The SEC just brought action against a firm operating an online platform for EB5 investors for acting as an unregistered broker-dealer: http://www.sec.gov/litigation/admin/2015/34-75268.pdf This is good timing, considering the article I just published regarding the do’s & don’ts of general solicitation.
Although this is regarding a firm in the EB5 space, the implications are broad and I think can be seen as applying directly to our industry. It’s great to see the SEC taking action on these situations. There’s a huge, ongoing need for education on this topic, something my General Counsel, Scott Andersen, and I write about frequently.
In this case the Respondents did a couple of things wrong…
a. they provided advice and made recommendations directly to investors individually (not general solicitation via appropriate exemptions); and,
b. received contingent compensation tied directly to an investor successfully making an investment.
==> they did these things without being a BD or being associated with a BD.
People keep making dumb mistakes which are so easy to avoid. It’s going to take some situations like this to wake them up. We’ll undoubtably see some 506b/c & Reg A platforms get tagged by the SEC and by individual states for this kind of stuff and get shut down and fined. This is a huge part of what FundAmerica Securities and other broker-dealers do: helping people stay out of this kind of trouble so they can pursue their business models.
Special thanks to Sara Hanks at CrowdCheck
for catching this.