SEC Division of Investment Management staff letter: InTouch Global, LLC

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SECION ~ ~o;( CJ j(11) UNITED STATES RULE SECURITIES AND EXCHANGE COMMISSION WASHINGTON. D.C. 20S49 PUBLIC !f-1Y-Cj S AVAIIL DIVISION OF

INVESTMENT MANAGEMENT

Sunil Bajaj

InTouch Global, LLC

600 Harbor Boulevard, Suite 822

Weehawken, NJ 07087

Dear Messrs. Baj aj and Mysoré:

We have reviewed your letter of September 26, 1995 in which

you ask for an opinion as to the legality of certain activities

to be conducted. by your company, InTouch Global, LLC (II InTouch II) . The Commission staff, as a matter of policy, does not issue legal

opinions.. We can, however, provide you with general guidance

with respect. to how the federal securities laws may apply to

InTouch's proposed activities.

You propose to provide advice to both U. S. and foreign

clients as to the value .of U. S. securities, U. S. mutual funds,

and American Depositary Receipts, and to publish a newsletter,

available for a flat subscription fee, containing business and

economic information on India, including closing stock prices for

Indian stocks and buy/sell/hold recommendations for Indian

stocks.
Section 203 (a) of the Investment Advisers Act of 1940 (the IIAdvisers Act II) requires a person or entity that meets the
definition of lIinvestment adviser, II and that makes use of the

U.S. mails or any means or instrumentality of interstate commerce

in connection with its business as an investment adviser, to

register under the Advisers Act, unless an exemption from

registration is available.
1 Section 202 (a) (11) of the Advisers Act defines lIinvestment adviserll to include, among others, any

person who, for compensation, engages in the business of advising

others as to the value of securities or as to the advisability of

A domestic adviser that provides advice to foreign clients

must register if. it uses any U. S. jurisdictional means in

connection with its advisory business. See Gim-Seong Seow

(pub. avail. Nov. 30, 1987).

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investing in, purchasing, or selling securities, or who issues or

promulgates analyses or reports concerning securities. 2 Based on the proposed activities described in your letter,

it appears that InTouch would fall within the definition of II investment adviserll and would be required to register under the Advisers Act. 3 Our position is based particularly on InTouch's

activities with respect to advising clients as to the value of securities or as to the advisability of investing in securities. 4 We note that there are circumstances under which publication

of a newsletter, in and of itself, would not be sufficient to

require investment adviser registration. Section 202 (a) (11) (D)

excludes from the definition of investment adviser any publisher

of a bona fide newspaper, news magazine, or business or financial publication of general and regular circulation (llpublisher' s exclusion II). To qualify for this exclusion, the publication

must:
(1). offer only general and impersonalized advice, i.e.,

advice not tailored to the individual needs of a

specific client or group. of clients;

2 Section 203 (b) provides certain limited exemptions from registration. For example, Section 203 (b) (3) exempts investment advisers who, during the course of the preceding 12 months, had fewer than 15 clients and who do not hold themselves out generally to the public as investment advisers. 3 You should also note that many states impose their own requirements on investment advisers that do business within the state, including registration. You may obtain the names and addresses of state regulators from the North American Securities Administrators Association, Inc., One Massachusetts Avenue, N.W., Washington, D.C. 20001, Tel:
(202) 737-0900.

4 Although not expressly stated in your letter, we assume that InTouch would be advising clients for compensation and, therefore, would meet the first part of the definition in
Section 202 (a) (11) .

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(2) be bona fide or genuine (in the sense that it contains

disinterested commentary and analysis as opposed to

promotional material); and

(3) be of general and regular circulation, i.e., not timed

to specific market activity or to events affecting or

having the ability to affect the securities industry. 5

Because of the fact-specific nature of the analysis required to

determine the availability of the publisher's exclusion, we

cannot advise you with respect to whether the service you

describe would meet the requirements ~f the exclusion.

The Division of Market Regulation has aske,d us to inform you that your proposed activities as a IIpurchasers' representative II may require you to register as a broker-dealer under the

Securities Exchange Act of .1934 (IIExchange Actll). Section 15 (a) of the Exchange Act generally provides that a IIbrokerll or II dealer II who uses the mails or any means of interstate commerce

to effect transactions in, or to induce or attempt to induce the

purchase or sale of, any security must register with the

Commission, unless an exemption applies.

