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Veterans Administration
Office of General Counsel
Washington, DC 20420
O.G.C. Advisory 18-91
May 1, 1991
General Counsel (023)
Investment of Funds by VA Research Corporations
Chief Medical Director (10)
QUESTION PRESENTED:
A. Does the Department of Veterans Affairs (VA) have authority to
regulate VA research corporations established under Public Law No.
100-322, Title II, 204, 102 Stat. 510 (1988) (codified at 38 U.S.C.
4161 to 4168)?
B. May such research corporations purchase United States Treasury
securities as "investments"?
DISCUSSION:
1. The Veterans Health Service & Research Administration
(VHS&RA) and VA research corporation officials have raised these
questions regarding O.G.C. Advisory Opinion 55-90. In that opinion,
we advised that VA research corporations established pursuant to
Section 204 could not "invest" in mutual funds; but that their monies
could be deposited in interest-bearing accounts in Federal
depositories. We understand that several corporations have "invested"
their funds in United States Treasury securities. As we previously
advised in a conference call on about October 14, 1990, (1) the
Secretary has authority to regulate VA research corporations, and (2)
such corporations may purchase United States Treasury securities.
Regulatory Control over VA Research Corporations
2. Section 4161(a) of title 38, United States Code, provides:
"Except as otherwise required... under regulations prescribed by the
[Secretary], any such [VA research] corporation... shall be required
to comply only with those Federal laws, regulations, and executive
orders and directives which apply generally to private nonprofit
corporations."
Thus, the statute itself clearly presupposes the Secretary's
authority to regulate VA research corporations.
3. Moreover, 38 U.S.C. 210(c)(1) provides that the Secretary may
"make all rules and regulations which are necessary and appropriate
to carry out the laws administered by the Veterans Administration and
are consistent therewith." In our view, the Secretary's general
authority to prescribe regulations under section 210 authorizes VA to
promulgate regulations governing the operation of VA research
corporations. Further support for that conclusion may he found in a
settled rule of statutory construction requiring that laws be
construed to avoid anomalous results. See, e.g., United States v. Turkette, 452 U.S. 576, 580 (1981). In this instance, the law
authorizing creation of VA research corporations gives the Secretary
broad responsibilities, including: (1) authorizing their
establishment; (2) advancing funds held by VA; (3) appointing members
to their board of directors; (4) approving medical research, their
only mandated activity; and (5) reporting to Congress on their
activities. See 38 U.S.C. 4161-4167. It would be anomalous to
construe the Secretary's broad authority under 38 U.S.C. 210(c) to
prescribe "necessary and appropriate" regulations as not extending to
regulations necessary to carry out these responsibilities.
Purchases of U.S. Treasury Securities
4. Before discussing whether VA research corporations may purchase
United States securities, we note that we have again reviewed the
central issue in O.G.C. Advisory Opinion 55-90: whether those firms
may themselves engage in investment activities. In determining that
VA research corporations did not have authority to "invest" in mutual
funds, we noted that "investing" corporate monies in mutual funds
necessarily required putting those monies at risk of loss. O.G.C.
Advisory Opinion 55-90, para. 3. We concluded that there was no
evidence that Congress intended to allow VA research corporations to "invest"
their research funds, i.e., "place those funds at risk." Id.
at para. 4. Placing funds at risk, even with the prospect of
financial gain, could result in the loss of those monies, thus
defeating Congress' intent that they be available to fund VA
research. Id. Consequently, the law, in authorizing VA research
corporations to administer corporate funds -- whether those funds
were transferred by VA or donated to the corporation -- did not
authorize investments in a mutual fund. Our opinion did state,
however, that, in authorizing the corporations to "spend" and
"administer" funds, the law allowed the corporations to place monies
in interest-bearing accounts in depositories where no loss would be
incurred.
5. We recognize that Federal tax and State corporation law do not
generally proscribe non-profit corporations from investing funds
where such investment is incident to their nonprofit activities. See
26 U.S.C. 501, 511, 512 (tax exempt income for organizations having
tax exempt status under 26 U.S.C. 501(c)). Indeed, our research
indicates that officials of such corporations would not be liable for
losses from such investments if their overall investment strategy was
reasonable. See Johnson v. Johnson, 515 A. 2d 255 (NJ Sup.1986).
6. Nonetheless, Public Law No. 100-322 explicitly prescribes the
general corporate powers of VA nonprofit corporations established
pursuant to its provisions. 38 U.S.C. 4164. We reaffirm that, as
discussed in O.G.C. Advisory Opinion 55-90, that law did not provide
such corporations with unbridled investment powers, although the law
clearly authorizes such corporations to administer and to spend their
funds. The distinction between "administering" and "spending" versus
"investing" corporate funds may not always be easily drawn, but that
difference represents, in our view, the activities authorized by the
law and unlawful corporate conduct.
7. In this regard, VHS&RA and VA research corporation
employees have apparently read O.G.C. Advisory Opinion 55-90 to
proscribe the purchase of Unites States securities. That opinion,
however, addressed a narrower issue, specifically: "May VA research
corporations invest monies not immediately needed for a research
project in a mutual fund?"
8. A VA research corporation's purchase of U.S. Treasury
securities would not ordinarily constitute an "investment," as
described in O.G.C. Advisory Opinion 55-90. As they are backed by the
Federal Government, these securities do not carry a risk of loss. In
that regard, we understand that the United States Treasury describes
its interest bearing obligations as providing a vehicle for
investment of funds that is essentially risk-free. Consequently, even
though the purchase of Federal securities may be described as
"investment," their risk-free nature distinguishes them from mutual
funds of, e.g., corporate stocks, investment in which may result in
losses to an investor. Accordingly, we do not believe that the
prohibition described in O.G.C. Advisory Opinion 55-90 against
investment by VA research corporations applies to U.S. Treasury
securities.
9. We caution, however, that, for purposes of this opinion, U.S.
Treasury securities are only those backed by the full faith and
credit of the United States. Cf.15 U.S.C. 78c(42)(a) (1988)
("government securities" "are direct obligations of, or obligations
guaranteed as to principal or interest by, the United States").
10. Finally, we note that, like Federal securities, certain
"deposits" in financial institutions may also represent no risk of
loss because the principal of such deposits is insured. See 12
U.S.C.A 1813(l), (m), 1821(a). Such "deposits" would include
certificates of deposit or other evidence of a financial
institution's indebtedness to a claimant. Id. section 1813(l).
Consequently, although VA research corporations may not generally
"invest" corporate funds, placing those funds in federally insured
accounts, certificates of deposits or other instruments guaranteed
against risk of loss would he Permissible under Public law 100-322.
HELD:
A. The Secretary of Veterans Affairs has authority to prescribe
regulations governing the activities of VA research corporations.
B. VA research corporations may use corporate funds not needed for
their immediate needs to purchase U.S. Treasury securities either
directly or through custodial accounts in private financial
institutions or by placing them in insured accounts or certificates
or deposit where the principal of such funds would not be at risk.
Raoul E. Carroll
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