Investment Advisers Act of 1940 — Rule 206(4)-3
RESPONSE OF THE OFFICE OF CHIEF COUNSEL
IM Ref. No. 20094151229
We would not recommend enforcement action to the United States Securities and Exchange Commission ("Commission") under Section 206(4) of the Investment Advisers Act of 1940 ("Advisers Act") and Rule 206(4)-3 thereunder if any investment adviser that is required to be registered pursuant to Section 203 of the Advisers Act pays to RBC Capital Markets Corporation ("RBC") or any of its associated persons, as defined in Section 202(a)(17) of the Advisers Act, a cash solicitation fee, directly or indirectly, for the solicitation of advisory clients in accordance with Rule 206(4)-3,1 notwithstanding an injunctive order issued by the United States District Court for the Southern District of New York (the "Judgment") that otherwise would preclude such an investment adviser from paying such a fee, directly or indirectly, to RBC or certain related persons.2
Our position is based on the facts and representations in your letter dated June 9, 2009, particularly RBC's representations that:
it will conduct any cash solicitation arrangement entered into with any investment adviser required to be registered under Section 203 of the Advisers Act in compliance with the terms of Rule 206(4)-3, except for the investment adviser's payment of cash solicitation fees, directly or indirectly, to RBC, which is subject to the Judgment;
the Judgment does not bar or suspend RBC or any person currently associated with RBC from acting in any capacity under the federal securities laws;3
it will comply with the terms of the Judgment, including, but not limited to, the payment of disgorgement, civil or administrative penalties and fines; and
for ten years from the date of the entry of the Judgment, RBC or any investment adviser with which it has a solicitation arrangement subject to Rule 206(4)-3 will disclose the Judgment in a written document that is delivered to each person whom RBC solicits (a) not less than 48 hours before the person enters into a written or oral investment advisory contract with the investment adviser or (b) at the time the person enters into such a contract, if the person has the right to terminate such contract without penalty within 5 business days after entering into the contract.
This position applies only to the Judgment and not to any other basis for disqualification under Rule 206(4)-3 that may exist or arise with respect to RBC or any of its associated persons.
Stephen Van Meter
The entry of the Judgment, absent the issuance of an order by the Commission pursuant to Section 9(c) of the Investment Company Act that exempts RBC from the provisions of Section 9(a) of the Investment Company Act, would effectively prohibit RBC and its affiliated persons from, among other things, acting as an investment adviser to any registered investment company. You state that, pursuant to Section 9(c) of the Investment Company Act, RBC and certain affiliated persons, on behalf of themselves and future affiliated persons, submitted an application to the Commission requesting (i) an order of temporary exemption from Section 9(a) of the Investment Company Act and (ii) a permanent order exempting the Settling Firm, certain affiliated persons and future affiliated persons from the provisions of Section 9(a) of the Investment Company Act.
On June 9, 2009, the Commission issued an order granting RBC, certain affiliated persons and future affiliated persons a temporary exemption from Section 9(a) of the Investment Company Act pursuant to Section 9(c) of the Investment Company Act, with respect to the Judgment, until the date the Commission takes final action on the application for a permanent order. In re RBC Capital Markets Corporation, et. al., SEC Rel. No. IC-28762 (Jun. 9, 2009). Therefore, RBC, certain affiliated persons and future affiliated persons are not currently barred or suspended from acting in any capacity specified in section 9(a) of the Investment Company Act as a result of the Judgment.
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