NASAA Proposes State Law Exemption for M&A Brokers

By Mark TaralloCorproate

In a no-action letter dated January 31, 2014 (revised February 4, 2014) (the “No-Action Letter”) the United States Securities and Exchange Commission (“SEC”) indicated that it would not recommend taking enforcement actions against an “M&A Broker” not registered as a broker-dealer with the SEC that was engaged in securities transactions in connection with the sale of a privately-held business.  In the No-Action Letter, the SEC defined an M&A Broker as “a person engaged in the business of effecting securities transactions solely in connection with the transfer of ownership and control of a privately-held company (as defined below) through the purchase, sale, exchange, issuance, repurchase, or redemption of, or a business combination involving, securities or assets of the company, to a buyer that will actively operate the company or the business conducted with the assets of the company.”  While the No-Action Letter provided relief from broker-dealer registration with the SEC, it did not address any state law concerns.

In order to address state law issues, the North American Securities Administrators Association (“NASAA”) recently proposed a model uniform state rule (the “Model Rule”) that if adopted would provide an exemption from registration at the state level (where required) along similar lines of the No-Action Letter.  The Model Rule uses the term “Merger and Acquisition Brokers” defined as “any broker and any person associated with a broker engaged in the business of effecting securities transactions solely in connection with the transfer of ownership of an eligible privately held company, regardless of whether that broker acts on behalf of a seller or buyer, through the purchase, sale, exchange, issuance, repurchase, or redemption of, or a business combination involving, securities or assets of the eligible privately held company…”  There are some other conditions (for example, the entity involved in the transaction has to have revenues of less than $250,000,000 for its last fiscal year).  Transactions involving a public shell are not eligible for the exemption, and the Model Rule identifies certain “Excluded Activities” that would render the broker ineligible for the exemption from registration.

For anyone wishing to provide comments to NASAA, including responses to specific questions posed in the release, the comment period will remain open until February 16, 2015.

For more information please contact Mark Tarallo.

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