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I don't own any Apple stock, but their announcement about
what they're planning to do with their big stockpile of cash caught my
attention. Not because I'm going to rush out and buy the stock, but because of
My analysis of when fund managers need to register with
the Securities and Exchange Commission has me focused on the composition of a
company's assets. I was skeptical that Apple had those billions sitting in
stacks of $100 bills in a vault at the Apple headquarters. Some of it had to be
invested in securities.
Under the Investment Advisers Act you need to register if
you are providing investment advice about securities. Apple is in the business
of making shiny gadgets and driving tech-boys into slather over its latest
product. Is that still true when the company is sitting on an enormous
pile of cash and securities?
I decided to take a look at the balance sheet in Apple's
last 10-Q and broke it out into assets and securities.
Cash and Cash equivalents
Short-term marketable securities
Accounts receivable, less allowances
Deferred tax assets
Vendor non-trade receivables
Other current assets
Long-term marketable securities
Property, plant and equipment, net
Acquired intangible assets, net
About 70% of Apple's assets are in securities. That made
me think of my analysis of whether
you are an investment adviser. Apple could be a hedge fund. They have more
in securities than they do iPhones.
Under Dodd-Frank, the definition of private fund is taken
from the definition of an investment
company in the Investment Company Act. Part of that definition is that the
owns or proposes to acquire investment securities having
a value exceeding 40 percentum of the value of such issuer's total assets
(exclusive of Government securities and cash items) on an unconsolidated basis.
Apple is above that 40% level, so I took a closer look at
Apple's breakdown of its securities:
Money market funds
U.S. Treasury securities
U.S. agency securities
Non-U.S. government securities
Certificates of deposit and time deposits
That $55,043 happens to represent 40% of 138,681. I would
guess that Apple is very aware of that 40% threshold to be considered an
investment company and is purposefully keeping its allocation among securities
to not go above the 40% threshold.
Because Apple has kept itself below the 40% level you
don't need to address the second prong of the test: whether Apple "holds itself
out as being engaged primarily, or proposes to engage primarily, in the
business of investing, reinvesting, or trading in securities."
So, the answer is "no." Not because Apple is technology
company, but because the company is purposefully managing its portfolio of
securities to stay outside the definition.
additional commentary on developments in compliance and ethics, visit Compliance Building,
a blog hosted by Doug Cornelius.
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