SEC's Recent Denial of No-Action Regarding Finders

For those parties who believe that the outdated and narrow Paul Anka letter serves as a green light for acting as a Finder in capital raising, debt placement or M&A deals without becoming registered as a broker/dealer ("BD") or becoming a registered agent of a BD, it may be time to reconsider. 

Last month the SEC issued the attached Denial of No-Action Request to Brumberg, Mackey & Wall, P.L.C.("BMW").  In the BMW letter, as it has come to be known, SEC staff states that “the introduction to [the company] of only those persons with a potential interest in investing in [its] securities implies that BMW anticipates both ‘pre-screening’ potential investors to determine their eligibility to purchase the securities, and ‘pre-selling’ [the company’s] securities to gauge the investors’ interest.”  The staff also stated that “the receipt of compensation directly tied to successful investments in [the company’s] securities by investors introduced to [the company] by BMW (i.e., transaction-based compensation) would give BMW a ‘salesman’s stake’ in the proposed transactions and would create a heightened incentive for BMW to engage in sales efforts.”  Download SEC- denial of no action_BMW

I've also attached a discussion titled "Use of Finders in Securities Transactions," authored by Wayne Lee, a member of the Corporate and Securities Practice in Greenberg Traurig's Tyson Corner office.

 Download GT - Use of Finders in Sec Transactions

Though Anka  wrote the famous words "I did it my way," I wouldn't recommend doing it his way in 2010.

SEC Rules Against Intermediary in the PIPEs Market

The attached SEC order was released this summer regarding a group who, for several years, acted as intermediaries in the PIPEs market.  The Securities and Exchange Commission found that the intermediaries should have known that they were required to register as a securities broker or dealer and by engaging in their course without registering, willfully violated the broker/dealer registration provisions of the Securities Exchange Act of 1934.  See attached order for full details and sanctions. Download SEC Case - RAM Capital.

A good discussion of this case can be found on VC Expert's Buzz: Buzz Article: SEC Files Warning Shots to Unregistered Finders.  Here is an excerpt:

"The SEC found that Michael E. Fein and Stephen E. Saltzstein, neither of whom was registered as a broker or associated with a registered broker-dealer, operated and controlled Ram Capital as an unregistered broker-dealer while serving as its principals. Specifically, from 2001 through early 2005, Ram engaged in the business of identifying, structuring, and soliciting investors for PIPE offerings. The respondents and the SEC entered into Offers of Settlement with respect to the charges contained in the Order."  

The article goes on to say:

"We believe this Administrative Order may be a significant development in the enforcement of regulations related to persons and entities whose activities may be considered to be in the business of effecting transactions in securities and requiring registration as a broker-dealer. Most, if not all, of the limited number of enforcement actions in this area have usually been combined with allegations or findings of fraud or other misconduct. This appears to be an action aimed solely at the activities of the respondents without allegations of other misconduct."

This last thought is significant.  It is clear that M&A and Investment Banking activities are on the radar of our regulators. 

Article discussing Finders & Securities Transactions

The attached article, published on lexology.com, discusses recent U.S. Securities and Exchange Commission (SEC) enforcement action and New York State court decisions regarding persons acting as finders in securities transactions. The article states that these recent actions "confirm that individuals that act as “finders” in securities offerings will be the subject of increased scrutiny."

Download article_sec_v_macgregor_and_torsiello_capital_partners_case_730081.pdf

Recent Legal Cases re: M&A Securitities Licensing

Attached are two recent cases that have been seen by the courts this year.  Both illustrate the risk involved with not having a securities license (as Intermediaries may be as acting as an "unregistered broker/dealer") when assisting a client in a mergers & acquisitions deal that involves stock or debt. 

Download unregistered_broker_case_408_ny.PDF

Download bizsaleopiniion1.pdf