Getting Securities Licensed with an Existing Broker/Dealer

Are you an experienced middle-market intermediary considering getting your securities license?  If so, there are currently two routes you may take: One is to form your own broker/dealer.  The second is to register under an existing broker/dealer.  Here, I will speak on the latter.  Burch & Company, Inc. is an broker/dealer whose membership agreement with FINRA allows us to provide financial advisory services for sell-side and buy-side mergers and acquisitions.  Thereby, we may register M&A professions as Independent Contractors under our existing broker/dealer platform.  Once these individuals become qualifed (meaning they pass all required exams), they may then be in compliance when assisting their clients in transactions that have any securities components - stock, debt, notes, etc.  To learn about this process, step by step, take a look at the attached white paper.  The document discusses not only the initial licensing process, but also ongoing regulatory requirements you should expect as a registered individual and estimated costs (any references to the Series 62 or Series 7 in the following linked document should be replaced with the Series 79, as the prior are no longer sufficient for Investment Banking Activities).  Please feel free to contact me with any questions. Download Securities Licensing White Paper

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For those parties who believe that the outdated and narrow Paul Anka letter serves as a green light for acting as a Finder in capital raising, debt placement or M&A deals without becoming registered as a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.

Prep for the Series 79 Exam

Securities Training Corp's Series 79 study material should be available by the end of December: www.stcusa.com

We've also received word that Solomon Exam Prep will be offering Series 79 live online training sessions starting Jan 2010 - see schedule below. Solomon expects to have their training manual available in FEB 2010.

January 4-8 from 6p-10p EST
Feb 01– Feb 05: 12p-4p EST
March 01 – March 05: 12p-4p EST

www.solomonexamprep.com

Series 79 - Limited Representative - Investment Banking is now effective

The Series 79 license became effective last week.  The license is required for individuals who wish to engage in the following activities:

Advise on or facilitate debt or equity offerings through a private placement or public offering or to advise or facilitate mergers or acquisitions, tender offers, financial restructurings, asset sales, divestitures or other corporate reorganizations or business combination transactions

I am not aware of any third-party study material that is available as of today, however, Securities Training Corp, www.stcusa.com has communicated that they will have written material available in DEC and then both classroom and online training to begin in JAN 2010.  FINRA's study outline is posted ( Series 79 Study Outline)  and the test does look to be...comprehensive, though also more relevant to the actual functions of Investment Bankers & M&A Group than were the Series 7 or 62. 

Remember: FINRA is allowing for individuals to opt in if they have or earn the Series 7 or Series 62 prior to May 2010.  Last week I "opted in"  the Series 79 license on behalf of most Individuals licensed with Burch who engage in Investment Banking Activities.  The approval of this license was immediate, therefore these individuals now hold the new Series 79 license and will not have to sit for the exam.

FINRA Creates New Examination Requirements for Investment Bankers

FINRA recently announced new registration and examination requirements for Investment Bankers and Principals who supervise them.  The Series 79 examination becomes effective/available on November 2, 2009.  Individuals who are engaged in the following activities shall be required to hold the Series 79 license:

• Advise on or facilitate debt or equity offerings through a private placement or public offering
• Advise or facilitate mergers or acquisitions, tender offers, financial restructuring, asset sales, divestitures or other corporate reorganizations or business combination transactions

Any individual who currently holds either the Series 7 or Series 62 licenses and who also are currently engaged in their broker/dealer's investment banking business may "opt in" for this new license by May 3, 2010.  Full details and FAQ are covered in FINRA's Regulatry Notcie 09-41: Download 09-41

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. 

Evidence that Securities Licensing Issue is Heating Up at State Level

As a sponsor of the AM&AA's Licnesure Initiative, we have received the following communication from the AM&AA Licensing Task Force regarding a recent letter sent out by Utah's Department of Commerce:

"The attached letter was originally mailed to all Utah attorneys, business brokers and M&A advisors, and was being privately circulated at the recent IBBA/M&A SOURCE Conference in Atlanta.

It clearly indicates growing awareness/concern by some state regulators regarding business brokerage transactions that may be completed by agents who are not properly licensed under existing state and federal securities laws.

In the meantime, the AM&AA Licensure Task Force is working diligently to bring clarity and reason back to our profession with its joint Private Placement Broker and M&A Broker proposals, which are actively being considered by both the SEC and NASAA."

Here is a copy of the letter: Download Utah Licensing Letter

Burch & Company offers a solution to this issue, in that we license middle-market intermediaries under our existing broker/dealer platform.  To discuss, give us a call at 816.842.4660.

Recording of Webinar Available: "Securities Licensing - Is it for Me?"

Burch & Company, Inc. recently particpated as a speaker in an educational webinar presented by M&A Source.  This webinar, "Securities Licensing - Is it for Me?" provided much valuable information for those individuals/groups contemplating getting securities licensed.  M&A Source has made a recording of this presentation available on their website, along with copies of each speaker's Powerpoint presentation.  If you would like to check it out, head to: Link to M&A Source Educational Webinar

Contact me directly at 816-842-4660 or jburch@burchco.com if you have any questions on Burch's portion of this presentation...Thanks!

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