SEC Division of Trading and Markets no-action letter: R & H Management, L.L.C.

April 25, 2005

David S. Mitchell, Esq. Cadwalader, Wickersham & Taft One World Financial Center New York, NY 10281

Re: No-Action Request of R & H Management, L.L.C.

Dear Mr. Mitchell:

In your letter dated November 23, 2004 on behalf of R & H Management, L.L.C. ("R & H"), as supplemented by your letter dated April 25, 2005 and conversations with the staff of the Division of Market Regulation ("Staff"), you request assurances that the Staff will not recommend enforcement action to the Commission under Section 15(a) of the Securities Exchange Act of 1934 ("Exchange Act") if R & H and its two affiliates, R & L Management, L.L.C. and R & M Management, L.L.C. (collectively with R & H, the "Affiliates"), 1 engage in the proposed activities described in your letter without registering as broker-dealers in accordance with Section 15(b) of the Exchange Act. Based on your letters, we understand the facts to be as follows:

The Affiliates presently provide employee leasing services for businesses other than broker-dealers, and now propose to offer these services to registered broker-dealers and their employees. In providing these services, the Affiliates will place on their payrolls the existing employees of their broker-dealer clients. While the employees placed on the Affiliates' payrolls are employees of the Affiliates for purposes of applicable employment laws, they are employees of the broker-dealer clients for purposes of the securities laws and these broker-dealer clients will maintain direction and control over them. The services the Affiliates will offer their broker-dealer clients consist of human resources consulting and employee benefits services. The Affiliates are not broker-dealers or associated persons of a broker-dealer.

In general, the Affiliates will provide their broker-dealer clients and their joint employees with advice regarding compliance with applicable employment laws, employee benefits including traditional insurance products such as medical and life insurance plans, accidental death and disability insurance, and 401(k) retirement plans, risk management services including workers' compensation insurance, services relating to unemployment compensation benefits, and payroll processing. This activity will be performed under the control and supervision of the broker-dealer clients receiving these services. All books and records relating thereto will be deemed property of the broker-dealer client and will be made available for inspection by the Commission and any self-regulatory organization of which the broker-dealer is a member.

The Affiliates' situation differs from the one where a registered representative proposes to establish a corporation or other entity that, among other things, is to receive the representative's commission from the registered broker-dealer. Such an entity would be considered an "Employee Owned Corporation." The Staff has repeatedly declined to give no-action assurances under Section 15(a) in situations involving Employee Owned Corporations. 2

With any one of their broker-dealer clients, the Affiliates will receive payment from the broker-dealer for salaries, wages and commissions, which the Affiliates will then pay to personnel of the broker-dealers. The Affiliates will impose a fee for their services by adding an administrative fee (which includes their profit) to their costs based on gross payroll. This fee will not be based on brokerage commissions earned by either the employees of the broker-dealer or the broker-dealer itself. Moreover, the Affiliates will not have discretion to determine the amount or frequency of the payments that will be distributed to personnel of the broker-dealer.

In addition, the Affiliates will provide all health, life, disability, and other insurance coverage to the broker-dealer's employees. The insurance products that would be provided by the Affiliates are traditional insurance products and would not be "securities" as defined under the federal securities laws.

The broker-dealer will maintain all supervisory control over its employees. In this regard, the broker-dealer will be wholly responsible for the proper registration, training and supervision of its employees. The broker-dealer will retain the traditional rights of an employer, including the right to hire, set compensation for, terminate, discipline, and reassign personnel of the broker-dealer. The Affiliates will have no authority to hire or fire broker-dealer personnel. Furthermore the Affiliates will not engage in any securities-related activities (other than with respect to each Affiliate's respective securities).

All promotional activities, including any promotional material that the Affiliates distribute, will relate solely to employee leasing services and will not in any way relate to brokerage activities. In addition, the Affiliates will not identify or promote any broker-dealer in their promotional activities or materials.

Based on the facts and representations set forth in your letter, and without necessarily concurring in your analysis, the Staff will not recommend enforcement action to the Commission under Section 15(a) of the Exchange Act if the Affiliates engage in the activities described above without registering as broker-dealers under Section 15(b) of the Exchange Act. In particular, we note that the Affiliates will only engage in these activities on behalf of, and under the control of, registered broker-dealers. The response of the Division of Market Regulation represents a staff position regarding enforcement action only and does not purport to express any legal conclusions with respect to the applicability of the statutory or regulatory provisions of the federal securities laws. Moreover, this response is based upon the representations you have made, and any different facts or conditions might require a different response.

