UNITED STATES OF AMERICA

UNITED STATES OF AMERICA

Before the

SECURITIES AND EXCHANGE COMMISSION

ADMINISTRATIVE PROCEEDING

File No. 3-14594

____________________________________

:

:

:

:

:

:

:

:

:

Respondents.

:

____________________________________:

In the Matter of

CREDIT SUISSE ALTERNATIVE

CAPITAL, LLC (f/k/a CREDIT

SUISSE ALTERNATIVE CAPITAL,

INC.), CREDIT SUISSE ASSET

MANAGEMENT, LLC, and

SAMIR H. BHATT,

I.

PROPOSED PLAN OF

DISTRIBUTION

OVERVIEW

The Division of Enforcement (“Division”) proposes the following plan of distribution

(“Distribution Plan”) pursuant to Rule 1101 of the Commission’s Rules on Fair Fund and

Disgorgement Plans (“Rules”), 17 C.F.R. § 201.1101, and Rule 1102(a) of the Rules, 17 C.F.R.

§ 201.1102(a). If approved, the Distribution Plan would transfer the fair fund in Credit Suisse

Alternative Capital, LLC, A.P. No. 3-14594, to the court registry account established in SEC v.

Citigroup Global Markets Inc., Case No. 11-cv-7387 (S.D.N.Y.) (“CGMI Action”), for

distribution to harmed investors in accordance with a plan of distribution to be approved by the

judge in the CGMI Action. As explained below, the Division has concluded that

distributing funds collected in the Commission’s administrative proceeding through the

Commission’s related district court CGMI Action is a fair and reasonable way for the

Commission to benefit investors injured as a result of the respondents’ misconduct. 1 The notice

and comment procedures for the Distribution Plan are set forth below. The Distribution Plan is

subject to approval by the Commission.

II.

1.

FACTUAL AND PROCEDURAL BACKGROUND

On October 19, 2011, the Commission issued a settled order instituting

proceedings (“Order”) 2 against Credit Suisse Alternative Capital, LLC (f/k/a Credit Suisse

Alternative Capital, Inc.) (“CSAC”), Credit Suisse Asset Management, LLC (“CSAM”), and

Samir H. Bhatt (“Bhatt”) (collectively, “Respondents”) for violating various provisions of the

federal securities laws in connection with the structuring and marketing during late 2006 and

early 2007 of a largely synthetic collateralized debt obligation (“CDO”) known as Class V

Funding III (“Class V III”). 3 According to the Order, approximately 15 different investors

purchased notes in the Class V III offering from Citigroup Global Markets Inc. (“CGMI”), the

principal U.S. broker-dealer subsidiary of Citigroup Inc.

2.

The Commission’s Order held CSAC and CSAM jointly and severally liable for a

total of $2.5 million in disgorgement, prejudgment interest, and civil money penalty, and Bhatt

liable for a $50,000 civil money penalty. The Commission also ordered that a Fair Fund be

created pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, as amended, for the

disgorgement, interest and penalties paid by the Respondents. The Order also stated that

1

Consistent with the approach used by district courts when considering whether to approve a distribution plan, the

Commission’s objective is to distribute Fair Funds in a fair and reasonable manner, taking into account relevant

facts and circumstances. See Official Committee of Unsecured Creditors of WorldCom, Inc. v. SEC, 467 F.3d 73, 82

(2d Cir. 2006), citing SEC v. Wang, 944 F.2d 80, 88 (2d Cir. 1991).

2

Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act

of 1933 and Sections 203(e), 203(f), and 203(k) of the Investment Advisers Act of 1940, Making Findings, and

Imposing Remedial Sanctions and Cease-and-Desist Orders, Securities Act Rel. No. 9268 (Oct. 19, 2011).

3

As a result of the negligent conduct described in the Order, CSAC and CSAM willfully violated Section 206(2) of

the Investment Advisers Act of 1940 (“Advisers Act”) and Section 17(a)(2) of the Securities Act of 1933

(“Securities Act”) and Bhatt willfully violated Section 17(a)(2) of the Advisers Act, and caused CSAC’s violation of

Section 206(2) of the Advisers Act. See Order at ¶¶ 57 and 58, respectively.

2

“[a]dditional monies paid by any defendant or respondent in a related proceeding arising from the

underlying conduct also may be added to this Fair Fund for distribution.” 4 The Respondents made

the payments as required by the Order, totaling $2.5 million (the “CSAC Fair Fund”).

3.

