SEC no-action letter: Morgan Asset Management, Inc. and Morgan Keegan & Co., Inc. waiver of Regulation A and Rule 505 disqualifications

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
DIVISION OF
CORPORATION FINANCE
Deborah G. Heilizer, Esquire

Sutherland Asbill & Brennan LLP

1275 Pennsylvania Avenue, NW

Washington, DC 20004-2415

Re: In the Matter of Morgan Asset Management, Inc. et at.
Release No. 34-64720 W~iver Request under Regulation A and Rule 505 of Regulation 0 Dear Ms. Heilizer:
This responds to your letter dated today, written on behelf of Morgan Asset Management, Inc. ("Morgan Asset") and Morgan Keegan & Co., Inc. ("Morgan Kc:egan"), and constituting Wl application for relief under R'lie 262 of Regulation A and Rule 5C5(b)(2)(iH)(C) of Regulation D under the Securities Act of 1933. You requested relief from disqualifications f'om exemptions avaibt>!e '.indc:· Regulation A and Rule 505 that may have arisen by virtue of entry n~' an order today by the Se'::.i.ldtief; ';l;,~ Exchange Commission in In the Matter of Morgan Asset Management, Inc. et al .. Release No. 34-6:n::C, (the "Order") against Morgan Asset under Section 15(b)(6) of the Securities Exchange Act of 1934 'ina
Section 203(e) of the Investment Advisers Act of 1940 and against Morgan Keegan under SecLon
15(b)(4) ofthe Securities Exchange Act of 1934. The Order, among. other things, requires Mmgan f\SSt:
and Morgan Keegan to jointly and severally pay a civil money penalty of$75 million. In addii..,:m. l!-t;; Order requires each of Morgan Asset and Morgan Keegan to comply with certain of its own ur:dert2kiD~" in the Order. Application ofthese remedies may be interpreted to r~i,;ult in disqualifications Um;tT ~~ ,:i-::
262 and Rule 505.
For purposes ofthis letter, we have assumed as facts the representations set forth >" Y'Jur letter and the findings supporting entry of the Order. We also have assumed as to each of Mo:·g:;'.r, .'.SStt and Morgan Keegan that it will comply with the Order. On the basis of your letter, I have determined that you have made showings of goc,] cau.se under Rule 262 and Rule 505 that it is not necessary under the circumstances to deny t!'~e exem;)ti :ms available under Regulation A and Rule 505 by reason of entry ofth~ Order against Morga!l As~::;t 21;d Morgan Keegan. Accordingly, pursuant to delegated authority, and w'ithout necessarily agreei':f:' ~hat any such disqualifications arose by virtue of entry ofthe Order against Morgan Asset and Morgan Ler~gan, each of them is granted relief from any disqualifications from eXeml)tions otherwise available ~;!lder Regulation A and Rule 505 that may have arisen as a result of entry of the Order against it. Very truly yours, ~~!J'X~ 9Ira~ J. Laporte Chief, Office of Small Business Policy

SUTHERLAND ASBILL & BRENNAN LLP
1275 Pennsylvania Avenue, NW
SUTHERLAND Washington, DC 20004-2415
202.383.0100 Fax 202.637.3593
www.sutherland.com
DEBORAH G. HEIUZER
DIRECT LINE: 202.383.0858
E-mail: deb.heilizer@sutherland.com
VIA E-MAIL AND HAND DELIVERY
Gerald Laporte, Chief
Office of Small Business Policy
Division ofCorporation Finance

