Attorney Sanctioned by SEC for Unregistered Broker-Dealer Activity

By  Bret Daniel , Wealthforge.com, CrowdfundBeat Guest Post,

The SEC crackdown on unregistered entities continues to grab headlines. Recently, we wrote about the importance of complying with the broker-dealer registration requirement under Section 15(a) by highlighting the latest violations by portfolio managers, online platforms, and individuals.

We suggested that anyone that helps to facilitate a securities offering, even in the broadest sense, should consult a lawyer about the necessity of registering as a broker. The most recent SEC enforcement action, however, demonstrates that even lawyers can get tangled up in the wide net cast over unregistered broker-dealers.

images-10

EB-5: Visa or Security?

Mark Ivener was a partner at the California-based law firm Ivener & Fullmer, LLP (both “Respondents”).1 Ivener specialized in immigration law and regularly counseled clients on how to qualify for EB-5 visas under the Immigrant Investor Program. The program allows foreign investors to obtain an EB-5 visa—and permanent resident status for themselves, their spouses, and their children—by investing $1 million2 in a commercial enterprise in the United States that creates or preserves at least ten full-time jobs for American workers.  A prevalent vehicle for making such an investment is through a Regional Center. Regional Centers are allocated a certain number of EB-5 visas for qualifying investments that typically take the form of limited partnership interests, a security under federal securities law. When Ivener counseled clients on how to qualify for EB-5 visas, he referred them to at least one Regional Center. The relationship between Ivener, his firm, and that Regional Center was formalized in a “Referral Services Agreement” that provided for referral commissions. In effect, Ivener was advising his clients to invest in EB-5 securities, and further, receiving transaction-based compensation from those investments. From January 2009 to December 2011, Ivener earned commissions totaling $450,000.

The SEC determined the Respondents’ actions were in violation of Section 15(a)(1) of the Exchange Act. Commonly known as the “registration requirement,” Section 15(a)(1) makes it unlawful for an unregistered entity “to effect any transaction in, or to induce or attempt to induce the purchase or sale of, any security.” Per the terms of a settlement offer, the SEC ordered Respondents to pay $450,000 in disgorgement and $87,855 in interest. Based on the plain language of the statute and broad application by the SEC, it is unsurprising for those versed in securities law that Ivener’s conduct rose to the level of “effecting” or “inducing” the purchase of securities. For Ivener, however, by all accounts an immigration expert, the pitfalls and minefields of securities law may have been completely foreign.

Transaction-Based Compensation

This not the first time we have seen EB-5 matching, a prevalent practice, result in SEC enforcement action.  We provided analysis about one such case relating to a Florida company, Ireeco LLC, and a related foreign entity.

In the Ivener Order, the SEC notes that the Regional Center, the investment vehicles, and the managers “paid commission to anyone who successfully facilitated the sale of limited partnership interests to new investors.” The SEC explicitly classified the commission as transaction-based, but did not provide details on the commission structure.

In the Ireeco case, the sanctions totaled nearly $3.2 million dollars in disgorgement plus prejudgment interest.3 There, the respondent’s illicit commissions were a set percentage of a related flat-fee, but the commissions were contingent upon the investor receiving a condition green card. Therefore, although the Ireeco respondents’ commission was independent of the size of the investment, it was contingent upon a successful closing.

Regardless of what technically qualifies as transaction-based compensation, the range of activities garnering enforcement activity highlights some very important points: (a) a broad range of commission structures may draw ire from the SEC and (b) transaction-based compensation may not be dispositive of whether one is in violation of Section 15(a).

Other Factors to Consider

Generally, “[a] person effects transactions if he or she participates in securities transactions ‘at key points in the chain of distribution.’4 Transaction-based compensation is a clear indicator of participation in key points of the securities distribution chain. However, it is only one of several factors. Other activities to consider include:

  • Selecting the market to which a securities transaction will be sent
  • Assisting an issuer to structure prospective securities transactions
  • Helping an issuer to identify potential purchasers of securities
  • Helping purchasers to identify potential security offerings
  • Soliciting securities transactions (including advertising)
  • Participating in the order taking or routing process
  • Operation or control of electronic or other platforms to trade securities

Such broad framing affords the SEC flexibility, and enforcement action like that taken against Mr. Ivener and his firm illustrates the Commission’s commitment to rooting out and shutting down unregistered brokers in every field.

