skip to page content
Secretary of Labor Thomas E. Perez
     DOL Home > Federal Register > Notices > EBSA
EBSA Notices

Proposed Exemptions From Certain Prohibited Transaction Restrictions   [7/9/2013]
[PDF]
Federal Register, Volume 78 Issue 131 (Tuesday, July 9, 2013)
[Federal Register Volume 78, Number 131 (Tuesday, July 9, 2013)]
[Notices]
[Pages 41101-41114]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-16385]



[[Page 41101]]

-----------------------------------------------------------------------

DEPARTMENT OF LABOR

Employee Benefits Security Administration


Proposed Exemptions From Certain Prohibited Transaction 
Restrictions

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Notice of Proposed Exemptions.

-----------------------------------------------------------------------

SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemptions from 
certain of the prohibited transaction restrictions of the Employee 
Retirement Income Security Act of 1974 (ERISA or the Act) and/or the 
Internal Revenue Code of 1986 (the Code). This notice includes the 
following proposed exemptions: D-11640, Wells Fargo Bank, N.A. (the 
Applicant or the Bank); D-11772, UBS AG (UBS or the Applicant); and D-
11739, D-11740, & D-11741, Sears Holdings Savings Plan (the Savings 
Plan), Sears Holdings Puerto Rico Savings Plan (the PR Plan) and The 
Lands' End, Inc. Retirement Plan (the Lands' End Plan).

DATES: All interested persons are invited to submit written comments or 
requests for a hearing on the pending exemptions, unless otherwise 
stated in the Notice of Proposed Exemption, within 45 days from the 
date of publication of this Federal Register Notice.

ADDRESSES: Comments and requests for a hearing should state: (1) The 
name, address, and telephone number of the person making the comment or 
request, and (2) the nature of the person's interest in the exemption 
and the manner in which the person would be adversely affected by the 
exemption. A request for a hearing must also state the issues to be 
addressed and include a general description of the evidence to be 
presented at the hearing. All written comments and requests for a 
hearing (at least three copies) should be sent to the Employee Benefits 
Security Administration (EBSA), Office of Exemption Determinations, 
Room N-5700, U.S. Department of Labor, 200 Constitution Avenue NW., 
Washington, DC 20210. Attention: Application No. ------, stated in each 
Notice of Proposed Exemption. Interested persons are also invited to 
submit comments and/or hearing requests to EBSA via email or FAX. Any 
such comments or requests should be sent either by email to: 
moffitt.betty@dol.gov, or by FAX to (202) 219-0204 by the end of the 
scheduled comment period. The applications for exemption and the 
comments received will be available for public inspection in the Public 
Documents Room of the Employee Benefits Security Administration, U.S. 
Department of Labor, Room N-1513, 200 Constitution Avenue NW., 
Washington, DC 20210.
    Warning: All comments will be made available to the public. Do not 
include any personally identifiable information (such as Social 
Security number, name, address, or other contact information) or 
confidential business information that you do not want publicly 
disclosed. All comments may be posted on the Internet and can be 
retrieved by most Internet search engines.

SUPPLEMENTARY INFORMATION:

Notice to Interested Persons

    Notice of the proposed exemptions will be provided to all 
interested persons in the manner agreed upon by the applicant and the 
Department within 15 days of the date of publication in the Federal 
Register. Such notice shall include a copy of the notice of proposed 
exemption as published in the Federal Register and shall inform 
interested persons of their right to comment and to request a hearing 
(where appropriate).
    The proposed exemptions were requested in applications filed 
pursuant to section 408(a) of the Act and/or section 4975(c)(2) of the 
Code, and in accordance with procedures set forth in 29 CFR Part 2570, 
Subpart B (76 FR 66637, 66644, October 27, 2011).\1\ Effective December 
31, 1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. 
App. 1 (1996), transferred the authority of the Secretary of the 
Treasury to issue exemptions of the type requested to the Secretary of 
Labor. Therefore, these notices of proposed exemption are issued solely 
by the Department.
---------------------------------------------------------------------------

    \1\ The Department has considered exemption applications 
received prior to December 27, 2011 under the exemption procedures 
set forth in 29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 
10, 1990).
---------------------------------------------------------------------------

    The applications contain representations with regard to the 
proposed exemptions which are summarized below. Interested persons are 
referred to the applications on file with the Department for a complete 
statement of the facts and representations.

Wells Fargo Bank, N.A. (the Applicant or the Bank) Located in Sioux 
Falls, South Dakota

[Application No. D-11640]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act (or ERISA) and section 
4975(c)(2) of the Code, and in accordance with the procedures set forth 
in 29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990). 
If the proposed exemption is granted, the restrictions of sections 
406(a)(1)(A), 406(a)(1)(D), 406(b)(1), and 406(b)(2) of the Act and the 
sanctions resulting from the application of section 4975 of the Code, 
by reason of section 4975(c)(1)(A), (D), and (E) of the Code, shall not 
apply, effective September 8, 2009, to the cash sale by four employee 
benefit plans (the Plans), whose assets were invested in the Bank's 
collateral pools (the Collateral Pools), of certain interests (the 
Interests) in two medium-term notes (the Notes), for the aggregate 
purchase price (the Purchase Price) of $375,182, to the Bank, a party 
in interest with respect to the Plans, provided that the following 
conditions were met:
    (a) The sale was a one-time transaction for cash;
    (b) Each Plan received an amount which was equal to the greater of 
either: (1) The current cost of its Interests in the Notes (i.e., the 
original purchase price less distributions received by the Plan through 
the purchase date (the Purchase Date)); or (2) the fair market value of 
its Interests in the Notes, as determined by a valuation of the 
underlying assets performed by Stone Tower Debt Advisors LLC (the 
Enforcement Manager), an unrelated party, there being no market for the 
Notes at the time of sale;
    (c) The Plans did not pay any commissions or other expenses in 
connection with the sale;
    (d) The Bank, in its capacity as securities lending agent and 
manager of the Collateral Pools, determined that the sale of the Plans' 
Interests in the Notes was appropriate for and in the interests of the 
Plans at the time of the transaction;
    (e) The Bank took all appropriate actions necessary to safeguard 
the interests of the Plans in connection with the transaction, given 
that the Plans were not eligible to participate in an exchange offer 
(the Exchange Offer) and the Purchase Price was substantially higher 
than the fair market value of the Plans' Interests in the Notes;
    (f) If the exercise of any of the Bank's rights, claims or causes 
of action in

[[Page 41102]]

connection with its ownership of the Notes (including the notes 
received in the Exchange Offer) results in the Bank recovering from 
Stanfield Victoria Finance Ltd., the issuer of the Notes (Stanfield 
Victoria), or any third party, an aggregate amount that is more than 
the sum of:
    (1) The Purchase Price paid by the Bank to the Plans for the 
Interests in the Notes; and
    (2) The interest that would have been payable on the Notes from and 
after the date the Bank purchased the Plans' Interests in the Notes, at 
the rate specified in the Notes, the Bank will refund such excess 
amounts promptly to the Plans (after deducting all reasonable expenses 
incurred in connection with the recovery);
    (g) The Bank and its affiliates, as applicable, maintain, or cause 
to be maintained, for a period of six (6) years from the date of any 
covered transaction such records as are necessary to enable the persons 
described below in paragraph (h)(i), to determine whether the 
conditions of this exemption have been met, except that--
    (1) No party in interest with respect to a Plan which engages in 
the covered transactions, other than the Bank and its affiliates, as 
applicable, shall be subject to a civil penalty under section 502(i) of 
the Act or the taxes imposed by section 4975(a) and (b) of the Code, if 
such records are not maintained, or not available for examination, as 
required, below, by paragraph (h)(i); and
    (2) A separate prohibited transaction shall not be considered to 
have occurred solely because, due to circumstances beyond the control 
of the Bank or its affiliate, as applicable, such records are lost or 
destroyed prior to the end of the six-year period.
    (h)(1) Except as provided, below, in paragraph (h)(2), and 
notwithstanding any provisions of subsections (a)(2) and (b) of section 
504 of the Act, the records referred to, above, in paragraph (g) are 
unconditionally available at their customary location for examination 
during normal business hours by--
    (A) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service, or the Securities Exchange 
Commission; or
    (B) Any fiduciary of any plan that engages in the covered 
transactions, or any duly authorized employee or representative of such 
fiduciary; or
    (C) Any employer of participants and beneficiaries and any employee 
organization whose members are covered by a plan that engages in the 
covered transactions, or any authorized employee or representative of 
these entities; or
    (D) Any participant or beneficiary of a plan that engages in the 
covered transactions, or duly authorized employee or representative of 
such participant or beneficiary;
    (ii) None of the persons described above, in paragraph (h)(1)(B)-
(D) shall be authorized to examine trade secrets of the Bank and its 
affiliates, as applicable, or commercial or financial information which 
is privileged or confidential; and
    (E) Should the Bank and its affiliates, as applicable, refuse to 
disclose information on the basis that such information is exempt from 
disclosure, the Bank and its affiliates, as applicable, shall, by the 
close of the thirtieth (30th) day following the request, provide a 
written notice advising that person of the reasons for the refusal and 
that the Department may request such information.
    Effective Date: If granted, this exemption will be effective as of 
September 8, 2009.

Summary of Facts and Representations

    1. The Bank is a national bank subsidiary of Wells Fargo & Company, 
a diversified financial services company. Headquartered in Sioux Falls, 
South Dakota, the Bank is subject to regulation by the Comptroller of 
Currency. As of December 31, 2012, the Bank served as securities 
lending agent, custodian or directed trustee to approximately 35 
clients, including certain ERISA-covered plans. Also as of December 31, 
2012, the Bank's total fiduciary assets under management were 
$159,716,000,000. Of that total, $23,223,000,000 represented employee 
benefit and retirement-related trust and agency accounts.
    2. The Bank's securities lending program involves the lending of 
securities held by certain of its clients, including the Plans referred 
to herein, and the investment of collateral received from the borrowers 
in Collateral Pools maintained on behalf of each client pursuant to 
securities lending agreements with such clients.\2\ The Bank has 
discretionary investment management responsibility over the Collateral 
Pools. The Collateral Pools are generally invested in a diversified 
portfolio of investment grade short-term debt instruments, including, 
without limitation, commercial paper (including paper issued under 
Section 3(a)(3), Section 4(2) and Rule 144A of the Securities Act of 
1933), notes, repurchase agreements and other evidences of indebtedness 
which are payable on demand or which have a maturity date not exceeding 
36 months from the date of purchase.
---------------------------------------------------------------------------

    \2\ Prior to September 22, 2008, the Bank invested securities 
lending collateral it received on behalf of its clients in a 
commingled fund. At that time, each client received a pro rata 
interest in the assets held by the commingled fund, including the 
Notes. On and after September 22, 2008, a Collateral Pool was 
established by the Bank for each securities lending client to hold a 
direct, pro rata interest in the Notes and other securities 
maintained by the Bank. The percentage of all of the Collateral 
Pools attributable to the Plans was approximately 11.1964%, as of 
September 22, 2008.
---------------------------------------------------------------------------

