Private Equity Firm Prosecuted for Failing to Register as BD in PIPE Deals
In a recent enforcement action, the SEC fined and censured a firm and its principals that arranged PIPE transactions for failing to register as a broker-dealer. The firm solicited investors for PIPEs (“private investments in public equities”), assisted structuring, and negotiated terms between investors and issuers. According to the SEC, the firm was typically compensated by investors in an amount equal to 3.5% of the gross amount invested plus 25% of all warrants received. Each of the principals agreed to pay disgorgement and penalties in excess of $500,000.
OUR TAKE: Private equity firms that receive compensation for soliciting limited partners take note. If a firm takes a piece of the deal as compensation and is involved in the transaction, the firm must register as a broker-dealer.