The SEC has charged a registered private equity fund adviser and its principal for receiving transaction-based compensation for the provision of brokerage services in connection with the acquisition and disposition of portfolio companies, while not being registered as a broker.
There is not much more detail provided in the SEC order. The order states that although the limited partnership agreement expressly permitted the adviser to charge transaction or brokerage fees, the advisor has never been registered with the SEC as a broker nor has it ever been affiliated with a registered broker. Rather than employing investment banks or broker-dealers to provide brokerage services with respect to the acquisition and disposition of portfolio companies, some of which involved the purchase or sale of securities, the adviser performed these services in-house, including soliciting deals, identifying buyers or sellers, negotiating and structuring transactions, arranging financing, and executing the transactions.
The private equity advisor and its principal did not admit or deny the findings in the settlement order.