Investment Management Alert
May 2010
Authors:
Cary J. Meer
cary.meer@klgates.com
+1.202.778.9107
Benoit N. Jacqmotte
benoit.jacqmotte@klgates.com
+1.503.226.5776
K&L Gates includes lawyers practicing out
of 36 offices located in North America,
Europe, Asia and the Middle East, and
represents numerous GLOBAL 500,
FORTUNE 100, and FTSE 100
corporations, in addition to growth and
middle market companies, entrepreneurs,
capital market participants and public
sector entities. For more information,
visit www.klgates.com.
SEC No-Action Letter Addresses BrokerDealer Registration Requirements
In a May 17, 2010 response letter to Brumberg, Mackey & Wall, P.L.C., a law firm
(“BMW”),1 the staff of the Securities and Exchange Commission (“SEC”) declined
to conclude that broker-dealer registration was not required if BMW engaged in the
referral activities described in its request letter in exchange for transaction-based
compensation.
BMW proposed to introduce a company seeking investors to a limited number of
BMW’s contacts for prospective investments in this company. BMW would receive
compensation based on a percentage of any amounts invested in the company by
such contacts. In connection with such referral activities, BMW stated that it would
not (i) engage in any negotiations on behalf of the company or BMW’s contacts,
(ii) provide such contacts with any information about the company that could be used
as the basis for any negotiations for prospective investments, (iii) have any
responsibility for, or make any recommendations concerning the terms of, any
agreement between the company and such contacts, or (iv) provide any assistance to
the company or such contacts with respect to investments in the company.
In declining to grant BMW’s no-action request, the SEC staff stated 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 ‘preselling’ [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.”
The BMW response letter is the latest in a line of staff no-action guidance and SEC
orders that address the circumstances under which securities-related activities of
persons require such persons to register as broker-dealers under the Securities
Exchange Act of 1934, as amended. See, e.g., Order Exempting the Federal Reserve
Bank of New York, Maiden Lane LLC and the Maiden Lane Commercial Mortgage
Backed Securities Trust 2008-1 from Broker-Dealer Registration, SEC Rel. No. 3461884 (Apr. 9, 2010); MuniAuction, Inc., SEC Staff No-Action Letter (Mar. 13,
2000); Dominion Resources, Inc., SEC Staff No-Action Letter (Mar. 7, 2000).
1
See http://www.sec.gov/divisions/marketreg/mr-noaction/2010/brumbergmackey051710.pdf.
Investment Management Alert
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K&L Gates includes lawyers practicing out of 36 offices located in North America, Europe, Asia and the Middle East, and represents numerous
GLOBAL 500, FORTUNE 100, and FTSE 100 corporations, in addition to growth and middle market companies, entrepreneurs, capital market
participants and public sector entities. For more information, visit www.klgates.com.
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This publication is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon
in regard to any particular facts or circumstances without first consulting a lawyer.
©2010 K&L Gates LLP. All Rights Reserved.
May 2010
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