    Neither the Bank nor its affiliates served as fiduciaries with 
respect to each affected Plan's decision to participate in the Bank's 
securities lending program. Instead, unrelated Plan fiduciaries were 
responsible for making such decisions. The disclosures provided by the 
Bank to its securities lending customers, including the Plans, 
explained the risks associated with the securities lending program, 
including the risk of loss relating to the investment of collateral 
received from borrowers under the program, and the Bank's obligation to 
return the collateral to such borrowers upon the termination of the 
loan of securities.
    3. The Notes comprising the Collateral Pools were corporate bonds 
that were issued by Stanfield Victoria, an unrelated party. The Notes 
were purchased by the Bank on behalf of the Collateral Pools for a 
total purchase price of $848,859. The Notes included two CUSIP numbers: 
85431AGX9 (CUSIP 1) purchased on September 6, 2006, with a maturity 
date of March 6, 2008, and 85431AHY6 (CUSIP 2) purchased on November 3, 
2006, with a maturity date of November 3, 2008. A total of 67 investors 
invested in the Notes. Among the investors were the Plans, none of 
which were sponsored by the Bank or its affiliates. The Plans' 
Collateral Pools acquired the Interests in CUSIP 1 for $303,449 and in 
CUSIP 2 for $202,359, for a total amount of $505,808. Interest on the 
Notes was payable quarterly at a variable rate which was reset each 
quarter based upon the three-month London Interbank Offered Rate.
    4. Stanfield Victoria, a structured investment vehicle, raised 
capital primarily by issuing various types and classes of notes, 
including the Notes and commercial paper. The capital raised was then 
utilized by Stanfield Victoria to purchase various financial assets, 
including other asset-backed securities and mortgage-backed securities. 
The assets acquired by Stanfield Victoria were pledged to secure 
payment of certain of the debt instruments issued by Stanfield 
Victoria, including the Notes, pursuant to a security agreement with an 
independent bank, Deutsche Bank Trust Company Americas, serving

[[Page 41103]]

as collateral agent (the Collateral Agent). This security agreement 
provided that, as a general rule, upon the occurrence of an 
``Enforcement Event,'' as defined in the agreement (the Enforcement 
Event), the Collateral Agent was required to sell all of Stanfield 
Victoria's assets and distribute the proceeds thereof.
    5. The decision to invest Collateral Pool assets in the Notes was 
made by the Bank in its capacity as securities lending agent. Prior to 
the investment, the Bank conducted an investigation of the potential 
investment, examining and considering the economic and other terms of 
the Notes. The Bank represents that the Plans' investments in the Notes 
were consistent with the investment policies and objectives of the 
Collateral Pools when made. At the time the Plans acquired their 
Interests in the Notes, the Notes were rated ``AAA'' by Standard & 
Poor's Corporation (S&P) and ``Aaa'' by Moody's Investor Services, Inc. 
(Moody's).
    Based on its consideration of the relevant facts and circumstances, 
the Bank states that it was prudent and appropriate for the Plans to 
acquire their Interests in the Notes.\3\
---------------------------------------------------------------------------

    \3\ The Department is expressing no opinion in this proposed 
exemption regarding whether the acquisition and holding by the Plans 
of Interests in the Notes through the Collateral Pools violated any 
of the fiduciary responsibility provisions of Part 4 of Title I of 
the Act. In this regard, the Department notes that section 404(a) of 
the Act requires, among other things, that a fiduciary of a plan act 
prudently, solely in the interest of the plan's participants and 
beneficiaries, and for the exclusive purpose of providing benefits 
to participants and beneficiaries when making investment decisions 
on behalf of a plan. Section 404(a) of the Act also states that a 
plan fiduciary should diversify the investments of a plan so as to 
minimize the risk of large losses, unless under the circumstances it 
is clearly prudent not to do so.
    Moreover, the Department is not providing any opinion as to 
whether a particular category of investments or investment strategy 
would be considered prudent or in the best interests of a plan as 
required by section 404 of the Act. The determination of the 
prudence of a particular investment or investment course of action 
must be made by a plan fiduciary after appropriate consideration of 
those facts and circumstances that, given the scope of such 
fiduciary's investment duties, the fiduciary knows or should know 
are relevant to the particular investment or investment course of 
action involved, including a plan's potential exposure to losses and 
the role the investment or investment course of action plays in that 
portion of the plan's portfolio with respect to which the fiduciary 
has investment duties (see 29 CFR 2550.404a-l). The Department also 
notes that in order to act prudently in making investment decisions, 
a plan fiduciary must consider, among other factors, the 
availability, risks and potential return of alternative investments 
for the plan. Thus, a particular investment by a plan, which is 
selected in preference to other alternative investments, would 
generally not be prudent if such investment involves a greater risk 
to the security of a plan's assets than other comparable investments 
offering a similar return or result.
---------------------------------------------------------------------------

    6. On November 7, 2007, S&P placed a ``negative watch'' on the 
Notes. On December 21, 2007, Moody's downgraded the rating of the Notes 
to ``Baa3.'' On January 7, 2008, S&P downgraded the rating of the Notes 
to ``B-.'' Responding to these events, the Bank, on behalf of the 
Plans, (together with the majority of other investors in the Notes) 
consented to the execution of an amendment to the security agreement 
governing the Notes on January 7, 2008. Pursuant to this amendment, by 
providing notice (Election Notice) on or before January 17, 2008, the 
Bank could elect to have the pro rata share of the collateral assets 
(i.e., the assets then held by Stanfield Victoria as collateral 
supporting the Notes) allocable to Interests in the Notes held by the 
Collateral Pools maintained on behalf of the Plans excluded from any 
asset sale by the Collateral Agent that would otherwise occur 
immediately upon the occurrence of an Enforcement Event.
    7. On January 8, 2008, as a result of the foregoing ratings 
downgrades, an Enforcement Event occurred. On January 10, 2008, 
Stanfield Victoria did not repay certain notes maturing on that date. 
On January 14, 2008, the Bank submitted an Election Notice to the 
Collateral Agent instructing the Collateral Agent to exclude its 
securities lending clients' pro rata share of Stanfield Victoria's 
assets from the asset sale triggered by the occurrence of the 
Enforcement Event on January 8, 2008.
    The Bank's election was based on its determination that the market 
for the collateral assets securing the Notes was severely distressed 
and that the intrinsic value of such assets was substantially greater 
than the price that could have been obtained if such assets were then 
sold by the Collateral Agent. Accordingly, the Bank determined that it 
was in the best interest of its securities lending clients, including 
the Plans, to exclude such assets from a current sale. On January 15, 
2008, Moody's further downgraded its rating of the Notes to ``B2.'' On 
January 17, 2008, S&P further downgraded its rating of the Notes to 
``D.''
    8. Stanfield Victoria was placed under the control of the 
Enforcement Manager on January 8, 2008. At that time, all payments of 
principal and interest to holders of its Notes and commercial paper 
were immediately suspended. However, income and principal payments on 
many of Stanfield Victoria's underlying securities continued to accrue 
through December 2008, at which point the Collateral Agent determined 
to pay the accumulated cash solely to the senior creditors of Stanfield 
Victoria, which included the Plans. The first such payment was made on 
December 23, 2008. In March 2009, the Collateral Agent began making 
monthly payments to the senior creditors. Through September 1, 2009, 
these payments on the Notes totaled approximately 26% of the initial 
purchase price paid by the Bank's securities lending customers. In the 
case of the Plans, the total payments received with respect to the 
Notes was $130,626 ($79,204 for CUSIP 1 and $51,422 for CUSIP 2).
    9. During this period, an unrelated group created ``NewCo,'' a 
private entity formed to acquire the Notes of Stanfield Victoria in 
exchange for notes issued by NewCo. NewCo intended to use all Notes 
that it acquired in the Exchange Offer as the basis for a credit bid in 
the anticipated foreclosure auction of Stanfield Victoria's assets to 
be conducted by the Enforcement Manager.
    Through the credit bid process, NewCo received a pro rata share of 
the underlying assets of Stanfield Victoria based on the Notes it 
acquired through the Exchange Offer. Stanfield Victoria's senior 
creditor committee, an informal committee comprised of holders of 
Stanfield Victoria's senior securities, determined that it would be in 
the senior creditors' best interests to accept the Exchange Offer. The 
NewCo exchange period commenced on August 13, 2009 and closed on 
September 11, 2009 (the Exchange Period). The Bank was required by 
September 8, 2009 to elect, on behalf of each of its securities lending 
clients, whether to accept the Exchange Offer for the Notes.\4\
---------------------------------------------------------------------------

    \4\ The Bank states that the Exchange Offer expired on September 
11, 2009. However, to ensure that its election to accept the offer 
would clear the election process established by NewCo in a timely 
way, the Bank established its own deadline of September 8, 2009 to 
submit any acceptance of the Exchange Offer.
---------------------------------------------------------------------------

    Shortly before the beginning of the Exchange Period, however, 
NewCo's organizers concluded that it would not register interests in 
NewCo under either the Securities Act of 1933 (the 1933 Act) or the 
Investment Company Act of 1940 (the 1940 Act). As a result, 
participation in NewCo was limited to those institutional investors who 
were both ``accredited investors,'' as that term is defined in Rule 501 
of Regulation D (see 17 CFR 230.501(a)) promulgated under the 1933 Act 
and ``qualified purchasers,'' as defined in Section 2(a)(51) of the 
1940 Act.
    Participation in the exchange with NewCo was further restricted by 
establishment of a minimum denomination size of $100,000. NewCo would 
not issue notes in an amount below that minimum size to any

[[Page 41104]]

investors. Those holders of the Notes who did not accept the NewCo 
Exchange Offer were to receive directly a pro rata distribution of each 
of Stanfield Victoria's underlying assets, which comprised more than 
370 separate securities. The small pro rata interests in the underlying 
securities generally would be below the minimum denomination size 
necessary to permit sales to other purchasers or transfers of any kind. 
Thus, any such investors would be required to hold each of the 
underlying securities until their maturity or redemption.
    In addition, investors who took distributions of these 
nontransferable assets would be subject to substantial administrative 
charges imposed by the custodian (unrelated to the Bank) so long as any 
nontransferable asset remained outstanding. Accordingly, the Bank 
elected on behalf of each eligible securities lending client (that is, 
each securities lending client that was a ``qualified purchaser'' 
holding at least $100,000 in Stanfield Victoria) to accept the NewCo 
Exchange Offer.
    10. Some of the Bank's securities lending customers were ineligible 
to hold interests in NewCo (the Ineligible Clients) because they were 
not ``qualified purchasers'' or they held Interests \5\ of less than 
$100,000 in Stanfield Victoria, or both. These investors included the 
four Plans and five other investors, which were institutional 
investors, such as non-ERISA employee benefit plans and private 
foundations. Therefore, the Bank determined that it would be 
appropriate and in the best interests of the Plans to purchase the 
Interests in the Notes for their current cost (calculated as the 
original purchase price less distributions that were treated as 
distributions of principal through the date of sale). However, to avoid 
a pro rata distribution of more than 370 illiquid securities, any such 
sale would be required to be made prior to the expiration of the 
Exchange Period.
---------------------------------------------------------------------------

    \5\ Unless the context suggests otherwise, the term ``the 
Interests'' is meant to include the interests in the Notes that were 
held by the Ineligible Clients that were not plans.
---------------------------------------------------------------------------

