CFTC Staff Letter 00-67: Confirmation of No-Action Relief for Expanded Employee Participation in CPO Investment Vehicles

00-67
CFTC Letter No. 00-67
May 26, 2000
No-Action
Division of Trading & Markets
Re: Rules 4.7(a) and 4.7(a)(1)(ii)(B)(2)(xi)-- Request for confirmation of continuing effectiveness of prior relief if the permissible range of non-QEPs that may participate in a CPO's pools is expanded to include employees of the CPO's parent company who are not accredited investors as defined in SEC Regulation D Dear :
This is in reference to your letter dated March 30, 2000 to the Division of Trading and Markets (the "Division") of the Commodity Futures Trading Commission (the "Commission"), as supplemented by your letters dated April 17, 2000, May 4, 2000 and May 10, 2000 and by telephone conversations with Division staff. By your correspondence you request on behalf of "P" confirmation that certain no-action letters issued by the Division with respect to the activities of "P" will remain in effect if "P" expands the permissible range of participants in pools operated by it ("Q", "R" and "S", collectively "Investment Vehicles") to include employees of "P's" parent company "T" who are neither qualified eligible participants ("QEPs") as defined in Commission Rule 4.7(a),1 nor accredited investors as defined in Regulation D2 under the Securities Act of 1933.3 Based upon the representation in your correspondence, we understand the facts to be as follows. "P" is registered with the Commission as a commodity pool operator ("CPO") and is a wholly-owned subsidiary of "T", a privately-held corporation which (together with its subsidiaries) you describe as an internationally known business consulting and management firm. "P" operates and administers the Investment Vehicles (as well as other investment funds that are not commodity pools) for the benefit of certain eligible employees of "T" ("Eligible Employees"), to whom the funds are offered as a benefit of their employment. Eligible Employees presently include "T's" shareholders (all of whom are senior professionals or senior administrators of "T"), certain retired Directors of "T", the director of "T's" Investment Programs and the director of "T's" European Investment Programs. Neither "P" nor any principal thereof is paid a fee or commission in connection with solicitations for the Investment Vehicles. "P" does not receive a management or incentive fee from the Investment Vehicles. However, fees and expenses incurred by or allocable to the Investment Vehicles, including legal and accounting fees and transaction-related fees, are generally borne by the Investment Vehicles. You indicate that "P" receives a partial expense reimbursement from each Investment Vehicle in an amount equal to up to 0.50 percent of the Investment Vehicle's net asset value, subject to the disclosure of this arrangement to, and receipt of consent from, each participant in the affected Investment Vehicle. Certain employees of "T" provide administrative support to the Investment Vehicles and are compensated by "T" for their services in this regard. The Division previously has issued a number of no-action letters for the benefit of "P" in connection with its structuring and implementing investment opportunities for Eligible Employees (the Prior No-Action Letters).4 Among the representations made by "P" in connection with the Prior No-Action letters is that each of the employees participating in the pools for which relief was sought was an
accredited investor. Now, in order to attract and retain essential employees, "T" has asked "P" to make participation in the Investment Vehicles available to persons who are neither QEPs nor file:///S|/Website%20Management/LegacyDataCopyasof2010-04-21/tm/letters/00letters/tm00-67.htm (1 of 4) [5/6/2010 6:20:19 PM]