Third Circuit Rules that Feeder Fund Manager Must Register as CPO if it Invests in Underlying Commodity Pools

The US Court of Appeals for the Third Circuit has ruled that the manager of a feeder fund that invests in a commodity pool must register as a commodity pool operator under the Commodity Exchange Act. The Court rejected the defendant’s argument that it did not need to register as a CPO because it did not itself trade commodities. The Court opined that the defendant’s solicitation of funds for the purpose of trading commodities triggered registration.

OUR TAKE: We disagree with the Court’s statutory interpretation because the defendant solicited funds for its feeder fund not to trade commodities. Nevertheless, this case should be considered by any feeder fund to the extent it invests in an underlying commodity pool. This will require a review the offering documents to determine regulatory status.