Sincerely,

Tara C. Prigge Special Counsel Office of Chief Counsel

Endnotes

1 You have advised us that there are only minor differences between the Affiliates, which operate from a single location, share staff, and market their services as a unified package.

2 See, e.g., letter from Barbara A. Stettner, Special Counsel, Office of Chief Counsel, Division of Market Regulation, Securities and Exchange Commission, to Matthew D. Wayne, Vanasco, Wayne & Genelly, on behalf of a specialist member firm on the Chicago Stock Exchange (Feb. 17, 1999) (noting that absent an exemption, an entity that is to receive commissions or other transaction-related compensation in connection with securities-based activities generally must register as a broker-dealer); letter from David Shillman, Special Counsel, Office of Chief Counsel, Division of Market Regulation, Securities and Exchange Commission, to Richard T. Angelillo, First Financial of Citrus County, Inc. (Sept. 22, 1998) (noting that there is no exemption from registration for corporate entities formed by registered representatives of broker-dealers that receive securities commissions); letter from Terry R. Young, Attorney, Office of Chief Counsel, Division of Market Regulation, Securities and Exchange Commission, to Michael E. Dunn, Dunn & Swan, on behalf of Century Investment Group Incorporated (Jan. 29, 1996).

Incoming Letter:

The Incoming Letter is in Acrobat format.

Attachment

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Cadwalader, Wickersham & Taft LLP ADWA New York London Charlotte Washington David S. Mitchell Direct Dial: (2 12) 504-6285 Direct Fax: (2 12) 504-6666 Internet: DavidM~tchell@cwt.com Securities Exchange Act 5 15(a) November 23,2004 VIA FEDERAL EXPRESS Catherine McGuire, Esq. Associate DirectorIChief Counsel Division of Market Regulation Securities and Exchange Commission Mail Stop 10-1 450 5th Street, N.W. Washington, D.C. 20549 Re: R & H Management, L.L.C. Dear Ms. McGuire:
On behalf of R & H Management, L.L.C. ("R & H"), an Illinois limited liability company, we respectfully request that the Division of Market Regulation (the "Division") confirm that it will not recommend to the Securities and Exchange Commission (the "Commission") that the Commission take any enforcement action under Section 15(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") in circumstances where R & H or an affiliate of R & H offers certain employee leasing services as described below to securities broker-dealer firms that are registered with the Commission pursuant to the Exchange ~ct.' 1 R & H has two affiliates, R & L Management, L.L.C. ("R & L") and R & M Management, L.L.C. ("R & M"), each of which is also an Illlinois limited liability company wishing to offer employee leasing NYLIBS 803931.3 L

Catherine McGuire, Esq. November 23,2004
We believe that the Exchange Act and relevant staff no-action letters permit R & H or its Affiliates to provide employee leasing services to broker-dealers without registering as a broker￾dealer under Section 15 of the Exchange Act. Such precedent includes Headway Corporate Staff Administration, SEC No-Action Letter, 2002 SEC No-Act. LEXIS 692 (Aug. 30, 2002), EPIX Holdings Corporation, SEC No-Action Letter, 2001 SEC No-Act. LEXIS 466 (April 2, 2001), and Staff Management, Inc., SEC No-Action Letter, 2000 SEC No-Act. LEXIS 608 (April 27, 2000). As was the case in the correspondence to your office from counsel for Headway Corporate Staff Administration, EPIX Holdings Corporation, and Staff Management, Inc., R & H and its Affiliates do not furnish temporary staffing services or facilities management. R & H and its Affiliates also do not have a core of employees whom they send to various companies, as do firms that provide temporary help or contract staffing. Nor is R & H or its Affiliates a broker￾dealer or an associated person of a broker-dealer. Rather, R & H and its Affiliates offer certain administrative employer services to the existing worksite employees of their clients. Each of R & H and the Affiliates places its clients' employees onto its respective payroll, providing them with R & H's or the Affiliate's benefits, as the case may be, and furnishing the client and the employee with human resource functions. These functions include human resources consulting services pertaining to advice regarding compliance with applicable employment laws, the provision of benefit services (s, health, dental, life, and accidental death and disability insurance policies, and 401(k) plans), the provision of workers' compensation benefits (including risk management services), the provision rC. of unemployment compensation benefits, and the provision of payroll processing services. The insurance products to be provided by R & H and its Affiliates are traditional insurance products and would not be "securities" as defined under the federal securities laws. Neither R & H nor its Affiliates manage the business of their clients. The employees placed on R & H's or an Affiliate's respective payroll are at all times subject to the client's supervision. R & H and its Affiliates have no control over the worksite at which, or from which, clients' employees perform their services. The client retains the right and the obligation to direct its worksite employees as is necessary for the operation of such client's business, including the discharge of any fiduciary duty or compliance with any applicable registration, licensing, regulatory or statutory requirements. As such, the client is subject to oversight and discipline by the Commission, other relevant governmental regulatory authorities and applicable self￾regulatory organizations (each, an "SRO") for any inappropriate actions engaged in by the client or the client's employees at its worksite. In sum, while the employees
placed on the payroll of R & H or an Affiliate are employees of R & H or the Affiliate, respectively, for purposes of applicable employment laws, they are employees of the client for purposes of the securities laws, rules and regulations in all respects. The agreement between R & H or an Affiliate, as the case may be, and the broker-dealer will provide, among other things, the following:
Broker-dealer clients will be obligated to comply with all applicable federal, state, I and local regulations and registration and licensing requirements. services to registered broker-dealers as described in this letter. We refer to R & L and R & M hereinafter individually as an "Affiliate" and collectively as "Affiliates." NYLIBS 803931.3

