SEC Division of Investment Management staff letter: Wells Fargo Bank, N.A.

Effective November 4, 2022, This Letter is Withdrawn. Please consult the following web page for more information: https://www.sec.gov/divisions/investment/im-modified-withdrawn-staff-statements .

Investment Advisers Act of 1940 – Section 206 and Rule 206(4)-3 Wells Fargo Bank, N.A.

December 12, 2011

RESPONSE OF THE OFFICE OF CHIEF COUNSEL

DIVISION OF INVESTMENT MANAGEMENT

Our Ref. No. 201111211049

File No. 801-72865

We would not recommend enforcement action to the Securities and Exchange Commission (“Commission”) under Section 206(4) of the Investment Advisers Act of 1940 (“Advisers Act”) and Rule 206(4)-3 thereunder if any investment adviser that is required to be registered pursuant to Section 203 of the Advisers Act pays to Wells Fargo Bank, N.A. (successor by merger to Wachovia Bank, N.A.) (“Wells Fargo Bank” or the “Settling Firm”) or any of its associated persons, as defined in Section 202(a)(17) of the Advisers Act, a cash solicitation fee, directly or indirectly, for the solicitation of advisory clients in accordance with Rule 206(4)-3, 1 notwithstanding an injunctive order issued by the United States District Court for the District of New Jersey (the “Judgment”) that otherwise would preclude such an investment adviser from paying such a fee, directly or indirectly, to the Settling Firm or certain related persons. 2

Our position is based on the facts and representations in your letter dated December 12, 2011, particularly the representations of the Settling Firm that:

it will conduct any cash solicitation arrangement entered into with any investment adviser registered or required to be registered under Section 203 of the Advisers Act in compliance with the terms of Rule 206(4)-3, except for the investment adviser’s payment of cash solicitation fees, directly or indirectly, to the Settling Firm, which is subject to the Judgment;

the Judgment does not bar or suspend the Settling Firm or any person currently associated with the Settling Firm from acting in any capacity under the federal securities laws; 3

it will comply with the terms of the Judgment, including, but not limited to, the payment of disgorgement, pre‑judgment interest and the civil penalty; and

for ten years from the date of the entry of the Judgment, the Settling Firm or any investment adviser with which it has a solicitation arrangement subject to Rule 206(4)-3 will disclose the Judgment in a written document that is delivered to each person whom the Settling Firm 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, if the person has the right to terminate such contract without penalty within five (5) business days after entering into the contract.

This position applies only to the Judgment and not to any other basis for disqualification under Rule 206(4)-3 that may exist or arise with respect to the Settling Firm or any of its associated persons.

Adam Glazer Senior Counsel

1 Rule 206(4)-3 prohibits any investment adviser that is required to be registered under the Advisers Act from paying a cash fee, directly or indirectly, to any solicitor with respect to solicitation activities if, among other things, the solicitor is subject to an order, judgment or decree described in Section 203(e)(4) of the Advisers Act.

2 Securities and Exchange Commission v. Wachovia Bank, N.A., n/k/a Wells Fargo Bank, N.A., No. 11-CV-7135 (D.N.J.) (Dec. 9, 2011).

3 Section 9(a)(2) of the Investment Company Act of 1940 (the “Investment Company Act”) provides, in pertinent part, that a person may not serve or act as, among other things, an investment adviser or depositor of any investment company registered under the Investment Company Act or a principal underwriter for any registered open-end investment company or registered unit investment trust if, among other things, that person, by reason of any misconduct, is permanently or temporarily enjoined from acting, among other things, as an underwriter, broker, dealer or investment adviser, or from engaging in or continuing any conduct or practice in connection with any such activity, or in connection with the purchase or sale of any security. Section 9(a)(3) extends the prohibition to any company any affiliated person of which is disqualified pursuant to Section 9(a)(2).

