Page - 117 - in Austrian Law Journal, Volume 1/2015

ALJ 1/2015 Observations on Judicial Approaches to Discerning Investment Adviser Status 117 raise capital by selling limited partnership interests in the partnership to investors. The capital held by the partnership was invested by the general partners in securities, consistent with a con- servative investment policy. The general partners were authorized to decide what securities to purchase, hold and sell, while the limited partners did not participate in investing in securities. The general partners were compensated primarily124 by receiving a percentage of the profits and net capital gains earned by the investment partnership. In Abrahamson, the court held that the general partners provided investment advice because they were charged with “exercising control over what purchases and sales are made with their clients’ funds.”125 In support of its interpretation, the court relied on the plain language of § 202(a)(11), 15 U.S.C. § 80b-2(a)(11),126 the statutory structure of the Advisers Act,127 and the legislative in- tent128 and “broad remedial purposes of the Act.”129 Supported by this analysis, Abrahamson has proven to be noteworthy because it held that an adviser providing impersonal advice to an investment partnership under discretionary authority satisfies the investment advice element.130 Under this form of impersonal investment advice, the advice need not be tailored to an individual investor’s needs (like personal advice), but is provid- ed directly to the investment partnership, which typically explains its investment strategy to po- tential investors and leaves it to them to decide whether investing in the partnership is appropri- ate.131 It stands in contrast to the traditional personal advice approach with an adviser providing 124 See id. at 870 (“In addition, the partnership agreement of October 1, 1968, provided for an annual salary of $ 25,000 for each general partner who managed the partnership’s investments.”). 125 See id. at 871 (in addition to finding managing investment partnership securities to be investment advice, court noted that adviser provided limited partner investors with a monthly report stating the percentage increase or decrease in value of the investment partnership holding and compared this performance with Standard and Poor 500 stock average, consistent with Report Adviser language of § 202(a)(11), 15 U.S.C. § 80b-2(a)(11); see also, Sec. & Exch. Comm. v. Saltzman, 127 F. Supp. 2d 660, 669–70 (E.D. Pa. 2000) (applying Abrahamson in holding that adviser sending limited partnership investors a copy of investment fund financial statements constituted a report under § 202(a)(11), 15 U.S.C. § 80b-2(a)(11)). 126 Abrahamson, 568 F.2d at 871. 127 Id. (The court looked to § 203, 15 U.S.C. § 80b-3, requiring disclosure of an adviser’s authority over client funds, and § 205, 15 U.S.C. § 80b-5, setting standards for advisory contracts governing an adviser managing “investments or trading accounts.”). 128 Id. at 870-71 (The court in Abrahamson reviewed numerous congressional committee reports, for example, Re- port of the Senate Committee on Banking and Currency, reflecting that the Advisers Act was intended to cover persons investing client funds, including “pools of liquid funds of the public.”). 129 Id. at 870. Since the Abrahamson decision was issued in 1968, the traditional cannon of statutory interpretation that remedial statutes should be construed liberally has been criticized. See Estate of Heiser v. Islamic Republic of Iran, 885 F. Supp. 2d 429, 440 (D.D.C. 2012) (citing Antonin Scalia, Assorted Cannards of Contemporary Legal Analy- sis, 40 CASE W. RES. L. REV. 581, 581-82 (1990)) (In discussing remedial statute cannon: “Justice Scalia describes this cannon as ‘surely among the prime examples of lego-babble.’”). 130 See, e.g., U.S. v. Elliott, 62 F.3d 1304, 1310 (11th Cir. 1996) (applying Abrahamson to definition of investment ad- viser); Wang v. Gordon, 715 F.2d 1187 (7th Cir. 1983) (applying Abrahamson to definition of investment adviser); Sec. & Exch. Comm’n v. Montana, 2005 WL 645143 1, 2 (S.D. Ind. 2005) (applying Abrahamson to definition of in- vestment adviser); Saltzman, 127 F. Supp. 2d at 669-70 (E.D. Pa. 2000) (applying Abrahamson to definition of in- vestment adviser); Sec. & Exch. Comm’n v. Smith, 1995 U.S. Dist. LEXIS 22352 (Jan. 6, 1995) (applying Abrahamson to definition of investment adviser). 131 See Sec. & Exch. Comm’n v. Goldstein, 451 F.3d 873, 881 (D.C. Cir. 2006) (“As recently as 1997, it [SEC] explained that a ‘client of an investment adviser typically is provided with individualized advice that is based on the client’s financial situation and investment objectives. In contrast, the investment adviser of an investment company need not consider the individual needs of the company’s shareholders when making investment decisions, and thus has no obligation to ensure that each security purchased for the company’s portfolio is an appropriate in- vestment for each shareholder.’ Status of Investment Advisory Programs Under the Investment Company Act of 1940, 62 Fed.Reg. 15,098, 15,102 (Mar. 31, 1997).”); Sec. & Exch. Comm’n v. Mannion, 2013 WL 5999657 1, 3 (N.D. Ga. 2013) (“In Goldstein, the court explained that, generally, a hedge fund manager’s client is the hedge fund it- self, and not the investors in the fund.”). Commission rules promulgated under the Advisers Act reflect this con-