    The Bank decided to purchase the Interests in the Notes that were 
held by the Ineligible Clients for cash in order to participate in the 
Exchange Offer with respect to any Interests in the Notes that the 
Ineligible Clients chose to sell to the Bank. Moreover, the Bank 
determined that its purchase of the Interests held by the Ineligible 
Clients would be permissible under applicable banking law.
    11. The current cost of the Notes was substantially higher than the 
fair market value of the Notes. Because there was essentially no market 
for the Notes, they could be valued only by valuing the underlying 
assets of Stanfield Victoria. The Enforcement Manager was required to 
provide monthly mark-to-market valuations of those assets, which, due 
to the complexity of the valuation process for the underlying assets at 
a time of substantial market disruption, was generally provided 
approximately one month in arrears. The Bank states that, as of the 
close of the Exchange Period, the most recent valuation provided by the 
Enforcement Manager to investors, which was made as of July 31, 2009, 
reported that Stanfield Victoria's assets were believed to have an 
aggregate value equal to 46% of Stanfield Victoria's outstanding senior 
debt (i.e., 46 percent of the outstanding principal balance).\6\
---------------------------------------------------------------------------

    \6\ The Applicant states that the percentage provided by the 
Enforcement Manager to the investors was an estimate applied to each 
of the Notes, separately. In addition, the Applicant states that the 
Bank's Capital Markets Group performed its own intrinsic value 
analysis and estimated the intrinsic value of the Notes as of July 
31, 2009 at 47% of their remaining principal balance. Furthermore, 
the Applicant notes that Wells Capital Management, an affiliated 
investment advisor, stated that the trading price for the Notes was 
substantially below their assessment of the intrinsic value of the 
underlying assets.
---------------------------------------------------------------------------

    12. On September 3, 2009, the Bank notified a representative of 
each of the Ineligible Clients of its proposal to purchase their 
Interests in the Notes. In addition, the Bank provided a written 
description of its proposal to each Ineligible Client by letter (the 
Proposal Letter) dated September 8, 2009. In its Proposal Letter, the 
Bank informed each Ineligible Client that, unless directed differently 
by 12 Noon on Wednesday, September 9, 2009, the Bank would be 
transferring the payment for the purchase of the Ineligible Clients' 
Interests in the Notes to such Ineligible Clients' segregated 
Collateral Pool on Thursday, September 10, 2009. The Bank obtained 
confirmation from each Ineligible Client, via negative consent by the 
close of business on September 9, 2009, that it wished to participate 
in the Bank's proposed purchase.\7\ Accordingly, the Bank purchased 
each Ineligible Client's Interest in the Notes for a total cash payment 
of $628,952 on September 10, 2009 (the Purchase Date).\8\ This sum 
represented the current cost of the Notes (i.e., the purchase price of 
the Notes less distributions treated as distributions of principal 
received by the Plans as of the Purchase Date). The price was 
determined on the same basis for each Plan as it was for the other 
Ineligible Clients. On the basis of the information it had obtained 
regarding the market for the Notes and the intrinsic value of Stanfield 
Victoria's underlying assets, the Bank determined that the purchase 
price paid by the Bank to the Ineligible Clients substantially exceeded 
(by approximately $392,300) the aggregate fair market value of the 
Ineligible Clients' Interests in the Notes as of the Purchase Date.
---------------------------------------------------------------------------

    \7\ The Applicant represents that the Proposal Letter generally 
confirmed information communicated via telephone with the 
representative of each Ineligible Client prior to the time the Bank 
acted on the negative consent.
    \8\ To address the possibility that the election made on 
September 8, 2009 by the Bank (to participate in the Exchange Offer 
on behalf of eligible clients and to make a corresponding election 
to participate in the Exchange Offer with respect to Notes held by 
Ineligible Clients who accepted the Bank's purchase) may be deemed 
to raise prohibited transaction issues, the Bank has requested an 
effective date for the exemption of September 8, 2009.
---------------------------------------------------------------------------

    13. As for the Plans, the current price for CUSIP 1 was $224,245 
($303,449 purchase price minus $79,204 repayment of principal), and its 
estimated fair market value as of September 10, 2009 was $105,396. With 
respect to CUSIP 2, the current price was $150,937 ($202,359 purchase 
price minus $51,422 repayment of principal) and its fair market value 
was $70,940 as of September 10, 2009.
    Accordingly, the total Purchase Price paid by the Bank for the 
Plans' Interests in the Notes was $375,182. The Purchase Price was 
allocated among the Plans pro rata based on their respective percentage 
Interests in the Notes.
    14. The Bank, in its capacity as securities lending agent, believes 
that the sale of the Plans' Interests in the Notes was in the interests 
and protective of the Plans at the time of the transaction because the 
sale protected the Plans from holding illiquid securities and incurring 
burdensome holding costs, and, secondarily, from potential investment 
losses. The Bank also represents that any sale of the Plans' Interests 
in the Notes or pro rata interests in Stanfield Victoria's underlying 
assets on the open market, if possible at all, would have produced 
significant losses for the Plans. However, the Purchase Price paid by 
the Bank substantially exceeded the aggregate fair market value of the 
Plans' Interests in the Notes. Furthermore, the transaction was a one-
time sale for cash and the Plans did not bear any brokerage 
commissions, fees, or other expenses in connection with the 
transaction. Finally, the Bank represents that it took all appropriate 
actions necessary to safeguard the interests of the Plans in connection 
with the sale of their Interests in the Notes.

[[Page 41105]]

    15. The Bank represents that its purchase of the Plans' Interests 
in the Notes resulted in an assignment of all of the Plans' rights, 
claims, and causes of action against Stanfield Victoria or any third 
party arising in connection with or out of the issuance of the Notes. 
The Bank states that, if the exercise of any of the foregoing rights, 
claims or causes of action results in the Bank recovering from 
Stanfield Victoria or any third party an aggregate amount that is more 
than the sum of (a) the Purchase Price paid for the Plans' Interests in 
the Notes by the Bank and (b) the interest that would have been due on 
the Notes (in the absence of the exchange) from and after the Purchase 
Date at the rate specified in the Notes, the Bank will refund such 
excess amounts promptly to the Plans (after deducting all reasonable 
expenses incurred in connection with the recovery).
    16. In summary, the Bank represents that the transaction satisfied 
the statutory criteria for an exemption under section 408(a) of the Act 
because: (a) The sale of the Plans' Interests in the Notes was a one-
time transaction for cash; (b) the Plans received an amount equal to 
the current cost of their Interests in the Notes at the time of sale, 
which was greater than the aggregate fair market value of their 
Interests in the Notes as determined by a valuation provided by the 
Enforcement Manager; (c) the Plans did not pay any commissions or other 
expenses with respect to the sale; (d) the Bank, as securities lending 
agent, determined that the sale of the Plans' Interests in the Notes 
was in the interests of the Plans; (e) the Bank took all appropriate 
actions necessary to safeguard the interests of the Plans in connection 
with the transaction; and (f) the Bank will promptly refund to the 
Plans any amounts recovered from Stanfield Victoria or any third party 
in connection with its exercise of any rights, claims or causes of 
action as a result of its ownership of the Notes (including the notes 
received in the NewCo Exchange Offer), if such amounts are in excess of 
the sum of (1) the Purchase Price paid for the Plans' Interests in the 
Notes by the Bank, and (2) the interest that would have been due on the 
Plans' Interests in the Notes from and after the Purchase Date at the 
rate specified in the Notes.

Notice to Interested Persons

    It is represented that the Bank shall provide notification of the 
publication of the Notice of Proposed Exemption (the Notice) in the 
Federal Register to a representative (the Representative) of each of 
the four Plans by personal or express delivery to each such 
Representative. Such notification will contain a copy of the Notice, as 
it appears in the Federal Register on the date of publication, plus a 
copy of the Supplemental Statement, as required pursuant to 29 CFR 
2570.43(a)(2), which will advise the Representatives of their right to 
comment and/or to request a hearing. The Bank will provide such 
notification to the Representatives within five (5) days of the date of 
publication of the Notice in the Federal Register. All written comments 
and/or requests for a hearing must be received by the Department from 
the Representatives no later than 35 days after publication of the 
Notice in the Federal Register.
    All comments will be made available to the public. Warning: Do not 
include any personally identifiable information (such as name, address, 
or other contact information) or confidential business information that 
you do not want publicly disclosed. All comments may be posted on the 
Internet and can be retrieved by most Internet search engines.

FOR FURTHER INFORMATION CONTACT: Anna Mpras Vaughan of the Department 
at (202) 693-8565. (This is not a toll-free number).

UBS AG (UBS or the Applicant), Located in Zurich, Switzerland, 
Exemption Application No. D-11772

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Employee Retirement Income Security 
Act of 1974, as amended, (ERISA) and section 4975(c)(2) of the Internal 
Revenue Code of 1986, as amended (the Code), and in accordance with the 
procedures set forth in 29 CFR Part 2570, Subpart B (76 FR 66637, 
66644, October 27, 2011).\9\
---------------------------------------------------------------------------

    \9\ For purposes of this proposed exemption, references to 
section 406 of ERISA should be read to refer as well to the 
corresponding provisions of section 4975 of the Code.
---------------------------------------------------------------------------

    If the proposed exemption is granted, entities within UBS's Global 
Asset Management and Wealth Management Americas divisions that function 
as ``qualified professional asset managers'' (QPAMs), shall not be 
precluded from relying on the relief provided by Prohibited Transaction 
Exemption 84-14 (PTE 84-14),\10\ solely due to the failure to satisfy 
the condition in section I(g) of PTE 84-14 as a result of their 
affiliation with UBS Securities Japan Co. Ltd. (UBS Securities Japan), 
against whom a judgment of conviction for one count of wire fraud (the 
Conviction) is scheduled to be entered in the District Court of 
Connecticut in Case Number 3:12-cr-00268-RNC, provided the following 
conditions are satisfied:
---------------------------------------------------------------------------

    \10\ 49 FR 9494 (March 13, 1984), as corrected at 50 FR 41430 
(October 10, 1985), as amended at 70 FR 49305 (August 23, 2005), and 
as amended at 75 FR 38837 (July 6, 2010).
---------------------------------------------------------------------------

    (a) No ERISA-covered assets were involved in, or directly affected 
by, the conduct of UBS Securities Japan that is the subject of the 
Conviction. For purposes of this paragraph, ERISA-covered assets are 
not considered directly affected solely because an ERISA plan held an 
economic interest in a security or investment product, the value of 
which was tied to one of the benchmark interest rates manipulated in 
connection with conduct by certain UBS personnel;
    (b) The entities acting as QPAMs within UBS's Global Asset 
Management and Wealth Management Americas divisions (UBS QPAMs) did not 
know of, have reason to know of, participate in, or directly receive 
compensation in connection with, the conduct by certain UBS personnel 
that gave rise to the manipulation of certain benchmark interest rates;
    (c) UBS Securities Japan did not provide any fiduciary services to, 
or act as a QPAM for, ERISA plans or otherwise exercise any 
discretionary control over ERISA-covered assets;
    (d) UBS Securities Japan will not enter into any transactions with 
funds managed by UBS QPAMs or provide any services to UBS QPAMs;
    (e) UBS QPAMs were insulated from UBS Securities Japan due to: (1) 
The independent business operations of the Wealth Management Americas 
and Global Asset Management divisions from UBS's other divisions, and 
(2) written policies and procedures which created information barriers 
that were in place to ensure that the UBS QPAMs, and the ERISA-covered 
assets they manage, were not affected by the business activities of UBS 
affiliates within the Investment Bank division, such as UBS Securities 
Japan;
    (f) UBS maintains and follows written policies and procedures that 
create information barriers designed to ensure UBS QPAMs, and the 
ERISA-covered assets they manage, are not affected by the business 
activities of UBS affiliates within the Investment Bank division, such 
as UBS Securities Japan. UBS also develops and implements a program of 
training for UBS personnel regarding such written policies and 
procedures;
    (g) UBS submits to an annual audit which meets the following 
requirements:
    (1) An independent auditor, who has appropriate technical training 
and

