CFTC Staff Letter 98-34: Exemptive Relief for CPO to Treat Certain Employees as Qualified Eligible Participants

98-34
CFTC Letter No. 98-34
May 22, 1998
Division of Trading & Markets
Re: Rule 4.7(a); Request to Treat Certain Investors as Qualified Eligible Participants Dear--:
This is in response to your letter dated February 19, 1998, to the Division of Trading and Markets ("Division") of the Commodity Futures Trading Commission ("Commission") as supplemented by your letter dated March 16, 1998 and by telephone conversations with Division staff. By your correspondence, you request relief on behalf of "T", a registered commodity pool operator ("CPO") and commodity trading advisor ("CTA"), that the Division permit "T", in connection with its operation of "U" and "V" (collectively the "Funds"), to treat certain employees of "T" and its affiliated companies and certain family members of these employees as if they satisfy the qualified eligible participant ("QEP") criteria of Rule 4.7(a).1 Based upon the representations made in your correspondence, we understand the facts to be as follows. "T" is wholly owned by "W", which also is a registered CPO and CTA. The majority owner of "W" is "X", a private equity and venture capital firm owned by "A" and members of "A's" immediate family. "U" began operating on September 8, 1997. "V" has yet to begin operating.2 The Funds are global macro hedge funds and invest in fixed income securities, foreign currencies, equity indices and various commodities in both the cash and futures markets. Pursuant to a Notice of Claim for Exemption filed in accordance with Rule 4.7(a), interests in the Funds may be sold only to QEPs.3 "T" now seeks relief to allow it to accept investments from the following non-QEPs (the "Non-QEP Participants"):4 (1) "AA", who is the Managing Director and a registered Associated Person ("AP") of "T". He is also listed as a principal, the Chief Executive Officer ("CEO") and a registered AP of "W". "AA" has been the CEO of "W" since "W's" founding in April 1996. In this capacity, "AA" is closely involved with the day-to-day trading activities of the Funds. "AA" holds a law degree and an MBA from "AB" and has substantial legal, financial and investment experience. He was an attorney at the law firm of "AC" from 1985 to 1990, senior vice president of corporate finance for the investment bank of "AD" from 1990 until 1995 and vice president of emerging markets for the investment firm of "AE" from 1995 until joining "W". "AA" is an accredited investor under Regulation D of the Securities Act of 1933. In addition, "AA" has successfully completed both the Uniform Securities Agent State Law ("Series 63") and the Uniform Investment Adviser Law ("Series 65") examinations. file:///S|/Website%20Management/LegacyDataCopyasof2010-04-21/tm/letters/98letters/tm98-34.htm (1 of 4) [5/6/2010 7:30:31 PM]