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Department of Veterans Affeairs
Office of General Counsel
Washington, DC 20420
O.G.C. Advisory Opinion 55-90
June 29 1990
From: General Counsel (023)
Subj: Investment of Funds by VA Research Corporations
To: Chief Medical Director (15C)
QUESTIONS PRESENTED:
A. May VA research corporations invest monies not immediately
needed for a research project in a mutual fund?
B. What depositaries, if any, may be used by VA research
corporations?
DISCUSSION:
1. At a recent seminar involving VA research corporations, a
representative of a firm which markets mutual funds presented a talk
which apparently promoted the advantages of such funds as investment
vehicles. This talk sparked representatives of a VA research
corporation to ask whether a VA research corporation may invest
research grant monies, which are not immediately needed, in a mutual
fund. That question raises several issues set out above. Because
resolution of those issues may have a substantial effect on those
corporations' management of their funds, we are taking the
opportunity to address them.
2. As discussed below, we believe VA research corporations lack
authority to "invest" funds. As distinct from "investing," as such,
the corporations may, as necessary to carry out authorized research,
deposit their funds in interest-bearing accounts in fiscally sound
depositories.
Authority to Invest:
3. Public Law 100-322, which authorizes VA to establish research
corporations and defines their powers, provides no specific
"investment" authority. See 38 U.S.C. 4161 to 4168. Initially, we
note that we assign the term "investment," as it relates to
participation in a mutual fund, its normal meaning, i.e., "to put out
money at risk in the hope of gain." Securities and Exchange
Commission v. Fifth Ave. Coach Lines Inc., 289 F. Supp.3,30 (S.D.N.Y.
1968). Consistent with the terms of the contract regulating the
investment, money placed in the mutual fund will then be converted
into securities from which the fund's managers may generate profits
(or losses). See e.g. Securities and Exchange Commission v. Howey
Co., 328 U.S. 293, 298 (definition of investment contract); Chrisgard, Inc. v. Christensen, 627 P.2d 136, 139 (Wash. App.1981)
(exchange of funds for ownership in business); Christianson v. State
Tax Commission, 402 P.2d 743, 745 (Or.1965). The entire principal of
an investor is at risk, may be lost or offer no return depending on
the success of the venture. See United California Bank v. THC
Financing Corp. 557 F.2d 1351, 1358 (9th Cir.)
4. We can find no evidence that Congress intended to allow VA
research corporations to "invest" their research funds, i.e., place
those funds at risk, despite the prospect of financial gain. The
corporations are established to provide a flexible means of funding
VA research. 38 U.S.C. 4161(a). The law explicitly authorizes the
corporations only to "administer" funds either transferred from VA or
donated to the corporation. 38 U. S.C. 4162, 4164(a)(1). In
authorizing the corporations to enter into contracts, the law
authorizes contracts "solely to carry out" its purposes. These
provisions do not evidence an intention to allow the use of corporate
funds in a manner which, rather than leading to or facilitating
research, may lead to the loss of the funds. Although profits may
result from investment in a mutual fund, potential losses from the
same activity would defeat the law's purpose of providing funds for
VA research. Consequently, we must conclude that Congress did not
intend to have these corporations "invest" funds.
5. Public Law 100-322 does, however, authorize the corporations to
"administer" and to "spend" funds which may be donated directly or
"transferred" from VA. We believe these terms clearly contemplate
that the corporation will use non-Treasury depositories -- such as a
bank or savings and loan. Indeed, to spend or manage its funds, the
corporation must, at the very least, place them in depositories
which, while holding the funds, would assure their availability for
use in the corporation's research. Moreover, in executing its power
to "spend" its funds, the corporation "shall be required to comply
only with those Federal laws... which apply generally to private,
non-profit corporations." 38 U.S.C. 4161(a). No Federal law generally
bars non-profit entities from depositing funds in interest-bearing
accounts. See also, Digested Opinion, 3/13/81 (0--Compensated Work
Therapy Program) (non-profit corporation may deposit funds in
interest-bearing operating accounts). We note that merely placing
funds in an interest-bearing account, without limiting the right to
withdraw them or subjecting those funds, by contract, to use in
generating profits (or losses), will not constitute an "investment."
