On February 5, 2013, the Division of Trading and Markets of the SEC issued FAQs providing guidance on the exemption from broker-dealer registration contained in Title II of the Jump Start Our Business Startups Act (JOBS Act). Title II of the JOBS Act offers a limited exemption from broker-dealer registration for intermediaries facilitating Rule 506 offerings under Regulation D of the Securities Act of 1933 (the Title II broker-dealer exemption). It should be noted that although the Title II broker-dealer exemption is technically currently in effect, it has limited utility until the SEC adopts amendments to its rules relating to Rule 506 offerings. The FAQs clarify various matters related to the Title II broker-dealer exemption, including:
- The Title II broker-dealer exemption is only available when securities are offered and sold pursuant to Rule 506 of Regulation D.
- Social media internet websites can qualify as a platform or mechanism under the Title II broker-dealer exemption.
- The Title II broker-dealer exemption is not available if a person or its associated persons receives “compensation” in connection with the purchase or sale of such security. The staff interprets the term “compensation” broadly, to include any direct or indirect economic benefit to the person or any of its associated persons. At the same time, the staff recognizes that Congress expressly permitted co-investment in the securities Caseoffered on the platform or mechanism. Therefore, the staff does not believe that profits associated with these investments would be impermissible compensation.
- Venture capital funds and their advisers can rely on the Title II broker-dealer exemption.
- An associated person of an issuer can maintain a platform or mechanism for sale of the issuer’s securities in reliance on the Title II broker-dealer exemption.
- Any salary paid to a person to promote, offer, and sell shares of a complex of privately offered funds (e.g., in an internal marketing department) is compensation to that person in connection with the purchase or sale of securities. As a result, that person would not be able to rely on the Title II broker-dealer exemption.
- Persons relying on the Title II broker-dealer exemption may still be required to register as a broker-dealer due to their other activities. In addition, the Title II broker-dealer exemption only provides an exemption from registration as a broker-dealer and compliance with requirements applicable only to registered broker-dealers, some portions of the federal securities laws apply to brokers or dealers regardless of registration.
The Title II broker-dealer exemption does not provide an exemption from state registration requirements