The proper treatment of angel investing groups under the Federal securities laws can be a vexing question. If it were appropriate to describe the angel investing group as a “company” as defined in Section 2(a)(8) of the Investment Company Act of 1940, and if the “company” were appropriately viewed as issuing interests or shares, then the angel investing group would have to seek to rely on Sections 3(c)(1) or 3(c)(7) of the Investment Company Act and comply with the requirements of Regulation D under the Securities Act of 1933. Yet these views seem to beg the questions of who is giving investment advice to the “company” and who is acting as a broker in offering and selling interests in the “company.”
Continue Reading The Financial Choice Act Aims to Help Angel Investors

This series of posts examines the misguided efforts of the House Financial Services Committee to reform the existing process for issuing exemptive orders pursuant to Section 6(c) of the Investment Company Act of 1940 (the “1940 Act”). My first three posts discussed the current exemptive process and some of its significant shortcomings. This post discusses the changes to the process proposed in Section 848 of the pending Financial Choice Act of 2017 and why these proposed changes would undermine investor protections provided by the 1940 Act. It is difficult to overstate what bad public policy Section 848 represents.


Continue Reading Section 848 of the Financial Choice Act 2017: Unwise at any Speed (Part 4)

This series of posts examines the misguided efforts of the House Financial Services Committee to reform the existing process for issuing exemptive orders pursuant to Section 6(c) of the Investment Company Act of 1940. Section 848 of the pending Financial Choice Act 2017 would attempt to accelerate the process of obtaining exemptive orders by forcing the SEC to grant or deny an exemptive application within a fixed time frame. My first post discussed the current process of obtaining an exemptive order. This post examines a problem overlooked by proposed Section 848, perhaps due to the Committee’s limited understanding of the exemptive process.
Continue Reading Section 848 of the Financial Choice Act 2017: Unwise at any Speed (Part 3)

This series of posts examines the misguided efforts of the House Financial Services Committee to reform the existing process for issuing exemptive orders pursuant to Section 6(c) of the Investment Company Act of 1940. Section 848 of the pending Financial Choice Act 2017 would attempt to accelerate the process of obtaining exemptive orders by forcing the SEC to grant or deny an exemptive application within a fixed time frame. My prior post discussed the current process of obtaining an exemptive order. This post examines the problem at which Section 848 appears to be aimed. A later post will explain why it misses its mark.
Continue Reading Section 848 of the Financial Choice Act 2017: Unwise at any Speed (Part 2)

Most observers of the Investment Company Act of 1940 (“1940 Act”) would agree that, (i) without the exemptive authority in Section 6(c), Section 17(b), and in other provisions in the 1940 Act and (ii) without the manner in which the SEC and its staff have used that authority, the 1940 Act would have become obsolete insofar as it would not have been possible to adapt it to some of the most popular financial products developed during the last 40 years.  It is also true that the process for obtaining exemptive orders is far from perfect and has proven to be frustrating on more than one occasion. Presumably, these frustrations motivated a proposed “reform” to the exemptive application process as part of the pending Financial Choice Act 2017.  Specifically, Section 848 would attempt to accelerate the process of obtaining exemptions by forcing the SEC to grant or deny an exemptive application within a fixed time frame.  This proposal: (a) does not reflect a sophisticated understanding of the process it seeks to change and, therefore, (b) fails to identify the actual problems with the process, so that Section 848 would almost certainly (c) result in superficial changes at best and at worst seriously undermine the protections the 1940 Act provides to shareholders of investment companies.  This series of posts will consider each of these points, before recommending more appropriate changes to the processes of obtaining exemptions.
Continue Reading Section 848 of the Financial Choice Act 2017: Unwise at any Speed (Part 1)