SEC Cites Private Equity Fund Manager for Failing to Register as a Broker-Dealer

June 2, 2016

On June 1, 2016, the SEC announced a settlement with a Maryland-based private equity adviser for, among other things, acting as an unregistered broker-dealer. According to the SEC, the adviser and its principal provided brokerage services and received transaction-based compensation in connection with the acquisition and disposition of portfolio companies on behalf of private equity funds managed by the adviser. “This activity,” said the SEC, “caused [the adviser] to be acting as a broker.”

The issue of whether and to what extent advisers can receive compensation for facilitating the purchase or sale of portfolio companies on behalf of private equity fund clients without having to register as a broker-dealer has long been debated in the industry. The SEC staff has questioned whether private equity fund managers that receive transaction-based compensation in connection with portfolio company transactions should be registered as broker-dealers. In response, fund managers have argued that they are in the business of managing companies, not engaging in securities transactions.

In light of this case, private equity fund managers should carefully consider whether their compensation arrangements should be revised or if broker-dealer registration may be warranted. Current ACA clients are strongly encouraged to reach out to their ACA consultant to discuss potential broker-dealer registration issues. Or you may contact Dee Stafford of ACA’s Broker-Dealer Practice at or (310) 322-8840 for more information on ACA’s broker-dealer compliance services.

About ACA’s Broker-Dealer Practice
ACA provides regulatory compliance consulting services to broker-dealers worldwide. Our team of former SEC and FINRA regulators and former in-house broker-dealer compliance professionals has helped hundreds of firms register as broker-dealers with the SEC and FINRA. ACA’s registration gap analysis service is designed to help private fund advisers determine whether their activities and compensation arrangements may require broker-dealer registration. In addition, our ongoing compliance solutions assist firms in meeting their day-to-day broker-dealer regulatory obligations.