AIMA files amicus brief in dealer definition-related case

AIMA, along with three other associations, has filed its latest amicus brief in another case – SEC v. Carebourn – to opine specifically on the SEC’s attempt to radically expand the definition of securities “dealer”.  In Carebourn, the SEC again takes a hyperliteral interpretation of the statutory “dealer” definition, an interpretation that lacks any limiting principle and would make a felon of every institutional investor – from hedge funds to pension funds – in America.  AIMA has led the industry’s pushback on this line of thinking from the SEC, having filed briefs in similar cases on this particular point of law, including Almagarby and Keener. 

This time, however, we have additional, helpful precedent on our side.  Last November, the U.S. District Court for the Northern District of Texas vacated the SEC’s attempt to expand the dealer definition through a rulemaking.  As a plaintiff in that case, AIMA argued – and the court agreed – that having a customer is required for determining whether a market participant is indeed a dealer.  Hedge funds managed by AIMA’s members do not have customers; therefore, they cannot be dealers, yet the SEC’s interpretation of dealer in Carebourn would make them dealer.

AIMA CEO Jack Inglis said: “In Carebourn, as well as in the other five cases in which AIMA has been involved as amici, the SEC has taken a hyperliteral interpretation of a statutory definition and unilaterally decided that its meaning has been incorrectly applied for 90 years. This departs from the decades-long understanding of the term ‘dealer’ that a customer is required to be a dealer, which was reiterated in the recent court decision striking down the Dealer Rule. We are optimistic that new SEC leadership will put an end to this enforcement-driven interpretation and embrace the customer requirement.”