On June 1, 2016, the Securities and Exchange Commission (SEC) announced the settlement of an enforcement action against a private equity firm and its owner, alleging that the firm acted as an unregistered broker-dealer in connection with activities commonly conducted by sponsors of private equity funds. Although several improprieties under the Investment Advisers Act of 1940, as amended, were also alleged and detailed in the Order, the title of the SEC’s press release, “SEC: Private Equity Fund Adviser Acted As Unregistered Broker,” is indicative of the relative importance of the broker-dealer registration issue, at least with respect to its implications for the private equity industry. In the settlement order, the SEC noted that the private equity firm acted as an unregistered broker-dealer by “soliciting deals, identifying buyers or sellers, negotiating and structuring transactions, arranging financing, and executing … transactions” on behalf of its portfolio companies.
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