Broker-Dealer Archives

The Dangers of Using Unregistered Brokers and Finders

As I’ve written before on this blog, business owners need to be careful about hiring unregistered brokers and finders for capital raises. This rule applies to some M&A events as well. I was recently interviewed by The Ambulatory M&A Advisor, and the resulting article can be found here: http://www.ambulatoryadvisor.com/the-dangers-of-unregistered-brokers-and-finders/

While The Ambulatory M&A Advisor specializes in M&A for ambulatory care centers, the issues discussed apply to any business.

Enjoy!

SEC Provides Exemption from Broker-Dealer Registration Requirements for M&A Brokers

On January 31, 2014 (revised February 4, 2014), the SEC issued a no-action letter to a group of attorneys who requested assurance on an issue that has long been on the minds of securities lawyers: are people who facilitate the sale of a controlling interest in a business involving a transfer of stock — which the Supreme Court has held to be a sale of securities under federal securities laws — required to register as broker-dealers under the Securities Exchange Act of 1934, with all of the attendant expenses and obligations?

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The JOBS Act, a Year Later – Part 4: Online Angel Investment Platforms

This post is the fourth in a series examining the impact of the Jumpstart Our Business Startups Act (or JOBS Act) one year after its passage and focuses on the provisions related to online angel investment platforms.

In the last post of this series, I discussed the progress of implementing the first half of Title II of the JOBS Act, which instructs the SEC to amend Rule 506 to allow for general solicitation in Rule 506 offerings if certain additional conditions are met.   In this fourth post, I will look at the second part of Title II (namely Section 201(c)), which exempts some online angel investment platforms from the federal broker-dealer registration requirement. [Read more…]

Neogenix Oncology: A Good Case Study on Securities Law (Non)Compliance by a High Growth Company – Part 3: When the Genie Can’t Be Put Back in the Bottle

In my previous posts, I described the events leading up to the Chapter 11 bankruptcy and supervised asset sale of Neogenix Oncology. To recap, Neogenix’s payment of fees to unregistered “finders” to raise money in some of its earlier rounds of financing called into question the company’s compliance with federal and state securities laws. Under such laws, just about any arrangement in which someone is paid a contingent or variable fee to raise capital for a company is prohibited, unless that person is registered as a broker-dealer or is a registered representative of a broker-dealer. After the SEC commenced an investigation into Neogenix’s practices, the company’s accountants concluded that potential investor lawsuits and/or governmental enforcement actions could give rise to large contingent liabilities on the company’s balance sheet. This uncertainty led to Neogenix being unable to raise further funds, necessitating the company’s bankruptcy filing. In this post, I’ll explore the likely reason why Neogenix had to take the drastic step of filing for bankruptcy to cure its securities violations. [Read more…]

Neogenix Oncology: A Good Case Study on Securities Law (Non)Compliance by a High Growth Company – Part 2: What Neogenix Did

In my previous post, I described the events leading up to the Chapter 11 bankruptcy and supervised asset sale of Neogenix Oncology. To recap, Neogenix’s use of unregistered “finders” in some of its earlier rounds of financing called into question the company’s compliance with federal and state securities laws. After the SEC commenced an investigation, Neogenix’s accountants concluded that potential investor rescission rights could give rise to large contingent liabilities on the company’s balance sheet. This uncertainty led to Neogenix being unable to raise further funds, necessitating the company’s bankruptcy filing. In this post, I’ll explore how exactly Neogenix violated securities laws and the lessons this case study provides to startups and other growth stage companies. [Read more…]