Course Syllabus

University of Virginia
School of Law

Federal Regulation of Investment Companies and
Investment Advisers

Spring 2022
Robert G. Zack
February 21, 2022 – March 4, 2022

FINAL -- Syllabus and Reading List

General Notes on class readings and class participation:

  1. This course is designed to be a practical, hands-on introduction to investment companies and investment advisers, focusing on registered funds (primarily open-end mutual funds and exchange-traded funds [ETFs]). It is intended to acquaint you with the types of issues you may face as a practitioner and to introduce the basic regulatory environment for investment companies and their investment advisers. Each of the 10 classes will be conducted using Power Point slides as the basis of discussion. The slides are substantive, with appropriate citations to statutory and secondary materials.
  2. All materials required for class participation are on the Canvas web page for the class in the tab “Files.” There are slides, PDFs and web links (to SEC documents). There is no separate printed textbook to purchase for the course, but the Course Textbook I have prepared, “Selected Readings on Investment Companies and Investment Advisers” (“Course Textbook”), covers basic topics we will cover in class, and certain sections of it will be part of assigned reading. A printed copy of this text will be made available to students without charge. The slides to be used for class are detailed and substantive, not merely bullet-point outlines. You will be responsible for materials included in the slides for exam purposes.
  3. You are expected to read the Required Class Readings for participation in class and for exam purposes. Supplemental Readings, which include relevant additional information about the course topics are available on the Canvas page, but they are not required for class participation. The Supplemental Readings are provided to give you deeper insight into the course materials. The exam will be a take-home exam, to be distributed at the final class.
  4. Attendance at each class is expected, and class participation can be reflected in your final grade. Do not hesitate to ask questions or to offer your comments in class. Kindly advise me if you will be unable to attend a particular class.
  5. If you have any questions about any of the materials, please feel free to contact me in my office at the Law School, or by e-mail. I plan to hold office hours each day after class. 

    Class 1 (February 21): Introduction, Overview of Investment Companies

Power Point: Investment Company Act of 1940: Class 1 Slides

Required Readings:

1.1. Course Textbook: pp. 5- 66
1.2. Jaretzki: The Investment Company Act of 1940
1.3. Investment Company Act, Sections 1 – 5

Class 2 (February 22): Structure of Investment Companies, Classifications; Taxation

Power Point: Class 2 Slides
Power Point: Taxation of Investment Companies

 

Required Readings:
2.0. Course Textbook - pp.101 -1 113

2.1. Dechert Memo – Diversification/Index Funds

2.2. SEC No-Action Letter – Peavey Commodity Futures Fund

2.3. SEC v. National Presto Industries, 486 F. 3d 305 (N.D. Ill. 2007)
2.4. SPACs – Are They Investment Companies?

Class 3 (February 23): Fundamental Policies; Custody of Assets; Capital Structure; Funds of Funds; Securities Valuation; Derivatives

Power Point: Class 3 Slides

Power Point: Portfolio Securities Valuation

Required Readings:

3.0. Course Textbook - pp.132 - 141; 144 - 158

3.1. Concentration – Sequoia Fund Case – Ropes & Gray Memo

3.2. Derivatives Rule 18f-4 – Ropes & Gray Memo

3.3. Franklin Advisors Section 12(d) Violation – SEC Administrative Proceeding

3.4. Rule 2a-5 – Valuation – RGZ Memo

3.5. Valuation – SEC Enforcement Action – Morgan Keegan

 

Class 4: (February 24): Conflicts of Interest and Affiliated Transactions: ICA Prohibitions and Exemptive Rule Provisions; Liquidity Risk Management

 

Power Point : - Class 4 Slides

Power Point: SEC Liquidity Risk Management Rule

 

Required Readings:

4.0. Course Textbook - pp. 126 - 132; 142 - 144

4.1. Affiliated Transactions Chart
4.2. Palmer Square Section 17(a) Violation – SEC Proceeding

4.3. Rule 17a-7: Back Bay Advisers SEC Enforcement Action
4.4. SEC Enforcement Action: Putnam
4.5. Rule 17a-7 – Federated No-Action Letter

Class 5 (February 25): The Role of the Fund Board; Governance; Investment Management Agreements and Standards of Fiduciary Duty for Boards; Standards of Conduct; ICA Compliance

