September 26, 2021

Volume XI, Number 269

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September 24, 2021

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California's Alarmingly Expansive Definition Of "Investment Adviser"

Is someone who predicts a future stock market crash and advises reallocating investments to precious metals or real estate an investment adviser?  A recent complaint filed the Commodity Futures Trading Commission, California and 29 other states takes the position that persons who make such recommendations meet the definition of an "investment adviser" under California's Corporate Securities Law of 1968.  The complaint notes that Section 25009(a) of the California Corporations Code defines "investment adviser" as "any person who, for compensation, engages in the business of advising others . . . as to the advisability of . . . selling securities . . .".  The complaint alleges that the defendants:

"conducted business as investment advisers . . . by the conduct described in this complaint including warning senior citizens that the stock market was due for an imminent, major crash, worse than 2008, and advising investors to sell securities to purchase Precious Metals Bullion to save and protect their investment because the government could seize retirement savings and bank accounts, but not Precious Metals Bullion holdings. Defendants further warned investors that leaving investments in the securities markets was dangerous to investors’ financial future."

In response to the complaint, the U.S. District Court for the Northern District of Texas issued a restraining order barring the defendants from further sales of precious metals nationwide, freezing all related assets, and appointing a receiver.  Although the Court's order did not specifically address the question of whether the defendants were investment advisers, the Court did find that there is good cause to believe that the defendants have engaged in, are engaging in, or are about the engage in violations of the laws of California and other states as alleged in the complaint.

The Department's position should be cause for concern for many who never imagined that they might be classified as investment advisers.  As alleged by the Department, for example, a real estate broker who recommends getting out of the stock market in favor of buying real estate would come within the definition of "investment adviser".  

© 2010-2021 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume X, Number 283
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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
Partner

Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...

949-851-5428
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