Archives: Exemptions

Investors in certain condominium units asked the United States Supreme Court to review a federal appeals court’s conclusion that the sale of the units, when coupled with a separate rental-management agreement, were not securities under state or federal law.  See Salameh v. Tarsadia Hotel, U.S., No. 13-763, 12/24/13.  The plaintiffs believe this was an “investment contract” security.  The SEC agrees with the investors.

The plaintiffs purchased condominium units, and signed a rental-management agreement, required under the terms of the purchase contract.  The plaintiffs alleged that these contracts were an investment contract security since they had no control over their units and expected a profit only through the efforts of others.  However, both the district court and the United States Court of Appeals for the Ninth Circuit rejected this argument.

In short, this question needs to be addressed by the Supreme Court, and we will continue to monitor it.

The SEC granted filing extensions and other regulatory relief for the entities effected by Hurricane Sandy.

Previously, the SEC extended several deadlines, and allowed certain exemptive forms to be used.  However, one of the more important offers of assistance is the SEC staff is willing to view matters on a case by case basis if additional assistance is necessary. 

As such, we strongly urge those entities still recovering to consider their options.

Recently, the SEC’s newest commissioner, Commissioner Daniel Gallagher, discussed certain of his beliefs, including, among other things, that the SEC should use its exemptive authority derived from the Investment Advisers Act of 1940, to provide some relief for hedge fund and private equity investment mangers from the registration provisions of said Act. 

Gallagher believes that the full registration regime should not have been imposed upon investment managers for hedge fund and private fund advisers.  Essentially, he believes that the SEC should use its exemptive power to provide some “balm” to their predicament.  He also indicated that the SEC should rethink certain registration requirements if it does not promote capital formation.

Additionally, Commissioner Gallagher commented on the recent case of Theodore Urban, and his belief that the Commission should clarify when it believes that legal personnel are considered supervisors.  As many may know, the Commission deadlocked over the case, requiring the dismissal of the charges.  Commissioner Gallagher believes that it is important for the SEC to provide the standard for charging in-house counsel and other legal personnel in these matters.  Commissioner Gallagher hopes that the SEC will clarify this position through a Section 21A Report under the Securities Exchange Act of 1934.  He, however, said that there has not been a suitable case to do so as of yet. 

Commissioner Gallagher also has indicated that he believes that the SEC needs to provide a better framework to work with in-house legal and compliance officers of broker-dealers and investment advisers.  He believes that the SEC should utilize these individuals to accomplish its mission.  He also thinks that, if these individuals are engaged, as opposed to challenging them, or causing them liability, the SEC would be more likely to uncover fraud and protect investors.

Finally, as we move forward, it will be interesting to see if Commissioner Gallagher will influence the SEC to change.