In a stunning reversal from over a decade of ruling differently, last Friday the SEC released a “no-action” letter saying it will not go after intermediaries in merger & acquisition transactions for failure to register as a broker-dealer even if they receive a commission equal to a percentage of the size of the deal, no matter how big.
In a no-action letter the SEC staff responds to requests for interpretation of rules. They determine whether they would not recommend enforcement action against someone for a particular activity. Technically only the parties addressed can rely on the letters, which do not represent the views of the SEC commissioners and can change or be overruled at any time. As a practical matter, most practitioners do rely on no-action letters, at least until they are changed. In this case they issued the letter basically to any brokers who complete the sale of control of a privately held business and don’t help arrange financing.
So now an intermediary can arrange the sale of any private company, even very large ones, and receive a commission on the sale without an expensive and burdensome SEC registration as a broker. This is even better than legislation working its way through Congress, which would require registration, albeit a simple and automatic one. This is a complete exemption, which is great. The M&A community, however, is still pushing for the legislation since history has shown the SEC can and does changes its position over time. One also hopes the SEC considers similar relief for finders of private capital much as existed before a series of unfortunate no-action letters in the early 2000s. But good step SEC!
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