By Administrative Order dated June 19, 2009, the Securities and Exchange Commission (SEC) found two individuals and Ram Capital Resources, LLC in willful violation of the broker-dealer registration provisions of Section 15(a) of the Securities and Exchange Act.
The SEC found that Michael E. Fein and Stephen E. Saltzstein, neither of whom was registered as a broker or associated with a registered broker-dealer, operated and controlled Ram Capital as an unregistered broker-dealer while serving as its principals. Specifically, from 2001 through early 2005, Ram engaged in the business of identifying, structuring, and soliciting investors for PIPE offerings. The respondents and the SEC entered into Offers of Settlement with respect to the charges contained in the Order.
To view a copy of the Administrative Order click here.
We believe this Administrative Order may be a significant development in the enforcement of regulations related to persons and entities whose activities may be considered to be in the business of effecting transactions in securities and requiring registration as a broker-dealer. Most, if not all, of the limited number of enforcement actions in this area have usually been combined with allegations or findings of fraud or other misconduct. This appears to be an action aimed solely at the activities of the respondents without allegations of other misconduct.
The Investment Banking and Broker-Dealer Practice Group at Haynes and Boone LLP is often contacted by issuers and other clients and prospective clients regarding permitted activities of so called “finders” who are not registered as broker-dealers. Although the term finders does not appear in the Order, it is apparent that the activities of the named respondents as described in the Order were within the type of activities often undertaken by finders. These activities included:
- Negotiating and drafting the terms of the offerings;
- Identifying and soliciting investors;
- Receiving compensation in the form of a percentage of the gross proceeds invested; and
- Advising issuers and investors as to the structure of the offering.
The issue of unregistered finders has been a point of significant discourse in the securities bar for several years. In July 1995, the ABA Task Force on Private Placement Broker Dealers issued a report on the activities of such persons and entities and recommended a form of “broker light” registration be adopted by the SEC. It was the Committee’s opinion that “there exists a major disconnect between the various laws and regulations applicable to securities brokerage activities, and the methods and practices actually in daily use by which the vast majority of capital is raised to fund early stage businesses in the United States. This vast and pervasive ‘gray market’ of brokerage activity creates continuing problems for the unlicensed brokers, the businesses which rely upon them for funding, attorneys and other professionals advising both the brokers and businesses, and, last but not least, the federal and state regulators who are charged with the obligation to enforce laws and regulations that are out of step with current business practices.”