Vicis Capital LLC - s. 80 of the CFA

Headnote

Section 80 of the Commodity Futures Act (Ontario)(CFA) -- Relief from the adviser registration requirements of subsection 22(1)(b) of the CFA granted to non-resident adviser in respect of advising a de minimus number of permitted clients in Ontario in connection with advising certain non-Canadian investment funds and similar investment vehicles primarily offered outside of Canada in respect of trades in commodity futures contracts and commodity futures options primarily traded on commodity futures exchanges outside Canada and primarily cleared through clearing corporations outside Canada, subject to certain terms and conditions. Relief mirrors exemption available in section 7.1 of Ontario Securities Commission Rule 35-502 -- Non Resident Advisers.

Statutes Cited:

Commodity Futures Act, R.S.O. 1990, c. C.20, as am., ss. 22(1), 38(1).

Securities Act, R.S.O. 1990, c S.5, as am. -- Rule 35-502 Non Resident Advisers.

IN THE MATTER OF

THE COMMODITY FUTURES ACT,

R.S.O. 1990, CHAPTER C.20, AS AMENDED

(the CFA)

AND

IN THE MATTER OF

VICIS CAPITAL LLC

ORDER

(Section 80 of the CFA)

UPON the application (the Application) to the Ontario Securities Commission (the Commission) by Vicis Capital LLC (the Applicant) for an order of the Commission, pursuant to section 80 of the CFA, that the Applicant (including its directors, partners, officers, employees or other individual representatives, acting on its behalf), is exempt from the adviser registration requirement in the CFA (as defined below) in connection with the Applicant acting as an adviser to one or more Funds (as defined below), in respect of Contracts (as defined below);

AND UPON considering the Application and the recommendation of staff of the Commission;

AND WHEREAS for the purposes of this Order;

(i) the following terms shall have the following meanings:

"adviser registration requirement in the CFA" means the requirement set out in paragraph 22(1)(b) of the CFA that prohibits a person or company from acting as an adviser, as defined in the CFA, unless the person or company satisfies the applicable provisions of section 22 of the CFA;

"adviser registration requirement in the OSA" means the requirement set out in paragraph 25(1)(c) of the OSA that prohibits a person or company from acting as an adviser, as defined in the OSA, unless the person or company satisfies the applicable provisions of section 25 of the OSA;

"Contract" means a commodity futures contract or a commodity futures option that is, in each case, primarily traded on one or more organized exchanges that are located outside of Canada and primarily cleared through one or more clearing corporations that are located outside of Canada;

"OSA" means the Securities Act (Ontario);

"OSC Rule 35-502" means Ontario Securities Commission Rule 35-502 -- Non Resident Advisers, made under the OSA;

"prospectus requirement in the OSA" means the requirement in the OSA that prohibits a person or company from distributing a security unless a preliminary prospectus and prospectus for the security have been filed and receipts obtained for them; and

(ii) terms used in this Order that are defined in the OSA, and not otherwise defined in this Order or in the CFA, shall have the same meaning as in the OSA, unless the context otherwise requires;

AND UPON considering the Application and the recommendation of staff of the Commission;

AND UPON the Applicant having represented to the Commission that:

1. The Applicant is a limited liability company established under the laws of the State of Delaware and is registered as an investment adviser under the U.S. Investment Advisers Act of 1940, as amended.

2. The Applicant is not ordinarily resident in Ontario and is not registered in any capacity under the CFA or the OSA.

3. The Applicant acts as an investment adviser to the Vicis Capital Fund (International) and certain other redeemable or non-redeemable investment funds and may in the future advise certain other redeemable or non-redeemable investment funds or similar investment vehicles (collectively, the Funds).

4. The Funds may, as a part of their investment program, invest in Contracts.

5. The Applicant is responsible for, in addition to other things, providing certain administrative services, investment advice and other investment management services to the Funds and arranging for the execution of the Funds' securities transactions.

6. The Funds advised by the Applicant are, or will be, established outside of Canada and securities of the Funds are, or will be, primarily offered outside of Canada. Securities of the Funds may be offered to a small number of clients resident in Ontario (Ontario clients) and will be distributed in Ontario in reliance upon an exemption from the prospectus requirement in the OSA.

7. Each of the Ontario clients qualifies as a "permitted client" (as such term is defined in OSC Rule 35-502).

8. None of the Funds in respect of which the Applicant may act as an adviser has any intention of becoming a reporting issuer under the OSA or under the securities legislation of any other jurisdiction in Canada.

9. Paragraph 22(1)(b) of the CFA prohibits a person or company from acting as an adviser unless the person or company is registered as an adviser under the CFA, or is registered as a representative or as a partner or an officer of a registered adviser and is acting on behalf of such registered adviser, and otherwise satisfies the applicable requirements specified in section 22 of the CFA. Under the CFA, "adviser" means a person or company engaging in or holding himself, herself or itself out as engaging in the business of advising others as to trading in "contracts", and "contracts" is defined in subsection 1(1) of the CFA to mean "commodity futures contracts" and "commodity futures options" (with these latter terms also defined in subsection 1(1) of the CFA).

