On February 8, 2016, the SEC settled an enforcement action against Phillip Corey Roberts (Roberts) and Bay Peak Capital, LLC (Bay Peak) that found that each acted as an unregistered broker in violation of Section 15(a)(1) of the Securities Exchange Act of 1934 (the “Exchange Act”). Roberts founded Bay Peak in 2005 for the purposes of engaging in reverse-merger transactions with China-based operating companies and in transactions to finance those business combinations and the resulting issuers. Roberts marketed Bay Peak on a website as a “privately held investment firm” with “a proven track record of success in international investment banking and investment management.” The website included press releases of successful deals and testimonials from issuers praising Roberts and Bay Peak for their role in the companies’ corporate financing and IPOs.

The SEC found that since the formation of Bay Peak in 2005, neither Roberts or Bay Peak were registered with the SEC in any capacity, yet they participated in at least nine corporate financings or reverse mergers involving Chinese operating companies. In a typical deal, Roberts and Bay Peak located a Chinese company seeking financing in the U.S. markets and negotiated to reverse merge the company’s operating entity into one of the shells acquired by Bay Peak and Roberts for that purpose. Roberts and Bay Peak would work with management to raise capital and participated in key steps of the financing process, including directly soliciting investors, hiring agents to solicit investors, and advising and assisting in the structuring of securities offerings. Roberts and Bay Peak typically received negotiated compensation in the form of shares, advisory and consulting fees, and bonus payments; some of which was paid as transaction-based compensation.

To settle the matter, Roberts and Bay Peak agreed to return all shares of the remaining 11 shell companies and consented to cease and desist from violations of Section 15(a)(1) of the Exchange Act. Roberts and Bay Peak were ordered to pay, on a joint and several basis, disgorgement of $114,141 and prejudgment interest of $13,854.88. Roberts was separately fined $10,000 and was barred from the securities business and from participating in any penny stock offering, with a right to apply for reinstatement after five years.

The SEC’s order against Roberts and Bay Peak is one in a long line of SEC orders that reflect a broad interpretation of the term “broker,” as defined at Section 3(a)(4) of the Exchange Act, as including persons who participate at “key points” in the chain of distribution of securities, particularly where such persons receive transaction-based compensation in connection with a securities distribution.