The Eighteenth Century French journalist, Antoine de Rivarol wrote ”Ce qui n’est pas clair n’est pas français (what is not clear is not French)”. The same might be said of regulations under California’s Administrative Procedure Act.
All regulations must meet the five standards set forth in Government Code Section 11349.1: Authority, Clarity, Consistency, Reference, and Nonduplication. Today, I’ll tackle the clarity standard. Government Code Section 11349(c) defines “Clarity” to mean ”written or displayed so that the meaning of regulations will be easily understood by those persons directly affected by them.” The Office of Administrative Law has adopted a regulation providing when a regulation will be presumed to not meet the clarity standard when:
- the regulation can, on its face, be reasonably and logically interpreted to have more than one meaning;
- the language of the regulation conflicts with the agency’s description of the effect of the regulation;
- the regulation uses terms which do not have meanings generally familiar to those “directly affected” by the regulation, and those terms are defined neither in the regulation nor in the governing statute;
- the regulation uses language incorrectly. This includes, but is not limited to, incorrect spelling, grammar or punctuation;
- the regulation presents information in a format that is not readily understandable by persons “directly affected;” or
- the regulation does not use citation styles which clearly identify published material cited in the regulation.
1 CCR § 16.
I recently raised an objection based on clarity with respect to the personal trading rules proposed to be adopted by the California Public Employees Retirement System. These rules would define “covered securities” as, among other things, “interests in Private Placement Vehicles”. Although somewhat unusual, this definition seems reasonably comprehensible – until you read the proposed definition of “Private Placement Vehicle”:
Private Placement Vehicle means an offering of securities which are exempt from registration under Section 3(a)(11), Section 4(2), Regulation A or Rules 504, 505 or 506 of Regulation D of the Securities Act of 1933 and Section 25102 of the California Corporations Code. Generally speaking, such offerings of securities are made only to certain high-net worth individuals who qualify as “accredited investors” under Regulation D of the Securities Act or 1933 or as “qualified purchasers” under Section 25102 of the California Corporations Code.
One might have expected that a vehicle would be defined as fund in the form of a trust, limited partnership or limited liability company. However, CalPERS has chosen to define a vehicle as the manner of offering and then misdescribed the exemptions. It is simply not true that “generally speaking” these exemptions are limited to high-net worth individuals. The need for this strange definition is questionable because CalPERS also defines “covered securities” to include “unregistered debt and equity offerings” which covers everything included within the definition of “Private Placement Vehicle”. CalPERS has responded that they intend to go forward with the rules as proposed. Perhaps the OAL will exercise its authority to reject the rules on the basis of lack clarity.