[[Page 41106]]

proficiency with Title I of ERISA, shall conduct an annual written 
audit;
    (2) The audit shall specifically require the auditor to determine 
whether UBS has continued to maintain and follow, and developed and 
implemented a training program with respect to, written policies and 
procedures that create information barriers designed to ensure that the 
UBS QPAMs, and the ERISA-covered assets they manage, are not improperly 
influenced or affected by the business activities of UBS affiliates 
within the Investment Bank division, such as UBS Securities Japan;
    (3) The audit shall test operational compliance with the training 
requirements and written policies and procedures requirements described 
in paragraph (f);
    (4) The auditor shall issue a written report (the Audit Report) 
describing the steps performed by the auditor during the course of its 
examination. The Audit Report shall include the auditor's specific 
determinations regarding the adequacy of the training requirements and 
written policies and procedures requirements described in paragraph 
(f), the auditor's recommendations (if any) with respect to 
strengthening such training requirements and policies and procedures, 
and any instances of UBS's noncompliance with developing and 
implementing such training requirements and policies and procedures. 
Any determinations made by the auditor as a result of the audit 
regarding the adequacy of the training requirements and written 
policies and procedures requirements described in paragraph (f) and the 
auditor's recommendations (if any) with respect to strengthening such 
training requirements and policies and procedures shall be promptly 
addressed by UBS, and any actions taken by UBS to address such 
recommendations should be included in an addendum to the Audit Report. 
Any determinations by the auditor that UBS has developed and maintained 
sufficient written policies and procedures, and developed and 
maintained a training program regarding such policies and procedures, 
shall not be based solely or in substantial part on an absence of 
evidence indicating noncompliance;
    (5) UBS shall provide notice to the Department's Office of 
Exemption Determinations (OED) of any instances of UBS's noncompliance 
reviewed by the auditor within ten (10) business days after such 
noncompliance is determined by the auditor, regardless of whether the 
audit has been completed as of that date. Upon request, the auditor 
shall provide OED with all of the relevant workpapers reflecting the 
instances of noncompliance. The workpapers should identity whether and 
to what extent the assets of ERISA plans were involved in the 
instance(s) of noncompliance and an explanation of any corrective 
actions taken by UBS;
    (6) The yearly Audit Report will be provided to OED no later than 
90 days following the 12-month period to which it relates and will be 
unconditionally available for examination by any duly authorized 
employee or representative of the Department, Internal Revenue Service, 
U.S. Commodity Futures Trading Commission, U.S. Department of Justice, 
Japanese Financial Services Authority, other relevant regulators, and 
any fiduciary of an ERISA plan the assets of which plan are managed by 
a UBS QPAM;
    (7) This audit requirement in paragraph (g) herein shall continue 
to be applicable for five (5) years from the date of Conviction;
    (h) Notwithstanding the Conviction, UBS complies with each 
condition of PTE 84-14, as amended;
    (i) UBS imposes its internal procedures, controls, and protocols on 
UBS Securities Japan to: (1) Reduce the likelihood of any recurrence of 
conduct that is the subject of the Conviction, and (2) comply in all 
material respects with the Business Improvement Order, dated December 
16, 2011, issued by the Japanese Financial Services Authority;
    (j) UBS complies in all material respects with the audit and 
monitoring procedures imposed on UBS by the United States Commodity 
Futures Trading Commission Order, dated December 19, 2012;
    (k) UBS maintains records necessary to demonstrate that the 
conditions of this exemption have been met for six (6) years following 
the completion date of the last audit conducted in accordance with 
paragraph (g); and
    (l) Each sponsor of an ERISA plan the assets of which plan are 
managed by a UBS QPAM receives: Notice of the proposed exemption with a 
copy of the summary of facts that led to the Conviction, which was 
submitted to the Department; and a prominently displayed statement that 
the Conviction results in a failure to meet a condition in PTE 84-14.
    Effective Date: This proposed exemption, if granted, will be 
effective as of the date a judgment of conviction against UBS 
Securities Japan for wire fraud is entered in the District Court of 
Connecticut in Case Number 3:12-cr-00268-RNC.

Summary of Facts and Representations

Background

    1. UBS AG (UBS or the Applicant) is a financial services 
corporation with headquarters located in Zurich, Switzerland. UBS has 
banking divisions and subsidiaries around the world, including in the 
United States, with its United States headquarters located in New York, 
New York and Stamford, Connecticut. The operational structure of UBS 
consists of the Corporate Center and four business divisions: Wealth 
Management, Wealth Management Americas, Global Asset Management and the 
Investment Bank. Discretionary investment management services and 
investment consulting services utilized by ERISA plan clients are 
provided primarily through UBS's Global Asset Management and Wealth 
Management Americas divisions. According to UBS, Global Asset 
Management and Wealth Management Americas provide investment management 
services to ERISA plan clients through separately managed accounts and 
pooled funds that invest in most of the investable markets 
worldwide.\11\ UBS notes that as of September 30, 2012, Global Asset 
Management's invested assets totaled approximately $671 billion 
worldwide, and Wealth Management Americas' invested assets totaled 
approximately $841 billion.
---------------------------------------------------------------------------

    \11\ This includes the purchase and sale of equity and fixed 
income securities, derivative contracts involving exposure to such 
securities, financial indices, commodity interests and currencies, 
mutual funds, hedge funds, real estate, infrastructure and private 
equity funds, fund of funds and manager of managers programs.
---------------------------------------------------------------------------

    2. On December 19, 2012, the Fraud section of the Criminal Division 
of the United States Department of Justice filed a one-count criminal 
information (the Information) in the District Court of Connecticut (the 
District Court) \12\ charging UBS Securities Japan Co. Ltd. (UBS 
Securities Japan), a wholly-owned subsidiary of UBS incorporated under 
the laws of Japan, with wire fraud in violation of Title 18, United 
States Code, sections 1343 and 2.\13\ The Information accuses UBS 
Securities Japan, between approximately 2006 and at least 2009, of 
engaging in a scheme to defraud counterparties to interest rate 
derivatives trades executed on its behalf

[[Page 41107]]

by secretly manipulating certain benchmark interest rates (Yen LIBOR 
and Euroyen TIBOR), to which the profitability of those trades was 
tied.\14\ Pursuant to a plea agreement (together with its attachments, 
the Plea Agreement), UBS Securities Japan entered a plea of guilty to 
the Information on December 19, 2012. UBS represents that it expects 
the District Court to enter a judgment of conviction (the Conviction) 
against UBS Securities Japan that will require remedies that are 
materially the same as set forth in the Plea Agreement. The Conviction 
is scheduled to be entered on or after June 27, 2013.
---------------------------------------------------------------------------

    \12\ United States of America v. UBS Securities Japan Co., Ltd., 
Case Number 3:12-cr-00268-RNC.
    \13\ Section 1343 generally imposes criminal liability for 
fraud, including fines and/or imprisonment, when a person utilizes 
wire, radio, or television communication in interstate or foreign 
commerce. Section 2 generally imposes criminal liability on a person 
as a principal if that person aids, abets, counsels, commands, 
induces, or willfully causes another person to engage in criminal 
activity.
    \14\ Specifically, the Information charges that on or about 
February 25, 2009, in furtherance of such scheme, UBS Securities 
Japan caused the transmission of: (i) An electronic chat between a 
derivatives trader employed by UBS Securities Japan and a broker 
employed at an interdealer brokerage firm, (ii) a subsequent 
submission for the Yen LIBOR to Thomson Reuters, and (iii) a 
subsequent publication of a Yen LIBOR rate through international and 
interstate wires, at least one of which passed through servers 
located in Stamford, Connecticut.
---------------------------------------------------------------------------

    3. According to the Information, UBS Securities Japan's fraudulent 
conduct was made possible by the manner in which the benchmark interest 
rates were calculated. Each business day, an average benchmark interest 
rate (the Fix) is calculated for various maturities, ranging from one 
day to 12 months. Each Fix is based on submissions from banks that sit 
on a Contributor Panel (omitting the top and bottom 25% of submissions 
for Yen LIBOR and the two highest and two lowest submissions for 
Euroyen TIBOR).\15\ The submissions for the benchmark interest rates 
generally represent the rate at which an individual Contributor Panel 
bank could borrow funds, were it to do so by asking for and then 
accepting inter-bank offers in a reasonable market size. UBS sits on 
the Contributor Panel for the Yen LIBOR and Euroyen TIBOR. Submissions 
from Contributor Panel members are ranked and averaged to determine 
each Fix. Each Fix is then published by information providers, such as 
Thomson Reuters.
---------------------------------------------------------------------------

    \15\ As of the date of this proposal, thirteen banks sat on the 
Yen LIBOR Contributor panel and seventeen banks sat on the Euroyen 
TIBOR Contributor panel.
---------------------------------------------------------------------------

    4. According to the Plea Agreement, UBS Securities Japan employed 
derivatives traders who submitted rates which did not reflect UBS's 
honest assessment of what its submissions should have been and who 
influenced the submissions of other Contributor Panel banks. The UBS 
derivatives traders were able to accomplish this by applying pressure 
or bribing individuals in charge of UBS's submissions to make 
submissions favorable to the traders' outstanding transactions. The 
derivatives traders would also persuade outside brokers to spread false 
information to other banks in order to influence those banks' 
submissions, causing a more dramatic shift in a particular Fix. The 
derivative traders engaged in this conduct in order to benefit their 
trading positions by maximizing profits and minimizing their losses. 
These derivative traders understood that they could only achieve those 
goals at the expense of their counterparties, whose trading positions 
would be affected to the same extent but in the opposite direction. 
Because of the large monetary value of the derivatives trades, even a 
small shift in a given Fix could result in a substantial profit to UBS, 
which would harm the counterparties. The Applicant represents that none 
of the counterparties were ERISA plans or funds containing ERISA-
covered assets.

