Opinion ID: 200195
Heading Depth: 2
Heading Rank: 2

Heading: Requirements and Evidence of Violations of Section 206 of the Investment Advisers Act

Text: 45 Section 202(a)(11) of the Investment Advisers Act defines the term Investment adviser as any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities. 15 U.S.C. § 80b-2(a)(11). The Investment Advisers Act prohibits fraud by those who act as investment advisers. 15 U.S.C. § 80b-1. Fife asserts that he is not an Investment Adviser under the statutory definition and therefore, could not have violated the act. 46 The district court found sufficient evidence to hold that the SEC met its burden of demonstrating that it is likely to succeed in proving that Fife violated sections 206(1) and 206(2) of the Investment Advisers Act. First, Fife advised Curl regarding Rheaume's investment. Second, Fife's fraudulent conduct was in connection with the offer, purchase, or sale of securities. Fife made various transfers of Rheaume's money without prior authorization, invested money in money market accounts without prior authorization, and falsely represented the status of Rheaume's funds. The Supreme Court concluded that Congress intended the Investment Advisers Act of 1940 to be construed like other securities legislation enacted for the purpose of avoiding frauds, not technically and restrictively, but flexibly to effectuate its remedial purposes. SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 195, 84 S.Ct. 275, 11 L.Ed.2d 237 (1963) (internal quotation marks omitted). Third, although Fife has not yet received compensation, he understood that he would be compensated for his efforts by a commission based on a percentage of the profits from the investments, if successful, pursuant to a formula to be agreed upon at a later time. Therefore, the district court did not err in holding that the SEC set forth a substantial likelihood of success against Fife under the Investment Advisers Act.