Also on October 19, 2011, the Commission filed the CGMI Action, a settled civil

action charging securities fraud in violation of Securities Act Sections 17(a)(2) and 17(a)(3)

against CGMI based on its role in the structuring and marketing of Class V III from late 2006

through early 2007. On August, 5, 2014, the Court entered a final judgment (“Final Judgment”)

against CGMI. Pursuant to the Final Judgment, CGMI paid $160 million in disgorgement, $30

million in prejudgment interest, and a civil penalty of $95 million to the Clerk of the Court.

According to the Final Judgment, funds collected in the CGMI Action would be deposited in an

interest bearing account with the Court Registry Investment System (“CRIS”), and the funds,

together with any interest and income earned thereon less taxes and the fees and costs of

administration comprise the “Fund.” The Final Judgment also provided that the Commission

may propose a plan of distribution and the plan may provide that the Fund be distributed

pursuant to the Fair Fund provisions of Section 308(a) of the Sarbanes-Oxley Act of 2002.

4.

The violations in the Order arose out of the same or substantially similar conduct

alleged in the CGMI Action. The securities fraud alleged and settled to in both cases is based on

the Respondents’ and CGMI’s role in the structuring and marketing of Class V III. According to

the Order’s findings, Bhatt was the portfolio manager at CSAC primarily responsible for the

Class V III transaction. The marketing materials that CSAC and Bhatt helped draft to promote

Class V III were misleading. These materials represented that the investment portfolio was

selected by CSAC, a registered investment adviser, which was promoted as having experience

4

See Order at section IV.F.

3

and expertise in analyzing credit risk in CDOs, using an extensive asset selection process.

CSAC and Bhatt did not disclose to investors or to the directors of the special purpose vehicles

that issued the securities to investors in Class V III that CSAC and Bhatt allowed CGMI to

exercise significant influence over the composition of Class V III’s investment portfolio. The

materials also represented that CSAC performed extensive credit analysis on all the assets

selected for the Class V III portfolio, when in actuality, little to no analysis was performed on

several of the portfolio’s assets. In addition, the Order found Bhatt and CSAC understood that

CGMI was seeking to short assets into Class V III either for itself or for its customers, and thus

that CGMI was representing economic incentives potentially adverse to those of Class V III and

its investors.

5.

The securities violations alleged in both cases, the time period of the violations,

and the investors harmed by both frauds are the same or substantially similar in both cases.

Accordingly, the CGMI Action complaint alleges “violations arising from the same or

substantially the same … facts as those alleged in the Commission’s order instituting

proceedings”, which is the criteria for transfer in Rule 1102(a). 5

III.

6.

THE PLAN

Since the administrative proceeding and the civil injunctive action in district court

are both Commission-initiated enforcement actions arising from substantially the same set of

facts, the Division concludes it would be more efficient to combine the funds collected in each

5

Rule 1102(a) states: Payment to Registry of the Court or Court-appointed Receiver. Subject to such conditions as

the Commission or the hearing officer shall deem appropriate, a plan for the administration of a Fair Fund or a

disgorgement fund may provide for payment of funds into a court registry or to a court-appointed receiver in any

case pending in federal or state court against a respondent or any other person based upon a complaint alleging

violations arising from the same or substantially similar facts as those alleged in the Commission’s order instituting

proceedings. (emphasis added)

4

action into a single fund for distribution to the same harmed investors. Under these

circumstances, combining the funds collected is fair and reasonable because it will avoid the

additional time inherent in implementing two distributions, reduce the duplication of

distribution-related costs and expenses, and simplify the process for injured investors.

Accordingly, if approved, the Commission will transfer the CSAC Fair Fund of approximately

$2.55 million to the CGMI Action to be combined with the Fund of approximately $285 million

for distribution to harmed investors in accordance with a distribution plan to be established in the

CGMI Action.

7.

This Distribution Plan is subject to approval by the Commission.

IV.

8.

NOTICE AND COMMENT PERIOD

The Notice of the Proposed Plan of Distribution and Opportunity for Comment

(“Notice”) will be published in the SEC Docket and on the Commission’s website at

http://www.sec.gov/litigation/fairfundlist.htm. Any person wishing to comment on the

Distribution Plan must do so in writing by submitting their comments to the Commission within

thirty (30) days of the date of the Notice: (a) to the Office of the Secretary, United States

Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090; (b) by

using the Commission’s Internet comment form (http://www.sec.gov/litigation/admin.shtml); or

(c) by sending an email to rule-comments@sec.gov. Comments submitted by email or via the

Commission’s website should include “Administrative Proceeding File No. 3-14594” in the

subject line. Comments received will be publicly available. Persons should only submit

comments that they wish to make publicly available.

5