Seite - 109 - in Austrian Law Journal, Band 1/2015

ALJ 1/2015 Observations on Judicial Approaches to Discerning Investment Adviser Status 109 summarily rejected a discrete fee requirement by holding that even though defendants had not received a separate fee, they did receive compensation (sales commissions and comingling client funds) for investment advice. It found support for its holding in SEC Release 1092, particularly the court’s italicized sentence: “This reading of § 80b-2(a)(11) is consistent with the SEC’s definition of compensation for invest- ment advice. The SEC Release [1092] states: This compensation element is satisfied by the receipt of any economic benefit, whether in the form of an advisory fee or some other fee relating to the total services rendered, commissions, or some combination of the foregoing. It is not necessary that a person who provides investment advisory and other services to a client charge a separate fee for the investment advisory portion of the total services.”68 While Elliot makes clear that receipt of a discrete fee is not required to meet the compensation element, the importance of this decision lies not with this narrow holding but with its inclusion of the “economic benefit” language in its quotation of SEC Release 1092. Although Elliot does not explicitly identify or rely upon this language,69 this reference has led to a series of cases within the Eleventh Circuit adopting the economic benefit approach. For example, in U.S. v. Ogale,70 an unpublished opinion,71 the defendant, convicted of wire fraud, appealed the application of a sentencing guidelines enhancement based on his status as an investment adviser. The defendant argued that he was not acting as an investment adviser, in part, because he was not compen- sated for investment advice. He argued that the investor funds that he misappropriated for per- sonal use were “ill-gotten gains,”72 not compensation. The court in Ogale relied on Elliott’s inclu- sion of the economic benefit language in SEC Release 1092 as its authority for holding that “the receipt of any economic benefit qualifies as compensation under the Investment Advisers Act […].”73 Application of the economic benefit approach was extended within the Eleventh Circuit in Thomas v. Metropolitan Life Insurance Company.74 In Thomas, the court was called upon to decide what type of compensation met the “special compensation” requirement under § 202(a)(11)(C), the 68 Elliott at 3011 n.8 (emphasis in original). 69 This reference to economic benefit tends to support implicitly Elliott’s holding that a defendant’s comingling of client funds to pay personal expenses satisfied the compensation element. 70 378 Fed. App’x 959 (11th Cir. 2010). 71 Joyner v. Astrue, 2011 WL 4530678 7 n.11 (M.D. Fla. 2011) (“Unpublished opinions of the Eleventh Circuit Court of Appeals are not considered binding authority; however, they may be cited as persuasive authority pursuant to the Eleventh Circuit Rules, 11th Cir. R. 36-2.”). 72 See Ogale at 960-61. Generally, the term “ill-gotten gains” is used to describe funds obtained through a violation of federal securities laws and subject to disgorgement, an equitable remedy available in certain Commission en- forcement actions. See, e.g., Sec. & Exch. Comm’n v. Platforms Wireless Inter. Corp., 617 F.3d 1072, 1096 (9th Cir. 2010) (citations omitted) (“A district court has broad equity powers to order disgorgement of ill-gotten gains ob- tained through the violation of securities laws. Disgorgement is designed to deprive a wrongdoer of unjust en- richment, and to deter others from violating securities laws by making violations unprofitable.”); Sec. & Exch. Comm’n v. Cavanagh, 445 F.3d 105, 120 (2d Cir. 2006) (tracing development of disgorgement as an equitable remedy). 73 See Ogale at 960-61. (“The receipt of any economic benefit qualifies as compensation under the Investment Adviser’s [sic] Act and thus the investment adviser enhancement. See id. [Elliott] at 1131 (‘Th[e] compensation el- ement is satisfied by the receipt of any economic benefit, whether in the form of an advisory fee or some other fee relating to the total services rendered, commissions, or some combination of the foregoing.’) (quoting SEC Release notes for 15 U.S.C. § 80b-2(a)(11) […]”). Ogale appears to be relying on Elliott’s finding that one of the de- fendant’s had comingled investor funds and used investor funds for personal expenses. As noted, Elliott, howev- er, did not explicitly apply the economic benefit approach to these funds, or any other compensation issue in the case. See also U.S. v. Ellia, 2014 WL 4289389 (Cir. 11) (quoting Ogale quoting Elliott in holding that personal use of investor funds meets the compensation element); Sec. & Exch. Comm’n v. Young, 2011 WL 1376045 7 (E.D. Pa. 2011) (noting Ogale held that “ill-gotten gains qualify as compensation under the Advisers Act”). 74 631 F.3d 1153 (10th Cir. 2011).