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ALJ 1/2015 Brian Carroll 110
broker-dealer exception to the definition of an investment adviser.75 Initially the court reviewed
Elliotâs any economic benefit language of SEC Release 1092 to note that the compensation ele-
ment has been âdefined broadly.â76 Thomas went on to view the compensation component of the
âspecial compensationâ branch under the broker-dealer exception as a âsubset of the economic
benefit received from a transaction involving investment advice.â77 With Thomas, the economic
benefit approach gained further acceptance as the Eleventh Circuitâs primary approach for inter-
preting not only the compensation element in the definition of an investment adviser but the
special compensation component of the broker-dealer exception to this definition. In contrast, no
other circuits have explicitly considered the economic benefit approach when interpreting any
provision under § 202(a)(11).
2. Advisers Act Support for Developing the Economic Benefit Approach
Under the Advisers Act, Form ADV requires an investment adviser to disclose its receipt of an
âeconomic benefitâ from a source other than the client in connection with giving investment advice.
This disclosure requirement seeks to reveal whether an adviser has a conflict of interest created
by the adviser receiving an economic benefit from another party for recommending an invest-
ment to a client.78 An adviserâs failure to meet this requirement may violate § 207, Material Mis-
statements,79 which prohibits an adviser from making an untrue statement of material fact or
omitting a required material fact in certain Commission filings, including Form ADV.
Judicial analysis of this economic benefit language in deciding whether a violation of § 207 is
established may prove helpful in developing the economic benefit approach for interpreting
compensation under § 202(a)(11). In Vernazza v. SEC,80 an enforcement action, the court held that
an investment adviser violated § 207 by failing to disclose on its Form ADV,81 among other places,
the existence of two intertwined financial incentives offered by another investment adviser spon-
soring investment funds. Under the first incentive, the adviserâs clients had to invest at least a
total of $ 1 million in certain investment funds in order for the adviser to be eligible to receive a
success fee.82 The second incentive was the actual success fee based on a percentage of client
funds invested in the investment funds.83
In Vernazza, both forms of incentive were viewed by the court as requiring disclosure under the
economic benefit language of Form ADV. This is important because the first incentive-meeting the
75 The broker-dealer exception to the definition of an investment adviser reads as follows: âany broker or dealer
whose performance of such services is solely incidental to the conduct of his business as a broker or dealer and
who receives no special compensation thereof.â Section 202(a)(11)(C), 15 U.S.C. § 2(a)(11)(C).
76 See Thomas 631 F.3d at 1160 (quoting Elliott, 62 F.3d at 1311 n.8 (citation omitted)).
77 Id. at 1165.
78 Rule 203-1, Application for Investment Adviser Registration, 17 C.F.R. § 275.3-1. See, e.g., Amendments to Form
ADV, Investment Advisers Release No. 3060 (July 28, 2010), 75 FR 49234 (Aug. 12, 2010).
79 See § 207, Material Misrepresentations, 15 U.S.C. § 80b-7, which reads as follows: âIt shall be unlawful for any
person willfully to make any untrue statement of a material fact in any registration application or report filed
with the Commission under Section 203 or 204, or willfully to omit to state in any such application or report any
material fact which is required to be stated therein.â
80 Vernazza v. Sec. & Exch. Commân, 327 F.3d 851, 861 (9th Cir. 2003).
81 Id. at 856 (Form ADV, Part II, Question 13(A) requests information concerning âwhether the investment adviser,
or a related person, âreceives some economic benefit [...] from a non-client in connection with giving advice to
the client.ââ).
82 Id. at 859.
83 Id. at 859.
zurĂŒck zum
Buch Austrian Law Journal, Band 1/2015"
Austrian Law Journal
Band 1/2015
- Titel
- Austrian Law Journal
- Band
- 1/2015
- Autor
- Karl-Franzens-UniversitÀt 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