David Blass, Chief Counsel of the SEC’s Division of Trading and Markets recently addressed the ABA’s membership at its annual meeting, and commented on the need to consider closely whether certain private funds, finders and other intermediaries should register as broker-dealers. Following the SEC Staff’s recent no-action letters to AngelList and FundersClub, Blass’s comments are particularly timely. Blass noted that the Staff has been focused on granting relief from registration requirements (where appropriate), and “working collaboratively with FINRA on a more customized approach for regulation of market participants who perform only limited broker functions.” In this context, Blass mentioned the Staff’s work with FINRA to consider the appropriate level of regulation for funding portals given the limited scope of their activities. He noted that the Staff was considering whether there were “opportunities to extend the approach to other types of brokers whose activities are limited.”
Blass also cautioned that private funds should consider closely the scope of their activities and whether these activities would cause them to be registered as broker-dealers. He noted a number of questions that an adviser ought to consider in connection with determining whether its activities are the type of activities requiring registration. His remarks can be found at: http://www.sec.gov/news/speech/2013/spch040513dwg.htm. In connection with any collective investment scheme for angel investing or venture capital or private equity investing for start-ups and emerging companies, fund sponsors should consider their activities and determine whether specific exemptions from broker-dealer registration are available.