prevent are the risk of a bank making unsound loans, to its "affiliate" or to others connected with the investment; that a bank's "reputation for prudence and restraint" would be lent to its securities business, thus glossing over the risks inherent in such endeavors; and, finally, the risk that a bank's "promotional interest" would lead to an inability to give its customers sound and impartial financial advice. Id. at 630-32. Finding these very dangers present in the managing agency account, the Supreme Court declared it invalid.
In the present case, however, the situation is quite different than in Camp. The Court agrees with the Comptroller's Ruling that the dangers found in Camp, which Glass-Steagall was designed to prevent, are simply not present in this kind of collective IRA trust asset fund. Initially, there is no danger of misuse of a bank's lending power to support speculative securities activity. Citibank cannot lend money to its CIT. 12 C.F.R. § 9.18(b)(8)(i). Further, the Comptroller's regulations and ERISA itself preclude Citibank from making a loan to an individual holder of a unit of beneficial interest in the fund. 12 C.F.R. § 9.18(b)(8)(i), I.R.C. § 408(a)(4). Finally, as the Comptroller found, it is "implausible" that Citibank would put its own assets at risk by making unsound loans to companies whose securities the CIT owns. The entire structure of the fund is towards diversification. Any such loans would only minimally affect the value of the fund itself.
Secondly, there is no danger of the bank using its reputation to hide the dangers involved with the securities market. As noted above, this is a fiduciary relationship involving tightly regulated and statutorily restricted IRA trust assets. The safeguards built into ERISA itself act so as to protect the IRA account holder in a way the ordinary securities investor could never be protected. The IRA account holder knows that his money is protected. That is precisely why he has opened such an account. The securities investor, on the other hand, ought to be aware of the risk he is taking and so ought not to be in a position to be fooled into thinking his money is just as safe as if deposited. That is one of the purposes behind Glass-Steagall, but it simply is not present here.
Third, and finally, the "promotional interests" hazard is also "non-existent or negligible." (R. 9). It is the IRA settlor who directs, in writing, which of several available IRA investment options his trust assets are to be placed into. (R. 3). The CIT is only one of many choices. The bank has no "salesman's stake" in selling units in the CIT. What it is selling is its services as an IRA trustee in general. Moreover, Citibank imposes no sales charge or commission to IRA trusts to acquire units in the CIT. (R. 12). The Court agrees with the Comptroller's finding that this creates no greater or different risks "than when a bank engages in its customary fiduciary functions." (R. 13). There exists further no greater risk to the bank's solvency, good name and good will should the CIT fail than if a traditional fiduciary trust were to likewise fare badly. (R. 12). For all these reasons, the Comptroller was correct and acted reasonably when he ruled that the Citibank CIT involved none of the Glass-Steagall hazards enumerated in Camp.
d) The fact that the Citibank Collective Investment Fund is advertised does not make it illegal under the Glass-Steagall Act.
Plaintiff makes much of the fact that Citibank has aggressively advertised the Collective Investment Fund to the public. Plaintiff argues that this is a prohibited act of "marketing" under Glass-Steagall, and shows further that the fund involves "securities" under that Act. The Court, however, finds this argument to be strained at best, and completely inaccurate.
Without repeating the analysis gone through above, the Court reiterates that the units of beneficial interest in the Citibank CIT are not "securities" under the Glass-Steagall Act regardless of their being "mass-marketed." Citibank is not advertising the CIT itself. Rather, Citibank is marketing its entire IRA trust service. The advertising of the CIT is used to attract customers to utilize Citibank as their IRA trustee. There is nothing improper about a bank advertising its various services to the public. Franklin National Bank v. New York, 347 U.S. 373, 98 L. Ed. 767, 74 S. Ct. 550 (1953). See also, NYSE v. Smith, 404 F. Supp. 1091, 1097 (D.D.C. 1975), vacated on other grounds sub nom., NYSE v. Bloom, 183 U.S. App. D.C. 217, 562 F.2d 736 (D.C. Cir. 1977), cert. denied, 435 U.S. 942, 98 S. Ct. 1520, 55 L. Ed. 2d 538 (1978).
Moreover, there is nothing in ERISA, Glass-Steagall or any other statute which prohibits the marketing of a bank's IRA trust services by way of its advertising its collective investment fund for IRA accounts. The only limitation on advertising any common trust is inapplicable to the Citibank CIT since it is a fund consisting solely of tax exempt retirement assets. 12 C.F.R. § 9.18(a)(1), (2); (b)(5)(v).
Finally, to find that the advertising of such IRA trust services was in violation of Glass-Steagall would be to totally frustrate the purpose of ERISA. Congress was concerned with encouraging retirement savings. In order to fulfill its mission as a means of reaching such a goal, an IRA account service must be advertised to the general public. Only by the type of "mass-marketing" which plaintiff complains of here will the general public be aware of the opportunities available for beneficial methods of preparing for one's retirement.
For all the reasons above, the Court concludes that the Comptroller acted reasonably when he made his Ruling approving the Citibank Collective Investment Trust for IRA trust assets. There being no genuine issue of material fact in dispute, the Court, by Order of even date herewith, denies plaintiff's motion for summary judgment, and grants the defendants' motions for summary judgment to the extent hereinbefore stated.
In accordance with the Opinion of even date herewith, it is by the Court, this 8th day of November, 1984, hereby
ORDERED that defendants' motions for summary judgment be and hereby are granted to the extent consistent with the opinion hereinbefore stated in the Opinion of even date herewith, and it is
FURTHER ORDERED that plaintiff's motion for summary judgment be and the same is hereby denied, and it is
FURTHER ORDERED that this case will stand dismissed, and the clerk shall remove it from the docket of this Court.
© 1992-2004 VersusLaw Inc.