The SEC Division of Investment Management determined that a solictor may receive a fee for the soliciation of clients for registered investment advisers notwithstanding a Commission administrative order against her.  See Matter of Stephanie Hibler,

In deciding to allow the solicitor to receive cash solicitation fees, the SEC staff noted in its response letter that the Commission vacated the portion of the order barring her from being associated with an investment adviser.  The staff also noted that she will conduct any cash solicitation arrangement entered into with any registered investment adviser in compliance with the terms of Investment Advisers Act of 1940 Rule 206(4)-3, except for the investment adviser’s payment of cash solicitation fees.  Finally, the staff considered the fact that she has complied with the terms of the order and will continue to do so, except for those portions vacated by the Commission.

This decision seems to primarily rely upon the fact that the Commission had previously lifted the bar in place.  Thus, we should not all go crazy thinking the SEC is opening the floodgates for barred securities professionals to re-enter the business.

The SEC’s Division of Trading and Markets stated that it would not recommend enforcement action if a “mergers and acquisitions broker” were to engage in the sale or purchase of a privately held company without registering as a broker-dealer under Securities Exchange Act of 1934 Section 15(b). Lee M&A Brokers, SEC, No-Action Letter, avail, 1/31/14,

An “M&A broker” is a broker in the business of effecting securities transactions solely in connection with the transfer of control and ownership of a privately held company via transactions involving securities assets of the company, to a buyer that will actively operate the company.  A private company does not have its securities registered with the SEC, and is not subject to Exchange Act reporting requirements.  Further, if the transaction were structured as an asset sale not involving the sale of securities, a person would not be required to register as a broker-dealer.

The Staff granted the request for no-action relief.  The Staff noted in particular, the following representations:

  • the M&A broker will not have the ability to bind a party to an M&A transaction;
  • the M&A broker will not provide financing for an M&A transaction;
  • the M&A broker will not handle funds or securities issued or exchanged in connection with an M&A transaction;
  • no M&A transaction will involve a public-offering and no party to an M&A transaction shall be a shell company, other than a “business combination related shell company”;
  • if an M&A broker represents both buyers and seller, it will provide clear written disclosure and will obtain written consent from both parties;
  • an M&A broker may facilitate an M&A transaction with a group of buyers only if the group is created without the broker’s assistance;
  • the buyer will actively control the company with the assets of the business;
  • an M&A transaction shall not result in the transfer of interests to a passive buyer;
  • any securities received by the M&A broker or the buyer will be “restricted securities” under Securities Act of 1933 Rule 144(a)(3); and
  • the M&A broker has not been barred from association with a broker-dealer; and is not currently suspended.

The staff said its position is limited to the registration requirements of Exchange Act Section 15(a).

In short, this is a very limited departure for the SEC, and is consistent with prior no-action relief.

In an interesting no-action letter presented by FINRA, the SEC staff granted relief in that where FINRA saw multiple class ownerships where some of these classes indicate almost a relationship between a broker dealer and a customer, the staff would permit such ownership classes without it affecting SEC Exchange Act Rule 15c3-3.

The SEC would allow such arrangements so long as there is an outside lawyer’s opinion letter indicating it was a good legal standing, that the person is actually an equity participant in the firm, the relationship between the person and the brokerage is spelled out in writing, and that their investment is not considered protected under the securities laws or Securities Investors Protection Act, this person must reaffirm this in writing each year, and the registered person is appropriately registered.

This no-action letter will permit those who wish to invest in broker dealers who seem to be customers are in fact owners.  See Financial Industry Regulatory Authority, SEC No-Action Letter, (12/10/12), and

The SEC’s Division of Investment Management allowed a sanctioned broker-dealer official to be paid a cash solicitation fee from a RIA.  See J.P. Turner & Co. LLC, SEC No-Action Letter, avail. 9/10/12, and

The SEC Staff allowed the cash fees because the sanctioned official was not engaged in cash solicitation activities in his individual capacity.  The SEC Staff granted the relief noting the firm will conduct any cash solicitation arrangement in compliance with IA Rule 206(4)-3, and will comply with the terms of the administrative order for 10 years. 

This broker has to follow the SEC rules to permit this individual to receive cash fees, any other approach would be a serious violation.