The entry of the Judgment, absent the issuance of an order by the Commission pursuant to Section 9(c) of the Investment Company Act that exempts the Settling Firm from the provisions of Section 9(a) of the Investment Company Act, would effectively prohibit the Settling Firm and companies of which it is an affiliated person from acting in any of the capacities set forth in Section 9(a) of the Investment Company Act. You state that, pursuant to Section 9(c) of the Investment Company Act, the Settling Firm and certain affiliated persons, on behalf of themselves and future affiliated persons, submitted an application to the Commission requesting (i) an order of temporary exemption from Section 9(a) of the Investment Company Act and (ii) a permanent order exempting such persons from the provisions of Section 9(a) of the Investment Company Act.

On December 9, 2011, the Commission issued an order granting the Settling Firm, certain affiliated persons and future affiliated persons a temporary exemption from Section 9(a) of the Investment Company Act pursuant to Section 9(c) of the Investment Company Act, with respect to the Judgment, until the date the Commission takes final action on the application for a permanent order. In re Wells Fargo Bank, N.A., et al. , SEC Rel. No. IC‑29881 (Dec. 9, 2011). Therefore, the Settling Firm, certain affiliated persons and future affiliated persons are not currently barred or suspended from acting in any capacity specified in Section 9(a) of the Investment Company Act as a result of the Judgment.

Incoming Letter

The Incoming Letter is in Acrobat format.

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SULLIVAN & CROMWELL LLP
TELEPHONE: 1-212-558-4000
FACSIMILE: 1-212-558-3588 125PJJmad~ WWW.SULL.CROM.COM o/~-' JP'Y10004-24.98 LOS ANGELES' PALO ALTO' WASHINGTON, D,C. FRANKFURT. LONDON' PARIS BEIJING' HONG KONG' TOKYO MELBOURNE' SYDNEY December 12,2011 By Hand and Via E-mail Douglas J. Scheidt, Esq.

Associate Director and Chief Counsel

Division ofInvestment Management

U.S. Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C. 20549

Re: SEC v. Wachovia Bank, NA., n/k/a Wells Fargo Bank, NA., No. 11-cv-07135 (D.N.J.) Dear Mr. Scheidt:
We are writing on behalf of our client, Wells Fargo Bank, N.A., successor by merger to Wachovia Bank, N.A. ("Wells Fargo Bank"), and the settling party in the above-captioned action (the "Action") brought by the U.S. Securities and Exchange Commission (the "Commission"). The Action relates to alleged violations ofthe federal securities laws by Wachovia Bank (prior to its merger with and into Wells Fargo Bank) in connection with the bidding on and sale ofmunicipal derivative transactions. Wells Fargo Bank is registered as an investment adviser under Section 203 ofthe Investment Advisers Act of 1940, as amended (the "Advisers Act"), but it does not currently engage in cash solicitation activities that are subject to Rule 206(4)-3 (the "Rule") under the Advisers Act. However, Wells Fargo Bank may engage in such activities in the future. Wells Fargo Bank seeks the assurance ofthe Staff ofthe Division ofInvestment 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 that is required to be registered pursuant to Section 203 ofthe Advisers Act, pays Wells Fargo Bank, or any of its associated persons (as defined in
Section 202(a)(l7) ofthe Advisers Act), a cash solicitation fee, directly or indirectly, for
the solicitation of advisory clients in accordance with the Rule, notwithstanding the

