RIA Compliance Blog
The Colorado Securities Division recently declined to issue a no-action letter in connection with a company that intends to educate and train people in stock market trading. Mark Espy, owner of MarkEspyMentorin.com, sent a letter to the Colorado Division of Securities on January 17, 2012 asking for either a no-action letter or the Staff’s clarification that he and his company do not need to be licensed as an investment adviser in Colorado. Espy plans to tutor people on how to use various tools in order to trade in the stock market. The course will be taught through webinars, and students will pay a fee to enroll.
According to Espy, the instruction provided in the course will include curriculum designed to teach various techniques and procedures to measure an equity’s viability for trading or investing, portfolio management, the importance of diversification, explanations of indicators, trading strategies, and building a trading plan, among other topics. Espy has also been approved to teach an adult education class on the stock market at a local community college.
In its response, the Colorado Division of Securities refused to issue a no-action letter. In making this decision, the commissioner looked to §11-51-201(9.5)(a)(I), C.R.S., which defines an investment adviser as “a person who, for compensation, engages in the business of advising others, either directly or through publications or writing as to the value of securities or as to the advisability of investing in, purchasing or selling securities.” It also considered the Securities and Exchange Commission’s (SEC) Investment Advisers Act Release No. 1092, which states that an investment adviser “includes persons who advise clients concerning the relative advantages and disadvantages of investing in securities in general as compared to other investments.”
According to the SEC, to be considered advice about securities, “the advice need not be in the form of buy or sell recommendations for particular securities, but can be analyses or valuations of particular securities or of the securities markets generally.” The commissioner concluded that the proposed course to be taught by Espy may be “analyses or reports concerning securities.”
The next issue was whether Espy could be excluded from registration because he met the qualifications of an exclusion. §11-51-201(11)(9.5)(b)(XI), C.R.S. provides exclusions from the definition of an investment adviser, including one for a “teacher whose performance of such services is solely incidental to the practice of that person’s profession.” In order to analyze whether this exclusion applies, the Colorado Division of Securities looked to SEC interpretations for guidance. In the past, the eligibility to use this exclusion has turned on whether the compensation for teaching is paid by an educational institution, whether the course is part of a program regularly offered by an educational institution, whether the school is accredited, and the manner in which the course is offered to the public.
The Colorado Division of Securities concluded that Mark Espy did not provide enough information to determine whether he qualified for the exclusion. Therefore, it did not provide an order of exemption. It could not assure him that it would not recommend enforcement action should Espy engage in this webinar course.
Parker MacIntyre provides legal and compliance services to investment advisers, broker-dealers, registered representatives, hedge funds and issuers of securities, among others. Our regulatory practice group assists financial service providers with the complex issues that arise in the course of their businesses, including compliance with federal and state laws and rules.