The Division of Clearing and Intermediary Oversight issued an interpretation that a charitable foundation would not be a commodity pool, and that its directors would not be commodity pool operators, if the foundation...

Summary: The Division of Clearing and Intermediary Oversight issued an interpretation that a charitable foundation would not be a commodity pool, and that its directors would not be commodity pool operators, if the foundation traded commodity interests. This interpretation was based on, among others, representations that: (1) no current or future donor to the foundation will be entitled to receive any of the assets, net earnings, income or profits of the foundation; and (2) no (other) charitable organization has any entitlement, on an annual or other basis, to a contribution from the foundation.

U.S. COMMODITY FUTURES TRADING COMMISSION

Three Lafayette Centre

1155 21st Street, NW, Washington, DC 20581

Telephone: (202) 418-5430

Facsimile: (202) 418-5547

aradhakrishnan@cftc.gov

Division of Clearing and

Intermediary Oversight

Ananda Radhakrishnan

Director

CFTC Letter No. 09-36

Interpretation

August 3, 2009

Division of Clearing and Intermediary Oversight

Re: Regulation 4.10(d) and Section 1a(5) of the Act

Dear :

This is in response to your letter dated July 1, 2009, to the Division of Clearing and

Intermediary Oversight (“DCIO” or “Division”) of the Commodity Futures Trading Commission

(“Commission”), as supplemented by your email dated July 15, 2009 (“correspondence”). By

the correspondence, you request the Division to confirm your interpretation that The

(“Foundation”) would not be a commodity “pool” as that term is defined in Commission

Regulation 4.10(d)1 and, accordingly, that no “Foundation related party”2 would be a commodity

pool operator (“CPO”) as that term is defined in Section 1a(5) of the Commodity Exchange Act

(“Act”)3 if the Foundation trades commodity interests.4

1 Commission regulations referred to herein are found at 17 CFR Part 1 (2009). They can be

accessed through the Commission’s website, www.cftc.gov

ation related party”2 would be a commodity

pool operator (“CPO”) as that term is defined in Section 1a(5) of the Commodity Exchange Act

(“Act”)3 if the Foundation trades commodity interests.4

1 Commission regulations referred to herein are found at 17 CFR Part 1 (2009). They can be

accessed through the Commission’s website, www.cftc.gov.

2 The correspondence defines this term to include “without limitation, any member, director

or officer of the Foundation acting in such capacity.” “A”, a director and officer of the

Foundation and the sole member of the investment committee of the Board of Directors of the

Foundation, authorized the filing of the request. The other member of the Board of Directors is

“B”.

3 7 U.S.C. 1a(5) (2006). The Act similarly can be accessed through the Commission’s

website.

4 Alternatively, you request a “no-action letter” from DCIO stating that the Division will not

recommend that the Commission commence any enforcement against any Foundation related

party for failure to register as a CPO in the event the Foundation trades commodity interests. In

light of the position taken below, it has been unnecessary for the Division to separately consider

this alternate request.

Page 2

Based upon the representations made in the correspondence, we understand the relevant

facts to be as follows: The Foundation is qualified as a charitable organization under Section

501(c)(3) of the Internal Revenue Code of 1986 (“Section”), with its purpose being to make

grants to charitable, educational, scientific or literary organizations which themselves qualify

under the Section (“Charitable Organizations”). It has been primarily funded through charitable

contributions by three siblings (“Donors”), although it may in the future receive contributions

from other sources

(c)(3) of the Internal Revenue Code of 1986 (“Section”), with its purpose being to make

grants to charitable, educational, scientific or literary organizations which themselves qualify

under the Section (“Charitable Organizations”). It has been primarily funded through charitable

contributions by three siblings (“Donors”), although it may in the future receive contributions

from other sources. No Donor, or any other source who may make contributions in the future,

will, under any circumstance, be entitled to receive any of the assets, net earnings, income or

profits of the Foundation. Similarly, no Charitable Organization has any entitlement on an

annual or other basis to a contribution from the Foundation. While it is possible that the

Foundation would elect in its discretion to give the same Charitable Organization a contribution

more than once, as a rule, the recipients of contributions from the Foundation vary from year to

year.

The Foundation is authorized to invest its assets in securities and commodities (including

commodity interests). To date, it has not, however, traded commodities.

Regulation 4.10(d)(1) defines the term commodity “pool” to mean “any investment trust,

syndicate or similar enterprise operated for the purpose of trading commodity interests.” Section

1a(5) of the Act defines the term “commodity pool operator” to mean “any person engaged in a

business that is of the nature of an investment trust, syndicate, or similar form of enterprise and

who, in connection therewith, solicits, accepts or receives from others, funds . . . for the purpose

of trading [commodity interests].

In Lopez v

he purpose of trading commodity interests.” Section

1a(5) of the Act defines the term “commodity pool operator” to mean “any person engaged in a

business that is of the nature of an investment trust, syndicate, or similar form of enterprise and

who, in connection therewith, solicits, accepts or receives from others, funds . . . for the purpose

of trading [commodity interests].

In Lopez v. Dean Witter Reynolds, Inc.5 the Court noted that those (other) courts which

had raised the issue of what criteria were necessary to find that a trading vehicle was a

commodity pool required, among others, the following factors to be present: (1) an investment

organization in which the funds of various investors are solicited and combined into a single

account for the purpose of investing in commodity futures contracts; and (2) participants share

pro rata in accrued profits or losses from the commodity futures trading. Neither of these criteria

is present in the instant case. Indeed, there are no pool “participants,” as that term is defined in

Regulation 4.10(c), in the Foundation inasmuch as no person has any direct financial interest in

the Foundation, as a limited partner or otherwise.

Accordingly, based upon the representations you have made to us, the Division believes

that the Foundation would not be a commodity pool if it traded commodity interests and that no

Foundation related party would be a CPO thereof.

This letter is applicable to the Foundation and the Foundation related parties solely in

connection with a determination of whether they come within Regulation 4.10(d)(1) or Section

1a(5) of the Act, respectively. It does not excuse the Foundation or any Foundation related party

5 805 F.2d 880 (9th Cir. 1986).

interests and that no

Foundation related party would be a CPO thereof.

This letter is applicable to the Foundation and the Foundation related parties solely in

connection with a determination of whether they come within Regulation 4.10(d)(1) or Section

1a(5) of the Act, respectively. It does not excuse the Foundation or any Foundation related party

5 805 F.2d 880 (9th Cir. 1986).

Page 3

from compliance with any other applicable requirements contained in the Act or in the

Commission’s regulations issued thereunder. For example, the Foundation remains a “person”

for purposes of the Act and the regulations and, as such, is subject to all of the antifraud

provisions of the Act and the Commission’s regulations and to the reporting requirements for

traders set forth in Parts 15, 18, and 19 of the regulations.

This letter is based upon the representations made in the correspondence. Any different,

changed, or omitted material facts or circumstances might render the interpretations taken in this

letter void. You must notify us immediately in the event that the operations or activities of the

Foundation or any Foundation related party change in any material way from those represented

to the Division. Moreover, this letter represents an interpretation of the Division only and does

not necessarily represent the views of the Commission or any other division or office of the

Commission.

If you have any questions regarding this letter, please contact Barbara S. Gold, Associate

Director, DCIO, at (202) 418-5450.

Very truly yours,

Ananda Radhakrishnan

Director