Section 3 (a) (4) of the Exchange Act generally defines a IIbrokerll as any person who is in the business of effecting

transactions in securities for the account of others. Sectio~

3 (a) (5) of the Exchange Act defines a "dealerll as any person who is in the business of buying and selling securities for his own

account, whether .through a broker or otherwise. However, a

person who buys or sells securities for his own account, either

individually or as a fiduciary, is not considered to be a "dealerll if he does not do so as part of a regular business. A numer of factors are considered in determining whether a

person is a broker-dealer, including the type of and basis for

any compensation received, the extent to which the person holds

the funds or securities of others, the extent of contact with the

public, and whether the person is "engaged in the business, II as that term is used in the above definitions. These are all

questions of fact which are resolved by taking into account all relevant circumstances. You should be aware that nothing in the

above definitions would warrant a conclusion that a person is not II engaged in the business II merely because his securities 5 See SEC v. Lowe, 472 U.S. 181 (1985)..

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activities are only a small part of his total business

activities, or merely because his income from such activities is

only a small portion of his total income. On the contrary, if

the securities activities are engaged in for commissions or other

compensation with sufficient recurrence to justify the inference

that the activities are part of the person's business, he will be

deemed to be lIengaged in the business. II The staff has considered the issue of whether registered investment advisers must also register as broker-dealers in a

number of specific circumstances. For example, in Letter re:

First Atlantic Advisory Corp. (February 20, 19'74), the staff took

a no-action position with respect to broker-dealer registration

of a registered investment adviser that proposed to transmit

orders for securities to registered broker-dealers, banks, or

trustees for execution when the investment adviser did not hold

client funds or securities and did not receive any compensation

specifically for this activity from any person.6 On the other

hand, the staff has declined to take a no-action position with

respect to broker-dealer registration for a registered investment

adviser that proposed to assist a broker-dealer with solicitation

and receive transaction-related compensation.7 Moreover, even in

the absence of commissions or other transaction- related fees, the

staff has declined to take a no-action position regarding the

broker-dealer registration of an investment adviser that proposed

to locate issuers, solicit new clients, and act as a customers'

agent in structuring or negotiating transactions. 8

You also should be aware that if you are deemed to be acting

on behalf of the foreign issuers or foreign broker-dealers, your

activities could subject those entities to u.s. broker-dealer

registration, as well. The Commission generally believes that if

a transaction with a person in the U. S. is solicited, the person

performing the solicitation must be registered as aU. S. broker- dealer. IISolicitationll includes any affirmative effort by a 6 See also Letter re: McGovern Advisory Group. Inc. (August 7,
1984) (adviser would not receive compensation based on the
trading activities of its clients; compensation would not be determined, directly or indirectly, based on transactions or the volume of transactions in securities) . '. 7 See Letter re:BostonAdvisory Group (September 2, 1980). ,\ 8 Let ter re: PRA Securities Advisers. L. P . (March 3, 1993).

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broker or dealer intended to induce transactional business for a

broker-dealer or its affiliates. Moreover, disseminating a

broker-dealer's quotations for a security in the United States

typically would be considered to be a form of solicitation.9

With respect to your question on Regulation D, the Division

of Corporation Finance has asked us to advise you as follows.

Your letter raises the issue of whether the restrictions on

resale set forth in Rule 502 (d) of Regulation D of the Securities

Act of 1933 (II Securi ties Act II) would apply to resales of securities outside of the United States. Rule 904 of Regulation

S under the Securities Act provides a safe harbor for resales of

securities outside of the United States by persons other than the

issuer, distrib~tor or any of their respective affiliates.

However, in Release No. 33-7190 (June 27, 1995), the Commission

noted that troubling issues have arisen under the resale safe

harbor provisions of Rule 904. Rule 904 cannot be used for the

purpose of IIwashing off II resale restrictions,' such as the holding period requirement for restricted securities in Rule 144.

Likewise, the restricted status of securities is not affected by

a prearranged transaction by or on behalf of the seller conducted

offshore. If a person with restricted securities sold the

securities in an offshore transaction and replaced them with a

repurchase of fungible unrestricted securities, the replacement

securities would be subject to the same restrictions as those replaced. *

The foregoing discussion is intended solely to provide

general guidance wi th respect to how the Advisers Act, the

Exchange Act and the Securities Act may apply to your proposed

activities. We suggest that you consult with legal counsel

familiar with the federal securities laws before engaging in the

activities described in your letter. In addition, you should

also consider the legal and regulatory requirements of India and

other countries that may apply to your business activities in

such countries.
I have enclosed for your informtion an investment adviser

registration package, which contains informtion on the

For a discussion of solicitation and U. S. broker-dealer

regulation generally, see Securities Exchange Act Release No. 27017 (July 11, 1989), 54 FR 30013 (July 18, 1989). 9

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regulation of registered investment advisers, and a broker-dealer

registration package, which contains information on the

regulation of registered broker-dealers. If we can be of further

assistance, you may write or call this office at (2'02) 942-0659.

