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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§ 1A:2.6 BROKER-DEALER REGULATION<br />
[B][2] M&A Adv<strong>is</strong>ers<br />
Persons engaged in merger and acqu<strong>is</strong>ition activities are subject to<br />
the broker reg<strong>is</strong>tration requirements when these activities involve, for<br />
example, a sale or exchange of securities. 74 Whether an intermediary<br />
in an M&A transaction would be considered to be a broker depends on<br />
the prec<strong>is</strong>e nature of the services performed. 75 The expectations or<br />
subjective understandings of the parties as to the role of the intermediary<br />
are not relevant. The SEC has taken the position that<br />
individuals who do nothing more than bring merger- or acqu<strong>is</strong>itionminded<br />
people or entities together, and do not participate in negotiations<br />
or settlements between them, may not be brokers in securities or<br />
subject to the reg<strong>is</strong>tration requirements of section 15 of the Exchange<br />
Act—especially where their compensation does not depend upon the<br />
size or success of the transaction. 76 On the other hand, persons (other<br />
than professionals such as lawyers or accountants acting as such) who<br />
participate in or otherw<strong>is</strong>e facilitate negotiations in effecting mergers<br />
or acqu<strong>is</strong>itions, and receive transaction-based compensation, are<br />
required to reg<strong>is</strong>ter as broker-dealers. 77 In addition, the activities of<br />
an intermediary in ra<strong>is</strong>ing venture capital by soliciting investors may<br />
constitute an independent bas<strong>is</strong>, apart from the intermediary’s activities<br />
in corporate mergers and acqu<strong>is</strong>itions, for requiring reg<strong>is</strong>tration<br />
with the SEC as a broker-dealer. 78<br />
The analys<strong>is</strong> under section 15 for an M&A adv<strong>is</strong>er <strong>is</strong>, therefore,<br />
similar to that for a finder. An M&A adv<strong>is</strong>er, who acts as a “finder” by<br />
merely identifying and locating M&A prospects and bringing together<br />
buyers and sellers, and not participating directly or indirectly in the<br />
sale of securities nor sharing in any profits realized (for example,<br />
74. Garrett/Kushell/Assocs., SEC No-Action Letter (Sept. 7, 1980).<br />
75. Henry C. Coppelt d/b/a May Pac Management Co., SEC No-Action Letter<br />
(June 2, 1974); SEC v. Randy, 38 F. Supp. 2d 657, 667 (N.D. Ill. 1999).<br />
76. Garrett/Kushell/Assocs., SEC No-Action Letter (Sept. 7, 1980); IMF Corp.,<br />
SEC No-Action Letter (May 15, 1979); Henry C. Coppelt d/b/a May Pac<br />
Management Co., SEC No-Action Letter (June 2, 1974).<br />
77. John R. Wirthlin, SEC Denial of No-Action Request (Jan. 19, 1999);<br />
Davenport Management, Inc., SEC No-Action Letter (Apr. 13, 1993);<br />
C&W Portfolio Management, Inc. SEC Denial of No-Action Request<br />
(July 20, 1989); Garrett/Kushell/Assocs., SEC No-Action Letter (Sept. 7,<br />
1980); IMF Corp., SEC No-Action Letter (May 15, 1979); Equity Development<br />
Corp., SEC No-Action Letter (Dec. 10, 1976); Henry C. Coppelt<br />
d/b/a May Pac Management Co., SEC No-Action Letter (June 2, 1974);<br />
see also SEC v. Michael R. Milken and MC Group, 98 Civ. 1398 (S.D.N.Y.<br />
Feb. 26, 1998).<br />
78. Henry C. Coppelt d/b/a May Pac Management Co., SEC No-Action Letter<br />
(June 2, 1974).<br />
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