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Douglas J. Scheidt, Esq. -2 existence ofthe final judgment (the "Final Judgment"),l which is described below, that otherwise would preclude such an investment adviser from paying such a fee, directly or indirectly, to Wells Fargo Bank or certain related persons. While the Final Judgment does not operate to prohibit or suspend Wells Fargo Bank or its associated persons from acting as, or being associated with, an investment adviser and does not relate to solicitation activities on behalf of any investment adviser, the Final Judgment may affect the ability ofWells Fargo Bank or its associated persons to receive such payments.2 The Rule prohibits an investment adviser that is required to be registered under the Advisers Act from paying a cash fee to any solicitor that has been temporarily or permanently enjoined by an order, judgment, 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. Entry ofthe Final Judgment could cause Wells Fargo Bank or its associated persons to be disqualified under the Rule, and accordingly, absent no-action relief, Wells Fargo Bank or its associated persons may be unable to receive cash payments, directly or indirectly, from advisers registered or required to be registered for the solicitation of advisory clients. BACKGROUND The conduct of Wachovia Bank alleged in the Action involved the bidding on and sale ofmunicipal derivative transactions to municipalities and other issuers oftax￾exempt debt. The Commission alleges in the complaint ("Complaint") that Wachovia Bank engaged in fraudulent practices, misrepresentations, and omissions that affected the prices ofthe reinvestment instruments, deprived the municipalities of a conclusive presumption that their reinvestment instruments were purchased at fair market value, Securities and Exchange Commission v. Wachovia Bank, NA., n/k/a Wells Fargo Bank, NA., Case No. 11-cv-07135 (D.N.J.) (Final Judgment) (Dec. 9, 2011). Under Section 9(a) ofthe Investment Company Act of 1940 ("Investment Company Act"), Wells Fargo Bank and its affiliated persons are, as a result ofthe Final Judgment, 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. Wells Fargo Bank and its affiliated persons who act in the capacities set forth in Section 9(a) ofthe Investment Company Act have filed an application under
Section 9(c) ofthe Investment Company Act requesting the Commission to issue both temporary
and permanent orders exempting them, and Wells Fargo Bank's future affiliated persons should any ofthem serve or act in any ofthe capacities set forth in Section 9(a) in the future, from the restrictions ofSection 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 Wells Fargo Bank or any ofits affiliated persons act in any capacity enumerated in
Section 9(a) unless and until the Commission issues an order pursuant to Section 9(c) ofthe
Investment Company Act exempting them from the prohibitions ofSection 9(a) resulting from the Final Judgment. On December 9, 2011, the Commission issued a temporary order (SEC Release No. IC-29881) effective as ofthe date ofthe Final Judgment, and the applicants expect the Commission will issue a permanent order in due course thereafter.

Douglas J. Scheidt, Esq. -3 and/or jeopardized the tax-exempt status of certain securities. Specifically, the Commission alleges that, from at least 1997 to at least 2005, certain Wachovia Bank employees conspired with bidding agents and other providers ofmunicipal derivative transactions to rig at least 29 such transactions for Wachovia Bank to win; the Commission further alleges that certain Wachovia Bank employees provided at least 29 deliberately non-winning bids for municipal derivative transactions so as to facilitate the rigging ofthose transactions for other providers to win. Based on the alleged misconduct in the Complaint, Wachovia Bank allegedly violated Section 17(a) ofthe Securities Act. In connection with the Action, Wells Fargo Bank and the Division of Enforcement have reached an agreement to settle the Action as described below, and Wells Fargo Bank submitted to the Commission an executed consent in which, for the purpose ofthis Action, it consents to the imposition of a Final Judgment, including imposition of an injunction, without admitting or denying the matters set forth in the Complaint (except as to the jurisdiction ofthe Commission). In the Final Judgment, Wells Fargo Bank is enjoined from violating
Section 17(a) ofthe Securities Act. The Final Judgment also orders Wells Fargo Bank to
disgorge $13,802,984, pay pre-judgment interest in the amount of $7,275,607, and pay a civil penalty in the amount of $25,000,000. DISCUSSION In the release adopting the Rule, the Commission stated that it "would entertain, and be prepared to grant in appropriate circumstances, requests for permission to engage as a solicitor a person subject to a statutory bar.,,3 We respectfully submit that the circumstances present in this case are precisely the sort that 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 permitted 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 permitted 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 ofthe conduct set forth in
Section 203(e) ofthe [Advisers] Act ... and therefore
could be the subject of a Commission order barring or See Requirements Governing Payments ofCash Referral Fees by Investment Advisers, Inv. Adv. Act ReI. No. 688 (July 12, 1979), 17 S.E.C. Docket (CCH) 1293, 1295. 3