10. Where securities of the Funds are offered by the Funds to an Ontario resident, and the Applicant engages in the business of advising the Funds as to the investing in or the buying or selling of securities, the Applicant may, by so acting, be interpreted as acting as an adviser, as defined in the OSA, to the Ontario resident who acquires the securities offered by the Funds, as suggested in the Notice of the Commission dated October 2, 1998, requesting comments on the then-proposed OSA Rule 35-502. Similarly, where securities of the Funds are offered to an Ontario resident, and the Applicant engages in the business of advising the Funds as to trading in commodity futures contracts or commodity futures options, the Applicant may, by so acting, also be interpreted as acting as an adviser (as defined in the CFA) to the Ontario resident who acquires the securities offered by the Funds.

11. There is currently no rule or other regulation under the CFA that provides an exemption from the adviser registration requirement in the CFA for a person or company acting as an adviser, in respect of commodity futures options or commodity futures contracts, that corresponds to the exemption from the adviser registration requirement in the OSA for acting as an adviser, as defined in the OSA, in respect of securities, that is contained in section 7.1 of OSC Rule 35-502.

12. Section 7.1 of OSC Rule 35-502 provides that the adviser registration requirement in the OSA does not apply to a person or company, not ordinarily resident in Ontario, if

(a) it, and its affiliates or affiliated partnerships that are not ordinarily resident in Ontario, did not act as an adviser during the preceding 12 months for more than five clients in Canada;

(b) it acts as an adviser in Ontario in reliance upon the exemption provided by section 7.1 of OSC Rule 35-502 solely for permitted clients (as defined in OSC Rule 35-502), other than a fund (as defined in OSC Rule 35-502);

(c) it does not solicit clients in Ontario;

(d) its acting as an adviser in Ontario for Canadian securities is incidental to its acting as an adviser in Ontario for foreign securities (as defined in OSC Rule 35-502);

(e) before advising an Ontario client, it notifies the Ontario client that it is not registered as an adviser in Ontario; and

(f) all assets of its Ontario clients are held by persons or companies that meet the requirements of paragraph 3.7(1) or are referred to in subsection 3.7(3) of OSC Rule 35-502.

13. The Applicant, where required, is or will be appropriately registered or licensed or is, or will be, entitled to rely on appropriate exemptions from such registration or licensing requirements to provide advice to the Funds pursuant to the applicable legislation of its principal jurisdiction.

14. In respect of the Vicis Capital Fund (International), the Applicant filed a notice of exemption from registration as a commodity pool operator with the United States Commodity Futures Trading Commission on June 1, 2004, which became effective upon the filing of the notice of exemption. The Applicant will file similar notices of exemption in respect of all other Funds.

15. Prior to purchasing any securities of the Funds, the Ontario clients shall have received disclosure that includes:

(a) a statement to the effect that there may be difficulty in enforcing any legal rights against the Funds or the Applicant (including the individual representatives of the Applicant acting on behalf of the Applicant), because the Applicant is a resident outside of Canada and, to the extent applicable, all or substantially all of its assets are situated outside of Canada; and

(b) a statement to the effect that the Applicant is not, or will not be, registered (or licensed) under the CFA or the OSA and, as a result, investor protections that might otherwise be available to clients of a registered adviser under the OSA or CFA will not be available to purchasers of securities of the Funds.

AND UPON the Commission being of the opinion that to do so would not be prejudicial to the public interest;

IT IS ORDERED, pursuant to section 80 of the CFA, that the Applicant (including its directors, partners, officers, employees or other individual representatives, acting on its behalf) is exempted from the adviser registration requirement in the CFA, for a period of five years, in connection with the Applicant acting as an adviser to one or more Funds in respect of Contracts, provided that, at the time the Applicant so acts as an adviser to any such Fund:

(a) the Applicant is not ordinarily resident of Ontario;

(b) the Applicant is appropriately registered or licensed, or entitled to rely upon appropriate exemptions from registration or licensing requirements, in order to provide to the Fund advice as to trading in the corresponding Contracts, pursuant to the applicable legislation of the Applicant's principal jurisdiction;

(c) the Applicant, and its affiliates or affiliated partnerships that are not ordinarily resident in Ontario, did not act as an adviser during the preceding 12 months for more than five clients in Canada;

(d) each of the Ontario clients qualifies as a "permitted client" (as defined in OSC Rule 35-502), other than a fund (as defined in OSC Rule 35-502);

(e) the Applicant does not solicit clients in Ontario;

(f) the Applicant's acting as an adviser in Ontario for Canadian securities is incidental to its acting as an adviser in Ontario for foreign securities (as defined in OSC Rule 35-502);

(g) before advising an Ontario client, the Applicant notifies the Ontario client that it is not registered as an adviser in Ontario;

(h) all assets of the Ontario clients are held by persons or companies that meet the requirements of paragraph 3.7(1) or are referred to in subsection 3.7(3) of OSC Rule 35-502;

(i) the Funds are offered in Ontario only in reliance upon an exemption from the prospectus requirements in the OSA; and

(j) prior to their purchasing any securities of the Funds, the Ontario clients shall have received disclosure that includes:

(i) a statement to the effect that there may be difficulty in enforcing any legal rights against the Funds or the Applicant (including the individual representatives of the Applicant acting on behalf of the Applicant), because the Applicant is a resident outside of Canada and, to the extent applicable, all or substantially all of its assets are situated outside of Canada; and

(ii) a statement to the effect that the Applicant is not, or will not be, registered (or licensed) under the CFA or the OSA and, as a result, investor protections that might otherwise be available to clients of a registered adviser under the OSA or CFA will not be available to purchasers of securities of the Funds.

October 31, 2008.