Sincerely,
.
L~ef? Attorney
Office of Chief Counsel

Enclosures

~TOUCH GLOBAL, LLC T ~..~. ~8l~'i6ti~~~¿I2~~;~-;T....27')"W"""'T~";;'~Y:r~~~f-:i~r;~-ri!'t~~~~~~r~~""'î;;7'it~'i~~!t:~~~:"::,.,"~ ~ InTouch Global, LLC 600 Harbr Boulevard, Suite 822 Weehawken, NJ 07087 (USA) Voice: 201.271.1197

Fax: 201.271.1285

September 26, 1995

VIA FACSIMILE

Mr. Jack Murphy, Esq.
Chief Counsel
Securities and Exchange Commission
450 5th Street NW
Washington D.C. 20549
Dear Mr. Murphy:
We recently talked to Mr. Robert Anthony from the SEC office in New York City regarding obtaining an opinion on the legaliy of certain activities our firm proposes to conduct. Mr. Anthony stated that you were responsible for rendering such opinions. Accordingly, we are writing to you to obtain such an opinion. InTouch Global LlC ("lnTouch"), a limited liabilty company, whose principals are US citizens, proposes to set up an investment advisory firm in the USA. The firm would comply with all NASD, SEC, and blue-sky requirements. InTouch's clients would include the following:

1. Permanent residents and citizens of the United States ("US Persons");
2. Temporary residents of the Unite,d States, i.e. those present in the
   United States on non-immigrant visas (students, tourists, persons with work permits. etc.) ("Temporary US Persons"); and
3. Persons who are neither present in nor residing in the United States
   ("Non-US Persons").
   InTouch proposes to conduct ,the following activities:
   \ a) Advise clients on managing their portfolio by investing In US securities, foreign securities that have been registered in the US (such as ADRs). US mutual funds, etc.;

INTOUCH GLOBAL, LLC TEL No. 201-271-1285 S e P . 2~~;;--'-11'~~~~~'iMi¡~~!;lli~'t~r*~r.::~ . .,

b) Disseminate information regarding emerging markets, with particular emphasis on India; and c) Act as a "Purchasers' Representative" to buy/sell securities on behalf of clients (who may not be accredited investors) in the US. InTouch anticipates that it would be aiding in the purchase of securities that wil be marketed by Indian issuers under Regulation D. We need an opinion from the Division of Investment Management of the Securities and Exchange Commission of the US regarding the permissibilty of b) and c). With respect to b). InTouch only plans to provide closing stock prices for Indian stocks and Indian economic and business news, including buy/sell/hold recommendations. The sources of the information would include: business newspapers and publications from India, news wires and the Internet. In essence. the information would be similar to that provided by the Financial Times with respect to UK stocks and businesses, or the Wall Street Journal with respect to US stocks and businesses. If any InTouch clients became interested in buying any Indian security, InTouch would refer them to "local" brokers In India: InTouch would not solicit any trades from its clients. InTouch would not get compensated for any trades which are made by its clients through Indian brokers. InTouch would not directly advise any of its clients in the US regarding the purchase or sale of securities in India. except for the general buy/sell/hold recommendation provided in its newsletter (very similar to what one would expect to see in publications such as Barrons, Financial World ate). InTouch would not send its clients any advertising materials or prospectuses. InTouch's only compensation 'for providing the above-mentioned information would be a flat subscription fee which is collected from its subscribers. With respect to c), InTouch plans to act as "Purchasers Representative" to aid its clients in purchasing securities offered pursuant to an exemption such as Regulation D.

