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ALJ 1/2015 Observations on Judicial Approaches to Discerning Investment Adviser Status 105
IV. Cases that Implicate the Investment Adviser Definition
Three types of cases inform this discussion on the definition of an investment adviser. The first is
Commission enforcement actions filed in federal court alleging a violation of the Advisers Act.39
These enforcement actions require that the Commission establish investment adviser status as a
basis for subject matter jurisdiction.40 Second, the U.S. Department of Justice is authorized to
initiate criminal prosecutions against investment advisers for violating the Advisers Act,41 which
also requires establishing investment adviser status. Similarly, in criminal prosecutions, invest-
ment adviser status may play a role in calculating an appropriate criminal sentence under U.S.
Sentencing Guidelines.42 When sentencing a defendant convicted of committing a federal crime,
the court may consider whether the defendant was acting as an investment adviser, as defined
under § 202(a)(11), which could serve as a basis for lengthening the sentence.43 Third, the Advis-
ers Act permits certain investment adviser clients44 to seek a limited private-civil remedy45 against
an investment adviser based primarily on contract law. If successful in establishing a violation of
the Advisers Act,46 an advisory client may seek to rescind the investment adviser contract, recover
39 See § 203, Registration of Investment Advisers, 15 U.S.C. § 80b-3; § 209, Enforcement of Title, 15 U.S.C. § 80b-9.
Sections 203 and 209, inter alia, authorize the Commission to initiate enforcement actions against investment advis-
ers and persons associated with an investment adviser for violating the Advisers Act in United States district court or
as an administrative proceeding, or both. See also Commission Rules of Practice, 17 C.F.R. § 201.300-360 (rules gov-
erning administrative proceedings). See generally Sec. & Exch. Comm’n v. Mgmt. Dynamics, Inc., 515 F.2d 801, 808 (2d
Cir. 1975) (the Commission appears “not as an ordinary litigant, but as a statutory guardian angel charged with safe-
guarding the public interest in enforcing the securities laws”).
40 See 28 U.S.C. § 1331. See, e.g., Sec. & Exch. Comm’n v. Berger, 322 F.3d 187 (2d Cir. 2003) (an enforcement action
alleging, inter alia, a violation of § 206, court applied “conduct test” as basis for subject matter jurisdiction); Sec. &
Exch. Comm’n v. Smith, 1995 U.S. Dist. LEXIS 22352 (E.D. Mich. 1995); Conrardy v. Ribadeneira, 1990 WL 66603 (D.
Kan. 1990) (applying 28 U.S.C. § 1331 to private action against an investment adviser).
41 See § 217, Penalties, 15 U.S.C. § 80b-17. (“Any person who willfully violates any provision of this subchapter, or
any rule, regulation, or order promulgated by the Commission under authority thereof, shall, upon conviction, be
fined not more than $ 10,000, imprisoned for not more than five years, or both.”); see, e.g., U.S. v. Eberhard, 525
F.3d 175 (2d Cir. 2008) (defendant convicted of, inter alia, investment adviser fraud in violation of § 206); U.S. v.
Gilman, 478 F.3d 440 (1st Cir. 2007) (defendant pleaded guilty to, inter alia, investment adviser fraud in violation
of § 206); U.S. v. Mintz, 2010 WL 3075477 (W.D.N.C. 2010) (defendant pleaded guilty to one count of fraud by an
investment adviser in violation of § 206).
42 See U.S. v. Onsa, 2013 WL 789182 (E.D.N.Y. 2013), aff’d 523 Fed. App’x 63 (2d Cir. 2013).
43 See, e.g., U.S. v. Stein, 2010 WL 678122 (E.D.N.Y. 2010) (defendant’s investment adviser status resulted in four-
point enhancement in sentencing calculation under U.S.S.G. § 2B1.1(b)(17)(A)(iii)); see also U.S. v. Booker, 543 U.S.
220, 245-46 (2005) (rendering sentencing guidelines “advisory”.).
44 See § 215, Validity of Contracts, 15 U.S.C. § 80b-15; see, e.g., Rifkin v. Bear Stearns & Co., 248 F.3d 628 (7th Cir.
2001) (taxpayers lack standing to vindicate county’s right under its agreement with an investment adviser); Oliver v.
Black Knight Asset Management, LLC, 812 F. Supp. 2d 2, 13 (D.D.C. 2011) (“As the Supreme Court has stated, sec-
tions 206 and 215 were intended to benefit the clients of investment advisers.”) (italics in original); Kassover v.
UBS AG, 619 F. Supp. 2d 28, 32 (S.D.N.Y. 2008) (“Courts have required plaintiffs to allege that the parties entered
into an investment advisory contract in order for the Advisers Act to apply.”); Shaidi v. Merrill Lynch, Pierce, Fenner &
Smith, Inc., 2003 WL 21488228 (M.D. Fla. 2003) (shareholders of fund were beneficiaries but lacked standing to
assert a claim under § 215 based on fund-adviser contract).
45 See Transamerica Mortg. Advisors, Inc. v. Lewis, 444 U.S. 11, 17 (1979) (holding that no private right of action
exists under § 206 but §§ 214 and 215 create, based on equity principles, a private injunctive and contract reces-
sion action against the continued operation of a contract between the adviser and its clients, with a restitution
claim seeking recovery of contractual fees paid by the client to the adviser); see Brian Carroll, Investment Advisers:
The Bounds of Regulatory Authority and Private Causes of Action, 10 INV. LAWYER 1, 17 (Oct. 2003); see also Reg’l
Props., Inc. v. Fin. and Real Estate Consulting Co., 678 F.2d 552 (5th Cir. 1982) (comparing Advisers Act § 215 with
Exchange Act § 29).
46 A private action under § 215 must be based on a violation of the Advisers Act. See, e.g., Laird v. Intergrated Res.,
Inc. 897 F.2d 826, 841 (5th Cir. 1990) (plaintiff may allege “any provision of this chapter” to sustain a violation of
§ 215); In re Mutual Fund Investment Litigation, 384 F. Supp. 2d 873 (D. Md. 2005); see Brian Carroll, Investment
Advisers: The Bounds of Regulatory Authority and Private Causes of Action, 10 INV. LAWYER 1, 17 (Oct. 2003).
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book Austrian Law Journal, Volume 1/2015"
Austrian Law Journal
Volume 1/2015
- Title
- Austrian Law Journal
- Volume
- 1/2015
- Author
- Karl-Franzens-Universität Graz
- Editor
- Brigitta Lurger
- Elisabeth Staudegger
- Stefan Storr
- Location
- Graz
- Date
- 2015
- Language
- German
- License
- CC BY 4.0
- Size
- 19.1 x 27.5 cm
- Pages
- 188
- Keywords
- Recht, Gesetz, Rechtswissenschaft, Jurisprudenz
- Categories
- Zeitschriften Austrian Law Journal