SEC Settlement Order Reignites Concerns Over Whether Private Fund Managers Must Register As Brokers

One hallmark of being a “broker” is the receipt of transaction-based compensation. In 2013, the SEC’s David W. Blass suggested that a private equity fund manager that receives transaction-based fees in connection with a fund’s acquisition of portfolio companies should register as a broker under the Securities Exchange Act of 1934. Since then, there has not been conclusive guidance from the SEC on the topic. A recent settlement with a private equity fund manager that allegedly received transaction-based compensation and engaged in traditional brokerage activities has brought the issue back into the spotlight. This article summarizes the facts that led up to the SEC’s action, alleged violations and terms of the settlement. For more on the relationship between transaction-based compensation and broker registration, see “SEC No Action Letter Suggests That There May Be Circumstances in Which Recipients of Transaction-Based Compensation Do Not Have to Register As Brokers” (Feb. 21, 2014); and “Do In-House Marketing Activities and Investment Banking Services Performed by Private Fund Managers Require Broker Registration?” (Apr. 18, 2013).

To read the full article

Continue reading your article with a HFLR subscription.