Potential Broker-Dealer Pitfalls for Private Investment Funds and their Managers


April 23, 2013

Following on its recent enforcement action (the “Ranieri Order”) against a private equity fund manager for causing a third-party finder’s failure to register as a broker-dealer, the Securities and Exchange Commission (the “SEC”) continues to signal that it has a particular interest in identifying whether managers of private investment funds – and particularly of private equity funds, whose managers have in many cases only recently become registered investment advisers – are mindful of applicable broker-dealer registration requirements. In recent remarks, David W. Blass, the Chief Counsel of the Division of Trading and Markets of the SEC, identified a number of issues relating to broker-dealer registration under the Securities Exchange Act of 1934 (the “Exchange Act”) that private investment funds and their managers should be keenly following, flagging in particular:

•situations in which broker-dealer registration is required in connection with the sale of interests in the private investment fund, including where the offering activity is conducted by the private investment fund itself (or its sponsor or adviser, or their personnel); and

•“success fees” and similar “investment banking” fees collected by private equity managers in connection with portfolio company transactions that may give rise to a broker-dealer registration requirement.

In light of the Ranieri Order and David Blass’s recent remarks, private investment funds and their advisers and sponsors should consider themselves on notice that the SEC is aware of the various ways that they market interests in their private funds and is increasingly eager to pursue enforcement when they perceive that a broker-dealer registration obligation has not been complied with.

LOADING PDF: If there are any problems, click here to download the file.

Written by:

Published In:

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Pryor Cashman LLP | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »

All the intelligence you need, in one easy email:

Great! Your first step to building an email digest of JD Supra authors and topics. Log in with LinkedIn so we can start sending your digest...

Sign up for your custom alerts now, using LinkedIn ›

* With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name.