With respect to 'such activities. InTouch has two questions:
(i) Maya Purchasers' Representative be compensated by the i~suer if . such fact is fully disclosed to the purChaser? If the answer to this question is no. then, who may the Purchasers' Representative be compensated by? (ii) Does the resale limitation in Regulation 0 also apply to resal~s of securities outside of the United States? That is, if an InTouch chent who Is a US Person or Temporary US Person acquires securities Issued by

NT'ßlJCH; GLOBAL, 'LLC . TEU 1';hj""201;;271,.12857'''''; ,',' Se P. 26''09,5; lF:''46''P;04 't'l . ~ , ,'" ~ "l'." ~

an Indian issuer pursuant to Regulation 0, may such person resell the security to a Non-US person? We would appreciate a prompt response to items b) and c) as your reply would be critical to the formulation of InTouch's business strategy. If you have any questions, please do not hesitate to call me at (201) 271-1197. Sincerely, ~ II ,. Sunil Bajaj, JD Harish Mysoré, MBA cc: Robert Anthony

David Parkinson, Ph.D. ~ _ 5424 - 176 Street N: - '- i: ':Ct, , 2()~1("~) Edmonton, Alberta øcON _ ¿ 01:0-_ , T6M LC6 " ' "~ Canada 1W lr

JUC (0 '" (~r I..
AVII-~tlru-A
August 17, 1995

Division of Investment Management
Securities and Exchange Commission
500 North Capitol Street
Washington, D.C.

20549
Dear Sirs,
'For several years I have been running on my own behalf a bond market timing system. I am now interested in offering my market timing advice to others. I plan to offer the advice on a subscription basis to Registered Investment Advisors in the United States. Is it necessary for me to register as an investment advisor in order to do this? Specifically, if I limit the availability of the advice to Registered Investment Advisors, and do not distribute it to the general public, is it possible that I don't need to register? I look foiward to your early response. ....~

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON. D,C, 20549
DIVISION OF

INVESTMENT MANAGEMENT
October 19, 1995

David Parkinson, Ph.D.

5424 - 176 Street

Edmonton, Alberta

T6M 1C6
Canada
Dear Dr. Parkinson:

Your letter of August 17, 1995, has been referred to the

Office of Chief Counsel for response. In your letter, you state

that you plan to offer bond market timing advice on a

subscription basis to ,registered investment advisers in the

United States. You ask whether you must register as an

investment adviser if you limit the availability of the advice to

registered investment advisers, and do not distribute it to the general public.
Section 203 (a) of the Investmènt Advisers Act of 1940 (the IIAdvisers Act ") requires a person or entity that meets the
definition of "investment adviser," and that makes use of the

U. S. mails or any means or instruentality of interstate commerce

in connection with its business as an investment adviser, to

register under the Advísers Act, unless an exemption from

registration is available. Section 202 (a) (11) defines

"investment adviser" to include, among others, any person who,

for compensation, engages in the business of advising others as

to the value of securities or as to the advisability of investing

in, purchasing, or selling securities, or who issues or

promulgates analyses or reports concerning securities.

We believe that one who offers market timing advice for

compensation would fall within this definition.1 The fact that

you propose to limit your advice to registered investment

advisers does not change this analysis, because the definition of

investment adviser is not limited to persons who offer advice to

the general public.
We note, however, that Section 202 (a) (11) (D) excludes from the definition of investment adviser 'any publisher of a bona fide

newspaper, news magazine, or business or financial publication of

1 See, ~, Donald F. Pooley (pub. avail. Feb. 6, 1985);

The Maratta Advisory Inc. (pub. avail. Jul. 16, 1981).

David Parkinson, Ph.D.

October 19, 1995

general and regular circulation. To qualify for this exclusion,

the publication must:

(1) offer only impersonalized advice, i.e., advice not

tailored to the individual needs of a specific client

or group of clients;

(2) be bona fide; and

(3) be of general and regular circulation, i. e., not timed

to specific market activity or to events affecting or

having the ability to affect the securities industry. 2

Because of the fact-specific nature of the analysis required to

determine the availability of the publisher's exclusion, we are

unable to determine whether the service you describe meets the

requirements of the exclusion. You may wish to consult counsel

familiar with the U. S. federal securities laws.

I have enclosed for your informtion an investment adviser

registration package, which contains informtion on the

regulation of registered investment advisers. 3 If we can be of

further assistance, do not hesitate to contact this office at

(202) 942-0659.

Sincerely,
Edward J. Ruöenstein

Senior Counsel

enclosure
2 See SEC v. Lowe, 472 U.S. 181 (1985).

3 Many states impose their own requirements on investment

advisers that do business within the state, including

registration. You may obtain the names and addresses of state

regulators from the North American Securities Administrators

Associat ion, Inc., One Massachusetts Ave., N. W., Washington, D. C. 20001, (202) 737- 0900 .n_________