Blackstreet Capital Management, LLC (BCM), a private equity fund adviser registered with the Securities and Exchange Commission as an investment adviser, and Murry Gunty, its managing member and principal owner, settled charges brought by the Securities and Exchange Commission claiming that BCM acted as a broker-dealer without registration. The SEC also alleged that BCM, without express authorization in the funds’ governing documents, charged two portfolio companies owned by one of its funds operating partner oversight fees and used fund assets to make political and charitable contributions, as well as engaged in other impermissible actions. In determining that BCM acted as an unregistered broker-dealer, the SEC claimed that “[r]ather than employing investment banks or [registered] 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, BCM performed these services in-house, including soliciting deals, identifying buyers or sellers, negotiating and structuring transactions, arranging financing, and executing the transactions.” BCM received substantial transaction-based compensation for providing these brokerage services, alleged the SEC. The SEC also charged that BCM failed to adopt and implement written policies and procedures reasonably designed to prevent the allegedly wrongful conduct. To resolve the SEC’s complaint, BCM and Gunty agreed to pay sanctions of over US $3.1 million, comprising a disgorgement of over US $2.3 million and a civil monetary penalty of US $500,000. (Click here for details regarding this matter in the Advisory, “SEC Enforcement Action Highlights Need for Private Equity Firms to Consider Broker-Dealer Registration” published on June 2, 2016, by Katten Muchin Rosenman LLP.)