Failure To Comply With Section I(g) of PTE 84-14 and Proposed Relief

    5. PTE 84-14 \16\ is a class exemption that permits certain 
transactions between a party in interest with respect to an employee 
benefit plan and an investment fund in which the plan has an interest 
and which is managed by a ``qualified professional asset manager'' 
(QPAM), if the conditions of the exemption are satisfied.\17\ The 
Applicant represents that certain entities within its Global Asset 
Management and Wealth Management Americas divisions satisfy the 
definition of QPAM in PTE 84-14 (UBS QPAMs) and may rely on the relief 
provided therein. However, PTE 84-14 precludes a person who may 
otherwise meet the definition of QPAM from relying on the relief 
provided therein if that person or its affiliate has, within 10 years 
immediately preceding the transaction, been either convicted or 
released from imprisonment, whichever is later, as a result of certain 
specified criminal activity described under section I(g) of PTE 84-14.
---------------------------------------------------------------------------

    \16\ 49 FR 9494 (March 13, 1984), as corrected at 50 FR 41430 
(October 10, 1985), as amended at 70 FR 49305 (August 23, 2005), and 
as amended at 75 FR 38837 (July 6, 2010).
    \17\ Relief under the exemption is based, in part, on the 
expectation that a QPAM, and those who may be in a position to 
influence its policies, maintain a high standard of integrity. 47 FR 
56945, 56947 (December 21, 1982).
---------------------------------------------------------------------------

    6. UBS represents that the Conviction falls within the scope of 
section I(g) of PTE 84-14 and, therefore, following the Conviction, UBS 
QPAMs will no longer qualify for the relief provided by PTE 84-14. This 
exemption, if granted, will enable entities within UBS's Global Asset 
Management and Wealth Management Americas divisions to qualify for the 
relief in PTE 84-14 despite the failure to satisfy section I(g) of PTE 
84-14 as a result of the Conviction, set to occur on or after June 27, 
2013.\18\ This proposed exemption, if granted, will not apply to any 
other convictions of UBS or its affiliates for crimes described in 
section I(g) of PTE 84-14.
---------------------------------------------------------------------------

    \18\ The Department notes that the Applicant has requested 
relief for UBS and its current and future affiliates. However, based 
on the record provided by the Applicant, the Department has been 
able to make its findings only with regards to the Global Asset 
Management and Wealth Management Americas divisions. Therefore, this 
proposed exemption, if granted, extends relief only to entities 
within those two divisions.
---------------------------------------------------------------------------

Merits of the Proposed Exemption

    7. The Applicant states that in exchange for its cooperation with 
the investigation, the Department of Justice (the DOJ) entered into a 
non-prosecution agreement (NPA) with UBS, dated December 18, 2012, 
relating to UBS's submissions for the Yen LIBOR and other benchmark 
interest rates. Incorporated into the NPA is a Statement of Facts (SOF) 
which describes in more detail the efforts by certain UBS personnel to 
manipulate submissions for various interest rate benchmarks and to 
collude with employees at other banks and cash brokers to influence 
certain benchmark rates, including Yen LIBOR, to benefit their trading 
positions. The SOF also explains that certain UBS managers and senior 
managers gave directions to influence UBS's submissions to avoid 
negative media attention and, relatedly, to avoid creating an 
impression that it was having difficulty obtaining funds. UBS 
acknowledged that the SOF was true and correct and that the wrongful 
acts taken by the participating employees in furtherance of the 
misconduct set forth above were within the scope of their employment at 
UBS. Furthermore, UBS acknowledged that the participating employees 
intended, at least in part, to benefit UBS through the actions 
described above.
    8. Pursuant to the NPA, UBS agreed to certain undertakings, 
including payment of a monetary penalty of $500,000,000 and 
strengthening its internal controls, as required by certain other U.S. 
and non-U.S. regulatory agencies with direct supervisory authority to 
regulate the conduct that gave rise to the Conviction.\19\ A

[[Page 41108]]

summary of the compliance conditions imposed by these regulators (of 
which several have already been implemented) are set forth as follows:
---------------------------------------------------------------------------

    \19\ These regulatory agencies include the U.S. Commodity 
Futures Trading Commission (CFTC), the United Kingdom Financial 
Services Authority (UKFSA), the Swiss Financial Market Supervisory 
Authority (FINMA), and the Japanese Financial Services Authority 
(JFSA).
---------------------------------------------------------------------------

    The United States Commodity Futures Trading Commission Order, dated 
December 19, 2012, (the CFTC Order) requires UBS to comply with 
significant audit and monitoring conditions that set standards for 
submissions related to interest rate benchmarks such as LIBOR, 
qualifications of submitters and supervisors, documentation, training, 
and firewalls. Under the CFTC Order, UBS must maintain monitoring 
systems or electronic exception reporting systems that identify 
possible improper or unsubstantiated submissions. The CFTC Order 
requires UBS to conduct internal audits of reasonable and random 
samples of its submissions every six months. Additionally, UBS must 
retain an independent, third-party auditor to conduct a yearly audit of 
the submission process for five years and a copy of the report must be 
provided to the CFTC. UBS states that FINMA also adopted the compliance 
undertakings in the CFTC Order as their own;
    The Business Improvement Order, dated December 16, 2011, issued by 
the JFSA requires UBS Securities Japan to: (i) Develop a plan to ensure 
compliance with its legal and regulatory obligations and to establish a 
control framework that is designed to prevent recurrences of the 
fraudulent submissions for benchmark interest rates; and (ii) provide 
periodic written reports to the JFSA regarding UBS Securities Japan's 
implementation of the measures required by the order.
    9. According to the NPA, under UBS's new senior management, UBS has 
made substantial and positive changes in its compliance, training, and 
overall approach to ensuring its adherence to the law. The NPA provides 
further that UBS has implemented a modified and significantly enhanced 
control framework for its LIBOR submission process and has expanded 
that program to encompass all other benchmark interest rate 
submissions. UBS states that it has also implemented significant 
remedial measures against manipulation of benchmark interest rates. UBS 
represents that the DOJ has received favorable reports from FINMA and 
the JFSA describing, respectively, (1) the positive progress that UBS 
has made in its approach to compliance and enforcement, and (2) UBS 
Securities Japan's effective implementation of the remedial measures 
previously imposed by the JFSA.
    10. Finally, UBS notes that, in light of the active investigations 
by the various regulators of the conduct identified in the NPA, and the 
role that such regulators will continue to play in reviewing UBS's 
compliance standards, the DOJ determined that adequate compliance 
measures regarding submissions for benchmark interest rates have been 
and will be established. For that reason, the DOJ did not include any 
additional compliance conditions in the NPA.
    11. The Applicant maintains that no ERISA plans managed by UBS 
QPAMs were directly affected by the acts that form the basis for the 
Conviction. Furthermore, UBS states that no ERISA plan or any fund the 
assets of which constitute ERISA-covered assets was a party to a 
transaction that was the subject of the Conviction. Notwithstanding 
this, UBS acknowledges that ERISA plans may have held economic 
interests tied to one of the benchmark interest rates affected by UBS 
Securities Japan's criminal conduct.
    12. According to the Applicant, as an affiliate of UBS, UBS 
Securities Japan engages in the purchase and sale of securities, acts 
as an intermediary in the purchase and sale of securities and 
underwrites securities in Japan, advises on mergers and acquisitions, 
and advises on private placements of debt and equity capital. However, 
the Applicant states that UBS Securities Japan does not provide 
investment management services to ERISA plans or otherwise exercise 
discretionary control over ERISA-covered assets. In this regard, the 
Applicant states that UBS Securities Japan has occasionally provided 
non-discretionary cash equity services (i.e., short-term stock trading 
designed to generate profits from changing stock market prices) to 
ERISA plans managed by UBS QPAMs, in reliance on PTE 86-128.\20\ The 
Applicant explains that UBS QPAMs, on behalf of their ERISA plan 
clients, may on occasion purchase Japanese securities through UBS 
Securities Japan, but the conduct that forms the basis for the Plea 
Agreement and the facts that form the basis of the NPA did not relate 
to the cash equity services provided by UBS Securities Japan.\21\ 
Furthermore, the Applicant states that none of the individuals involved 
in the misconduct assisted in providing cash equity services to UBS 
QPAMs. Finally, according to the Applicant, UBS Securities Japan 
provided no other services to ERISA plans managed by UBS or its 
affiliates during the time period covered by the NPA, Information, and 
Plea Agreement.
---------------------------------------------------------------------------

    \20\ 51 FR 41686 (November 18, 1986) as amended at 67 FR 64137 
(October 17, 2002).
    \21\ UBS affirms that commissions generated from the equity 
trades do not directly impact the compensation of employees of UBS 
QPAMs, but instead compensate the UBS Securities Japan brokers for 
the execution and settlement of the trades, in accordance with PTE 
86-128. The Department is expressing no view as to whether UBS has 
complied with the conditions for relief under PTE 86-128.
---------------------------------------------------------------------------

    13. The Applicant represents that UBS QPAMs were not involved in, 
and did not have knowledge of, the facts that form the basis of the 
NPA, Information, and Plea Agreement. UBS states that this is a result 
of policies and procedures that create information barriers that are, 
and have been, in place between UBS's four business groups to ensure 
compliance with applicable legal requirements and to minimize potential 
conflicts of interest. The Applicant explains that, for example, UBS 
QPAMs are part of the Global Asset Management and Wealth Management 
Americas divisions whereas UBS Securities Japan acts for the Investment 
Bank division. Furthermore, UBS notes that members of the Global Asset 
Management and Wealth Management Americas divisions maintain separate 
registrations, books and records, and accounts from the Investment Bank 
affiliates. Therefore, according to UBS, the Global Asset Management 
and Wealth Management Americas divisions operate independently of the 
Investment Bank division. The Applicant explains further that, 
generally, the policies and procedures that create information barriers 
prevent employees of UBS QPAMs from gaining access to insider 
information that an affiliate may have acquired or developed in 
connection with investment banking activities of the Investment Bank 
division. According to UBS, the policies and procedures that create 
information barriers apply to all employees, officers, and directors at 
the UBS QPAMs and were in effect during the time frame covered by the 
facts that form the basis of the Plea Agreement. Finally, UBS 
represents that business contacts between Global Asset Management and 
Wealth Management Americas personnel and anyone engaged in investment 
banking or related activities for an affiliate are prohibited, except 
with the prior approval of UBS's Legal and Compliance Department.
    14. The proposed exemption, if granted, will require an independent 
auditor, who has appropriate technical training and proficiency with 
Title I of

[[Page 41109]]

ERISA, to conduct an annual audit. The auditor shall determine whether 
UBS has developed and implemented training for, and continued to 
maintain and follow, written policies and procedures that create 
information barriers designed to ensure that the UBS QPAMs, and the 
ERISA assets they manage, are not improperly influenced or affected by 
the business activities of other UBS affiliates, such as those within 
the Investment Bank division. The auditor shall also determine whether 
UBS is operationally compliant with such training and policies and 
procedures and whether such measures are adequate to maintain 
information barriers and deter improper influences. The auditor shall 
issue a written report (the Audit Report) describing the steps 
performed by the auditor during the course of the auditor's 
examination. The Audit Report will be provided to the Department no 
later than 90 days following the 12-month period to which it relates 
and will be unconditionally available for examination by any duly 
authorized employee or representative of the Department, Internal 
Revenue Service, CFTC, DOJ, JFSA, other relevant regulators, and any 
fiduciary of an ERISA plan, the assets of which plan are managed in 
whole or part by UBS QPAMs. The audit requirement shall continue to be 
applicable for five years from the date of Conviction.

Statutory Findings

    15. The proposed exemption, if granted, is expected to be 
administratively feasible because the Department will have minimal 
involvement in ensuring UBS complies with this exemption. In this 
regard, the proposed exemption, if granted, will require an auditor to 
perform an audit of UBS's training and policies and procedures that 
create information barriers.
    16. UBS represents that the requested exemption is in the interest 
of affected plans and their participants and beneficiaries because it 
will enable the plans to continue their current investment strategy 
with their current manager. Moreover, UBS notes that if the Department 
denies the requested exemption, UBS will be effectively eliminated as a 
viable investment manager. UBS suggests that any ERISA plan that 
decides to move to a new manager could incur transition costs including 
costs associated with identifying an appropriate manager. Additionally, 
according to the Applicant, ERISA plans that remain with UBS would be 
prohibited from engaging in certain transactions beneficial to such 
plans, such as the purchase and sale from a party in interest of a 
security without a readily ascertainable fair market value. Finally, 
according to the Applicant, UBS has entered into contracts on behalf of 
ERISA plans for certain outstanding transactions, including swaps, 
which require UBS to maintain its eligibility for the relief in PTE 84-
14. UBS asserts that counterparties to those transactions could seek to 
terminate their contracts, resulting in significant losses to their 
ERISA plan clients. Moreover, certain derivatives transactions will 
automatically and immediately be terminated without notice or action in 
the event UBS no longer qualifies for the relief in PTE 84-14.
    17. UBS maintains that the requested exemption is protective of the 
rights of participants and beneficiaries of affected ERISA plans 
because: (i) UBS Securities Japan has not been, and for the duration of 
this exemption, will not be involved in the provision of discretionary 
investment management services to ERISA plans, and (ii) there have 
been, and will be, in place policies and procedures that create 
information barriers between UBS's business groups to ensure compliance 
with applicable legal requirements and to minimize potential conflicts 
of interest. UBS will also be subject to the audit requirement, 
described above, to ensure that the policies and procedures effectively 
insulate UBS QPAMs from improper influence of other UBS affiliates.
    18. In addition, UBS stresses that it has implemented and will 
maintain internal control procedures to prevent further improper 
activities regarding the setting of benchmark interest rates, and has 
complied (and will continue to comply) with all applicable requirements 
specified in the NPA, the CFTC Order, the Business Improvement Order 
issued by the JFSA, and any other agreements entered into by UBS with 
other domestic and foreign regulatory agencies in connection with the 
criminal conduct described above. Finally, UBS notes that all of the 
conditions that make PTE 84-14 protective of the rights of participants 
and beneficiaries of ERISA plans will be incorporated into this 
exemption, if granted.

