Page - 122 - in Austrian Law Journal, Volume 1/2015

ALJ 1/2015 Brian Carroll 122 As a court fiduciary, Loring was required to give a “bond of acceptance for each trust” in an amount sufficient to protect the property, which is discharged after filings accounts with the court.157 Lor- ing’s activities outside of court supervision but under power of attorney, constituted “only a minor part of his business and are, in effect, incidental to his business of acting as a trustee.”158 At the close of its order, the Commission noted that Loring neither solicited business, nor held himself out to the public as being engaged in the business of providing investment advice. Any advice given to others “as to securities” was “solely incidental to his activity as a professional trustee.”159 In Selzer v. Bank of Bermuda,160 a private action, a beneficiary to an investment trust managed by defendant Bank of Bermuda alleged that while acting as a trustee the Bank of Bermuda met the definition of an investment adviser and violated the Advisers Act. The court summarily noted that the Commission in In re Loring held that a trustee is not an investment adviser. It went on to explain that historically a trustee is the legal owner of the trust corpus and the beneficiary is the equitable owner. A trustee acts as a principal in making investment decisions for the trust and, therefore, does not provide advice to others.161 Although the court acknowledged that there may be public policy reasons in support of trustees operating under the definition of an investment adviser, the “common sense”162 meaning of the word “adviser”163 militated against applying the Advisers Act. Since Selzer, the Commission’s staff has expressed in No-Action Letters164 its disagreement with the Selzer court’s characterization of In re Loring and its broad holding that a trustee is does not meet the definition of an investment adviser.165 The Selzer court’s approach to the trustee issue was rejected in SEC v. Smith166, In Smith, an en- forcement action, a formerly registered investment adviser created a new trust entity and trans- ferred investment adviser client accounts to it. Smith then restyled his adviser role as one of a trustee. Smith argued that under Selzer and In re Loring he was operating as a trustee and, there- fore, did not meet the definition of an investment adviser. The court in Smith rejected Selzer and instead applied the holding in Abrahamson, namely that exercising control over investments con- stitutes investment advice. Smith noted that the Abrahamson decision was the more cogent deci- sion and because Abrahamson was an opinion of the circuit court of appeals that Selzer was 157 Id. at 1. 158 Id. at 2. 159 Id. 160 385 F. Supp. 415 (S.D.N.Y. 1974). 161 Id. at 420; see also Sec. & Exch. Comm’n v. Ficeto, 839 F. Supp. 2d 1101 (C.D. Cal. 2011) (defendant unsuccessfully argued that it served as the investment adviser to investment funds that it sponsored and therefore could not defraud itself). 162 Selzer, 385 F. Supp. at 420. 163 Id. 164 Commission staff will provide informal written advice – in the form of a No-Action Letter – in response to a letter providing specific facts and representations about an unresolved securities regulation issue. In its No-Action Letter, the Commission staff will state whether, under the facts and representations presented, it would or would not recommend any Commission enforcement action. See Procedures Applicable to Requests for No-Action and Inter- pretative Letters, Investment Advisers Act Release No. 281 (Feb. 8, 1971). 165 These Commission staff positions are reflected in various No-Action Letters. See, e.g., Clair H. Spring (pub. avail. Sept. 13, 1990) (“In Selzer, et al. v. The Bank of Bermuda, 385 F. Supp. 415 (S.D.N.Y. 1974) (enclosed), the district court held that a trustee, acting as legal owner of a trust and principal, is not an adviser with the meaning of Sec- tion 202(a)(11) of the Investment Advisers Act of 1940. However, in [No-Action Letter] Joseph J. Nameth, Jr. (pub. avail. Jan. 31, 1983) (enclosed), the [Sec. & Exch. Comm’n] Division of Investment Management specifically disa- greed with the district court’s holding in Selzer because it rested on a misreading of an earlier SEC decision (In re Loring, 11 S.E.C. 885 (1942)). The Division’s position, as reflected in our no-action letters, has not changed on this issue.”). 166 1995 U.S. Dist. LEXIS 22352 (E.D. Mich.).