Income will be reported personally the same way as my other poker related income... I have a Michigan registered S-corp that I run poker income through. To the goverment this will be no different than me winning money on a poker website.

Oh, so you aren't opposed to committing a felony. That's definitely the kind of guy I want handling my investments. Where do I send the money?

Look, I hate to rain on your parade, but you simply can't just manage an investment fund in the US without proper education/licensing. It's illegal. The legal ramifications are huge. You are making it sound like there is no way you will get caught. This simply isn't true. Filing taxes, upsetting horses or investors, posting about it on an internet forum, etc, etc. I just don't think you get it. The SEC won't even get to the internet poker part of the thing. They will see someone who isn't certified managing an investment fund, valuing shares every month, sending dividends out etc. You will be fined a ridiculous amount of money and/or face jail time.

Until you get audited...

Whether other people do it or not, the fact that you will be making the majority of your income from this operation means the IRS is going to look at your profession as managing an unlicensed investment fund. This would just scream to be audited and/or investigated even more so than a regular poker player because at least they can track their play and show that their income is from actual play and not backing.

Hey, maybe the IRS hasn't learned how to use Google yet? I mean seriously, you put all that information in your OP about yourself. You expect to have a huge uptick in gross income with no record to having won the money in poker, and you expect absolutely no one to look into it? It's just...baffling.

So your saying that every other fund manager living within the united states should stop conducting business this instant? That the ptp mutual fund managers are all likely to get arrested? That any multiple number of people staking players is a crime likely to be investigated by the SEC? We are all poker players here and for the US members are already operating in a very grey area of the law as it is. There is no risk of legal problems to investors and that should be the only concern, I appreciate your opinion, but I will worry about legal problems on my end.. I already have my own accounting and legal council on this matter.

again, my own problem to worry about


I have filed as a professional gambler for several years, I do not wish to further comment how my own personal finaces are moved and removed from poker websites. For the interest of investors this is not something I feel they need to worry about. In the event I was audited by the IRS years down the road will be my own personal issue to deal with and I assure you I will be prepared in the event that such a thing happens.

They are likely operating under a partnership. You are taking a fee for managing something. You are acting as a fund manager. You are using terms and operating under a system analogous to an investment fund. You are not licensed to do this. You are doing something illegal.

I am not familiar with the PTP mutual fund, so I can't really speak on that.

I don't understand what your first sentence means. Everyone who manages an investment fund in the United States should be licensed. It's like doing anything else in America: practicing medicine, practicing law, etc. You can't just decide you are going to do it and consequences be damned.

I would not say that knowingly investing in an investment fund managed by someone who isn't qualified to manage it in the USA is of "no risk", but I honestly can't say for certain.

I can't for the life of me understand how you could have legal council that is giving you the thumbs on this project.

correct

Technically, wouldn’t a player offering to sell shares to a bunch of tournaments be considered as doing the same thing? He’s asking a pool of investors to put up money and paying them a return based on the performance of his investments?

I’m not trying to act ignorant to the law or rules. I just believe that there is an extremely small chance of facing any legal repercussions, I do not even feel like I am intentionally breaking any laws. I do not wish to speak on the specifics of my own personal legal counsel but yes I have essentially been given the thumbs up.

What you describe in the bolded would probably be looked at by the SEC as a bunch of people pooling their money together and buying a stock and seeing how well it does. That doesn't involve anyone managing anything.

What you are trying to do is pool a bunch of people's money, and then invest it. You are taking a fee for doing this. You are managing an investment fund for profit without being licensed. FWIW, this is something the SEC has been known to be pretty serious about. I think my example earlier about practicing medicine without a license is pretty similar. They just won't allow it if it's brought to their attention in any way.

I mean if I had a whole thread on the internet where the legal ramifications were brought to my attention, and I still said, "f it let's run this thing" I'd be absolutely terrified if I faced any sort of legal confrontation.

Right I think the only reason you will get more scrutiny is that you are managing other peoples money. Those who stake their own money or engage with a partner are usually not taking a fee out for management, they are just taking their share of the profits. The problem is that once you cross the line from just investing for yourself and start to actively manage other peoples money you are breaking the law.

I cant really comment either on the other types of funds operating like this but they are probably operating without regard for the law and/or taxes as well....

I would consider the markup being charged as a "fee" . and by playing a series of tournaments he is tech managing the investments.

The amount of gambling pools, prop bets, investment funds, even the poker playing in general that goes on here is all in a grey area in my opinion. I think you can make an argument that alot of it is very illegal while at the same time you could say that jurisdiction, interpretation, any many other factors make it impossible to enforce/regulate.

I guess I would like to close this specific issue of discussion, as i think the debate will quickly turn to a back and forth battle of interpretation of the law. If anyone has further concerns please feel free to contact me and I will do my best to explain things.