Power Point: Class 5 Slides


Required Readings:

5.0. Course Textbook - pp. 158 - 192

5.1. Board Section 15(c) Process: SEC Enforcement Action – In the Matter of New York Life        Investment Management LLC, Rel. No. IC-28747 (May 27, 2009)
5.2. Fairness of Fees: Jones v. Harris, 559 U.S. 335 (2010)
5.3. Fairness of Fees: Gartenberg v. Merrill Lynch Asset Mgt., Inc. 694 F.2d 923 (2d Cir. 1982)

5.4. SEC Sanctions of Board for Disclosure and Compliance Violations: In the Matter of Northern Lights Compliance Services, LLC, et al., Rel. No. IC-30502 (May 2, 2013

5.5. Board of Directors: Burks v. Lasker, 441 U.S. 471 (1979).

5.6. Fairness of Fees: Goodman v. JPMorgan Memo

5.7. Valuation – Board Responsibilities- Morgan Keegan SEC Enforcement Action

 
Class 6 (February 28): The SEC Registration Process for Funds; Disclosure Considerations

Power Point: SEC Registration Process; Specific Disclosure Considerations
Power Point: Janus 10b-5 Case


Required Readings:

6.0. Course Textbook - pp. 113 - 126

6.1. Prospectus Disclosures: Who is Liable?  Janus Capital Group v. First Derivative Traders, 64 U.S. 4 (2011)
6.2. Adequacy of Prospectus Disclosures: In the Matter of Charles Schwab Invest, Mgt. et al., Rel. No. IC-29552 (Jan. 11, 2011)
6.3. SEC Accounting Information: Risks of Emerging Markets

6.4. SEC Staff Guidance – Prospectus Risk Disclosure

Class 7 (March 1): Types of Specialized Registered Investment Companies

Power Point: Closed-End Investment Companies
Power Point: ETFs
Power Point: Money Market Funds
Power Point: Private Funds
Power Point: Business Development Companies

Required Readings:

7.0. Course Textbook - pp. 113 - 126

7.1. Amendments to Money Market Fund Rules
7.2. In Re ProShares Trust Securities Litigation

7.3. Money Market Funds - SEC Enforcement Action – Ambassador

7.4. SEC Investor Bulletin - BDCs

7.5. What is an ETF?

Class 8 (March 2): Federal Regulation of Investment Advisers

Power Point: Investment Advisers Act of 1940 – Part 1

Required Readings:

8.0. Course Textbook - pp. 67 - 86

8.1. Best Execution – Value Line SEC Enforcement Proceeding
8.2. SEC Enforcement Proceeding – Principal Trades – Peachcap Tax
8.3. SEC No-Action Letter – Kenisa Oil Co.
8.4. Fiduciary Duty of Advisers: SEC v. Capital Gains Research Bureau, 375 U.S. 180 (1963)

8.5. U.S. v. Miller

Class 9 (March 3): Federal Regulation of Investment Advisers: Advisory Contracts, Compliance

Power Point: Investment Advisers Act of 1940 – Part 2

Required Reading:

9.0. Course Textbook - pp. 86 - 100

9.1. In the Matter of Deer Park Road Mgt. Co., SEC Admin. Proceeding
9.2. In the Matter of David W. Baldt SEC Admin. Proceeding

9.3. Fraud Against Clients: In the Matter of AXA Rosenberg Group LLC, et al., Rel. No. IC-29574 (Feb. 3, 2011)
9.4. SEC Enforcement Proceeding – In the Matter of Pilgrim Baxter & Associates, Ltd.. Rel. No. IC-26470 (Jun. 21, 2004) (market timing)

9.5. Invest. Mgt. Div. Guidance Update: Robo Advisers

Class 10 (March 4): Fund Distribution and Advertising

Power Point: Mutual Fund Distribution and Advertising

Required Reading:

10.0. Course Textbook - pp. 183 - 198; 199 - 212; 212- 242 (optional)

10.1. FINRA Proceeding – Fidelity
10.2. SEC Admin. Proceeding – Van Kampen
10.3. FINRA Proceeding – T. Rowe Price
10.4. SEC Admin. Proceeding – Sarkauskas
10.5. SEC Admin. Proceeding – Wells Fargo