In August, the United States Court of Appeals for the Third Circuit issued its opinion in U.S. v. Miller.1 In this case, Everett Miller pleaded guilty to securities fraud and tax evasion arising out of the fraudulent sale to investors of $41 million in promissory notes. The defendant was sentenced to 120 months' imprisonment due, in part, to the U.S. Sentencing Guidelines additional points for violations of the securities laws by "investment advisers." Mr. Miller argued he was not an investment adviser as defined by the Investment Advisers Act of 1940 (the Advisers Act), and, therefore, the District Court improperly applied the "investment adviser enhancement" under the Sentencing Guidelines.
The defendant was the founder, chief executive, and sole owner of Carr Miller Capital, LLC (Carr Miller), an investment firm based in New Jersey. Miller was a registered investment adviser representative under New Jersey securities law. Through Carr Miller, Miller sold certain promissory notes to investors, which were securities under applicable securities laws. He subsequently was convicted of securities fraud based, in part, on the fact that Carr Miller commingled investors' funds, which Miller then used to pay for firm overhead and his personal expenses.
Miller pleaded guilty pursuant to a plea agreement and cooperation agreement. In connection with the cooperation agreement, Miller agreed to assist the government in tracing investor "money through the labyrinth of bank accounts and financial transactions" to determine restitution.2 In exchange for his cooperation, Miller would be granted a downward departure of three levels. However, at his sentencing hearing, the District Court imposed the investment adviser enhancement, which inflated the offense level of his sentence by four levels and mitigated the benefit of the downward departure. Miller challenged the application of the investment adviser enhancement, contending that he was not an investment adviser under the Advisers Act.
Under the Advisers Act, an investment adviser means:
any person who, for compensation, engages in the business of advising others, either directly or indirectly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities . . .3
The defendant contended that he did not meet this definition because, among other reasons, he did not provide advice "for compensation."4 The Court was not persuaded, holding that "[b]ased on Miller's securities advice, investors bought Carr Miller promissory notes . . .," the principal for which "became Miller's compensation . . . when he commingled investors' accounts and spent the money for his own purposes."5
The Advisers Act does not define compensation. However, the SEC has defined compensation as "any economic benefit, whether in the form of an advisory fee or some other fee relating to the total services rendered, commissions, or some combination of the foregoing."6 The SEC has broadly construed the term compensation to mean essentially any direct or indirect benefit from any source, which even can include reimbursement of out-of-pocket expenses or the cost of services provided.7
In this case, the Court further extends the definition of investment adviser by broadly interpreting compensation to include the economic benefit Miller received "when he commingled investors' accounts and spent the money for his own purposes."8 To be clear, the defendant charged neither a management nor incentive fee, nor was he reimbursed for services rendered or costs incurred. Rather, his misappropriation of investor funds was sufficient economic benefit to be deemed compensation by the Court for purposes of the investment adviser definition.
A copy of the Third Circuit's opinion can be found here.
 United States v. Miller, No. 15-2577 (LFR), 2016 WL 4254367 (3d Cir. Aug. 12, 2016).
 Id. at *2.
 Investment Advisers Act of 1940, 15 U.S.C. § 80b-2(a)(11).
 Miller, 2016 WL 4254367, at *4.
 Id. at *6.
 Applicability of the Investment Advisers Act to Financial Planners, Pension Consultants, and Other Persons Who Provide Investment Advisory Services as a Component of Other Financial Services, 52 Fed. Reg. 38400, 38402 (Oct. 16, 1987).
 See Pension and Welfare Benefit Administration, 1995 SEC No-Act. LEXIS 1044 (Dec. 5, 1995); PaineWebber Thrifts Investors, Inc., 1989 SEC No-Act. LEXIS 918 (Aug. 15, 1989).
 Miller, 2016 WL 425436, at *6.