I think the only difference is that when someone does a BAP they are giving investors a specific "investment(s)" to invest in. Their markup can be considered their wage to play those games and any profit is divided equally by the percentage of investment (even if the player takes a certain percentage of his own action he is still getting the equal percentage amount)

By managing a fund you are the one deciding what to invest in and why, which leaves the responsibility in your hands and not the individual investors. Additionally you are taking a percentage cut of the profit that does not match your own equity in the pool. As per your request this will be my last post on the issue. I think everyone is just trying to brainstorm potential problems and liabilites that may arise.

OK... a few phone calls and some searching came up with this. Basically what I have been told is that because this "fund" does not deal with the exchange of actual securties then it does not fall under the SEC's definition of an Investment Company and thus not subject to the juristicion and rules of the SEC. for example if I wanted to get 10 people together to pool money and I agreed to manage it and invest in stamps, it would be perfectly legal for me to do so. If I were to be buying and selling stocks, big time against the law.


from the SEC...



What is an Investment Company?
Section 3(a)(1) of the Investment Company Act defines an “investment company” for purposes of the federal securities laws. Section 3(a)(1)(A) of the Investment Company Act defines an investment company as an issuer which is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in “securities.” See Section 2(a)(36) of the Investment Company Act of the Investment Company. Section 3(a)(1)(C) of the Investment Company Act defines an investment company as an issuer that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities, and owns or proposes to acquire “investment securities” having a value exceeding 40 percent of the value of its total assets (exclusive of government securities and cash items) on an unconsolidated basis. See Section 3(a)(2) of the Investment Company Act.
-------------------------------------------------------------------------------
What is Not Regulated as an Investment Company?

Investment pools that do not meet the definition of “investment company” in Section 3(a) of the Investment Company Act because, for example, they do not invest in securities (e.g., commodity pools that do not hold or invest in securities) are not investment companies and, therefore, are not regulated as investment companies under the Investment Company Act. (Such issuers may, however, be required to register their securities under the Securities Act.)

The Investment Company Act also specifically excludes certain investment pools from the definition of “investment company.” The Investment Company Act also exempts from regulation under the Investment Company Act a number of investment pools and entities. If an issuer falls within one of these exclusions or exemptions, it may not register as an investment company with the Commission. For example:

Section 2(b) of the Investment Company Act exempts certain governments, government agencies, and instrumentalities from the provisions of the Investment Company Act.

Section 3(b)(1) of the Investment Company Act excludes some issuers from the definition of investment company if they are primarily engaged in a business other than investing, reinvesting, holding or trading securities.
Section 3(b)(2) of the Investment Company Act provides that the Commission may exclude some issuers from the definition of investment company if the Commission, upon application by the issuer, finds and by order declares the issuer to be primarily engaged in a business other than that of investing, reinvesting, owning, holding, or trading in securities either directly or through majority-owned subsidiaries or through controlled companies conducting similar businesses.

Ok, a good answer. Glad you didn't end up dodging that question.

Yeah.

You should just restructure your entire plan to make it a partnership.

Here's the problem:

You are going to be dealing with a ton of people be it horses, investors, or people trying to get staked, etc. Eventually you are going to probably inadvertently piss someone off and they are going to become vindictive. They are going to see this thread and file a complaint with the SEC (you can do it online, it takes minutes). You will probably be looked into since so much of this info is easily accesible (google). From there, it's obviously tough to tell what could happen. The worst case scenario is really, really, really bad for you while the best case scenario is really, really, really expensive for you. You are going to spend a lot of time and resources fighting whatever they trump up against you.

In short, this probably isn't worth the effort at all especially when you can restructure this to be a partnership. Put up some of your own capital and take a slightly bigger cut of the profits for the sweat equity. It's not that much different and you don't run the risk of getting owned by the government.

A piece of my outline from my Securities and Market Regulation class last year for anybody interested. (Formatting is messed up cause of 2+2)


I. What is a Security? (do security laws apply?)
A. Investment Contracts (catch all provision)
1. SEC V. Howey page 91: Howey Test: A contract, transaction, or scheme is an investment contract and security if:
a. Invest money in a common enterprise
b. Is led to expect profits
c. Profits come solely from the efforts of another
2. Determining the Howey Test factors
a. Common Enterprise: SEC v. SG page 101: Horizontal commonality satisfies the test. (a pooling of assets from multiple investors in a manner that all share in profits and risks of enterprise)
i. Is it a standard form contract? No bargaining power? Everyone gets the same thing?
b. Led to Expect Profits:
i. United Housing v. Foreman: Profits means either capital appreciation resulting from development of the initial investment or participation in money earnings resulting from use of investor’s funds.
ii. What form of profits: SEC V. Edwards page 116: An investment contract can have a variable or fixed rate of return
c. Solely from the Efforts of Another (Limited partnership interests are presumed to be securities unless the limited partners exercise effective control over the enterprise)
i. SEC v. Merchant Capital LLC page 120: Solely dependent on others not interpreted literally; may be investment contract even if purchaser has some nominal involvement with operation of business. Focus on dependency of investor on skills of another party. Williamson Test Guide [not exhaustive) analyze expectations (how did promoter represent this) of control at the time the interest is sold (but can look at how actually operated to answer this question); as evidentiary matter can look at how enterprise actually operated to determine how control was allocated]. Is investment contract if:
AA. Agreement among parties leaves so little power in the hands of a partner or venturer that arrangement in fact distributes power as would a limited partnership.
BB. Partner or venturer is so inexperienced and unknowledgeable in business affairs that he is incapable of intelligently exercising his partnership or venture powers; or
CC. Partner or venturer so dependent on some unique entrepreneurial or managerial ability of the promoter or manager that he cannot replace the manager of enterprise or otherwise exercise meaningful partnership or venture powers.
ii. SEC v. Life Partners
AA. Pre-purchase services cannot suffice to make profits arise predominantly from efforts of others (doubtful they ever count for much)
BB. Ministerial functions receive good deal less weight than entrepreneurial activities
CC. Matter of chance does not satisfy solely by others test. Major factor for how much made from investment here was when someone died while investor and promoter did nominal work and this caused money gain (insurance policies involved). RULED: Not a security.

