What is a Broker-Dealer? - Davis Polk & Wardwell

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§ 1A:2.6 BROKER-DEALER REGULATION exchange offer. The SEC has provided relief subject to the following conditions: • the transaction and its related activities by the associated persons are one-time, non-recurring events; • no compensation of the associated persons will be payable contingent upon the transaction; • the associated persons will not be compensated, directly or indirectly, for their efforts in connection with the transaction; • the associated persons will receive only the compensation they already receive as directors, officers, or employees of the company; • activities of the associated persons will be strictly limited and supervised; • the associated persons will not handle customer funds or securities in connection with the transaction; • no associated persons will be hired solely for the purpose of assisting the transaction; • the associated persons will have substantial, full-time duties unrelated to the transaction; • the associated persons will not discuss the potential market value of the stock; and • the associated persons’ contact with policyholders will be limited and will not discuss the potential value of the stocks, or advise policyholders on how to vote on the demutualization or conversion plan, other than confirming that the board of directors has voted to adopt the plan. 121 In addition, in one no-action letter, the SEC required that the associated persons participating in the solicitation of exchange offers have not participated within the preceding two years in the distribution or sale of any securities pursuant to Rule 3a4-1. 122 Although personnel who are hired solely for the purpose of a transaction and are not employees of the company, such as call center personnel, are not be able to rely upon the safe harbor in Rule 3a4-1, the SEC has also provided relief subject to the following conditions: 121. See EIG Mutual Holding Co., SEC No-Action Letter (Oct. 25, 2006); Anthem Insurance Co., SEC No-Action Letter (Oct. 25, 2001); John Hancock Mutual Life Insurance Co., SEC No-Action Letter (Nov. 1, 1999); The Manufacturers Life Insurance Co., SEC No-Action Letter (May 18, 1999); The Equitable Life Assurance Society of the United States, SEC No-Action Letter (Feb. 28, 1992). 122. Mortgage Investors of Washington, SEC No-Action Letter (Jan. 31, 1981). 1A–30
What Is a Broker-Dealer? § 1A:2.6 (i) the transaction and its related activities are one-time extraordinary events; (ii) the call center personnel are compensated on an hourly or salaried basis; (iii) the activities of the call center personnel are strictly limited and supervised; (iv) the call center personnel do not handle customer funds and securities in connection with the activities discussed; and (v) the call center personnel do not discuss the potential value of the stock, make recommendations to the policyholders regarding the transaction, or solicit policyholders except to answer questions. 123 [E] Bulletin Boards The SEC staff has considered the application of the broker-dealer registration requirements to bulletin boards for an issuer’s stock, including bulletin boards set up by a company to facilitate trading in its own stock, and bulletin boards operated by an unaffiliated third party 124 for the securities of multiple companies. 125 In determining whether the operator of a bulletin board must register as a brokerdealer, the SEC has considered the same factors used in deciding whether a person is a broker discussed above. The SEC has given noaction relief to a company with “passive bulletin board systems” that provide information to prospective sellers and buyers of the company’s securities, provided that: (i) no transactions would be effected by the systems themselves; (ii) the companies would have no role in effecting transactions between participants; and 123. Anthem Insurance Co., SEC No-Action Letter (Oct. 25, 2001); Principal Mutual Holding Co., SEC No-Action Letter (Oct. 9, 2001); Phoenix Home Life Mutual Insurance Co., SEC No-Action Letter (May 31, 2001); John Hancock Mutual Life Insurance Co., SEC No-Action Letter (Nov. 1, 1999). 124. See, e.g., Portland Brewing Co., SEC No-Action Letter (Dec. 14, 1999); Flamemaster Corp., SEC No-Action Letter (Oct. 29, 1996); Real Goods Trading Corp., SEC No-Action Letter (June 24, 1996). 125. See, e.g., Letter from Catherine McGuire, Chief Counsel, Division of Market Regulation to Lori Livingston, Transfer Online, Inc. (May 13, 2000); Investex Investment Exchange Inc., SEC No-Action Letter (Apr. 9, 1990); Petroleum Information Corp., SEC No-Action Letter (Nov. 28, 1989). (Broker-Dealer Reg., Rel. #9, 9/10) 1A–31
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