Keeping Current

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After I got laid off by my broker-dealer, a customer complaint came in and the state called me in for an interview. I hired an attorney, but right before we walked into the interview my attorney asked for more money and quit when I couldn't pay him. The state subsequently tried to serve me with a formal complaint but, since I'd moved, I never received the papers. I wound up getting hit with a fine and a suspension. I never received any formal withdrawal notice from my attorney so shouldn't the state have served him with the complaint, and wasn't it his obligation to notify me?

— D.H., Florida

I've noted on several occasions in this column that NASD Notice to Members 97-31 states that it's the broker's obligation to keep his address current with the Central Registration Depository ("CRD"). If you hadn't updated your address with CRD you may have a difficult argument against the state.

Before determining whether your attorney was obligated to notify you of the complaint, however, there are several factors to consider. The first is whether the state was even aware that you had an attorney. The second is whether the state was aware that your attorney had withdrawn from representation. And the third factor to consider is the state's policy for notifying or serving a disciplinary complaint on counsel for a party, even when they're aware that the person is being represented.

You should check your state's regulations for the answer to this question. Even assuming all those factors work in your favor, I'd also recommend asking your state's bar for their ethical guidelines in such a situation.

My advisory firm manages approximately $500 million in assets for over 100 separately managed accounts. We were thinking of purchasing a private placement for some of our clients. The securities would be restricted under Rule 144A, which requires the purchaser to be a "qualified institutional buyer." As a registered investment advisor, can we qualify for the exemption for registration of the securities as a single entity with our aggregate assets under management, or must each separately managed account be a qualified institutional buyer in its own right?

— G.S., via e-mail

Rule 144A provides an exemption from the registration requirements of Section 5 of the Securities Act of 1933 for certain private resales of securities to institutions. There are other conditions set forth in Rule 144A that must be met in order to qualify for the exemption and I am not addressing those here due to space limitations. However, to answer your specific question, in order to qualify for the exemption, the securities must be offered or sold only to a "qualified institutional buyer" which is defined as certain specified entities (including registered investment advisors), acting for their own account "or the accounts of other qualified institutional buyers, that in the aggregate owns and invests on a discretionary basis at least $100 million in securities..."

In my opinion, the language "in the aggregate" refers to the "other accounts" that you would be selling the private placement to, which must, in their own right, be qualified institutional buyers and meet the $100 million in securities test. I do not believe that language "in the aggregate" permits you to combine the value of all the accounts together to meet the $100 million threshold.

For example, if you were purchasing the investment for the account of an employee benefit plan that owns at least $100 million in securities, then you would be buying for a "qualified institutional buyer." If, however, you were buying the investment for the accounts of four employee benefit plans each of which only owns $25 million in securities, then I don't think you'd qualify for the exemption. Please note that this is only my opinion. Other attorneys may interpret this rule differently and I'd urge you to consult with counsel.


Alan J. Foxman, ESQ, is an attorney with Fred Chikovsky & Assoc.
in Boca Raton, Fla. His comments are not intended to be legal advice.

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