CFTC Staff Letter 98-60: Exemptive Relief for CPO to Accept Non-QEP Investment and Waive Ten Percent Limitation

98-60
CFTC Letter No. 98-60
August 4, 1998
Division of Trading & Markets
Re: Rule 4.7(a); Request for Exemptive Relief to Treat a Prospective Investor as a Qualified Eligible Participant and for Exemptive Relief from the Ten Percent Limitation on Assets Invested in Exempt Pools Dear :
This is in response to your letter dated March 10, 1998 to the Division of Trading and Markets ("Division") of the Commodity Futures Trading Commission ("Commission"), as supplemented by your facsimile transmission letter dated April 3, 1998 and telephone conversations with Division staff. By your correspondence, you request exemptive relief on behalf of "X", a registered commodity pool operator, so that a partner in the law firm that represents "X" can be treated, for purposes of investment in all existing and future Rule 4.7 exempt domestic pools operated by "X" (the "Rule 4.7 Exempt Pools"), as if he satisfies the qualified eligible participant ("QEP") criteria of Rule 4.7(a).1 You also seek relief from the ten percent investment limitation of Rule 4.7(a)(1)(ii)(B)(2)(xi) ("Ten Percent Limitation") so as to permit the Rule 4.7 Exempt Pools to invest more than ten percent of their assets in other Rule 4.7 exempt pools in the event the partner invests in the Rule 4.7 Exempt Pools. Based upon the representations made in your correspondence, we understand the facts to be as follows. "X" currently operates numerous Rule 4.7 exempt pools and may operate additional Rule 4.7 exempt pools in the future. Interests in the Rule 4.7 Exempt Pools may be owned solely by QEPs. "X" now seeks to admit "A", an attorney and partner in the law firm of "Y", who does not qualify as a QEP, as a participant in the Rule 4.7 Exempt Pools. "A" is the main partner at "Y" who is responsible for providing legal services to "X" and the commodity pools it operates. He has been intimately involved in the creation of every domestic exempt pool operated by "X" since 1989. By virtue of his long-standing relationship with "X" and his work on behalf of this client, "A" has ready access to all information pertinent to an investment in the Rule 4.7 Exempt Pools. Though he does not qualify as a QEP, "A" is an accredited investor under Regulation D of the Securities Act of 1933 and, by virtue of his professional activities and personal investments, is knowledgeable and experienced in financial and business matters. He regularly advises and represents clients, including "X", in securities and derivatives￾related regulatory and corporate matters, including hedge funds and commodity pools. He has a J.D. degree from "R" and a B.A. degree from "S". file:///S|/Website%20Management/LegacyDataCopyasof2010-04-21/tm/letters/98letters/tm98-60.htm (1 of 2) [5/6/2010 7:32:21 PM]