Investment Adviser Act of 1940 - Section 206(4) and Rule 206(4)-3
J.P. Morgan Securities Inc.
October 8, 2003
IM Ref. No. 2003730822
File No. 8-36950
RESPONSE OF THE OFFICE OF CHIEF COUNSEL
DIVISION OF INVESTMENT MANAGEMENT
We would not recommend enforcement action to the 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 J.P. Morgan Securities Inc. (the "Firm"), a registered broker-dealer and investment adviser, or any of the Firm's associated persons, as defined in Section 202(a)(17) of the Advisers Act, a cash fee, directly or indirectly, for the solicitation of advisory clients in accordance with Rule 206(4)-3,1 notwithstanding a judgment of injunction from the United States District Court for the District of Columbia (the "Final Judgment") that otherwise would preclude such an investment adviser from paying the Firm a solicitation fee.2
Our position is based on the facts and representations in your incoming letter, particularly the Firm'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 to the Firm, which is subject to the Final Judgment;
- the Final Judgment does not bar or suspend the Firm or any person currently associated with the Firm from acting in any capacity under the federal securities laws;
- it will comply with the terms of the Final Judgment, including, but not limited to, the payment of disgorgement, pre-judgment interest, civil or administrative penalties and fines; and
- for ten years from the date of the entry of the Final Judgment, the Firm or any investment adviser with which it has a solicitation arrangement subject to Rule 206(4)-3 will disclose the Final Judgment in a written document that is delivered to each person whom the Firm 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 Final Judgment and not to any other basis for disqualification under Rule 206(4)-3 that may exist or arise with respect to the Firm or any of its associated persons.
Susan M. Olson
The incoming letter is attached in PDF format.