Douglas J. Scheidt, Esq. -4 suspending the right ofsuch person to be associated with an investment adviser.4 The Final Judgment does not bar, suspend, or limit Wells Fargo Bank or any person currently associated with it from acting in any capacity under the federal securities laws.s Wells Fargo Bank has not been sanctioned for activities relating to conduct as an investment adviser or relating to solicitation of advisory clients. The Final Judgment does not pertain to advisory activities. Accordingly, consistent with the Commission's reasoning, there does not appear to be any reason to prohibit an adviser from paying Wells Fargo Bank or its associated persons for engaging in solicitation activities under the Rule. The Staff previously has granted numerous requests for no-action relief from the disqualification provisions ofthe Rule to individuals and entities found by the Commission to have violated a wide range offederal securities laws and rules thereunder or permanently enjoined by courts of competent jurisdiction from engaging in or continuing any conduct or practice in connection with the purchase or sale of any • 6 secunty. UNDERTAKINGS In connection with this request, Wells Fargo Bank undertakes:

1. To conduct any cash solicitation arrangement entered into with any
   adviser registered or required to be registered under Section 203 of 4 See Requirements Governing Payments ofCash Referral Fees by Investment Advisers, Inv. Adv. Act ReI. No. 615 (Feb. 2, 1978), 14 S.E.C. Docket (CCH) 89, 91. 5 See supra note 2. 6 See, e.g., J.P. Morgan Securities LLC, SEC No-Action Letter (pub. avail. June 29, 2011); UBS Financial Services Inc., SEC No-Action Letter (pub. avail. May 9, 2011); Citigroup Inc., SEC No￾Action Letter (pub. avail. Oct. 22, 2010); Banc ofAmerica Investment Services, Inc., SEC No￾Action Letter (pub. avail. June 10, 2009); Barclays Bank PLC, SEC No-Action Letter (pub. avail. June 6, 2007); Morgan Stanley & Co. Incorporated, SEC No-Action Letter (pub. avail. May 15, 2006); American International Group, Inc., SEC No-Action Letter (pub. avail. Feb 21, 2006); Goldman, Sachs & Co., SEC No-Action Letter (pub. avail. Feb. 23, 2005); Morgan Stanley & Co. Incorporated, SEC No-Action Letter (pub. avail. Feb. 4, 2005); Prime Advisors, Inc.; SEC No￾Action Letter (pub. avail. Nov. 8,2001); Legg Mason Wood Walker, Inc., SEC No-Action Letter (pub. avail. June 11,2001); Dreyfus Corp., SEC No-Action Letter (pub. avail. March 9, 2001); UBS Securities Inc., SEC No-Action Letter (pub. avail. Feb. 7,2001); Tucker Anthony Inc., SEC No-Action Letter (pub. avail. Dec. 21, 2000); J.B. 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); Janney 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 ofCertain Municipal Bond Refundings, SEC No-Action Letter (pub. avail. Apr. 13, 2000).

Douglas J. Scheidt, Esq. -5 the Advisers Act in compliance with the terms of Rule 206(4)-3, except for an investment adviser's payment of cash solicitation fees, directly or indirectly, to Wells Fargo Bank, which is subject to the Final Judgment;
2. To comply with the terms ofthe Final Judgment, including, but not
limited to, the payment of disgorgement, pre-judgment interest, and the civil penalty; and
3. That for ten years from the date ofthe entry of the Final Judgment,
Wells Fargo Bank 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 Wells Fargo Bank 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 terminate such contract without penalty within five business days after entering into the contract.

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In light ofthe foregoing, we respectfully request that the Staff 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 Wells Fargo Bank, or any ofits associated persons, a cash payment for the solicitation of advisory clients, notwithstanding the Final Judgment.

Douglas J. Scheidt, Esq. -6
If you 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 ~~U Patton Seymour cc: Mark R. Zehner, Esq. (U.S. Securities and Exchange Commission) Nadya B. Roytblat, Esq. (U.S. Securities and Exchange Commission) Douglas R. Edwards

(Wells Fargo Law Department)