Presenting a 90-Minute Encore Presentation of the Webinar with Live, Interactive Q&A Using Finders to Raise Capital in Private Placements and Fund Investments: Navigating SEC Broker-Dealer Rules Avoiding the Pitfalls of Using Unregistered Finders, Lessons from Recent SEC Enforcement Actions MONDAY, DECEMBER 21, 2015 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: David H. Pankey, Partner, McGuireWood s, Washington, D.C. Anitra T . Cassas, Partner, McGuireWoods , Richmond, Va. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
Tips for Optimal Quality FOR LIVE EVENT ONLY Sound Quality If you are listening via your computer speakers, please note that the quality of your sound will vary depending on the speed and quality of your internet connection. If the sound quality is not satisfactory, you may listen via the phone: dial 1-866-961-8499 and enter your PIN when prompted. Otherwise, please send us a chat or e-mail sound@straffordpub.com immediately so we can address the problem. If you dialed in and have any difficulties during the call, press *0 for assistance. Viewing Quality To maximize your screen, press the F11 key on your keyboard. To exit full screen, press the F11 key again.
Continuing Education Credits FOR LIVE EVENT ONLY In order for us to process your continuing education credit, you must confirm your participation in this webinar by completing and submitting the Attendance Affirmation/Evaluation after the webinar. A link to the Attendance Affirmation/Evaluation will be in the thank you email that you will receive immediately following the program. For additional information about continuing education, call us at 1-800-926-7926 ext. 35.
Program Materials FOR LIVE EVENT ONLY If you have not printed the conference materials for this program, please complete the following steps: Click on the ^ symbol next to “Conference Materials” in the middle of the left - • hand column on your screen. • Click on the tab labeled “Handouts” that appears, and there you will see a PDF of the slides for today's program. • Double click on the PDF and a separate page will open. Print the slides by clicking on the printer icon. •
Using Finders to Raise Capital in Private Placements and Fund Investments Presented by: Anitra T. Cassas, Partner acassas@mcguirewoods.com David Pankey, Partner dpankey@mcguirewoods.com December 21, 2015 www.mcguirewoods.com
Overview of “Broker” Status Section 15(a) of the Securities Exchange Act of 1934 (“Exchange Act”) makes it unlawful for a “broker” or “dealer” to effect any transactions in, or to induce or attempt to induce the purchase or sale of, any security (other than an exempted security) unless such broker or dealer is registered with the SEC. States have similar laws on their books. 6 | McGuireWoods CONFIDENTIAL
“Broker” Defined • Section 3(a)(4)(A) of the Exchange Act defines the term “broker” as “any person engaged in the business of effecting transactions in securities for the account of others.” (emphasis added ) • The terms “engaged in the business” and “effecting transactions” are not defined in the Exchange Act. • Instead, through a series of releases and no-action letters, the SEC and its staff have listed a number of factors they look at in determining whether a market participant is required to register as a B/D. • Through this process, the SEC staff has created a limited exception from broker- dealer registration for “finders.” 7 | McGuireWoods CONFIDENTIAL
Common Factors There is no bright-line test. The determination is necessarily based on all of the relevant facts and circumstances. But the most common factors are : • Receiving transaction-related compensation ; • Holding oneself out as a broker; • Participating in the securities business with some degree of regularity; • Assisting an issuer to structure prospective securities transactions; • Helping an issuer to identify potential purchasers; • Soliciting securities transactions (significant investor contact; negotiation) ; • Participating in order-taking; and • Previous securities registration and/or disciplinary actions. 8 | McGuireWoods CONFIDENTIAL
Transaction-Based Compensation • Any compensation “directly related to the success of the sale of the subject securities.” • It is the single most important hallmark of broker status. The SEC wants to ensure that individuals and entities with a “salesman’s stake” in the transaction are regulated. • From the SEC staff’s unspoken view -point – this factor alone is sufficient to require registration. • There is no comfort in the no-action letters. – Paul Anka (1991) – the “one and done” rule. – Brumberg, Mackey & Wall (2010) – if transaction-based compensation is present, SEC staff will most likely find other factors. 9 | McGuireWoods CONFIDENTIAL
Transaction Based Compensation (cont.) • At least one court has rejected the SEC staff’s position concerning the mere introduction of parties in connection with a securities transaction. • In SEC v. Kramer (M.D. Fla. 2011), the District Court noted that “merely bringing together the parties to transactions, even those involving the purchase and sale of securities” is not enough to compel broker registration, even if the finder receives a fee “in proportion to the amount of the sale.” • After acknowledging and then dismissing the staff’s position in Brumberg , the Court concluded that “[i]n this instance, [finder’s] conduct consisted of nothing more than bringing together the parties to a transaction. The commission presented no evidence that [the finder] either participated in the negotiation, discussed the detail of the transaction, analyzed the financial status of [the issuer], or promoted an investment in [the issuer] to [the investors].” 10 | McGuireWoods CONFIDENTIAL
Significant Contacts with Investors Even in the absence of transaction-based compensation, there are certain activities that raise such serious public protection concerns that the SEC would most likely require registration. In particular, the SEC will look at nature of the finder’s relationship and contacts with the investor: • Providing PPMs, other offering documents, and marketing materials to investors. • Participation in the negotiations between the potential investor and the issuer. • Making recommendations to potential investors regarding an investment in the issuer, or advising potential investors on the merits of any investment opportunity. • Type of investor generally is not relevant ( but see Rule 506 exception regarding accredited investor status). 11 | McGuireWoods CONFIDENTIAL
True Consultants/Pure Referrals Potentially OK Under Finder Exception Provided that a finder neither receives transaction-based compensation nor has significant contacts with investors, the no-action letters indicate that an unaffiliated finder may engage in the following activities without registering as a broker: • refer the names and contact information of potential investors to the issuer; • assist the issuer in determining the terms of the offering; • help prepare materials (including private placement memorandums, financial data, sales literature or other offering materials); • provide market and financial analyses; • prepare feasibility studies; • advise issuer on its financial potential and recommend methods of financing; & • advise on the administrative work involved in an offering. • fixed fees or hourly rates that are reasonably related to the services provided, and get paid regardless of the outcome of the deal (true consulting fees). 12 | McGuireWoods CONFIDENTIAL
Safe Harbor for “Associated Persons of Issuers” • Rule 3a4-1 of the Exchange Act provides a non-exclusive safe harbor from the broker-dealer registration provisions for an "associated person of an issuer." • Defined as any natural person who is a partner, officer, director, or employee of – (i) the issuer; – (ii) a corporate general partner of a limited partnership that is the issuer; – (iii) a company or partnership that controls, is controlled by, or is under common control with, the issuer; or – (iv) an investment adviser registered under the Investment Advisers Act of 1940 (“Advisers Act”) to an investment company registered under the Investment Company Act of 1940 (“Investment Company Act”) which is the issuer 13 | McGuireWoods CONFIDENTIAL
Recommend
More recommend