Summary

    19. In summary, UBS represents that the covered transactions 
satisfy the statutory requirements for an exemption under section 
408(a) of ERISA because:
    (a) No ERISA-covered assets were involved in, or directly affected 
by, the conduct of UBS Securities Japan that is the subject of the 
Conviction;
    (b) The UBS QPAMs did not know of, have reason to know of, 
participate in, or directly receive compensation in connection with, 
the conduct that gave rise to the manipulation of certain benchmark 
interest rates;
    (c) UBS Securities Japan did not provide any fiduciary services to, 
or act as a QPAM for, ERISA plans or otherwise exercise any 
discretionary control over ERISA-covered assets;
    (d) UBS Securities Japan will not enter into any transactions with 
funds managed by UBS QPAMs or provide any services to UBS QPAMs;
    (e) UBS QPAMs were insulated from UBS Securities Japan due to: (1) 
The independent business operations of the Wealth Management Americas 
and Global Asset Management divisions from UBS's other divisions, and 
(2) written policies and procedures which created information barriers 
that were in place to ensure that the UBS QPAMs, and the ERISA-covered 
assets they manage, were not affected by the business activities of UBS 
affiliates within the Investment Bank division, such as UBS Securities 
Japan;
    (f) UBS will maintain written policies and procedures that create 
information barriers designed to ensure UBS QPAMs, and the ERISA-
covered assets they manage, are not affected by the business activities 
of UBS affiliates within the Investment Bank division, such as UBS 
Securities Japan. UBS will also develop and maintain a program of 
training for UBS personnel regarding such written policies and 
procedures;
    (g) UBS will submit to an annual audit in accordance with paragraph 
(g) of the proposed exemption;
    (h) Notwithstanding the Conviction, UBS will comply with each 
condition of PTE 84-14, as amended;
    (i) UBS will impose its internal procedures, controls, and 
protocols on UBS Securities Japan to: (1) Reduce the likelihood of any 
recurrence of conduct that is the subject of the Conviction, and (2) 
comply in all material respects with the Business Improvement Order 
issued by the JFSA;
    (j) UBS will comply with the audit and monitoring procedures 
imposed on UBS by the CFTC Order;
    (k) UBS will maintain records necessary to demonstrate that the 
conditions of the exemption have been met for six years following the 
completion date of the last audit conducted in accordance with 
paragraph (g) of the proposed exemption; and
    (l) Each sponsor of an ERISA plan the assets of which plan are 
managed by a UBS QPAM will receive, along with the notice of the 
proposed exemption, a

[[Page 41110]]

copy of the summary of facts that led to the Conviction, which was 
submitted to the Department; and a prominently displayed statement that 
the Conviction results in a failure to meet a condition in PTE 84-14.

Notice to Interested Persons

    Notice of the proposed exemption will be provided to all interested 
persons in the manner agreed upon by the Applicant and the Department 
within 3 days of the date of publication in the Federal Register. Such 
notice will contain a copy of the notice of proposed exemption, as 
published in the Federal Register, and a supplemental statement, as 
required pursuant to 29 CFR 2570.43(a)(2). The supplemental statement 
will inform interested persons of their right to comment on and to 
request a hearing with respect to the pending exemption. Written 
comments and hearing requests are due within 33 days of the publication 
of the notice of proposed exemption in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Mr. Erin S. Hesse of the Department, 
telephone (202) 693-8546. (This is not a toll-free number.)

Sears Holdings Savings Plan (the Savings Plan), Sears Holdings Puerto 
Rico Savings Plan (the PR Plan), and The Lands' End, Inc. Retirement 
Plan (the Lands' End Plan) (Collectively, the Plans), Located in 
Hoffman Estates, IL and Dodgeville, WI

[Application Nos. D-11739, D-11740, D-11741]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR part 
2570, subpart B (76 FR 66637, 66644, October 27, 2011).

Section I Transactions

    If the proposed exemption is granted, effective for the period 
beginning September 7, 2012 and ending October 8, 2012:
    (a) The restrictions of sections 406(a)(1)(A), 406(a)(1)(E), 
406(a)(2), 406(b)(1), 406(b)(2), and 407(a)(1)(A) of the Act and the 
sanctions resulting from the application of section 4975 of the Code, 
by reason of section 4975(c)(1)(A) and 4975(c)(1)(E) of the Code,\22\ 
shall not apply:
---------------------------------------------------------------------------

    \22\ For purposes of this proposed exemption, references to 
specific provisions of Title I of the Act, unless otherwise 
specified, refer also to the corresponding provisions of the Code.
---------------------------------------------------------------------------

    (1) To the acquisition of certain subscription right(s) (the Right 
or Rights) by the Savings Plan and the Lands' End Plan from Sears 
Holdings Corporation (Holdings) in connection with an offering (the 
Offering) by Holdings of shares of common stock (SHO Stock) in Sears 
Hometown and Outlet Stores, Inc. (SHO); and
    (2) To the holding of the Rights by the Savings Plan and the Lands' 
End Plan during the subscription period of the Offering; provided that 
the conditions as set forth, below, in Section II of this proposed 
exemption were satisfied for the duration of the acquisition and 
holding.
    (b) The restrictions of sections 406(a)(1)(A), 406(a)(1)(E), 
406(a)(2), 406(b)(1), 406(b)(2), and 407(a)(1)(A) of the Act \23\ shall 
not apply:
---------------------------------------------------------------------------

    \23\ It is represented that the fiduciaries of the PR Plan have 
not made an election under section 1022(i)(2) of the Act, whereby 
such plan would be treated as a trust created and organized in the 
United States for purposes of tax qualification under section 401(a) 
of the Code. Further, it is represented that jurisdiction under 
Title II of the Act does not apply to the PR Plan. Accordingly, the 
Department, herein, is not providing any relief for the 
prohibitions, as set forth in Title II of the Act, for the 
acquisition and holding of the Rights by the PR Plan.
---------------------------------------------------------------------------

    (1) To the acquisition of the Rights by the PR Plan from Holdings 
in connection with the Offering by Holdings of the SHO Stock; and
    (2) To the holding of the Rights by the PR Plan during the 
subscription period of the Offering; provided that the conditions as 
set forth, below, in Section II of this proposed exemption were 
satisfied for the duration of the acquisition and holding.

Section II Conditions

    The relief provided in this proposed exemption is conditioned upon 
adherence to the material facts and representations set forth in the 
application file, and upon compliance with the conditions set forth 
herein.
    (a) The receipt of the Rights by the Plans occurred in connection 
with the Offering in which all shareholders of the common stock of 
Holdings (Holdings Stock), including the Plans, were treated in the 
same manner;
    (b) The acquisition of the Rights by the Plans resulted solely from 
an independent act of Holdings, as a corporate entity;
    (c) Each shareholder of Holdings Stock, including each of the 
Plans, received the same proportionate number of Rights based on the 
number of shares of Holdings Stock held by each such shareholder;
    (d) All decisions with regard to the holding and disposition of the 
Rights by the Plans were made by an independent qualified fiduciary 
(the I/F);
    (e) The I/F determined that it would be in the interest of the 
Plans to sell all of the Rights received in the Offering by the Plans 
in blind transactions on the NASDAQ Capital Market; and
    (f) No brokerage fees, commissions, subscription fees, or other 
charges: Were paid by the Plans with respect to the acquisition and 
holding of the Rights; or were paid to any broker affiliated with the 
I/F, Holdings, or SHO in connection with the sale of the Rights.
    Effective Date: This proposed exemption, if granted, will be 
effective for the Offering period, beginning September 7, 2012 and 
ending October 8, 2012.

Summary of Facts and Representations

Plan Structure

    1. Employees of Holdings and its affiliates participate in the 
Plans. The Plans consist of the Savings Plan, the PR Plan and the 
Lands' End Plan. The Plans are defined contribution, eligible 
individual account plans that are designed and operated to comply with 
the requirements of section 404(c) of the Act. The Plans allow 
participants to purchase units in certain stock funds which invest in 
Holdings Stock. In this regard, the Savings Plan and the PR Plan share 
a single stock fund (the Stock Fund) within the Sears Holdings 401(k) 
Savings Plan Master Trust (the Master Trust) \24\ to hold shares of 
Holdings Stock. Similarly, the Lands' End Plan utilizes a separate 
stock fund (the Lands' End Trust Stock Fund) within the Lands' End Inc. 
Retirement Trust (the Lands' End Trust) to hold shares of Holding 
Stock.\25\
---------------------------------------------------------------------------

    \24\ As of December 31, 2011, the Master Trust had $3 billion in 
total assets. State Street Bank and Trust Company serves as the 
master trustee and custodian for the Master Trust. As of September 
12, 2012, (the Ex-Dividend Date), the Stock Fund within the Master 
Trust held 1,512,678 shares of Holdings Stock with a fair market 
value of $92,122,090.20.
    \25\ The Stock Fund and the Lands' End Trust Stock Fund are, 
herein, collectively, referred to as the ``Stock Funds.''
---------------------------------------------------------------------------

    2. Sears, Roebuck and Co. (Sears Roebuck) and all of its wholly-
owned (direct and indirect) subsidiaries (except Lands' End Inc. 
(Lands' End)) and Sears Holdings Management Corporation, with respect 
to certain employees, have adopted the Savings Plan and are employers 
under such plan.
    As of September 7, 2012, (the Record Date), there were 25,015 
participants in the Savings Plan, and the Savings Plan's share of the 
total assets of the Master Trust was $3,030,105,605. Also, as of the 
Record Date, the Savings Plan's

