ORDER DEFINING THE TERM "CLIENT" FOR PURPOSES OF THE
CONNECTICUT DE MINIMIS EXEMPTION FOR INVESTMENT ADVISERS
WHEREAS the Commissioner of Banking (the "Commissioner") is charged with the administration of Chapter 672a of the Connecticut General Statutes, the Connecticut Uniform Securities Act (the "Act") and Sections 36b-31-2 et seq. of the Regulations promulgated thereunder (the "Regulations");
WHEREAS Section 36-31(a) of the Act provides, in part, that: "The commissioner may from time to time make, amend and rescind such ... orders as are necessary to carry out the provisions of sections 36b-2 to 36b-33, inclusive, including ... orders ... defining any terms, whether or not used in said sections, insofar as the definitions are not inconsistent with the provisions of said sections. For the purpose of ... orders, the commissioner may classify securities, persons and matters within his jurisdiction, and prescribe different requirements for different classes";
WHEREAS on July 8, 1998, Congressional amendments to Section 222 of the federal Investment Advisers Act of 1940 (codified as 15 U.S.C. Sec. 80b-18a) took effect, providing, in pertinent part, as follows:
(d) National de minimis standard
No law of any State or political subdivision thereof requiring the registration, licensing, or qualification as an investment adviser shall require an investment adviser to register with the securities commissioner of the State (or any agency or officer performing like functions) or to comply with such law (other than any provision thereof prohibiting fraudulent conduct) if the investment adviser - (1) does not have a place of business located within the State; and (2) during the preceding 12-month period, has had fewer than 6 clients who are residents of that State.
WHEREAS in response to such amendments, the Connecticut General Assembly amended Section 36b-6 of the Act to provide a state de minimis exemption from registration in Section 36b-6(e)(3) of the Act for an investment adviser who "has no place of business in this state and, during the preceding twelve months, has had no more than five clients who are residents of this state";
WHEREAS 17 C.F.R. Sec. 275.222-2 states that: "For purposes of [the de minimis exemption in] section 222(d)(2) of the [federal Investment Advisers] Act (15 U.S.C. 80b-18a(d)(2)), an investment adviser may rely upon the definition of "client" provided by Sec. 275.203(b)(3)-1";
WHEREAS Section 36b-31(b) of the Act provides, in part, that: "No ... order may be made, amended or rescinded unless the commissioner finds that the action is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of sections 36b-2 to 36b-33, inclusive";
WHEREAS the Commissioner finds that, in promoting regulatory uniformity, the issuance of this Order is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of the Act;
NOW THEREFORE, THE COMMISSIONER ORDERS AS FOLLOWS:
| 1. | For purposes of Section 36b-6(e)(3) of the Act, the term "client" shall be determined in accordance with Securities and Exchange Commission Rule 203(b)(3)-1, in that the following shall be considered a single client: | ||||
| (a) | A natural person, and: | ||||
| (1) | Any minor child of the natural person; | ||||
| (2) | Any relative, spouse, or relative of the spouse of the natural person who has the same principal residence; | ||||
| (3) | All accounts of which the natural person and/or the persons referred to in this paragraph (a) are the only primary beneficiaries; and | ||||
| (4) | All trusts of which the natural person and/or the persons referred to in this paragraph (a) are the only primary beneficiaries; | ||||
| (b) | (1) | A corporation, general partnership, limited partnership, limited liability company, trust (other than a trust referred to in paragraph (a)(4) above), or other legal organization (any of which are referred to hereinafter as a "legal organization") that receives investment advice based on its investment objectives rather than the individual investment objectives of its shareholders, partners, limited partners, members, or beneficiaries (any of which are referred to hereinafter as an "owner"); and | |||
| (2) | Two or more legal organizations referred to in paragraph (b)(1) of this section that have identical owners | ||||
| (c) | For purposes of Section 36b-6(e)(3) of the Act: | ||||
| (1) | An owner must be counted as a client if the investment adviser provides investment advisory services to the owner separate and apart from the investment advisory services provided to the legal organization, Provided, however, that the determination that an owner is a client will not affect the applicability of this section with regard to any other owner; | ||||
| (2) | An owner need not be counted as a client of an investment adviser solely because the investment adviser, on behalf of the legal organization, offers, promotes, or sells interests in the legal organization to the owner, or reports periodically to the owners as a group solely with respect to the performance of or plans for the legal organization's assets or similar matters; | ||||
| (3) | A limited partnership is a client of any general partner or other person acting as investment adviser to the partnership; | ||||
| (4) | Any person for whom an investment adviser provides investment advisory services without compensation need not be counted as a client; and | ||||
| (5) | An investment adviser that has its principal office and place of business outside of the United States must count only clients that are United States residents; an investment adviser that has its principal office and place of business in the United States must count all clients; | ||||
| 2. | For purposes of Section 36b-6(e)(3) of the Act, the term "client" shall be construed to incorporate any amendments or modifications to such term as contained in Securities and Exchange Commission Rule 203(b)(3)-1; and | ||||
| 3. | This order shall become final when issued, and shall remain in effect until modified, superseded or vacated by the Commissioner or other lawful authority. | ||||
| So ordered at Hartford, Connecticut this 4th day of March, 1999. |
John P. Burke Banking Commissioner |