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

§ 1A:2.5 BROKER-DEALER REGULATION
no-action relief to investment advisers that did not receive compensation
for its activity of assisting securities transactions, 63 but denied
no-action relief to investment advisers that proposed to receive
transaction-related compensation. 64 The SEC has identified the
receipt of transaction-related compensation as a factor in its decision
to deny no-action relief to some stock bulletin boards. 65 Although the
SEC has previously granted no-action relief under limited circumstances
in which a celebrity acting as finder “sold his rolodex,” 66 and
would receive a success-based fee, it has since publicly distanced itself
from that precedent. 67 The SEC has brought enforcement actions
against persons for violation of section 15(a) registration requirements
partly based on the fact that they had received transaction-based
compensation. 68
Receiving transaction-related compensation, however, is not the
only factor that the SEC has considered in its decision to grant or deny
no-action relief or bring enforcement actions. For example, even in the
absence of commissions or other specific transaction-related fees, the
SEC has declined to grant no-action relief regarding the broker-dealer
registration of an investment adviser that proposed to locate issuers,
solicit new clients, and act as a customers’ agent in structuring or
63. See McGovern Advisory Group, Inc., SEC No-Action Letter (Aug. 7, 1984)
(the company assisted securities transactions by transmitting orders for
securities to registered broker-dealers).
64. See Boston Advisory Group, SEC Denial of No-Action Request (Sept. 2,
1980).
65. See King & Spalding, SEC No-Action Letter (Nov. 17, 1992); National
Royalty Exchange, SEC Denial of No-Action Request (Dec. 21, 1988).
66. A “finder” is a person who places potential buyers and sellers of securities
in contact with one another for a fee. For more information about
“finders,” see infra 1A:2.6[A].
67. See Paul Anka, SEC No-Action Letter (July 24, 1991), in which the SEC
granted no-action relief despite the fact that Anka received a transactionbased
finder’s fee for units sold either to Anka himself or to investors he
identified without any involvement of Anka in the sales. Although the Paul
Anka letter is still part of the SEC staff ’s guidance, in a number of public
speeches, the SEC staff has indicated that it would not provide no-action
relief under a comparable fact pattern as regards compensation arrangements
today. See, e.g., John W. Loofbourrow Associates, Inc, SEC Denial of
No-Action Request (June 29, 2006); Comments by Kristina Fausti, Special
Counsel, Office of Chief Counsel, SEC Division of Trading and Markets, at
the Private Placement Broker and M&A Broker Panel at the SEC’s Forum
on Small Business Capital Formation (Nov. 20, 2008); Brumberg, Mackey
& Wall, P.L.C., SEC Denial of No-Action Request (May 17, 2010).
68. SEC v. FTC Capital Mkts., Inc. et al., Civil Action No. 09-cv-4755 (S.D.N.Y.
May 20, 2009); SEC v. UBS AG, 100:09-CV-00316 (D.D.C. Feb. 18, 2009);
SEC v. Clean Care Tech., Inc., et al., 08 CIV 01719 (S.D.N.Y. Feb. 21, 2008);
SEC v. Black, No. 8:00CV383-T-26B (M.D. Fla. Feb. 25, 2000); SEC v.
Milken and MC Group, 98 Civ. 1398 (S.D.N.Y. Feb. 26, 1998).
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