[[Page 41111]]

allocable portion of Holdings Stock held in the Stock Fund under the 
Master Trust was 1,485,107 shares, and the approximate percentage of 
the fair market value of the total assets of the Savings Plan invested 
in Holdings Stock was 2.85 percent (2.85%), which amount constituted 
approximately 1.4 percent (1.4%) of the 106 million shares of Holdings 
Stock issued and outstanding.
    The Savings Plan is administered by the Sears Holding Corporation 
Administrative Committee (the Administrative Committee), whose members 
are employees of Holdings. The Sears Holdings Corporation Investment 
Committee (the Investment Committee), whose members are officers and/or 
employees of Holdings and/or its subsidiaries, has authority over 
decisions relating to the investment of the Savings Plan's assets.
    3. The PR Plan was established by Holdings for employees of Sears 
Roebuck de Puerto Rico Inc. (Sears Roebuck de Puerto Rico) who reside 
in the Commonwealth of Puerto Rico. According to Holdings, the PR Plan 
has not made an election under section 1022(i)(2)of the Act and is not 
covered by Title II of the Act. (See footnote reference regarding 
jurisdiction in the operative language of this proposed exemption.)
    As of the Record Date, there were 935 participants in the PR Plan, 
and the PR Plan's share of the total assets of the Master Trust was 
$17,417,486. Also, as of the Record Date, the PR Plan's allocable 
portion of Holdings Stock held in the Stock Fund under the Master Trust 
was 35,584 shares, and the approximate percentage of the fair market 
value of the total assets of the PR Plan invested in Holdings Stock was 
11.89 percent (11.89%), which amount constituted approximately 1.4 
percent (1.4%) of the 106 million shares of Holdings Stock issued and 
outstanding.
    The PR Plan is administered by the Administrative Committee, and 
the Investment Committee makes investment decisions for such plan. 
Banco Popular de Puerto Rico serves as the PR Plan trustee.
    4. The Lands' End Plan is maintained by Lands' End, a retailer and 
a wholly owned subsidiary of Holdings. As of the Record Date, there 
were 242 participants in the Lands' End Plan, and the plan had total 
assets of $253,821,233. Also, as of the Record Date, the Lands' End 
Plan held through the Lands' End Trust Stock Fund 5,869 shares of 
Holdings Stock, representing approximately 0.1383 percent (0.1383%) of 
such plan, which amount constituted approximately 0.0055 percent 
(0.0055%) of the 106 million shares of Holdings Stock issued and 
outstanding. The Lands' End Plan is administered by the Lands' End, 
Inc. Retirement Plan Committee. Wells Fargo Bank, N.A. (Wells Fargo) is 
the trustee of the plan.

Holdings

    5. Holdings, the sponsor of each of the Plans, is a retail merchant 
with full-line and specialty retail stores in the United States, Guam, 
Puerto Rico, the U.S. Virgin Islands, and Canada. Holdings was 
incorporated in the State of Delaware in 2005 in connection with the 
merger of Kmart Holding Company and Sears Roebuck. Holdings is the 
parent company of Kmart Holding Company and Sears Roebuck. The 
principal executive office of Holdings is located in Hoffman Estates, 
Illinois. According to the Form 10-(K), as of 2012 and 2011, 
respectively, Holdings and its subsidiaries had total assets of 
$21,381,000,000 and $24,360,000,000. As of January 28, 2012, 
subsidiaries of Holdings had approximately 264,000 employees in the 
United States and U.S. territories, and approximately 29,000 employees 
in Canada, including part-time employees.

Holdings Stock

    6. Holdings Stock, par value $0.01 per share, is publicly-traded on 
the NASDAQ Global Select Market under the symbol, ``SHLD.'' There were 
15,492 shareholders of record, as of February 29, 2012. As of the 
Record Date, there were 106,444,571 shares of Holdings Stock issued and 
outstanding.
    ESL Investments, Inc. and its affiliates, (ESL), including Edward 
S. Lampert (Mr. Lampert) owned approximately 62 percent (62%) of 
Holdings Stock, issued and outstanding, as of September 10, 2012. Mr. 
Lampert is the Chairman of the Board of Directors of Holdings and of 
its Finance Committee. He is also the Chairman and CEO of ESL.

SHO

    7. SHO, with corporate offices located in Hoffmann Estates, 
Illinois, is a national retail merchant with 11,238 stores located in 
all 50 states, Puerto Rico, Guam, and Bermuda. SHO operates the Sears 
Hometown Stores and the Sears Hardware Stores. SHO also operates the 
Sears Home Appliance Show Rooms and the Sears Outlet Stores.
    SHO was incorporated in Delaware on April 23, 2012, as a wholly-
owned subsidiary of Holdings. In such capacity, SHO did not conduct 
business as a separate company and had no material assets or 
liabilities, prior to the Offering. Holdings owned 100 percent (100%) 
of SHO Stock at the commencement of the Offering and continued to own 
100 percent (100%) of such stock until the closing of the Offering on 
October 8, 2012. No public market for SHO Stock existed prior to the 
Offering.

The Offering

    8. On February 23, 2012, Holdings announced its intention to 
separate from SHO. On August 31, 2012, Holdings contributed certain 
assets, liabilities, business, and employees to SHO. On September 6, 
2012, Holdings issued the final prospectus whereby shareholders of 
record, including the Plans, as of the Record Date received the Rights.
    Holdings communicated generally with employees regarding the 
separation of Holdings from SHO upon the effective date of the spin-
off. Holdings also communicated through public releases at 
www.searsholdings.com. Participants in the Plans, who invested in 
Holdings Stock as of the Record Date, received a notification regarding 
the Offering, the engagement of the I/F, the fact that the Rights would 
be held in the Stock Funds, that the I/F would determine whether the 
Rights should be exercised or sold, and the means a participant could 
use to obtain more information.
    Under the terms of the Offering, all shareholders of Holdings Stock 
automatically received the Rights, at no charge. The Rights entitled 
shareholders of Holdings Stock to purchase, through the exercise of 
such Rights, SHO Stock from Holdings in connection with the Offering. 
Under the terms of the Offering, one (1) Right was issued for each 
whole share of Holdings Stock held by each shareholder, including the 
Plans, on the Record Date.
    9. Each Right permitted the holder thereof to purchase 0.218091 
shares of SHO Stock at a subscription price of $15.00 per whole share. 
Each right also contained an over-subscription privilege to subscribe 
for additional shares of SHO Stock, up to the number of shares of SHO 
Stock that were not subscribed for by the other holders of the Rights, 
pursuant to such holder's basic Rights. The Plans were not eligible to 
participate in the over-subscription privilege because the I/F sold the 
Rights received by the Plans, as discussed more fully below.
    10. All shareholders of Holdings Stock held the Rights until such 
Rights expired, were exercised, or were sold. With regard to the 
exercise of the Rights, it is represented that the Rights could only be 
exercised in whole numbers. Each shareholder of Holdings Stock

[[Page 41112]]

needed to have at least five (5) Rights to purchase a share of SHO 
Stock, because only whole shares could be purchased by the exercise of 
the Rights. Fractional shares or cash in lieu of fractional shares were 
not issued in connection with the Offering. Fractional shares of SHO 
Stock resulting from the exercise of basic Rights, as to any holder of 
such Rights were rounded down to the nearest whole number.
    A shareholder had the right to exercise some, all, or none of its 
Rights. However, the election had to be received by October 8, 2012, by 
the subscription agent, Computershare Inc. The election to exercise any 
of the Rights was irrevocable.
    11. With regard to the sale of the Rights, it is represented that 
the Rights were transferable. Further, it is represented that the 
Rights were traded on the NASDAQ Capital Market under the symbol, 
``SHOSR.'' The allocation of the Rights to shareholders was handled by 
Depository Trust Company (DTC). DTC established an interim tracing 
period for the Rights from September 12, 2012 to September 16, 2012 and 
allocated the Rights on September 18, 2012. It is represented that the 
Rights began to trade on the first business day following the 
distribution of the Rights, and continued to trade until 4 p.m. New 
York City time on October 2, 2012, the fourth business day prior to the 
close of the Offering. It is represented that this deadline applied 
uniformly to all holders of the Rights.
    12. The Offering closed at 5 p.m. New York City time on October 8, 
2012. It is represented that 23,100,000 shares of SHO Stock were 
subscribed for by shareholders at a price of $15 per whole share of SHO 
Stock. It is further represented that holders of the Rights exercised 
101,603,307 of the 105,919,060 Rights issued while the remaining 
4,315,753 Rights were allowed to expire. The SHO Stock began trading in 
the NASDAQ Capital Market on a ``right to receive basis'' under the 
symbol, ``SHOS'' on Friday, October 12, 2012, and on that date opened 
at $30.00 and closed at $30.68 per share.
    Pursuant to the Offering, Holdings disposed of all of its shares of 
SHO Stock through the exercise of the Rights. Accordingly, following 
the closing of the Offering: (a) SHO became a publicly traded company 
independent of Holdings; and (b) Holdings did not retain any ownership 
interest in SHO.
    13. It is represented that Holdings conducted the Offering to 
obtain additional liquidity and to enhance the ability of Holdings to 
focus on its core business. In this regard, all of the gross proceeds 
(approximately $346.5 million) from the sale of the SHO Stock through 
the exercise of the Rights, net of any selling expenses was payable to 
and received by Holdings. In the opinion of Holdings, the Offering gave 
shareholders of Holdings Stock the ability to avoid dilution by 
retaining each such shareholder's ownership percentage in Holdings and 
in SHO.
    14. It is represented that based on the ratio of one (1) Right for 
each share of Holdings Stock held, the Master Trust and the Land's End 
Trust (collectively, the Trusts) acquired, respectively, 1,512,678 and 
5,874 Rights, as a result of the Offering. It is represented that the 
number of Rights received by the Trusts was slightly lower than the 
number of shares of Holdings Stock held by the Trusts on the Record 
Date, even though one (1) Right was issued for each share of Holdings 
Stock. This small difference is explained by the relationship between 
the Record Date and the Ex-Dividend Date. If a share of Holdings Stock 
was sold between the Record Date and the Ex-Dividend Date, the right to 
the dividend (in this case the Rights) transferred with the Holdings 
Stock. Here, the Trusts sold a small number of Holdings Stock between 
the Record Date and the Ex-Dividend Date for the Rights. As a result, 
the associated Right transferred with the sold Holdings Stock.

Role of the I/F

    15. Evercore Trust Company (Evercore) was retained by Holdings, the 
Investment Committee, and by the Lands' End Committee, pursuant to an 
agreement (the Agreement), dated July 26, 2012, to act as the I/F on 
behalf of the Plans, in connection with the Offering and with the 
application for exemption submitted to the Department. Pursuant to the 
terms of the Agreement, Evercore's responsibilities were to determine 
when to exercise or sell each of the Plans' Rights received in the 
Rights Offering.
    It is represented that Evercore is qualified to serve as the I/F 
for the Plans in connection with the Offering in that Evercore is a 
nationally chartered trust bank and subsidiary of Evercore Partners, 
Inc. Since 1987, Evercore or its successor has provided specialized 
investment management, independent fiduciary, and trustee services to 
employee benefit plans.
    Evercore represents and warrants that it is independent and 
unrelated to Holdings. It is further represented that Evercore did not 
directly or indirectly receive any compensation or other consideration 
for its own account in connection with the Offering, except 
compensation from Holdings for performing services described in the 
Agreement. The percentage of Evercore's current revenue that is derived 
from any party in interest involved in the subject transaction or its 
affiliates is less than one percent (1%).
    Evercore has represented that it understands and acknowledges its 
duties and responsibilities under the Act in acting as a fiduciary on 
behalf of the Plans in connection with the Offering.
    It is represented that Evercore conducted a due diligence process 
in evaluating the Offering on behalf of the Plans. In addition to 
numerous discussions with representatives of Holdings, the Investment 
Committee, and the Lands' End Committee, Holdings' and representatives 
of the Plans' trustees, Evercore reviewed information provided by 
Holdings, the exemption application, various press releases, various 
financial and market data related to the Plans, Holdings, the Rights, 
and the Holdings Stock, as well as other publicly available 
information.
    With regard to the Offering, Evercore considered four (4) options 
on behalf of the Plans: (a) Continue holding the Rights within the 
Stock Funds; (b) exercising all of the Rights and acquiring SHO Stock; 
(c) selling a portion of the Rights and using the proceeds to exercise 
the remaining Rights to acquire SHO Stock; or (d) selling all of the 
Rights on the NASDAQ Capital Market at the prevailing market price. 
Evercore, acting as the I/F on behalf of the Plans, selected option 
(d).
    In determining to sell all of the Plans' Rights, Evercore 
represented that the proceeds from the sale would be invested in 
Holdings Stock, as per the governing documents of the Stock Funds. 
Evercore noted that the key risk inherent in such prompt sale was 
insufficient market volume to dispose of the Rights in a timely manner. 
However, Evercore did not view this risk as excessive, given that the 
Plans only received 1.4% of all Rights issued. According to Evercore, 
prompt sale of the Rights would allow the Stock Funds to quickly invest 
the proceeds in Holdings Stock and provide an opportunity to lock in a 
certain price for the Rights in the event the market price of the 
Rights fell over the course of the Offering period. Although the Plans 
would incur some transaction costs by selling the Rights (estimated to 
run from $0.0125 to $0.02 per Right traded, plus a similar expense in 
connection with the reinvestment of the proceeds from the sale of the 
Rights in shares of Holdings Stock), the Plans also realized the 
benefits of the Rights in a timely manner.

