What is a Broker-Dealer? - Davis Polk & Wardwell
What is a Broker-Dealer? - Davis Polk & Wardwell What is a Broker-Dealer? - Davis Polk & Wardwell
§ 1A:8.5 BROKER-DEALER REGULATION [C] Aiding and Abetting Registered Broker-Dealers are liable for aiding and abetting operations of unregistered broker-dealers. Exchange Act § 20(e) provides that any person that knowingly provides substantial assistance to another person in violation of a provision of the Exchange Act, or of any rule or regulation issued thereunder, shall be deemed to be in violation of such provision to the same extent as the person to whom such assistance is provided. 500 Pursuant to Exchange Act §§ 21(d)(1), (3) or (5), the SEC has brought enforcement actions against Registered Broker-Dealers for aiding and abetting unregistered broker-dealers in their securities transactions. 501 Some state laws impose liabilities on Registered Broker-Dealers who materially aid in the acts or transactions constituting violations of the state securities laws. 502 § 1A:8.5 Concerns for Issuers [A] Liability for Aiding and Abetting Issuers can face liability for knowingly aiding and abetting an unregistered broker-dealer. Exchange Act § 20 imposes liabilities on persons who aid and abet another person in violation of the Exchange Act and the SEC has brought enforcement actions against such issuers. 503 Some state laws also have provisions that impose liabilities on persons who with knowledge assist another person in violation of state securities laws. 504 [B] State Liability for Engaging Unlicensed Agents Besides liabilities from aiding and abetting, an issuer who engages unregistered broker-dealers can face private actions for rescission from investors. Some states have provided a private right of rescission for 500. Exchange Act § 20(e). 501. See, e.g., SEC v. Vladimir Chekholko, Civil Action No. 09-cv-6937 (S.D.N.Y. Aug. 6, 2009); SEC v. FTC Capital Markets, Inc. et al., Civil Action No. 09-cv-4755 (S.D.N.Y. May 20, 2009); SEC v. Black, 90 Civ. 1988 (E.D.N.Y. June 13, 1990). 502. See, e.g., CAL. CORP. CODE § 25403 (2009); CONN. GEN. STAT. § 36b-29 (2008). 503. Exchange Act § 20; see, e.g., SEC v. Jason Smith Petroleum Corp., et al., Civil Action No. CV 86-4419-TJH (C.D. Cal. July 8, 1986); SEC v. Jones and Skinner, Civil Action No. N81-396 (D. Conn. Sept. 9, 1981). 504. See, e.g., CAL. CORP. CODE § 25403 (2009); CONN. GEN. STAT. § 36b-29(c) (2008). 1A–112
What Is a Broker-Dealer? § 1A:8.5 innocent parties who buy securities through unregistered brokerdealers. 505 [C] Section 29 As discussed above, section 29(b) of the Exchange Act renders contracts involving a violation of section 15(a) void and provides for a private right of rescission for innocent parties. 506 505. See, e.g., CAL. CORP. CODE § 25501.5 (2009); CONN. GEN. STAT. § 36b-29 (2008); FLA. STAT. § 517.211 (2009); 815 ILCS 5/13 (2009); Tex. Sec. Act § 33; N.J.S.A. 49:3-71(a)(2); Bramblewood Investors, Ltd. v. C&G Assocs., 262 N.J. Super. 96, 619 A.2d 1332 (June 26, 1992); Carrousel N., Inc. v. Chelsea Moore Co., 9 Ohio App. 3d 344, 460 N.E.2d 316 (1983); Brandenburg v. Miley Petroleum Exploration Co., 16 F.2d 933 (N.D.S.D. 1926). 506. See, e.g., DeHuff v. Digital, et al., Civil Action No. 3:08CV327TSL-JCS (S.D. Miss. Dec. 11, 2009); Eastside Church of Christ v. Nat’l Plan, Inc., 391 F.2d 357 (5th Cir.), cert. denied, 393 U.S. 913 (1968). (Broker-Dealer Reg., Rel. #9, 9/10) 1A–113
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§ 1A:8.5 BROKER-DEALER REGULATION<br />
[C] Aiding and Abetting<br />
Reg<strong>is</strong>tered <strong>Broker</strong>-<strong>Dealer</strong>s are liable for aiding and abetting<br />
operations of unreg<strong>is</strong>tered broker-dealers. Exchange Act § 20(e)<br />
provides that any person that knowingly provides substantial ass<strong>is</strong>tance<br />
to another person in violation of a prov<strong>is</strong>ion of the Exchange<br />
Act, or of any rule or regulation <strong>is</strong>sued thereunder, shall be deemed<br />
to be in violation of such prov<strong>is</strong>ion to the same extent as the person<br />
to whom such ass<strong>is</strong>tance <strong>is</strong> provided. 500 Pursuant to Exchange Act<br />
§§ 21(d)(1), (3) or (5), the SEC has brought enforcement actions<br />
against Reg<strong>is</strong>tered <strong>Broker</strong>-<strong>Dealer</strong>s for aiding and abetting unreg<strong>is</strong>tered<br />
broker-dealers in their securities transactions. 501 Some state<br />
laws impose liabilities on Reg<strong>is</strong>tered <strong>Broker</strong>-<strong>Dealer</strong>s who materially<br />
aid in the acts or transactions constituting violations of the state<br />
securities laws. 502<br />
§ 1A:8.5 Concerns for Issuers<br />
[A] Liability for Aiding and Abetting<br />
Issuers can face liability for knowingly aiding and abetting an<br />
unreg<strong>is</strong>tered broker-dealer. Exchange Act § 20 imposes liabilities on<br />
persons who aid and abet another person in violation of the Exchange<br />
Act and the SEC has brought enforcement actions against such<br />
<strong>is</strong>suers. 503 Some state laws also have prov<strong>is</strong>ions that impose liabilities<br />
on persons who with knowledge ass<strong>is</strong>t another person in violation of<br />
state securities laws. 504<br />
[B] State Liability for Engaging Unlicensed Agents<br />
Besides liabilities from aiding and abetting, an <strong>is</strong>suer who engages<br />
unreg<strong>is</strong>tered broker-dealers can face private actions for resc<strong>is</strong>sion from<br />
investors. Some states have provided a private right of resc<strong>is</strong>sion for<br />
500. Exchange Act § 20(e).<br />
501. See, e.g., SEC v. Vladimir Chekholko, Civil Action No. 09-cv-6937 (S.D.N.Y.<br />
Aug. 6, 2009); SEC v. FTC Capital Markets, Inc. et al., Civil Action No.<br />
09-cv-4755 (S.D.N.Y. May 20, 2009); SEC v. Black, 90 Civ. 1988 (E.D.N.Y.<br />
June 13, 1990).<br />
502. See, e.g., CAL. CORP. CODE § 25403 (2009); CONN. GEN. STAT. § 36b-29<br />
(2008).<br />
503. Exchange Act § 20; see, e.g., SEC v. Jason Smith Petroleum Corp., et al.,<br />
Civil Action No. CV 86-4419-TJH (C.D. Cal. July 8, 1986); SEC v. Jones<br />
and Skinner, Civil Action No. N81-396 (D. Conn. Sept. 9, 1981).<br />
504. See, e.g., CAL. CORP. CODE § 25403 (2009); CONN. GEN. STAT. § 36b-29(c)<br />
(2008).<br />
1A–112
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