Wake-Up Call for Unregistered Solicitors and the Managers That Hire Them

The practice of marketing interests in private investment funds through solicitors that are not registered as brokers under federal or state law is widespread. In some cases, a solicitor will, in fact, fall outside the broker regulatory schemes or qualify for exemptions from them, however, in many instances they will not. In the past, seldom have federal or state regulators brought actions against unregistered solicitors or the fund managers that hire them, except where there were also allegations of fraud. Some solicitors and fund managers may have interpreted the relatively light degree of regulatory enforcement in this area as tacit acquiescence to such practices. Any such notions should have been dispelled on March 11, 2013, when the Securities and Exchange Commission (SEC) announced charges against an unregistered broker, the private equity firm that hired him, and the senior managing director of that firm, 1 and then again on April 5, 2013, when David W. Blass, Chief Counsel of the SEC’s Division of Trading and Markets, gave a speech discussing the “perennial topic” of “the broker-dealer registration requirements as they apply to [solicitors].”

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