New SEC No-Action Letter Exempts M&A Brokers from Federal Broker-Dealer Registration Requirement


by Richard A. Tulli and George T. Lee III

The Staff of the Securities and Exchange Commission has just released a significant no-action letter, dated Jan. 31, 2014 and revised Feb. 4, 2014 (available here), regarding the application of the broker-dealer registration requirements of the Securities Exchange Act of 1934, as amended, to certain persons who engage in the business of effecting securities transactions solely in connection with transfers of ownership and control of privately held companies.

In this letter, the Division of Trading and Markets, through its Chief Counsel and Associate Director, indicated that it would not recommend enforcement action under Section 15(a) of the Exchange Act if an “M&A Broker,” as defined in this letter, engages in various activities, as described in this letter, in connection with purchases and sales of privately held companies. A critical element of a covered purchase-and-sale transaction is that the buyer or group of buyers must control and actively operate the acquired company or the business conducted with the acquired assets of the company, though the Staff acknowledged that the power to elect executive officers and approve the annual budget (among other things) could constitute active operation. 

This no-action letter provides general relief to those persons who comply with the conditions.  Unlike most SEC no-action letters, the Staff’s conclusion or advice is not limited to a particular requesting person or an individual set of circumstances. 

Although this letter addresses the federal registration requirement, the securities laws of various states, including Texas, include broker-dealer registration requirements.  Accordingly, M&A Brokers will also need to assure that they do not face any issues under applicable state securities laws.

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