In what has become a typical announcement, the Securities and Exchange Commission (SEC) announced yesterday that it has filed three more actions against persons who acted as unregistered broker-dealers in violation of Section 15(a)(1) of the Securities Exchange Act of 1934.  While reviewing these cases, I observed the SEC announced yet another case this morning.

Unregistered broker-dealer activity continues to be a top priority for the SEC as it pursues individuals who act as such without being properly licensed as a broker-dealer.  Many persons (natural persons or entities) involved in capital raising, from real estate syndicators to persons believing they qualify as finders or meet the issuer exemption, raise capital for offerings and often receive transaction based compensation without being properly registered as, or associated with, a FINRA registered broker-dealer. While the hallmark of unregistered broker dealer activity has traditionally been the receipt of transaction based compensation (essentially, a commission), the SEC frequently looks at other indicators of broker-dealer activity including whether the person effected any transactions in, or induced or attempted to induce the purchase or sale of any security.

In yesterday’s announcement, three respondents settled SEC proceedings where it was alleged they sold both promissory notes and seven different private placement fund offerings and received transaction based compensation that was allegedly “purposely mischaracterized as a marketing bonus to avoid the appearance of paying transaction based compensation.”[1]  In the action announced this morning, the respondent directly solicited investors to purchase securities and hired unlicensed sales agents who used cold call scripts.  He paid them on average a 25% commission (a discussion of the SEC fraud charges is not included here).[2]  The respondent was alleged to have known he was using “Commission-barred sales agents, and he assisted one agent in using a false name to solicit investors.”[3]

The SEC continues to focus on unregistered broker-dealer cases, whether those cases involve fraud or not.   In all instances, the Exchange Act requires persons who use the mails or any means or instrumentality of interstate commerce to effect securities transactions to register with the SEC and become a FINRA member broker-dealer.

The information and materials in this blog posting are provided for general informational purposes only and are not intended to be legal advice. The issues discussed include complicated areas of law and legal advice should be obtained from a securities attorney about your specific circumstances.

[1] SEC Release No. 34-88041, 3488042 and 3488043 (Jan. 27, 2020).

[2] SEC Release No, 34-88057 (Jan. 28. 2020).

[3] Id.