The Securities and Exchange Commission recently declined to issue a no-action letter to Hallmark Capital Corporation (Hallcap) in respect of certain private placement and acquisition/disposition activities and, instead, recommended registration as a broker-dealer pursuant to the Securities Exchange Act of 1934.
Hallcap limits its business to serving companies with annual sales of $25 million or less and is paid with a success fee. In raising capital Hallcap prepares a confidential business summary, identifies broker-dealers that might act as placement agents and arranges meetings with the broker-dealer. Once the broker-dealer is engaged, it controls the offering. In case of bank debt, Hallcap identifies potential bank lenders, prepares a confidential business summary and assists with the loan application process, including arranging meetings between the client and the lender. In representing potential sellers of businesses, Hallcap prepares a confidential information summary, identifies and qualifies the interest, and ability to pay, of potential buyers and arranges exploratory meetings. In representing potential acquirers, Hallcap identifies potential targets, conducts preliminary information gathering interviews, including discussions of price and terms, and prepares a profile of the target company.
In denying the no-action request the SEC staff referred to Country Business Inc., p.a. November 8, 2006. In Country Business no-action relief was granted for a finder that acted similarly to Hallcap in representing business sellers that were “small business companies” when the advertising presented the transaction as an asset sale of a going concern.