Catherine McGuire, Esq. November 23,2004
Broker-dealer clients will have sole and exclusive control over the day-to-day activities of all of their employees. Broker-dealer clients will be responsible for recruitment, proper registration, licensing, training, and supervision of all of their employees with respect to a broker-dealer client's obligations under all applicable securities laws, rules, and regulations. Broker-dealer clients will retain the right to discipline and terminate all of their employees. All books and records in the possession of R & H or an Affiliate relating to the services provided to a broker-dealer client will be made available for inspection by the Commission, any SRO, or any other regulatory authority with jurisdiction over the broker￾dealer's business. All employees of a broker-dealer client who are, or are required to be, registered or licensed by the Commission, any SRO or any other regulatory authority with jurisdiction over the broker-dealer's business will be deemed to be employees of the broker-dealer client for such registration, licensing, or regulatory purposes. Broker-dealer clients will not assert that the existence of an employee leasing arrangement with R & H or an Affiliate in any way affects the ability of the Commission, any SRO, or any other relevant regulatory authority to regulate or discipline any broker-dealer client or employee of such broker-dealer client. C R & H and its Affiliates will not engage in any securities-related activities that would require registration as a broker-dealer such as brokerage services. Control of the day-to-day operations of the broker-dealer will remain with the broker￾dealer. In this regard, the broker-dealer will continue to maintain and handle all books and records that the Commission, any applicable SRO or any other relevant regulatory authority may require of a broker-dealer, and will continue to make such books and records available for inspection by the Commission, any other relevant regulatory authority and any SRO of which the broker-dealer is a member. Similarly, the broker-dealer will continue to maintain and handle all funds and securities of the broker-dealer's customers. Each of R & H and the Affiliates will receive payment from the broker-dealer for compensation that R & H or the Affiliate will then pay to broker-dealer personnel who have been placed on their respective payrolls. In this regard, each will impose an administrative fee for its services by adding a profit margin to its costs based on gross payroll. Such charges will not be based upon brokerage commissions earned by either the employees of the broker-dealer or the broker-dealer itself. R & H and its Affiliates will have no discretion concerning the amount or frequency of the salary, wage, commission, or bonus payments to employees of the broker-dealer who have been placed on each one's respective payroll. The broker-dealer will be responsible for informing R & H or the Affiliate, as the case may be, of the payments that are to be
made to such personnel. Such books and records relating thereto will be deemed property of the broker-dealer and will be available for inspection by the Commission and any SRO of which the broker-dealer is a member. In addition, the broker-dealer will retain the traditional rights of an employer, including the right to hire, set compensation for, terminate, discipline, and reassign personnel of the

