Wholesaling to Brokers Requires BD Registration, SEC Charges
The SEC has filed a complaint against an investor relations firm claiming that its wholesaling activities constituted unregistered broker-dealer activities. The defendants (the firm and its principals) provided various business services including business and sales development consulting, web site design, and drafting press releases. Most significantly, the defendants operated a call center that solicited brokers to sell their client’s securities. The SEC charges that the defendants acted as “dealers” under the 1934 Act because they participated in the underwriting. Significant to the SEC’s case is that the defendants were compensated with below-market price stock that they sold in the public marketplace.
OUR TAKE: An oft-asked question is whether pure wholesaling – soliciting brokers, investment advisers, and other intermediaries – requires broker-dealer registration. The SEC’s position in this complaint is that such activities constitute underwriting activities.