SEC Says that Introducing Capital Requires BD Registration
The SEC’s Division of Trading and Markets rejected the No-Action Request of a law firm that argued that it did not have to register as a broker-dealer in connection with its capital-raising activities. The law firm was engaged by a technology company to make introductions to persons interested in providing financing. The law firm would be compensated based upon a percentage of the amounts raised. The firm argued that it should not have to register as a broker-dealer, because, although it would receive transaction-based compensation, it would not engage in negotiations or provide advice or recommendations. The staff explained that the firm would have a “salesman’s stake” in the proposed transactions, which required BD registration.
OUR TAKE: Private equity firms that receive contingent compensation for making capital introductions need to register as broker-dealers.