Citadel Investment Company Act of 1940 Exemption. An in depth look.
===================================================================

| Author       | Source       | 
| :-------------: |:-------------:|
|  [u/Kilverado](https://www.reddit.com/user/Kilverado/) | [Reddit](https://www.reddit.com/r/GME/comments/mde1l7/citadel_investment_company_act_of_1940_exemption/) | 

---

[DD](https://www.reddit.com/r/GME/search?q=flair_name%3A%22DD%22&restrict_sr=1)

Hi fellow apes!

Most of you have seen the DD I posted yesterday about Citadel getting exempt from the Investment Act of 1940, and I'm sorry it wasn't very in depth, as I was busy with work at the time. I'm glad the DD got mostly positive comments, and there was some back and forth between the meaning. It means we aren't a think tank and can give/take constructive criticism, and that is what wrinkle brains are all about.

Now, onto my summary.

What is the [Investment Company Act of 1940?](https://www.govinfo.gov/content/pkg/COMPS-1879/pdf/COMPS-1879.pdf) (IA40)

> This Act regulates the organization of companies, including mutual funds, that engage primarily in investing, reinvesting, and trading in securities, and whose own securities are offered to the investing public. The regulation is designed to minimize conflicts of interest that arise in these complex operations. The Act requires these companies to disclose their financial condition and investment policies to investors when stock is initially sold and, subsequently, on a regular basis. The focus of this Act is on disclosure to the investing public of information about the fund and its investment objectives, as well as on investment company structure and operations. It is important to remember that the Act does not permit the SEC to directly supervise the investment decisions or activities of these companies or judge the merits of their investments.

Minimize conflicts of interest. You're doing a great job so far IA40.

Why is it important?

Would you give your money to someone that isn't required to tell you what/how they are investing it? I don't think I would trust my own family to do the right things, much less these companies. IA40 is here to protect the investors.

Now the interesting part.

Here is all the [filings](https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001255158&owner=include&count=40) for Citadel all the way back 9/16/2003, back when Citadel was a tickle in Ken Griffins tiny ballsack.

Back in 2009, [Citadel first has an exemption](https://www.sec.gov/Archives/edgar/data/1255158/000090514809003669/efc9-1081_406b.htm) application that is approved. This continually gets approved throughout the years with another approval in [January, 2021](https://www.sec.gov/Archives/edgar/data/1255158/999999999721000176/filename1.pdf).

> For the foregoing reasons and subject to the foregoing conditions, Applicant requests an order under Sections 6(b) and 6(e) of the 1940 Act exempting Applicant and any ESC Funds from all provisions of the 1940 Act, except Section 9 and Sections 36 through 53, and the rules and regulations under the 1940 Act.  With respect to Sections 17 and 30 of the 1940 Act, and the rules and regulations thereunder, and Rule 38a-1 under the 1940 Act, the exemption is limited as set forth in this Application.  It is respectfully submitted that the protections provided in the sections of the 1940 Act from which exemptions have been requested are not necessary, appropriate or consistent with the protection of investors provided by the 1940 Act in view of the substantial community of interest among all the parties and the fact that each ESC Fund is an "employees' securities company" as defined in Section 2(a)(13) of the 1940 Act.

Now, I'm sure this is very common in the securities world, and if we looked up other hedgefunds we might find the same thing. What bothers me isn't necessarily the context, but the implications.

Read the latest [approval](https://www.sec.gov/Archives/edgar/data/1255158/999999999721000176/filename1.pdf). (It's a short read). I'll quote the interesting part for the lazy apes among us:

> On December 18, 2020, a notice of filing of the application was issued (Investment Company Act Release No. 34143). The notice gave interested persons an opportunity to request a hearing and stated that an order disposing of the application would be issued unless a hearing was ordered. No request for a hearing has been filed, and the Commission has not ordered a hearing.

Now I don't know if this is a [Hitch Hikers Guide to the Galaxy](https://youtu.be/Z1Ba4BbH0oY) situation. Or what interested parties were contacted. But I for one would be very curious as to why certain sections were allowed exempt. Specifically, Sec. 34.

> SEC. 34. ø80a--33¿ (a) It shall be unlawful for any person, ex- cept as permitted by rule, regulation, or order of the Commission, willfully to destroy, mutilate, or alter any account, book, or other document the preservation of which has been required pursuant to section 31(a) or 32(c). (b) It shall be unlawful for any person to make any untrue statement of a material fact in any registration statement, applica- tion, report, account, record, or other document filed or transmitted pursuant to this title or the keeping of which is required pursuant to section 31(a). It shall be unlawful for any person so filing, trans- mitting, or keeping any such document to omit to state therein any fact necessary in order to prevent the statements made therein, in the light of the circumstances under which they were made, from being materially misleading. For the purposes of this subsection, any part of any such document which is signed or certified by an accountant or auditor in his capacity as such shall be deemed to be made, filed, transmitted, or kept by such accountant or auditor, as well as by the person filing, transmitting, or keeping the com- plete document.

Now, why on Earth is anybody excluded from that rule? How is this slipping by?

Remember when Citadel said they covered their shorts in January? Well, looks like they can falsify information all they want now according to this exemption. I really feel sorry for their investors though. (Nah, not really. Sorry Jordan. I loved you in Space Jam though.)

What does this mean for us?

Nothing. This is just an informative guide to show you the behind closed doors dealings we are probably dealing with. It in no way shape or form will affect the overall outcome. It COULD change the catalysts that we expect to see make this rocket launch, but at the end of the day, the shorts have to cover, and the only way they can get out is with [GME bankruptcy](https://www.reddit.com/r/wallstreetbets/comments/lawubt/hey_everyone_its_mark_cuban_jumping_on_to_do_an/glqndlx?utm_medium=android_app&utm_source=share&context=3).

What should we do with this info?

The same as the stock. Hold. We need to let the squeeze happen before we try to get reform to happen. As someone else has said in a DD before, The [SEC is not our friends](https://www.reddit.com/r/wallstreetbets/comments/lawubt/hey_everyone_its_mark_cuban_jumping_on_to_do_an/glqj2du?utm_medium=android_app&utm_source=share&context=3), and we shouldn't rely on them for anything. After the squeeze? It's time to get on the horn with every representative you can think of. Blow up Twitter. As you've seen, we can make things happen when we put our wrinkles together.

I still have not been able to fully go through the IA40, and if any info is incorrect please let me know. I'm here to inform, not confuse, and ultimately constructive criticism keeps us all in reality.

So long, and thanks for all the bananas.
