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ALJ 1/2015 Brian Carroll 108
B. Compensation for Investment Advice
Section 202(a)(11) requires that an investment adviser be compensated for providing investment
advice.62 Unlike the definition of a security, the term compensation is neither defined by the Advis-
ers Act nor is there a single body of United States federal securities law interpreting it. In the
investment advisory business, it is common practice for investment advisers to be compensated
by receiving a fee from clients based on a percentage of the amount of client’s funds managed by
the adviser or based on the rate of return on investments made by the adviser on behalf of the
client, or some combination of both.63 Beyond these widely recognized forms of compensation,
the Eleventh Circuit Court of Appeals64 has adopted an approach to interpreting the compensa-
tion element that is referred to in this article as the economic benefit approach. After presenting
this approach, the discussion turns to two observations. The first discusses other provisions of
United States federal securities law that may support further developing the economic benefit
approach. The second takes an entirely different tact by offering a contract analysis approach.
1. The Eleventh Circuit’s Economic Benefit Approach
The seeds of the economic benefit approach were sowed into the Eleventh Circuit by U.S. v. Elliott.65
In appealing their criminal convictions under the Advisers Act, two defendants argued that they
had not received a discrete fee for investment advice, were not compensated for investment
advice and therefore were not investment advisers. Each defendant, however, had advised cli-
ents to invest in “investment vehicles”66 created and marketed by defendants. One defendant
received sales commissions67 charged on client purchases of these investment vehicles and the
other comingled client investment funds in his personal account to pay living expenses. The court
62 See, e.g., Korman v. Sec. & Exch. Comm’n, 592 F.3d 173 (D.C. Cir. 2010) (upholding Commission finding that advis-
er had provided investment advice for compensation); Sec. & Exch. Comm’n v. SBM Inv. Certificates, Inc., 2007
WL 609888 (D. Md. 2007) (evidence of compensation insufficient to grant Commission motion for preliminary in-
junction against future violations of Advisers Act); Washington v. Baenziger, 656 F. Supp. 1176 (N.D. Cal. 1987)
(failure to allege compensation element); Brown v. Producers Livestock Loan Co., 469 F. Supp. 27 (D. Utah 1977)
(failure to allege compensation element). But see Political Contributions by Certain Investment Advisers, Invest-
ment Advisers Act Release No. 3043 (July 1, 2010), 38 & n.121, 75 FR 41018 (July 15, 2010) (adopting rule release)
(“Rule 206(4)-5(a)(1) makes it unlawful for investment advisers covered by this rule to provide investment adviso-
ry services for compensation to a government entity within two years after a trigger [political] contribution. […].
The adviser, therefore, should return all such compensation promptly upon discovering the triggering contribu-
tion.”) (italics in original).
63 See, e.g., Sec. & Exch. Comm’n v. Berger, 322 F.3d 187 (2d Cir. 2003) (noting investment adviser management fee
of one percent of investment fund assets under management and incentive fee of twenty percent of fund’s net
gains); Abrahamson v. Fleschner, 568 F.2d 862 (2d Cir. 1978) (investment adviser earned a fee equal to twenty
percent of the firm’s net profit and net capital gains for each year and, for some years, an annual salary); Sec. &
Exch. Comm’n v. Juno, 2012 WL 685302 (S.D.N.Y. 2012) (investment performance-based fee viewed as compensa-
tion); U.S. v. Young, 2011 WL 1376045 (E.D. Pa. 2011) (noting payment for investment advisory services); Sec. &
Exch. Comm’n v. Rabinovich & Associates, 2008 WL 4937360 (S.D.N.Y. 2008) (fifty percent share of trading profits
from client investments viewed as compensation); Sec. & Exch. Comm’n v. Saltzman, 127 F. Supp. 2d 660 (E.D. Pa.
2001) (receipt of twenty percent of investment fund’s net profit and net capital gains as compensation).
64 See 28 U.S.C. § 43 (a) (“There shall be in each circuit a court of appeals, which shall be a court of record, known as
the United States Court of Appeals for the circuit.”). See generally Litman v. Mass. Mutual Life Ins. Co., 825 F.2d
1506, 1508 (11th Cir. 1987) (“As early as 1789, Congress created district courts and circuit courts. Judiciary Act of
1789, ch. 20, 1 Stat. 73. In 1891, Congress passed the Evarts Act, Act of Mar. 3, 1891, 26 Stat. 826, which estab-
lished the circuit court of appeals as a separate intermediate level court.”) The Eleventh Circuit is one of thirteen
geographically based judicial circuits within the United States Court of Appeals. 28 U.S.C. § 41.
65 62 F.3d 1304 (11th Cir. 1996), order amending opinion, 82 F.3d 989 (11th Cir. 1996).
66 Id. at 1310-11. (court does not specify legal form of the “investment vehicles”).
67 Id. at 1310. In Elliott, the court does not address whether this conduct meets the definition of a broker or dealer
under federal securities law.
zurĂĽck zum
Buch Austrian Law Journal, Band 1/2015"
Austrian Law Journal
Band 1/2015
- Titel
- Austrian Law Journal
- Band
- 1/2015
- Autor
- Karl-Franzens-Universität Graz
- Herausgeber
- Brigitta Lurger
- Elisabeth Staudegger
- Stefan Storr
- Ort
- Graz
- Datum
- 2015
- Sprache
- deutsch
- Lizenz
- CC BY 4.0
- Abmessungen
- 19.1 x 27.5 cm
- Seiten
- 188
- Schlagwörter
- Recht, Gesetz, Rechtswissenschaft, Jurisprudenz
- Kategorien
- Zeitschriften Austrian Law Journal