SEC Rules that Activities, Not Title, Determine Regulatory Status
Upholding a FINRA decision, the full SEC ruled that a barred rep violated his Bar Order through his activities even though he was an independent contractor without a title. The SEC indicated that the Petitioner had been barred from the industry but served as a consultant to a broker-dealer while the Bar Order was in effect. Although the Petitioner did not have a formal title, the SEC found that he violated his Bar because he was in fact actively engaged in the business. The SEC explained that he took the lead in developing the BD’s bond business, served as its public face to third parties, and recruited and managed traders. Additionally, his consulting compensation depended on the success of the bond business. The SEC rejected Petitioner’s argument that he did not violate the Bar Order because he did not carry one of the titles specifically described in Section 3(a)(18). The SEC also rejected his reliance on third party legal opinions.
OUR TAKE: Active participation in a securities business will require licensing whether or not the individual is an employee or a titular officer. It appears that two factors most influenced this SEC decision: the calculation of his compensation which was dependent on success of the business and his interfacing with third parties.