[[Page 41113]]

    16. As a result of the Rights sale, the total net proceeds 
generated for the Savings Plan and the PR Plan was $3,490,606.15. The 
total net proceeds generated for the Lands' End Plan was $14,919.62. 
The proceeds from the sale of the Rights were credited to each of the 
Stock Funds and the unit value of each participant's account balance 
reflected the addition of assets credited to such funds.
    The trading period for the sale of the Rights ended on October 2, 
2012. Over the fifteen-day period that the Rights were traded on the 
NASDAQ Capital Market, the volume-weighted average price for the 
56,461,050 Rights traded was $2.17 according to FactSet. Evercore noted 
that the disposition of the Plans' 1,518,552 Rights in blind 
transactions on the NASDAQ Capital Market resulted in the Plans 
realizing an average selling price of $2.32 per Right.
    In the opinion of Evercore the actions outlined above engaged in by 
Evercore on behalf of the Plans were in the interest of the Plans and 
the Plans' participants and beneficiaries and were protective of such 
participants and beneficiaries of the Plans.
    17. No brokerage fees, commissions, subscription fees, or other 
charges were paid by the Plans with respect to the acquisition and 
holding of the Rights, or were paid to any broker affiliated with 
Evercore, Holdings, or SHO in connection with the sale of the Rights. 
In this regard, it is represented that Evercore selected ConvergEx 
Group as the broker for the sale of the Rights issued to the Master 
Trust, based on Evercore's confidence in that broker's execution 
ability and an attractive fee schedule of 1.25 cents per Right traded. 
In connection with the sale of the Rights, the Master Trust paid 
$18,908.48 in commissions and $778.63 in SEC fees.\26\
---------------------------------------------------------------------------

    \26\ It is represented that these services and receipt of fees 
are exempt under section 408(b)(2) of the Act. The Department, 
herein, is not providing any relief for the receipt of any 
commissions, fees, or expenses in connection with the sale of the 
Rights in blind transactions to unrelated third parties on the 
NASDAQ Capital Market, beyond that provided pursuant to section 
408(b)(2) of the Act. In this regard, the Department is not opining 
as to whether the conditions as set forth in section 408(b)(2) of 
the Act and the Department's regulations, pursuant to 29 CFR 
2550.408(b)(2) have been satisfied.
---------------------------------------------------------------------------

    Wells Fargo, trustee for the Lands' End Plan, informed Evercore 
that it could not accommodate an outside broker and would, at the 
direction of Evercore, handle trading of the Rights internally as per 
its standard arrangement with Holdings for the management and trading 
of the Lands' End Trust Stock Fund held at Wells Fargo. At 2 cents per 
Right traded, this fee was higher than ConvergEx Group's fee, but was 
reasonable in the opinion of Evercore, given the assessment of Wells 
Fargo's trading capabilities. In connection with the sale of the 
Rights, the Lands' End Trust paid $117.48 in commissions and $0.34 for 
SEC fees.\27\
---------------------------------------------------------------------------

    \27\ See, footnote above.
---------------------------------------------------------------------------

Requested Relief

    18. The application was filed by Holdings on behalf of itself and 
its affiliates including Lands' End. In this regard, Holdings has 
requested an exemption: (a) For the acquisition of the Rights by the 
Plans from Holdings in connection with the Offering of Rights by 
Holdings of SHO Stock in SHO; and (b) for the holding of the Rights by 
the Plans during the subscription period of the Offering.
    It is represented that the Rights acquired by the Plans satisfy the 
definition of ``employer securities,'' pursuant to section 407(d)(1) of 
the Act. However, as the Rights were not stock or a marketable 
obligation, such Rights do not meet the definition of ``qualifying 
employer securities,'' as set forth in section 407(d)(5) of the Act. 
Accordingly, the subject transactions constitute an acquisition and 
holding by the Plans, of employer securities which are not qualifying 
employer securities, in violation of section 407(a) of the Act, for 
which Holdings has requested relief from sections 406(a)(1)(A), 
406(a)(1)(E), 406(a)(2), and 407(a)(1)(A) of the Act.
    The subject transactions also raise conflict of interest issues by 
fiduciaries of the Plans. Accordingly, Holdings has requested relief 
from the prohibitions of section 406(b)(1) and 406(b)(2) of the Act.
    19. It is represented that the subject transactions have already 
been consummated. In this regard, the Plans acquired the Rights 
pursuant to the Offering, and held such Rights until such Rights were 
sold. As there was insufficient time between the dates when the Plans 
acquired the Rights and when such Rights were sold, to apply for and be 
granted an exemption, Holdings is seeking a retroactive exemption to be 
granted, effective as of September 7, 2012, the Record Date.

Merits of the Transactions

    20. Holdings represents that the proposed exemption is 
administratively feasible. In this regard, Holdings explained that the 
acquisition and holding of the Rights by the Plans were one-time 
transactions that involved an automatic distribution of the Rights to 
all shareholders. In addition, Holdings states that it is customary for 
many corporations to make a rights offering available to all 
shareholders.
    Holdings also represents that the subject transactions were in the 
interest of the Plans, because such transactions represented a valuable 
opportunity for such Plans to sell the Rights on the market. Holdings 
further represents that the proposed exemption provides sufficient 
safeguards for the protection of the participants and beneficiaries of 
the Plans. According to Holdings, participation in the Offering 
protected the Plans from having each such participant's interest in 
Holdings and in SHO diluted as a result of the Offering.
    It is also represented that the interests of the Plans were 
adequately protected in that such Plans acquired and held the Rights 
automatically as a result of the Offering. In this regard, Holdings 
made the Rights available on the same terms to all shareholders of 
Holdings Stock, including the Plans. Holdings states that each 
shareholder of Holdings Stock, including the Plans, received the same 
proportionate number of Rights based on the number of shares of 
Holdings Stock held by each such shareholder. Finally, Holdings notes 
that the Plans were protected in that Evercore, acting as the I/F on 
behalf of the Plans, determined to sell the Rights in blind 
transactions on the NASDAQ Capital Market.

Summary

    21. In summary, Holdings represents that the subject transactions 
satisfy the statutory criteria for an exemption under of section 408(a) 
of the Act because:
    (a) The receipt of the Rights by the Plans occurred in connection 
with the Offering in which all shareholders of the Holdings Stock, 
including the Plans, were treated in the same manner;
    (b) The acquisition of the Rights by the Plans resulted solely from 
an independent act of Holdings, as a corporate entity;
    (c) Each shareholder of Holdings Stock, including each of the 
Plans, received the same proportionate number of Rights based on the 
number of shares of Holdings Stock held by each such shareholder;
    (d) All decisions with regard to the holding and disposition of the 
Rights by the Plans were made by Evercore, acting as the independent, 
qualified fiduciary on behalf of the Plans;
    (e) Evercore determined that it would be in the interest of the 
Plans to sell all of the Rights received in the Offering by the Plans 
in blind transactions on the NASDAQ Capital Market;
    (f) No brokerage fees, commissions, subscription fees, or other 
charges: Were

[[Page 41114]]

paid by the Plans with respect to the acquisition and holding of the 
Rights; or were paid to any broker affiliated with Evercore, Holdings, 
or SHO in connection with the sale of the Rights; and
    (g) The acquisition of the Rights by the Plans occurred on the same 
terms made available to other shareholders of Holdings Stock.

Notice to Interested Persons

    The persons who may be interested in the publication in the Federal 
Register of the Notice of Proposed Exemption (the Notice) include all 
participants whose accounts in the Plans were invested on the Record 
Date through the Trusts in the Stock Funds which held the Holdings 
Stock.
    It is represented that all such interested persons will be notified 
of the publication of the Notice by first class mail, to each such 
interested person's last known address within fifteen (15) days of 
publication of the Notice in the Federal Register. Such mailing will 
contain a copy of the Notice, as it appears in the Federal Register on 
the date of publication, plus a copy of the Supplemental Statement, as 
required, pursuant to 29 CFR 2570.43(a)(2), which will advise all 
interested persons of their right to comment and to request a hearing. 
All written comments and/or requests for a hearing must be received by 
the Department from interested persons within 45 days of the 
publication of this proposed exemption in the Federal Register.
    All comments will be made available to the public.
    Warning: Do not include any personally identifiable information 
(such as name, address, or other contact information) or confidential 
business information that you do not want publicly disclosed. All 
comments may be posted on the Internet and can be retrieved by most 
Internet search engines.

For Further Information Contact: Ms. Angelena C. Le Blanc of the 
Department, telephone (202) 693-8551. (This is not a toll-free number.)

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions of the Act and/or the Code, 
including any prohibited transaction provisions to which the exemption 
does not apply and the general fiduciary responsibility provisions of 
section 404 of the Act, which, among other things, require a fiduciary 
to discharge his duties respecting the plan solely in the interest of 
the participants and beneficiaries of the plan and in a prudent fashion 
in accordance with section 404(a)(1)(b) of the Act; nor does it affect 
the requirement of section 401(a) of the Code that the plan must 
operate for the exclusive benefit of the employees of the employer 
maintaining the plan and their beneficiaries;
    (2) Before an exemption may be granted under section 408(a) of the 
Act and/or section 4975(c)(2) of the Code, the Department must find 
that the exemption is administratively feasible, in the interests of 
the plan and of its participants and beneficiaries, and protective of 
the rights of participants and beneficiaries of the plan;
    (3) The proposed exemptions, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and/or the 
Code, including statutory or administrative exemptions and transitional 
rules. Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction; and
    (4) The proposed exemptions, if granted, will be subject to the 
express condition that the material facts and representations contained 
in each application are true and complete, and that each application 
accurately describes all material terms of the transaction which is the 
subject of the exemption.

    Signed at Washington, DC, this 2nd day of July, 2013.
Lyssa E. Hall,
Director, Office of Exemption Determinations, Employee Benefits 
Security Administration, U.S. Department of Labor.
[FR Doc. 2013-16385 Filed 7-8-13; 8:45 am]
BILLING CODE 4510-29-P