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Catherine McGuire, Esq. November 23,2004 broker-dealers who have been placed on the payroll of R & H or the Affiliate. The broker-dealer will retain the responsibility for supervision and control with regard to the employees' performance of their securities duties, and the same individuals will continue in their capacity as registered representatives of the broker-dealer after the contract between R & H or the Affiliate, as the case may be, and the broker-dealer client is executed. Similarly, the broker-dealer will be responsible for registration and training of the employees with regard to any regulated function. Each employee of the broker-dealer will continue to be held out to the public as the broker￾dealer's registered representative and agent in effecting securities transactions. The broker￾dealer will be liable for the acts or omissions of each employee after the agreement between R & H or the Affiliate, as the case may be, and the broker-dealer is entered into, to the same extent that it had been liable prior to execution of such agreement. In this regard, each employee of the broker-dealer, as well as the broker-dealer, will be subject to the same administrative jurisdiction of the Commission and of other relevant regulatory authorities and SROs both before as well as after entering into such agreement. In any promotional material that R & H or an Affiliate distributes, they will not in any way distribute promotional advertisements related to brokerage activities. In any promotional activities, they will mention that they offer employee leasing services, but will in no way mention that they are in any way engaged in any brokerage services. In addition, they will not identify or endorse any broker-dealer in their promotional materials. A Employee leasing companies such as R & H and its Affiliates possess neither the expertise nor the desire to manage a client's business. Thus, they will not presume to tell a brokerage firm how to transact its business or attempt to exercise any influence or control with respect to the broker-dealer's conduct of its business.
Section 3(a)(4) of the Exchange Act defines the term "broker," in relevant part, as "any
person engaged in the business of effecting transactions in securities for the account of others."
Section 3(a)(5) of the Exchange Act defines the term "dealer," in relevant part, as "any person
engaged in the business of buying and selling securities for such person's own account through a broker or otherwise." Based upon the facts set forth above, we are of the view that each of R & H and its Affiliates does not become a broker-dealer by entering into a contract with a broker-dealer to provide the employee leasing services described herein. As noted above, the staff has adopted this position in a number of recent no-action letter^.^ Consistent with the foregoing, we respectfully request that the Division advise R & H that it will not recommend to the Commission that it take any enforcement action under Section 15(a) of the Exchange Act if R & H or an Affiliate carries out the employee leasing activities described above without registering with the Commission as a broker-dealer. 2 See also Investacorp Group, Inc., SEC No-Action Letter, 2003 SEC No-Act. LEXIS 709 (Sept. 26,
2003) (permitting an affiliate to provide certain payroll processing services to another affiliate without
registering as a broker-dealer).
NYLlB5 803931.3

I
Catherine McGuire, Esq. November 23,2004
If you believe that the staff of the Division cannot issue a letter in accordance with this request based upon the facts specified above, we respectfully request that you contact the undersigned at (212) 504-6285. Enclosed please find seven additional copies of this letter for your use. Please stamp the enclosed copy of this letter to acknowledge receipt of this submission and return the same in the self-addressed stamped envelope provided for that purpose. Sincerely, David S. Mitchell Enclosures NYLIBS 803931.3

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Cadwalader, Wickersham & Taft LLP CADWALADER New York London Charlotte Washington Beijing One World Financial Center, New York, NY 10281 Tel 21 2 504 6000 Fax 21 2 504 6666 www.cadwalader.com April 25,2005 Tara Prigge, Esq. Office of Chief Counsel Division of Market Regulation Securities and Exchange Commission Mail Stop 10-1 450 5th Street, N.W. Washington, D.C. 20549 Re: R & H Management, L.L.C. Dear Ms. Prigge:
Reference is made to our request for a no-action letter on behalf of R & H Management, L.L.C. ("R & H") dated November 23, 2004. Pursuant to my recent telephone conversation with you, we are now providing you with additional information about R & H and its relationship with its affiliates, R & L Management, L.L.C. ("R & L") and R & M Management, L.L.C. ("R & M"). (R & H, R & L, and R & M are hereafter collectively referred to as the "Affiliates.") Our client has advised us that the Affiliates are exclusively engaged in providing staffing-related, administrative services. These include payroll services, maintenance of benefit plans, and billing of clients. In this respect, none of the Affiliates is engaged in any type of financial services business, including any securities-related activities. Our client has advised us further that the existence of three entities is the product of historical experience and facilitates administration of staffing-related services, and that the differences between each of the entities are minor. For example, R & L offers a benefits plan that is somewhat different from that offered by R & H and R & M. Also, broker-dealer employees will typically be allocated among R & H and R & M according to the exchange at which those employees work. The Affiliates, however, market these services as a unified package. Furthermore, the Affiliates operate at the same location, share staff, and share a common health insurance carrier. David S. Mitchell Tel 212 504 6285 Fax 212 504 6666 david.mitchell@cwt.com NYLIB5 817190

CADWALADER

Tara Prigge, Esq.
April 25,2005
Philip Ryan is the sole managing member of each of the Affilitates. R & L is 50% owned by each of Matthew Henderson and Philip Ryan. Selena Murtagh and Philip Ryan each own 50% of R & H and R & M. All three of these individuals are accountants, and they have many years experience of working together. I hope that the foregoing provides the staff with the additional information which you requested. Please contact me at (212) 504-6285 should you have any further questions. Sincerely, David S. Mitchell