Securities and Exchange Commission

100 F Street, N.B.

Washington, D.C. 20549
Re: In re Morgan Asset Management, Inc., et al. (Admin. Proc. File No. 3-13847) Dear Mr. Laporte:
Our clients, Morgan Keegan & Co., Inc., and Morgan Asset Management, Inc. (the "Firms"), are settling respondents in the above-captioned administrative action (the "Action"). The Action relates to alleged violations ofthe federal securities laws by the Firms in connection with the valuation of fair valued securities in certain registered investment companies (the "Funds") for which Morgan Asset Management, Inc. was adviser. The Firms hereby request, pursuant to Rule 262 ofRegulation A and Rule 505 ofRegulation D under the Securities Act of 1933 (the "Securities Act"), that the Commission grant a waiver of any disqualification from the exemptions provided by Regulation A and Rule 505 that may otherwise apply to the Firms, any oftheir affiliates or any issuer, offering participant or other persons as a result ofthe entry ofthe order in the Action described below (the "Order"). The Firms request that this waiver be granted effective upon entry ofthe order in the Action. It is our understanding that the Division of Enforcement does not object to the grant ofthe requested waiver. BACKGROUND The conduct ofthe Firms alleged in the Order Instituting Proceedings ("OIP") relating to the Action involved the valuation of fair valued securities in the Funds. Specifically, during the period from January 1, 2007 through July 31,2007, the Firms are

Gerald Laporte alleged to have sold or redeemed shares at other than current net asset value and failed to employ appropriate valuation procedures. The Funds were sold in 2008. In connection with the above-captioned proceeding, the Firms have submitted to the Commission an offer ofsettlement in which, for the purpose ofthis proceeding, they will consent to the entry of a cease-and-desist order by the Commission (the "Order") without admitting or denying the matters set forth in the Order (except as to the jurisdiction ofthe Commission and the subject matter ofthe proceedings). Under the Order, the Commission requires Morgan Asset Management, Inc. to cease and desist from committing or causing any violations and any future violations of Sections 206(1),206(2) and 206(4) ofthe Investment Advisers Act and Rule 206(4)-7 thereunder, and Section 34(b) ofthe Investment Company Act and Rules 22c-l and 38a-l promulgated thereunder. Under the Order, the Commission requires Morgan Keegan & Co., Inc. to cease and desist from committing or causing any violations and any future violations of
Section 34(b) ofthe Investment Company Act and Rules 22c-l and 38a-l promulgated
thereunder.
The Order also provides that the Firms shall pay the amount of $100,000,000 in accordance with its terms, and an additional $100,000,000 to resolve parallel proceedings brought by certain State securities regulators. The Commission also orders the Firms to comply with certain undertakings: (i) Morgan Keegan & Co., Inc. and Morgan Asset Management, Inc. would undertake, for a period ofthree years from the date ofthe Order, not to be involved in, or responsible for, recommending to, or determining on behalf of, a registered investment company's board of directors or trustees or such company's valuation committee, the value of any portfolio security for which market quotations are not readily available; (ii) if, after three years but within six years from the date ofthe Order, Morgan Keegan & Co., Inc. or Morgan Asset Management, Inc. becomes involved in, or responsible for, determining or recommending determinations to a registered investment company's board of directors or trustees or valuation committee ofthe value of any portfolio security for which market quotations' are not readily available and which are held by or on behalf of such registered investment company, an Independent Consultant would review the Firm's valuations and its policies, procedures and practices with regard to such valuations, and the Firm would take steps, described further in the . Order, to implement the recommendations ofthe Independent Consultant; and (iii) Morgan Keegan & Co., Inc. and Morgan Asset Management, Inc. undertakes to cooperate fully with the Commission in any and all investigations, litigations or other proceedings relating to or arising from the matters described in the Order.

