February 5, 1991
TO: SEC RULES COMMITTEE NO. 10-91
INVESTMENT ADVISERS COMMITTEE NO. 5-91
RE: LEGISLATION INTRODUCED TO AMEND NEW JERSEY CASINO CONTROL
ACT
__________________________________________________________
As we previously informed you, in 1989 the New Jersey
Casino Commission ruled that institutional investors that hold
five percent or more of a New Jersey related casino stock must
file for qualification under the New Jersey Casino Control Act.
Previously, the Casino Commission and the Division of Gaming
Enforcement recognized that the presumption of control set forth
in the statute could be rebutted by an institutional investor
upon a showing that the securities were being held for investment
purposes on behalf of unrelated clients and not for the purpose
of affecting or influencing control of the issuer. Consequently,
waivers from the qualification process were routinely available
to most institutional investors. (See Memorandum to SEC Rules
Committee No. 36-90 and Investment Advisers Committee No. 22-90,
dated June 29, 1990.)
Last year the Casino Commission held hearings to consider
whether the Casino Control Act should be amended to exempt or
waive certain "institutional investors" from having to submit to
the qualification process. The Institute submitted a comment
letter to the Casino Commission that recommended that given the
detailed and stringent reporting requirements institutional
investors are subject to pursuant to the provisions of the
Securities Exchange Act of 1934, the Casino Control Act could be
amended to allow investment by passive institutional investors of
up to 10% of a class of equity securities and 20% of a class of
debt securities of publicly-held casino companies without
sacrificing the integrity of the casino licensing process. (See
Memorandum to SEC Rules Committee No. 39-90 and Investment
Advisers Committee No. 24-90, dated July 30, 1990.)
The Institute has been advised that legislation has been
introduced to amend the Casino Control Act as follows:
1. A new section defining "institutional investor" as
"[a]ny federal, state, or local retirement fund;
mutual fund; closed end investment trust; ...
investment adviser registered under the Investment
Advisors Act of 1940; and such other persons as the
commission may determine for reasons consistent
with the policies of the ’Casino Control Act," has
been added to the Act.
2. Section 5:12-84(b) waives institutional investors
from the casino license application process.
3. Section 5:12-85(f) grants a waiver of qualification
for an institutional investor holding either (1)
less than 10% of the equity securities of a casino
licensee’s holding or intermediary companies, or
(2) less than 20% of the debt securities of a
casino licensee’s holding intermediary companies,
provided that such securities were purchased for
investment purposes only and the institutional
investor, upon request of the commission, files a
certified statement to the effect that it has no
intention of influencing or affecting the affairs
of the issuer.
This section further provides that the commission
may grant a waiver of qualification to an
institutional investor holding a higher percentage
of the equity or debt securities of a casino
licensee upon a showing of good cause.
Moreover, should an institutional investor change
its investment intent, or the commission find
reasonable cause to believe that the institutional
investor may be found unqualified, no action other
than divestiture need be taken by the institutional
investor with respect to its security holdings.
4. Section 5:12-85(g) provides that if at any time the
commission finds that an institutional investor
fails to comply with the provisions of subsection
(f), or if at any time an institutional investor is
in a position to exercise a substantial impact upon
the controlling interests of a licensee that
qualification of the institutional investor is
necessary to protect the public interest, the
commission may require the institutional investor
to submit to the qualification process.
* * *
A copy of the foregoing proposed amendments is attached.
We will keep you advised of further developments.
Patricia Louie
Assistant General Counsel
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