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: , , , , , , , , ,

nov2017-fintech confernce-dc

HEADLINE NEWS

Entrepreneur5 Ways to Learn the Nuts and Bolts of CrowdfundingEntrepreneurCrowdfunding is a multibillion dollar worldwide industry that continues to disrupt the traditional world of corporate finance, as well as change the way products go to market. Businesses new and old, small and l [...]

Forbes6th Annual Global Crowdfunding Convention Sponsored By ForbesBooksForbesIn 2012, crowdfunding raised $1.7 billion in capital – but last year, total capital raised using crowdfunding reached over $60 billion. This represents a seismic shift in the way that startups, non-profits, [...]

Boing BoingCrowdfunding a major new critical study of Robert A HeinleinBoing BoingIt's a huge book -- as befits an author with such a massive oeuvre -- and would have cost a fortune for a traditional academic press to publish, so she's crowdfunding the book on Unbound. Ebook [...]

Advocate.comGay Republican Obamacare Critic Turns to Crowdfunding After ...Advocate.com"Sassy Gay Republican" Alex Newman eventually found out workers' comp would cover his medical costs, but he continued crowdfunding to replace his car.and more » [...]

The ColumbianCrowdfunding raises $12000 to help Vancouver Safeway workerThe ColumbianCrowdfunding raises $12,000 to help Vancouver Safeway worker. Wayne Hudson was diagnosed with a life-threatening infection and will be hospitalized for at least three months. Popular Cascade Park Safe [...]

Forbes5 Crowdfunded Side Projects That Became Million-dollar CompaniesForbesCrowdfunding has also given many side projects a fighting chance, when no one else would. Many startups that originally launched on crowdfunding platforms have gone on to build $100 million businesses from the [...]

Indiatimes.comThrough Crowdfunding, Irish Farmer Saves 7 Cows From Slaughter & Sends Them To Sanctuary In UKIndiatimes.comThrough Crowdfunding, Irish Farmer Saves 7 Cows From Slaughter & Sends Them To Sanctuary In UK. KC Archana. September 24, 2017. An Irish farmer has decided [...]

Will Crowdfunding Become a Big Deal in India?Knowledge@WhartonCrowdfunding — the practice of raising small amounts of capital from a large number of people to fund new ventures — is finally gaining traction in India. The question is: Will it deliver like it has in other markets? India [...]

PCGamesNImmersive sim sequel Consortium: The Tower hits Early Access after crowdfunding successPCGamesNA massive sci-fi tower, a terrorist incident and a dramatic rooftop insertion all while the clock ticks down. It's like a sci-fi Die Hard, but very few games give equal weight t [...]

Fast CompanyHow Crowdfunding Site Patreon Is Helping Artists Build Media EmpiresFast Company(Yam, who built the original version of the site from scratch in three months, is CTO.) Like other crowdfunding platforms, it allows creators to solicit money from their audiences and share upd [...]

CFB Finance

Marketwired

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

Press Release

CrowdFund Beat Media

2020fintech.com “The Future of #Blockchain Digital Currency” #bitcoin “Game Changer” 2017 Fintech World Workshop Series twitter.com/BTCTN/status/9…

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 |