Page - 114 - in Austrian Law Journal, Volume 1/2015

ALJ 1/2015 Brian Carroll 114 law105 to the extent consistent with the Advisers Act.106 Depending on the applicable state’s con- tract law, a wide array of contract theories may be available, including: third-party beneficiary status,107 quasi-contract, unilateral contract, estoppel, equitable contract and the like.108 These forms of contract provide an ample legal basis for developing this approach. Assuming that a contract is formed, the inquiry would then shift to determining whether a legally recognized form of compensation was exchanged consistent with the applicable contract theory. C. What Constitutes Investment Advice? Under § 202(a)(11) investment advice is described as “advising others [...] directly [...] as to the value of securities or as to the advisability of investing in, purchasing, or selling securities [...].”109 Courts have discussed three types of investment advice without explicitly labeling them. For pur- poses of this article, these three types of advice are identified as traditional personal advice; allo- cation, selection and monitoring personal advice; and impersonal advice. As appropriate, some observations are offered with this analysis. 1. Traditional Personal Advice Some courts have viewed investment advice as reflecting the personal nature of the relationship between an investment adviser and its client. Under this traditional notion of an investment ad- viser’s role, the adviser questions the client about, among other things, its investment goals, risk tolerance, financial needs, and time horizon. Next, consistent with this personal information, the adviser tailors an investment strategy and executes it. This personal advice may be offered as either advisory, where an investment adviser recommends the purchase or sale of securities to a 105 See, e.g., id. at 19 (the court concluded that “[w]hen Congress declared in § 215 that certain contracts are void, it intended that the customary legal incidents of voidness would follow, including the availability of a suit or rescission or for an injunction against continued operation of the contract, and for restitution.”); id. at 25 n.14 (“Where rescis- sion is awarded, the rescinding party may of course have restitution of the consideration given under the contract, less any value conferred by the other party. See 5 A. Corbin, Contracts § 1114 (1964).”); Wisnieski v. Rodale, 510 F.3d 294, 305 n.32 (3d Cir. 2007) (applying Restatement (Second) of Contracts § 7 when interpreting meaning of “void” un- der § 215, 15 U.S.C. § 80b-15); Omega Overseas Partners, Ltd. v. Griffith, 2014 WL 3907082 1, 3 (S.D.N.Y. 20014) (“[…] § 215(b)’s text strongly echoes the description of illegal contracts found in the Restatement of Contracts, which was published only a few years before the IAA’s enactment.”); Conrardy v. Ribadeneira, 1990 WL 66603 1, 4 (D. Kan. 1990). See generally Sekhar v. U.S., 133 S.Ct. 2720, 2724 (2013) (citation omitted) (“[W]here Congress borrows terms of art in which are accumulated the legal tradition and meaning of centuries of practice, it presumably knows and adopts the cluster of ideas that were attached to each borrowed word in the body of learning from which it was taken and the meaning its use will convey to the judicial mind unless otherwise instructed.”); Carter v. U.S., 530 U.S. 255, 266 (2000) (“[W]e have not hesitated to turn to the common law for guidance when the relevant statutory text does contain a term with an established meaning at common law.”); U.S. v. Shabani, 513 U.S. 10, 13 (1994) (“[A]bsent contrary indications, Congress intends to adopt the common law definition of statutory terms.”); Miller v. Bridgeport Board of Education, 2013 WL 3936925 1, 8 (D. Conn. 2013) (citations omitted) (“The term ‘contract’ pursuant to [42 U.S.C.] § 1981 adopts its ordinary common law meaning.”). 106 See § 203A, State and Federal Responsibilities, 15 U.S.C. § 80b-3A (addressing division of state and federal re- sponsibilities for overseeing investment advisers); § 222, State Regulation of Investment Advisers, 15 U.S.C. § 80b-22 (addressing, inter alia, state responsibilities for regulating investment advisers). 107 See generally Bayerische Landesbank v. Aladdin Capital Mgmt., LLC, 692 F.3d 42 (2d Cir. 2012). 108 To the extent consistent with the Advisers Act, application of state law concepts of contract may be supported by other provisions of federal securities laws addressing certain types of compensation contracts and other com- pensation arrangements. See, e.g., Investment Company Act § 36, Breach of Fiduciary Duty, 15 U.S.C. 80a-36, Ex- change Act § 10C, Compensation Committees, 15 U.S.C. § 78j-3; Exchange Act § 14A, Shareholder Approval of Ex- ecutive Compensation, 15 U.S.C. § 78n-1; Regulation S-K, Item 402, Executive Compensation, 17 C.F.R. § 229.402; Sarbanes-Oxley Act of 2002, § 304, Forfeiture of Certain Bonuses and Profits, Pub.L.107-204, 116 Stat. 745, codi- fied at 15 U.S.C. § 7243. 109 § 202(a)(11), 15 U.S.C. § 80b-2(a)(11).