compensation

New Jersey Appellate Court Clarifies Definition of Compensation under Advisers Act

 

On August 12, 2016, the United States Court of Appeals for the Third Circuit affirmed the decision of the District Court of New Jersey and held in United States v. Everett C. Miller that the defendant was an “investment adviser” within the meaning of the Investment Advisers Act of 1940 (the “Advisers Act”), notwithstanding defendant’s arguments that he did receive “compensation” and was not engaged “in the business” of acting as an investment adviser.

The Advisers Act does not explicitly define “compensation” or what constitutes being engaged “in the business.”  Consequently, the Court of Appeals based its decision on a 1987 Release issued by the Staff of the Securities and Exchange Commission (Investment Advisers Release No. 1092) which states, in part: “The Staff considers a person to be ‘in the business’ of providing advice if the person . . . holds himself out as an investment adviser or as one who provides investment advice.” In reaching its decision that the defendant provided advice for “compensation,” the Court recognized that the Advisers Act also does not define “compensation.”  The Court again cited the SEC Release which defines compensation as “any economic benefit, whether in the form of an advisory fee or some other fee relating to the total services, rendered, commissions, or some combination of the foregoing . . .” and concluded that: “It is not necessary that an investor pay a discrete fee specifically earmarked as payment for investment advice.”  Opinion.

SEC Rule for Listing Standards for Compensation Committees and Advisers

On June 20, the SEC approved a rule that directs national securities exchanges to adopt listing standards for public company boards and compensation advisers. The new rule, required by the Dodd-Frank Act, requires exchange listing standards to address: (i) the independence of members on a committee; (ii) the committee’s authority to retain compensation advisers; (iii) the committee’s consideration of the independence of any compensation advisers; and (iv) the committee’s responsibility for the appointment, compensation, and oversight of the work of any compensation adviser. These changes will take effect 30 days after publication in the Federal Register. No later than 90 days after effectiveness, each exchange that lists equity securities must propose listing standards that comply with the new rule. The new listing standards must be approved by the SEC within one year of the new rule becoming effective. SEC Release.  Rule.