The Securities and Exchange Commission cracked down on a fund manager and its placement agent because the placement agent was not registered as a broker-dealer. The federal securities laws require that an individual who solicits investments in return for transaction-based compensation be registered as a broker. There is a fine line between a “finder” and “placement agent.” A line that most fund managers would be best served to stay away from.
An SEC investigation found that William M. Stephens of Hinsdale, Ill., solicited investors as a hired consultant for Ranieri Partners. He was paid fees by the firm, but never registered as a broker. Stephens’ longtime friend Donald W. Phillips, a senior managing director who headed up capital raising efforts for Ranieri Partners, was responsible for overseeing Stephens’ activities. His role supposed to be acting as a “finder” who would merely make initial introductions to potential investors.
Since Stephens was paid a commission on his successful introductions, it looks like he stepped far over the line into the activities of a broker-dealer. He was not supposed to deliver documents or discuss the merits of the fund investment. But he did.
The simple remediation was to only use third party finder, marketing agent, or placement agent that is registered as a broker-dealer. Stephens had to pay a disgorgement of pay disgorgement of $2,418,379.20, the money he earned while acting as unlicensed broker-dealer. Ranieri, the fund manager, was ordered to pay a $375,000 penalty. Stephen’s supervisor was subject to a $75,00 fine and a suspension.
Seaman Theodore Marion of Philadelphia, PA, uses a bullhorn to instruct a line-handling party in the hangar bay aboard USS Enterprise By U.S. Navy photo by Photographer’s Mate 3rd Class Jason W. Pfiester [Public domain], via Wikimedia Commons.