Gerald Laporte
DISCUSSION
Regulation A and Rule 505 ofRegulation D provide exemptions from registration under the Securities Act for certain offerings oflimited size. Rule 506 provides a similar exemption for private offerings to specified types ofinvestors. Rule 262 ofRegulation A and Rule 505 provide for disqualification from these exemptions if, among other things, "any director, officer or general partner ofthe issuer, beneficial owner of 10 percent or more of any class ofits equity securities, any promoter ofthe issuer presently connected with it in any capacity, any underwriter ofthe securities to be offered, or any partner, director or officer of any such underwriter ... is subject to an order ofthe Commission entered pursuant to section 15(b), 15B(a), or 15B(c) ofthe Exchange Act, or
section 203(e) or (f) ofthe Investment Advisers Act of 1940 (15 U.S.C. 80b-l et seq.)."
17 C.F.R. §§ 230.262(b )(3), 230.505(b )(2)(iii). These Rules, however, also provide that these disqualifications shall not apply ifthe Commission determines, upon a showing of good cause, that it is not necessary under the circumstances that the exemptions be denied. See 17 C.F.R. §§ 230.262, 230.505(b )(2)(iii)(C). The Firms understand that the Order could disqualify them and certain of their affiliates from participating in offerings as an issuer or underwriter in reliance upon the exemptions from registration under the Securities Act provided by Regulation A and Rule 505, insofar as the Firms would thereby be subject to an order ofthe kind described in the prior paragraph. Pursuant to these Rules, the disqualifications could also apply to any issuer, underwriter or other person participating in such an offering with the Firms. As noted above, however, the Commission has the authority to waive the Regulation A and Rule 505 exemption disqualifications. The Firms request that the Commission waive any disqualifying effects that the Order may have under Regulation A and Rule 505 ofRegulation D with respect to the Firms, their affiliates or any other persons, whether acting as issuer, underwriter or otherwise, for the following reasons:

1. The disqualification ofthe Firms from the exemptions under
   Regulation A and Rule 505 ofRegulation D would be unduly and disproportionately severe given the nature ofthe conduct alleged in the OIP relating to the Action. The conduct ofthe Firms alleged in the OIP does not pertain to whether or not securities offerings were conducted in compliance with the exemptions from registration provided by Regulation A or Rule 505 ofRegulation D. Rather, as noted above, the alleged conduct involved certain fair valued securities in the Funds.
2. In the future, issuers may wish to retain the Firms or their affiliates
   to participate in an offering ofsecurities conducted in reliance on the exemption provided by Regulation A or Rule 505 ofRegulation D. Consequently, the disqualification ofthe Firms could adversely affect the Firms' business operations with regard to securities distribution and could adversely affect third parties that may wish, but because ofthe

Gerald Laporte disqualification would be unable, to retain the Firms or participate with them in connection with an offering conducted pursuant to these exemptions.
3. Finally, the disqualification ofthe Firms would be unduly and
disproportionately severe because the Firms will be required under the Order and in related proceedings to pay the aggregate amount of $200,000,000. The Firms have also undertaken certain actions identified in the Order and described above that are intended to enhance the Firms' compliance practices relating to the matters that are the subject ofthe OIP. Thus, the disqualification would result in an additional penalty beyond what the Order requires. In light ofthe grounds for relief described above, we believe that disqualification is not necessary, either in the public interest or for the protection of investors, and that the Firms have shown good cause that relief should be granted. Accordingly, we respectfully request that the Commission waive the disqualification provisions in Regulation A and Rule 505 ofRegulation D to the extent that they may otherwise apply to the Firms, any oftheir affiliates or any issuer, offering participant or other persons as a result ofthe entry ofthe proposed Order against the Firms.l If you have any questions regarding this request, please contact the undersigned at (202) 383-0858. Sincerely yours, Deborah G. Heilizer cc: William Hicks (Division ofEnforcement) Fournier J. ("Boots") Gale, III

(Regions Financial Corporation)

We note that the Commission has granted relief under Regulation A and Rule 505 of Regulation D for similar reasons in other instances. See, e.g., Investoo1s Inc. et al., SEC No-Action Letter (pub. avai1. Dec. 16, 2009); General Electric Company, SEC No-Action Letter (pub. avai1. Aug. 11, 2009); Prudential Equity Group, LLC, SEC No-Action Letter (pub. avai1. Aug. 28, 2006); Goldman, Sachs & Co., SEC No-Action Letter (pub. avail. Oct. 31, 2003); Merrill Lynch & Co., Inc., SEC No-Action Letter (pub. avai1. March 17, 2003); Credit Suisse First Boston Corporation, S.E.C. No-Action Letter (pub. avail. Jan. 29, 2002); Dain Rauscher, Incorporated, S.E.C. No-Action Letter (pub. avai1. Sept. 27, 2001); and Legg Mason Wood Walker, Incorporated, S.E.C. No-Action Letter (pub. avai1. June 11, 2001).