man tdomeski, i really had some doubts after that terrellk thread, but youre really killin' it here. welcome back to the MP sir

Definitions.

1. When used in this title, "investment company" means any issuer which--

1. is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities;

2. is engaged or proposes to engage in the business of issuing face-amount certificates of the installment type, or has been engaged in such business and has any such certificate outstanding; or

3. is engaged or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in securities, and 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.


[Stuff here left out]


Further exemptions. Notwithstanding subsection (a), none of the following persons is an investment company within the meaning of this title:

1. Any issuer whose outstanding securities (other than short-term paper) are beneficially owned by not more than one hundred persons and which is not making and does not presently propose to make a public offering of its securities. Such issuer shall be deemed to be an investment company for purposes of the limitations set forth in subparagraphs (A)(i) and (B)(i) of section 12(d)(1) [15 USCS § 80a-12(d)(1)(A)(i), (B)(i)] governing the purchase or other acquisition by such issuer of any security issued by any registered investment company and the sale of any security issued by any registered open-end investment company to any such issuer. For purposes of this paragraph:


http://taft.law.uc.edu/CCL/InvCoAct/sec3.html

The reunion tour might end soon.

Sorry, don't mean to cause thread to go on a tangent. It might be possible that there's some stuff going on here though. Who here thinks this would meet the Howey test and therefore be a security?

I can't really follow that outline that well. But, yeah, I think it's at least close enough to not want to deal with.

Is that better?


I. What is a Security? (do security laws apply?)
____A. Investment Contracts (catch all provision)
________1. SEC V. Howey page 91: Howey Test: A contract, transaction, or scheme is an investment contract and security if:
____________a. Invest money in a common enterprise
____________b. Is led to expect profits
____________c. Profits come solely from the efforts of another
________2. Determining the Howey Test factors
____________a. Common Enterprise: SEC v. SG page 101: Horizontal commonality satisfies the test. (a pooling of assets from multiple investors in a manner that all share in profits and risks of enterprise)
_________________i. Is it a standard form contract? No bargaining power? Everyone gets the same thing?
____________b. Led to Expect Profits:
_________________i. United Housing v. Foreman: Profits means either capital appreciation resulting from development of the initial investment or participation in money earnings resulting from use of investor’s funds.
_________________ii. What form of profits: SEC V. Edwards page 116: An investment contract can have a variable or fixed rate of return
____________c. Solely from the Efforts of Another (Limited partnership interests are presumed to be securities unless the limited partners exercise effective control over the enterprise)
_________________i. SEC v. Merchant Capital LLC page 120: Solely dependent on others not interpreted literally; may be investment contract even if purchaser has some nominal involvement with operation of business. Focus on dependency of investor on skills of another party. Williamson Test Guide [not exhaustive) analyze expectations (how did promoter represent this) of control at the time the interest is sold (but can look at how actually operated to answer this question); as evidentiary matter can look at how enterprise actually operated to determine how control was allocated]. Is investment contract if:
_______________________AA. Agreement among parties leaves so little power in the hands of a partner or venturer that arrangement in fact distributes power as would a limited partnership.
_______________________BB. Partner or venturer is so inexperienced and unknowledgeable in business affairs that he is incapable of intelligently exercising his partnership or venture powers; or
_______________________CC. Partner or venturer so dependent on some unique entrepreneurial or managerial ability of the promoter or manager that he cannot replace the manager of enterprise or otherwise exercise meaningful partnership or venture powers.
_________________ii. SEC v. Life Partners
_______________________AA. Pre-purchase services cannot suffice to make profits arise predominantly from efforts of others (doubtful they ever count for much)
_______________________BB. Ministerial functions receive good deal less weight than entrepreneurial activities
_______________________CC. Matter of chance does not satisfy solely by others test. Major factor for how much made from investment here was when someone died while investor and promoter did nominal work and this caused money gain (insurance policies involved). RULED: Not a security.