A complaint brought by closed end
fund Gabelli Global Multimedia Trust, Inc. alleging violations of the
anti-pyramiding provisions of the Investment Company Act was dismissed for a
lack of standing. The defendants were Arthur Lipson and a group of investment
companies he controlled. The Gabelli Global Multimedia Trust, Inc. v.
Western Investment LLC., Civil No. RBD 10-0557 (D. Md.).
The complaint claimed that Mr.
Lipson, through his controlled funds, pursued an arbitrage strategy of
acquiring up to 3% of shares of closed-end funds such as plaintiff which sell
at a discount to NAV. By having each entity acquire up to 3%, the defendants
violated the Section 12(d)(1)(A) of the Investment Company Act, according to
Section 12(d)(1)(A) of the Act makes
it unlawful for any registered investment company to own in the aggregate "any
security issued by any other investment company . . . if the acquiring company
and any company or companies controlled by it immediately after such purchase .
. . own in the aggregate . . . more than 3% of the total outstanding voting
stock of the acquired company." The section does not contain an express cause of
The test for determining if a cause
of action can be implied under a statutory section was defined by the Supreme
Court in Alexander v. Sandoval, 532 U.S. 275 (2001) [Lexis.com subscribers may view the enhanced version of this opinion / non-subscribers
may view the unenhanced version on lexisONE Free Case Law]*. That
case revamped the standards for implying a cause of action. There, the court
held that the question is whether the statute illustrates an intent to create a
private right of action and remedy. The statute must have specific
"rights-creating" language. If that language is present, the court must
determine whether the overall-statutory scheme demonstrates that primary
responsibility for enforcement rests with the government or private parties.
Using the Sandoval approach
the Second Circuit held in Olmsted v. Pruco Life
Ins. Co., 283 F.3d 429 (2nd Cir. 2002)
[enhanced version (lexis.com subscribers) / unenhanced version] that the section on which this case
is based does not evidence an intent which would permit a court to imply a
cause of action. The section does not contain the necessary rights-creating
language. In addition, the fact that Congress created other specific private
rights of actions in certain sections of the Act, but not the once the
anti-pyramiding section, compels the result that a private right of action
should not be implied here. Accordingly the complaint was dismissed.
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