Philanthropy Protection Act of 1995

Summary: H.R.2519 — 104th Congress (1995-1996)All Information (Except Text) Listen to this page There are 3 summaries for H.R.2519. Bill summaries are authored by CRS. Shown Here: Passed House amended (11/28/1995) Philanthropy Protection Act of 1995 - Exempts from the jurisdiction of the Investment Company Act of 1940, the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Advisers Act of 1940 any security issued by or any interest or participation in any pooled income fund, collective trust fund, collective investment fund, or similar fund maintained by a charitable organization exclusively for the collective investment and reinvestment of certain assets. Includes among such assets those of: (1) a charitable remainder trust or of any other trust the remainder interests of which are irrevocably dedicated to any charitable organization; (2) a trust the remainder interests of which are revocably dedicated to a charitable organization, subject to specified conditions; or (3) a trust the remainder interests of which are revocably dedicated to, or for the benefit of, one or more charitable organizations, if the ability to revoke is limited to specified circumstances. Deems such a charitable income fund, in specified circumstances, not to be an investment company under the Investment Company Act of 1940. Amends the Investment Company Act of 1940 to set forth disclosure requirements for exempt charitable organizations. Amends the Securities Exchange Act of 1934 to require solicitors of funds for such exempt charitable organizations to be volunteers or to be engaged in overall fund-raising activities of the organization but receiving no commission or other special compensation based on the amount of donations collected. Exempts such charitable organizations from State regulation in general, and such securities from State registration or qualification requirements in particular. Permits a State to enact a statute that specifically refers to this Act and provides prospectively that it does not preempt the laws of such State. Philanthropy Protection Act Preemption In addition to providing new exemptions and exclusions under the federal securities laws, as discussed above, the Philanthropy Protection Act also preempted certain registration and qualification requirements under the securities laws of any state.144 Section 6(a) of the Philanthropy Protection Act preempts any state securities statute or regulation that requires the registration or qualification of a security145 issued by, or any interest or partici-pation in, any charitable income fund, or the offer or sale thereof.146 Accordingly, charitable income funds that qualify for the federal exemption from registration also will avoid securities registration or qualification requirements under state securities laws because of federal preemption.147 Similarly, section 6(b) of the Philanthropy Protection Act pre- empts any state securities laws that regulate or require the regis- tration of brokers, dealers, agents, or investment advisers.148 This preemption applies to any charitable organization,149 and any trust- ee, director, officer, employee, or volunteer of the charitable organi- zation acting within the scope of such person's employment or du- ties, who buys, sells, or trades in securities for its own account in its capacity as trustee or administrator of, or otherwise on behalf of or for the account of: (i) a charitable organization; (ii) a charitable in- come fund; (iii) a trust or other donative instrument the assets of which are permitted in a charitable income fund; or (iv) the settlors (or potential settlors) or beneficiaries of any such charitable trust or donative instrument.150 Although the Philanthropy Protection Act primarily addresses charitable income funds, the preemption provided by section 6(b) is not limited exclusively to the activities of nonprofit organizations in connection with charitable income funds. Rather, the section 6(b) preemption also applies to the purchase, sale, or trading in any se- curities for the account of or otherwise on behalf of the charitable organization.151 This preemption is broad enough to cover many securities activities of nonprofit organizations, including sales of notes, church bonds and denominational debt securities, and offer- ings by church extension funds.152 The section 6(b) preemption also applies to the purchase, sale, or trading in any securities for the account of or otherwise on behalf of a trust or other donative instru- ment, the assets of which are permitted in a charitable income fund, or the settlors (or potential settlors) or beneficiaries of any such trusts or donative instruments.153 This preemption covers most re- maining securities activities of nonprofit organizations, including the solicitation of contributions through charitable gift annuities, charitable remainder trusts, and charitable lead trusts. Accordingly, except in those states that opt out of preemption, a nonprofit orga- nization may now engage in most securities activities without com- plying with state securities laws provisions that regulate or require the registration of the organization or its trustees, directors, officers, employees, or volunteers as brokers, dealers, agents, or investment advisers.154 The organization still must comply, however, with any state anti-fraud requirements applicable to such activities. As discussed above, the Philanthropy Protection Act provides nonprofit organizations with broad federal exemptions, and broadly preempts state requirements, with respect to registration as a bro- ker, dealer, agent, or investment adviser.223 These federal exemp- tions and the state law preemption will continue to be available to nonprofit organizations and the individuals involved in the solicita- tion of donations, regardless of whether the donative instrument (e.g., a charitable trust or a gift annuity) is itself exempt from regis- tration as a security under federal or state securities laws. Accord- ingly, if appropriately structured, charitable trust and gift annuity programs will be exempt from federal requirements and the require- ments of most states with respect to registration as brokers, dealers, agents, or investment advisers. Each state has until November 7, 1998, to opt out of federal preemption of the state's registration re- quirements. Nonprofit Organization Exemptions Section 3(a)(4) of the Securities Act provides an exemption from registration for “[a]ny security issued by a person organized and operated exclusively for religious, educational, benevolent, fraternal, charitable, or reformatory purposes and not for pecuniary profit, and no part of the net earnings of which inures to the benefit of any per- son, private stockholder, or individual.”24 To qualify for this exemp- tion, an organization must be exclusively organized and operated for specified charitable purposes.25