The Federal government is behind the everyday American in as many ways as possible, especially the investors. The better an individual fares financially, the better the economy is as a whole. This translates into a healthy taxation system which generally allows members of the government to provide better services, defense, and leadership to the nation. A healthy economy also produces a happy American public which in turn can lead to re-election for many incumbents. Thus, it is important to government office holders that investment clubs do well so that the businesses that are invested in can proper. There are some regulations that investment clubs are subject to, mainly through the Securities and Exchange Commission (SEC). These regulations might seem like red tape, at first, but are in place to protect the general American public and maintain order in the investment world.

The SEC

Not every investment club is the same and the majority of investment clubs are not set up in such a manner that registration with the SEC is required. However, in certain circumstances, memberships to investment clubs could be considered securities which would in turn cause the investment club to be required to register with the SEC based on the Securities Act of 1933. Another scenario that would require an investment club to register with the SEC would be if the group considered itself an investment company, versus simply a group.

How to Tell

As stated, every situation is different but a good general rule of thumb is that memberships to an investment club are considered securities when the joining members intend to play a passive role in the group while benefiting from the research and management of others that are also members in the group. Thus, the line between a group that is distributing securities and one that simply has passive members due to a lack of interest over time is blurred. For this reason each individual case must be reviewed by a Law professional to ensure that Federal laws are not being broken. It is also important to be aware of any particular state and local rules and laws that govern investment clubs.