Private Equity Firm Sanctioned for Using Unregistered Solicitor
The SEC fined and censured a private equity firm and one of its principals for paying a solicitor that was not registered or associated with a broker-dealer. The SEC claims that the solicitor was a longtime friend of the firm’s principal and that he was engaged to make introductions to potential institutional investors for the firm’s private real estate funds. The SEC alleges that the respondents provided the solicitor with fund materials including PPMs, executive summaries, subscription documents, and presentation materials, which the solicitor forwarded to potential investors. The SEC also alleges that the solicitor met with potential investors, discussed the funds, and encouraged investment. The firm agreed to pay the solicitor 1% of all introduced investments, and the solicitor earned over $3.7 Million by raising over $500 million in assets. The solicitor was charged with failing to register as a broker-dealer, and the firm and its principal were charged with causing the violations and aiding and abetting.
OUR TAKE: This case is not limited to paying third party solicitors (or to private equity firms). Firm employees that are paid transaction-based compensation must also associate with a broker-dealer.