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Birmingham Bar Association Bulletin - Fall 2013

Advisers to private equity funds executing a leverage buyout strategy may also collect many other fees in addition to advisory fees, some of which call into question whether those advisers are engaging in activities that require broker-dealer registration. Examples include fees the manager directs a portfolio company of the fund to pay directly or indirectly to the adviser or one of its affiliates in connection with the acquisition or disposition (including an initial public offering) of a portfolio company or a recapitalization of the portfolio company. The fees are described as compensating the private fund adviser or its affiliates or personnel for “investment banking activity,” including negotiating transactions, identifying and soliciting purchasers or sellers of the securities of the company, or structuring transactions.9 Mr. Blass also noted that transactionbased compensation is a key, but not necessary, indicator of brokerage activity.10 It is clear that the SEC is newlyfocused on unregistered broker activity. Common practices in the industry need to be re-examined and each transaction reviewed on a case-by-case basis. Following the Stephens Release, it is clear that industry standard is no defense. G Endnotes 1 In the Matter of Wm. M. Stephens, Exchange Act Release No. 69090, Investment Company Act Release No. 30417 (March 8, 2013) (hereafter cited as the “Stephens Release”). 2 Stephens Release, pg. 7. 3 Stephens Release, pg. 2. 4 Dominion Resources, SEC No-Action Letter, July 23, 1985. 5 Letter from Catherine McGuire, Chief Counsel, United States Securities and Exchange Commission, Division of Market Regulation, to James Stutts, Vice-President and General Counsel, Dominion Resources, Inc. (Nov. 7, 2000). 6 American Bar Association, Section of Business Law, Committee on Small Business, Committee on Federal Regulations and Securities, Committee on Negotiated Acquisitions, Committee on State Regulation of Securities, Report and Recommendations of the Task Force on Private Placement Broker- Dealers (June 20, 2005) (hereafter cited as “The Report”). 7 The Report. 8 David Blass, Chief Counsel, United States Securities and Exchange Commission, Division of Trading and Market, Address to the American Bar Association, Trading and Markets Subcommittee (Apr 5. 2013) (hereafter cited as “The Speech”). 9 The Speech. 10 The Speech. Art Hanes Contributor Kate Musso Brad Wash Mike Walls Rod Max Upchurch Watson White & Max Mediation Group is the leading alternative dispute resolution firm in the Southeast. Led by Rodney Max, the firm’s experienced local team includes Mike Walls, Brad Wash and former Circuit Court Judge Art Hanes. This team of outstanding mediators serves to assist law firms and their clients in every phase of dispute resolution and has acquired a national reputation for settling major litigation in the state of Alabama and beyond. Visit us at: uww-adr.com Upchurch Watson White & Max M E D I A T I O N G R O U P uww-adr.com Daytona Beach Maitland/Orlando Jacksonville Miami Birmingham Birmingham Bar Bulletin/ Fall 2013 35


Birmingham Bar Association Bulletin - Fall 2013
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