According to a February 22 report from Bloomberg, the Securities and Exchange Commission ("SEC") Staff may be privately considering an exemption from broker-dealer registration by private-equity firms in connection with the collection of transaction fees. The exemption purportedly would allow private-equity managers to continue collecting such deal-based fees despite not being registered as a broker-dealer, and may signal that the SEC is unlikely to pursue enforcement actions in connection with prior deal fees. Notably, the Staff is empowered to issue rule exemptions without approval by the full Commission.

While Staff deliberations on this matter have not been made public, they potentially signal a willingness to diverge from views previously expressed by David Blass, the SEC's Chief Counsel, Division of Trading Markets, in an April 2013 speech to the American Bar Association. In that speech, Mr. Blass openly questioned whether, by collecting transaction-based fees in addition to their usual advisory fees, private-equity fund advisors should be required to register as broker-dealers.

A recent no-action letter may have portended the SEC Staff's willingness to depart from Mr. Blass' earlier statements, as well as the Staff's earlier positions, on the topic of broker-dealer registration. In a January 31 no-action letter, the SEC Staff indicated that they would not recommend enforcement action if a so-called "M&A Broker" effects securities transactions in connection with the transfer of ownership and control of a privately-held company without registering as a broker-dealer. The relief defines an "M&A broker" as "a person engaged in the business of effecting securities transactions solely in connection with the transfer of ownership and control of a privately-held company... through the purchase, sale, exchange, issuance, repurchase, or redemption of, or a business combination involving, securities or assets of the company, to a buyer that will actively operate the company or the business conducted with the assets of the company." While the relief granted is subject to numerous conditions and is highly fact dependent, the exempted activities described in the letter are not dissimilar to the "investment banking" services that private-equity managers often perform in consideration for the transaction fees highlighted in Mr. Blass' 2013 remarks.

In any event, the report of internal SEC Staff discussions of a broker-dealer registration exemption for private-equity managers, fresh on the heels of the Staff's no-action relief for M&A brokers as well as other comments made by the Staff, including Mr. Blass, would seem to indicate that the Staff is taking a hard look (and we hope realistic approach) to the application of the broker-dealer regulatory regime to private-equity managers. Winston & Strawn will continue to monitor any future developments on this topic.