Bret Daniel

Bret is part of the legal team at WealthForge where he manages client contract flow, internal policy development, and contributes thought leadership on issues ranging from tax to employment law. Bret brings a small business background to WealthForge and is currently a law student at the University of Richmond

Tags: , , , , , , , , ,

HEADLINE NEWS

This RSS feed URL is deprecated, please update. New URLs can be found in the footers at https://news.google.com/news [...]

ForbesHow This Millennial Built A 7-Figure Business Using Equity CrowdfundingForbesJules Schroeder , Contributor I write about millennials following nontraditional paths Opinions expressed by Forbes Contributors are their own. Most people I talk to are astonished when I tell them I sp [...]

Entrepreneur3 Crowdfunding Tips Every Company Forgets From a Brand That Raised $800000 and Got AcquiredEntrepreneurCrowdfunding takes a lot of planning, whether you're gearing up for a launch, a ship date or thinking about the next source of funding you'll pursue. But it [...]

Boing BoingCrowdfunding for medical costs is turning health-care into a reality-TV competitionBoing BoingIt's a sad -- if gripping -- document of the wildly inefficient, friction-hot mess of medical care in the US, where one-fifth of household spending is lavished on healthcare, [...]

Youris.comApproaching energy crowdfunding with eyes wide openYouris.comFor example, in Germany cooperatives have always been important in financing small-scale solar energy. And if you look at all the renewables capacity in the country, I think more than 50% is in the hands of private [...]

Telegraph.co.ukBrewDog keeps the taps open after hitting £10m crowdfunding markTelegraph.co.ukPunk IPA maker BrewDog has surpassed its £10m crowdfunding target but opted to extend the deadline in a bid for even more cash.BrewDog extends crowdfunding deadline after raising £11.3m - BBC [...]

VentureBeatIndiegogo moves beyond crowdfunding to help startups with manufacturingVentureBeatIndiegogo made its name as a crowdfunding site where startups could get cash for their big dreams. But the San Francisco company is moving beyond that idea to helping startups with design for [...]

Comics BeatCrowdfunding Watch: Curiously Cute Critters and a Cyberpunk CollectionComics BeatI recently returned from the Penny Arcade Expo (PAX) in San Antonio, Texas and I can't stop thinking about the games I saw. From the interactive love story Florence to Tunic, a story about [...]

Entrepreneur12 Key Strategies to a Successful Crowdfunding CampaignEntrepreneurI've Raised Close to $2 Million in Crowdfunding Campaigns -- Here Are My Secrets · Next Article. 12 Key Strategies to a Successful Crowdfunding Campaign. Image credit: Shutterstock · Aj Agrawal • Contr [...]

EntrepreneurLive at CES: Indiegogo CEO Predicts What's Next for CrowdfundingEntrepreneurAt CES, hundreds of companies of varying sizes and stages can attribute crowdfunding platforms to their funding, product design and success. One of those being Indiegogo. Founded in 2007, the [...]

CFB Finance

Marketwired

  • Crowdfunding
  • Crowdfund
  • Peer to Peer Lending
  • FinTech
  • Reg A+
  • Reg CF
  • Crowdfunding USA

Press Release

CrowdFund Beat Media

2018 Fintech World Conference & Workshop, Announcement:Game Changer” Fintech World Media, PR & Marketing Group Proudly Presents: lnkd.in/gqdCrTr

Live Crowdfunding .tv

What's Next Step in Regulation A+ JOBS ACTS Title IIII :L Interview : Steve Cinelli with Brian Korn Securities and Crowdfunding/Peer-to-Peer Lending Lawyer, Watch more video library | Conference | Interview | Campaign Showcase | Research | Education |