April 25, 2005

David S. Mitchell, Esq.
Cadwalader, Wickersham & Taft
One World Financial Center
New York, NY 10281

Re: No-Action Request of R & H Management, L.L.C.

Dear Mr. Mitchell:

In your letter dated November 23, 2004 on behalf of R & H Management, L.L.C. ("R & H"), as supplemented by your letter dated April 25, 2005 and conversations with the staff of the Division of Market Regulation ("Staff"), you request assurances that the Staff will not recommend enforcement action to the Commission under Section 15(a) of the Securities Exchange Act of 1934 ("Exchange Act") if R & H and its two affiliates, R & L Management, L.L.C. and R & M Management, L.L.C. (collectively with R & H, the "Affiliates"),¹ engage in the proposed activities described in your letter without registering as broker-dealers in accordance with Section 15(b) of the Exchange Act. Based on your letters, we understand the facts to be as follows:

The Affiliates presently provide employee leasing services for businesses other than broker-dealers, and now propose to offer these services to registered broker-dealers and their employees. In providing these services, the Affiliates will place on their payrolls the existing employees of their broker-dealer clients. While the employees placed on the Affiliates' payrolls are employees of the Affiliates for purposes of applicable employment laws, they are employees of the broker-dealer clients for purposes of the securities laws and these broker-dealer clients will maintain direction and control over them. The services the Affiliates will offer their broker-dealer clients consist of human resources consulting and employee benefits services. The Affiliates are not broker-dealers or associated persons of a broker-dealer.

In general, the Affiliates will provide their broker-dealer clients and their joint employees with advice regarding compliance with applicable employment laws, employee benefits including traditional insurance products such as medical and life insurance plans, accidental death and disability insurance, and 401(k) retirement plans, risk management services including workers' compensation insurance, services relating to unemployment compensation benefits, and payroll processing. This activity will be performed under the control and supervision of the broker-dealer clients receiving these services. All books and records relating thereto will be deemed property of the broker-dealer client and will be made available for inspection by the Commission and any self-regulatory organization of which the broker-dealer is a member.

The Affiliates' situation differs from the one where a registered representative proposes to establish a corporation or other entity that, among other things, is to receive the representative's commission from the registered broker-dealer. Such an entity would be considered an "Employee Owned Corporation." The Staff has repeatedly declined to give no-action assurances under Section 15(a) in situations involving Employee Owned Corporations.²

With any one of their broker-dealer clients, the Affiliates will receive payment from the broker-dealer for salaries, wages and commissions, which the Affiliates will then pay to personnel of the broker-dealers. The Affiliates will impose a fee for their services by adding an administrative fee (which includes their profit) to their costs based on gross payroll. This fee will not be based on brokerage commissions earned by either the employees of the broker-dealer or the broker-dealer itself. Moreover, the Affiliates will not have discretion to determine the amount or frequency of the payments that will be distributed to personnel of the broker-dealer.

In addition, the Affiliates will provide all health, life, disability, and other insurance coverage to the broker-dealer's employees. The insurance products that would be provided by the Affiliates are traditional insurance products and would not be "securities" as defined under the federal securities laws.

The broker-dealer will maintain all supervisory control over its employees. In this regard, the broker-dealer will be wholly responsible for the proper registration, training and supervision of its employees. The broker-dealer will retain the traditional rights of an employer, including the right to hire, set compensation for, terminate, discipline, and reassign personnel of the broker-dealer. The Affiliates will have no authority to hire or fire broker-dealer personnel. Furthermore the Affiliates will not engage in any securities-related activities (other than with respect to each Affiliate's respective securities).

All promotional activities, including any promotional material that the Affiliates distribute, will relate solely to employee leasing services and will not in any way relate to brokerage activities. In addition, the Affiliates will not identify or promote any broker-dealer in their promotional activities or materials.

Based on the facts and representations set forth in your letter, and without necessarily concurring in your analysis, the Staff will not recommend enforcement action to the Commission under Section 15(a) of the Exchange Act if the Affiliates engage in the activities described above without registering as broker-dealers under Section 15(b) of the Exchange Act. In particular, we note that the Affiliates will only engage in these activities on behalf of, and under the control of, registered broker-dealers. The response of the Division of Market Regulation represents a staff position regarding enforcement action only and does not purport to express any legal conclusions with respect to the applicability of the statutory or regulatory provisions of the federal securities laws. Moreover, this response is based upon the representations you have made, and any different facts or conditions might require a different response.

Endnotes

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¹ You have advised us that there are only minor differences between the Affiliates, which operate from a single location, share staff, and market their services as a unified package.

² See, e.g., letter from Barbara A. Stettner, Special Counsel, Office of Chief Counsel, Division of Market Regulation, Securities and Exchange Commission, to Matthew D. Wayne, Vanasco, Wayne & Genelly, on behalf of a specialist member firm on the Chicago Stock Exchange (Feb. 17, 1999) (noting that absent an exemption, an entity that is to receive commissions or other transaction-related compensation in connection with securities-based activities generally must register as a broker-dealer); letter from David Shillman, Special Counsel, Office of Chief Counsel, Division of Market Regulation, Securities and Exchange Commission, to Richard T. Angelillo, First Financial of Citrus County, Inc. (Sept. 22, 1998) (noting that there is no exemption from registration for corporate entities formed by registered representatives of broker-dealers that receive securities commissions); letter from Terry R. Young, Attorney, Office of Chief Counsel, Division of Market Regulation, Securities and Exchange Commission, to Michael E. Dunn, Dunn & Swan, on behalf of Century Investment Group Incorporated (Jan. 29, 1996).

Incoming Letter:

The Incoming Letter is in Acrobat format.

Attachment

http://www.sec.gov/divisions/marketreg/mr-noaction/rh042505.htm