SEC Issues Ground-Breaking Guidance: Pierce Atwood Business Counselor Q1 2014

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Explore:  Brokers Compliance FINRA SEC

Historically, subject to only very limited and narrow exceptions, the Securities and Exchange Commission, and many state securities regulators, have taken the position that brokers, finders and other intermediaries could not receive compensation in connection with acquisition transactions that were structured as stock purchases or mergers without registering and becoming licensed as brokers (a costly and burdensome process).

In a no action letter issued on January 31, 2014, the SEC staff substantially loosened these restrictions, paving the way for such intermediaries to act in transactions of these types without fear of running afoul of broker dealer registration requirements. There are a number of conditions and limitations that still need to be observed (including: the broker cannot provide financing for the transaction (but can assist in finding or arranging it), cannot have custody of any funds or securities incident to the deal, cannot form the buying “group” if the acquisition is being done by a group, and must fulfill certain notification requirements to deal participants, and the transaction cannot involve any public offering of securities).

However, subject only to these seemingly very manageable restrictions, intermediaries are now free to assist and advise principals in both asset deals and stock deals and be compensated on a contingent (or “success fee”) basis, without having to obtain FINRA licensure or fulfill SEC and state broker licensure requirements. This is very good news not only for intermediaries but for their clients (and counsel) who now have one less legal compliance hurdle to address in an already challenging and costly deal environment.

Topics:  Brokers, Compliance, FINRA, SEC

Published In: Finance & Banking Updates, Securities Updates

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.

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