MFA Files Amicus Brief Opposing District Court's Interpretation of the Term "Dealer"
Commentary by Steven Lofchie
The Managed Funds Associations ("MFA") urged the U.S. Court of Appeals for the Eleventh Circuit to reject a lower court's finding that construed the term "dealer" in an overly broad manner.
In an Amicus Brief, the MFA asserted that the District Court for the Southern District of Florida's decision in SEC v. Keener could result in classifying investors as dealers. The MFA argued that such an outcome is inconsistent with the use of the term under Exchange Act Section 15(a) ("Registration and regulation of brokers and dealers"). MFA said that the term "dealer" should be "construed to include only persons that execute orders for customers," reasoning that that is "most consistent with the text of [Section 15(a)]." The MFA concluded that any entity's business model that is based on the buying and selling of securities is proof that the company is a dealer.
The MFA warned that the lower court's findings could subject investors to regulations that have "no logical application to them and to potential liability for having previously engaged in ordinary investment activities." The MFA recommended that the Court of Appeals determine dealer status only in instances where further evidence is found, beyond simply just buying and selling securities.
Commentary
The background to the MFA brief is the SEC's proposed rule expanding the definitions of "broker" and "dealer" by further defining the term "as part of a regular business." The SEC's proposed rule is a wholly inappropriate rewriting and expansion of the statute. It is beyond the SEC's authority. Even if the SEC had such authority, the analysis in the proposed rulemaking, particularly on the cost-benefit analysis, is completely deficient.