What is a Broker-Dealer? - Davis Polk & Wardwell
What is a Broker-Dealer? - Davis Polk & Wardwell
What is a Broker-Dealer? - Davis Polk & Wardwell
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<strong>What</strong> Is a <strong>Broker</strong>-<strong>Dealer</strong>? § 1A:2.6<br />
negotiating transactions. 69 In addition, the SEC has brought enforcement<br />
actions for violation of section 15(a) against persons who had<br />
induced and attempted to induce the purchase and sale of securities for<br />
the accounts of others. 70<br />
§ 1A:2.6 Specific Contexts<br />
[A] Finders<br />
As noted above, the SEC staff has h<strong>is</strong>torically recognized a very<br />
narrow exception to the broker-dealer reg<strong>is</strong>tration requirements for<br />
certain “finders.” 71 A “finder” <strong>is</strong> a person who places potential buyers<br />
and sellers of securities in contact with one another for a fee. There <strong>is</strong><br />
no “finder exception” in the Exchange Act or SEC rules; instead, the<br />
finder analys<strong>is</strong> <strong>is</strong> based on SEC no-action letters. The SEC’s dec<strong>is</strong>ion<br />
to grant no-action treatment in some cases to permit finders to engage<br />
in limited activities without reg<strong>is</strong>tration as broker-dealers <strong>is</strong> presumably<br />
based on the idea that certain limited activities in relation to<br />
securities transactions do not create r<strong>is</strong>ks sufficient to warrant<br />
reg<strong>is</strong>tration.<br />
[B] Business <strong>Broker</strong>s, Private Placement Agents,<br />
and M&A Adv<strong>is</strong>ers<br />
[B][1] Private Placement Agents<br />
Private placements agents must reg<strong>is</strong>ter as broker-dealers under the<br />
Exchange Act. A security sold in a transaction that <strong>is</strong> exempt under the<br />
Securities Act of 1933 (the “Securities Act”) <strong>is</strong> not necessarily an<br />
“exempted security” under the Exchange Act. 72 Therefore, a person<br />
who sells securities through private placements that are exempt from<br />
reg<strong>is</strong>tration under the Securities Act <strong>is</strong> not exempted from reg<strong>is</strong>tration<br />
as a broker-dealer under the Exchange Act, unless that person otherw<strong>is</strong>e<br />
falls within the finder exception or within some other reg<strong>is</strong>tration<br />
exemption. 73<br />
69. See PRA Securities Adv<strong>is</strong>ers, L.P., SEC Denial of No-Action Request<br />
(Mar. 3, 1993).<br />
70. See SEC v. Am. Energy Resources Corp., et al., Case No. 08-CV-01847-REB-<br />
BNB (D. Colo. Aug. 28, 2008); SEC v. Harbour Bay Fin. Co., Civil Action<br />
No. 90-3580 (E.D.P.A. May 25, 1990).<br />
71. See, e.g., Paul Anka, SEC No-Action Letter (July 24, 1991).<br />
72. See SEC Div<strong>is</strong>ion of Trading and Markets, Guide to <strong>Broker</strong>-<strong>Dealer</strong> Reg<strong>is</strong>tration<br />
(Apr. 2008) [hereinafter SEC Guide to <strong>Broker</strong>-<strong>Dealer</strong> Reg<strong>is</strong>tration],<br />
available at www.sec.gov/div<strong>is</strong>ions/marketreg/bdguide.htm.<br />
73. See id.; John W. Loofbourrow Associates, Inc., SEC Denial of No-Action<br />
Request (June 29, 2006).<br />
(<strong>Broker</strong>-<strong>Dealer</strong> Reg., Rel. #9, 9/10)<br />
1A–19