Seite - 120 - in Austrian Law Journal, Band 1/2015

ALJ 1/2015 Brian Carroll 120 2. Primary v. Incidental In U.S v. Elliott,140 the defendants argued that they, like the defendant in Wang, had not received compensation for investment advice. They claimed that clients came to them to purchase a securi- ty, an investment vehicle created by the defendants, not to receive investment advice. In rejecting defendants’ argument, the court held that investment advice to clients constituted a “significant component of the ‘product’ sold.”141 The defendants in Elliott assisted clients in “choosing individ- ually tailored investment vehicles.”142 Next, it noted that after providing advice about the invest- ment selection, the defendants continued to advise the clients by managing the underlying in- vestments. The court held that these two forms of advice – the assistance in choosing an invest- ment vehicle and management of the underlying investments held by the investment vehicle – were the “primary,” not “incidental” reasons for investing in the investment vehicles. This primary role of the advice in making a decision to invest met the investment advice element. While Elliott’s “primary v. incidental” approach was helpful in distinguishing Wang,143 Elliott did not offer a standard to measure primary as opposed to incidental advice. In Thomas v. Metropolitan Life Insurance Company,144 a private action, however, the court adopted a standard to measure “solely incident” conduct under the § 202(a)(11)(C) broker-dealer exception to the definition of an investment adviser. As discussed, under this exception, a broker-dealer may offer investment advice that is “solely incident to” its broker-dealer services and may not receive “special compen- sation” for this advice.145 In Thomas, the court noted that the word “incidental” has two components. To be considered incidental, two actions or objects must be related in a particular way – the incidental action or object must occur only as a result of or in connection with the primary. Additionally, the incidental action or object must be secondary in size or importance to the primary.146 Thomas’ approach to distinguishing between primary and incidental services may assist in devel- oping Elliott’s distinction between primary and incidental advice. E. Advising Others Section 202(a)(11) requires that an adviser be engaged in advising “others.” Typically, the adviser’s client is the recipient of the adviser’s advice and this would satisfy that the advice had been pro- vided to “others.” In interpreting this advising “others” language, courts have addressed two issues: 1) whether the person receiving the investment advice must be in a position to act on the advice;147 and 2) whether a trustee’s investment advice to a trust is advice to itself or “others.” 140 62 F.3d 1304 (11th Cir. 1996), order amending opinion, 82 F.3d 989 (11th Cir. 1996). 141 Id. at 1311. 142 Id. 143 See Sec. & Exch. Comm’n v. Saltzman, 127 F. Supp. 2d 660 (E.D. Pa. 2000) (distinguishing application of Wang v. Gordon, 715 F.2d 1187 (7th Cir. 1983)). 144 631 F.3d 1153 (10th Cir. 2011). 145 In addition to § 202(a)(11)(C), 15 U.S.C.§ 80b-2(a)(11)(C), § 202(a)(11)(B), 15 U.S.C. § 80b-2(a)(11)(B), exempts lawyers, accountants, engineers and teachers who offer investment advice that is “solely incidental.” 146 Thomas, 631 F.3d at 1162. 147 Some courts have held that the advice element is satisfied if an adviser provides advice regardless of whether the advice is acted upon. See, e.g., U.S. v. Elia, 2014 WL 4289389 2 (11th Cir. 2014) (per curiam) (“It [§ 202(a)(11), 15 U.S.C. § 80b-2(a)(11)] does not require that the adviser actually make an investment or act on that advice.”); see also U.S. v. Olga, 378 F. App’x 959, 960 (11th Cir. 2010) (per curiam) (“Although Ogale never actually used inves- tors’ money to trade foreign currencies, his scheme involved ‘advising others.’”).