The Staff of the SEC's Division of Trading and Markets recently published a series of FAQs addressing certain broker-dealer matters arising in connection with Title II of the JOBS Act. The FAQs are available here: http://www.sec.gov/divisions/marketreg/exemption-broker-dealer-registration-jobs-act-faq.htm.
Title II of the JOBS Act formalizes the guidance that has been provided by the SEC in various no-action letters relating to the types of activities that may be conducted by matchmaking sites without requiring broker-dealer registration. Section 201 notes that a matchmaking site will not be required to register as a broker-dealer solely by virtue of its private capital raising activities (which may include the use of general solicitation) provided that it complies with specified conditions.
The FAQs clarify that this provision does not require further rulemaking, but notes that a platform cannot permit an issuer to conduct a general solicitation in a Rule 506 offering until the SEC promulgates its final rules. The FAQs note that the exemption from broker-dealer registration in this section is applicable only when securities are offered and sold pursuant to Rule 506. The FAQs also address compensation and note that "Congress conditioned the exemption on a person and its associated persons not receiving any "compensation" in connection with the purchase or sale of such security." Congress did not limit the condition to transaction-based compensation. The staff interprets the term "compensation" broadly, to include any direct or indirect economic benefit to the person or any of its associated persons. At the same time, we recognize that Congress expressly permitted co-investment in the securities offered on the platform or mechanism. We do not believe that profits associated with these investments would be impermissible compensation for purposes of Securities Act Section 4(b)." To this end, the FAQs note that a venture fund may operate a matchmaking site.
The FAQs also note that the availability of the exemption from broker-dealer registration should not be construed as suggesting that the entity is not otherwise a "broker" or a "dealer" and refers to its guidance on the types of activities typically associated with broker-dealer status. The Staff also notes that the JOBS Act exemption does not address state registration requirements.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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