See Hamblett v. Board of Savings and Loan Association of the State of
Mississippi, 472 F. Supp. 158, 165-167 (N.D. Miss.1979) (distinction
between mere savings and loan deposits and securities or interest in
an enterprise under Federal securities laws). Consequently, although
VA research corporations may not "invest" their funds, we conclude
the law allows them to deposit those funds in interest-bearing
accounts upon which they may draw to meet corporate needs. This
provides VA research corporations some flexibility in choosing
depositories.
6. Finally, we do not believe that section 4165, providing that VA
research corporations "shall be established in accordance with" State
law and, "except as provided by Federal law," subject to State law,
authorizes investments notwithstanding other sections of Public Law
100-322. Well-settled principles of statutory construction require
that we construe the law as a whole, rather than as separate,
unrelated parts, avoiding a construction producing unreasonable
results. See, e.g., United States v. Turkette, 452 U.S. 576, 580
(1981). Section 4165 authorizes establishing the corporation under
State law, without making any reference to corporate powers being
derived from State law. On the other hand, section 4164 provides VA
research corporations with their general powers, explicitly limiting
contracting and spending authority "solely" to carry out VA research;
no general or specific powers are given to invest money. Also see Id.
4161(a). Moreover, section 4162 authorizes the research corporations
merely to "administer" funds transferred from VA, again without
authorizing investment. Under these circumstances, construing section
4165 to provide investment authority under some general power derived
from State law, the exercise of which could defeat the purpose of,
and explicit limitations prescribed in, Public law 100-322 would
reach an unreasonable result, in our view. Consequently, we do not
believe section 4165 authorizes investment which could defeat other
provisions in Public Law 100-322, although we offer no opinion on the
scope of State laws (such as workmen's compensation) applicable to VA
research corporations under section 4165.
Limitations on Depositories for "Public Monies"
7. Our conclusion that Public Law 100-322 prohibits VA research
corporations from putting their corporate funds at risk through
investment extends as well to selecting depositories for public,
non-appropriated funds transferred from VA (38 U.S.C., 4162) and
"gift and grants" from non-VA sources. Id. section 4164(a)(1). In
that regard, private, non-profit institutions receiving public funds
must generally deposit those funds in Federally insured financial
institutions designated by the Treasury Department to receive them
under contracts of deposit prescribed by regulation and applicable as
a matter of law. 31 C.F.R. 202.2 (also applies to State chartered
banks with State insurance of deposits and foreign banks approved by
State or Federal governments), 202.4; also see OMB Circular, No.
A-110. The apparent purpose of imposing this legal duty on recipients
of Federal money is to assure that public funds, otherwise properly
administered by recipient organizations, are not lost through the
insolvency or failure of depositories in which they are placed.
8. Here, VA research corporations are established by Federal law
as flexible funding mechanisms to receive funds for research at VA
medical facilities. They will administer funds transferred from the
VA and, gifts and grants made for that purpose. Moreover, they are
Federal agencies for some limited purposes. 38 U.S.C. 4166 (Inspector
General inspection of records, for example). Under these
circumstances, we believe that, in authorizing VA research
corporations to use depositories, Public Law 100-322 also imposes on
such corporations a duty to select depositories which will not
subject corporate research funds, regardless of their source, to risk
of loss. Accordingly, we conclude that VA research corporations
should limit deposit of corporate funds to Federally insured banks,
savings and loans, or credit unions designated under Federal
regulations as eligible to receive Federal monies. We suggest
explicitly incorporating this requirement to select appropriate
depositories into VA regulations on VA research corporations.
HELD:
A. VA research corporations may not "invest" research funds
although they may deposit such funds in interest bearing accounts.
B. VA research corporations must deposit corporate funds in
Federally-approved depositories, such as Federally insured banks,
savings and loans or credit unions.
Raoul L. Carroll
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