Late last week, a senior SEC lawyer encouraged the private equity and hedge fund communities to consider whether certain practices of private fund managers could subject these firms to SEC registration as broker-dealers. David W. Blass, Chief Counsel of the agency’s Division of Trading and Markets, raised the issue during an April 5, 2013 speech to the American Bar Association’s Trading and Markets subcommittee.
Saying that his remarks followed on SEC staff observations of business practices of newly-registered investment advisers (and offering the customary disclaimer of not speaking for the Commissioners or others on the staff), Mr. Blass reminded the audience that, absent available exemption or relief, persons engaged in the business of effecting transactions for the accounts of others must be registered as brokers. He stated that the test for whether one is acting as a broker is broad, but noted that some of the factors that could be indicative are: 1) marketing securities transactions, which include interests in a private fund; 2) soliciting securities transactions; or 3) handling customer funds and securities.
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