The Sale of Advisory Contracts - Rosenfeld v. Black
22 Pages Posted: 3 Nov 2010 Last revised: 12 Nov 2010
Date Written: 1973
To prevent the abuse of fiduciary relationships, the strictures of English common law prohibit fiduciaries from receiving any personal advantage from their fiduciary position – not even compensation for services unless provided for by the terms of the fiduciary agreement. Similarly, fiduciaries in the United States, while entitled to compensation for their services, are not otherwise allowed to receive a profit from their fiduciary office. In Rosenfeld v. Black the Second Circuit held that this equitable standard is applicable to the fiduciary relationship that exists between an investment company registered under the Investment Company Act of 1940 and its investment adviser. Accordingly, the court held that shareholders of the investment company could demand an accounting for profits received by an investment adviser in a transfer of his office to another. In so holding, the Second Circuit has created an apparent conflict with a decision of another circuit, occasioning for the second time the introduction of legislation to define the circumstances under which an investment adviser of a registered company may profit from a transfer of that office.
Keywords: Rosenfeld v. Black, Investment Company Act of 1940, Senate Bill 3681, House Bill 15304, investment adviser, Securities and Exchange Commission (SEC), Senate Bill 470, S. 470, Compensation, Investment, Company, Fiduciary Relationship, SEC v. Insurance Securities, Inc.
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