities laws. The Settling Finn has not been sanctioned for activities as an investment adviser or in respect ofthe solicitation of advisory clients. Accordingly, consistent with the Commission's reasoning, there does not appear to be any reason to prohibit a registered investment adviser from paying the Settling Finn for engaging in solicitation activities under the Rule. The Staff previously has granted numerous requests for no-action relief from the disqualification provisions of the Rule to individuals and entities found by the Commission to have violated a wide range of federal securities laws and rules thereunder and self regulatory organization rules or pennanently enjoined by courts of competent jurisdiction from engaging in or continuing any conduct or practice in connection with the purchase or sale of any security. 5 See Requirements Goveming Payments of Cash Referral Fees by Investment Advisers, Inv. Adv. Act ReI. No. 615 (Feb. 2,1978),14 S.E.C. Docket (CCH) 89, 91. See, e.g., Barclays Bank PLC, SEC No-Action Letter (pub. avail. June 6, 2007); Emanuel J. Friedman and EJF Capital LLC, SEC No-Action Letter (pub. avail. Jan. 16,2007); Ameriprise Financial Services Inc., SEC No-Action Letter (pub. avail. Apr. 5.2006); Millermium Partners, L.P., et ai, SEC No-Action Letter (pub. avail. Mar. 9, 2006); American Intemational Group, Inc., SEC No-Action Letter (pub. avail. February 21,2006); ING Bank N.V., SEC No-Action Letter (pub. avail. Aug. 31, 2005); CIBC Mellon Trust, SEC No-Action Letter (pub. avail. February 24, 2005); Goldman, Sachs & Co. Inc., SEC No-Action Letter (pub. avail. Feb. 23, 2005); Morgan Stanley & Co., Inc., SEC No-Action Letter (pub. avail. Feb. 4, 2005); American Intemational Group, Inc. SEC No-Action Letter (pub. avail. Dec. 8,2004); Deutsche Bank Securities Inc. SEC No-Action Letter (pub. avail. Sept. 24,2004); Citigroup Global Markets Inc., Uk/a Salomon Smith Bamey Inc. SEC No-Action Letter (pub. avail. Oct. 31,2003); Dougherty & Company LLC, SEC No-Action Letter (pub. avail. July 3, 2003); Prime Advisors, Inc., SEC No-Action Letter ( pub. avail. Nov. 8, 2001); Legg Mason Wood Walker, Inc., SEC No-Action Letter (pub. avail. June II, 2001); Dreyfus Corp., SEC No-Action Letter (pub. avail. March 9,2001); Prudential Securities Inc., SEC No-Action Letter (pub. avail. Feb. 7,2001); Tucker Anthony Inc., SEC No- Action Letter (pub. avail. Dec. 21, 2000); lB. Hanauer & Co., SEC No-Action Letter (pub. avail. Dec. 12,2000); Founders Asset Management LLC, SEC No-Action Letter (pub. avail. Nov. 8,2000); Credit Suisse First Boston Corp., SEC No-Action Letter (pub. avail. Aug. 24, 2000);
JaImey Montgomery Scott LLC, SEC No-Action Letter (pub. avail. July 18,2000); Aeltus Investment Management, Inc., SEC No-Action Letter (pub. avail. July 17,2000); William R. Hough & Co .. SEC No-Action Letter (pub. avail. Apr. 13,2000); In the Matter of Certain Municipal Bond Refundings, SEC No-Action Letter (pub. avail. Apr. 13,2000); In the Matter of Certain Market Making Activities on Nasdaq, SEC No-Action Letter (pub. avail. Jan. 11, 1999); Paine Webber, Inc., SEC No-Action Letter (pub. avail. Dec. 22, 1998); NationsBanc Investments, Inc., SEC No- Action Letter (pub. avail. May 6, 1998); Morgan Keegan & Co., Inc., SEC No-Action Letter ( pub. avail. Jan. 9, 1998); Mitchell Hutchins Asset Management Inc. SEC No-Action Letter (pub. avail. Jan. 2, 1998); Merrill Lynch, Pierce, Fermer & Smith, Inc., SEC No-Action Letter (pub. avail. Aug. 7, 1997); Gruntal & Co., SEC No-Action Letter (pub. avail. July 17, 1996); Camegie Asset

PAUL, WEISS, RIFKIND, WHARTON 8 GARRISON LLP
Douglas J. Scheidt, Esq. Page 5
REPRESENTATIONS
In connection with this request, the Settling Finn represents the following:
I. 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 tenns of Rule 206(4)-3, except for the investment adviser's payment of cash solicitation fees to the Settling Firm, which is subject to the Final Judgment;
2. The Final Judgment does not expressly bar or suspend the Settling Finn or
any person currently associated with the Settling Finn from acting in any capacity under the federal securities laws;
3. It will comply with the tenns of the Final Judgment, including, but not
limited to, complying with its undertaking to buy back eligible auction rate securities at par from eligible customers; and
4. For ten years from the date of the entry of the Final Judgment, the Settling
Finn or any investment adviser with which it has a solicitation arrangement subject to Rule 206(4)-3 will disclose the Final Judgment in a written document that is delivered to each person whom the Settling Finn 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, ifthe person has the right to tenninate such contract without penalty within five business days after entering into the contract. CONCLUSION We respectfully request the Staff to advise us that it will not recommend enforcement action to the Commission if an investment adviser that is required to be registered with the Commission pays the Settling Finn or any of its associated persons a cash payment for the solicitation of advisory clients, notwithstanding the Final Judbrrnent. Management, SEC No-Action Letter (pub. avaiL July I I, 1994); Salomon Brothers Inc., SEC No- Action Letter (pub. avaiL Jan. 26, 1994); BT Securities Corporation, SEC No-Action Letter ( pub. avaiL Mar. 30, 1992); Kidder Peabody & Co. Inc., SEC No-Action Letter (Oct. II, 1990); First City Capital Corp., SEC No-Action Letter (pub. avaiL Feb. 9, 1990); RNC Capital Management Co., SEC No-Action Letter (pub. avaiL Feb. 7, 1989); and Stein Roe & Farnham, Inc., SEC No- Action Letter (pub. avaiL Aug. 25, 1988).

PAUL, WEISS, RIFKIND, WHARTON B CiARRISON LLP
Douglas]. Scheidt, Esq. Page 6
Please do not hesitate to call the undersigned at (212) 373-3124 regarding this request. Sincerely, Ij ..,,;j,ll. {j). '. David S. Huntington Cc: Doug Kelly, Wachovia Securities, LLC David Hebner, Wachovia Securities, LLC
C. David Messman, Wells Fargo & Company

Kathryn Quirk, Prudential FinanciaL Inc.

Kenneth]. Berman, Debevoise & Plimpton LLP