Subject: Re: Ropes & Gray LLP: SEC Issues Broker-Dealer No-Action Letter of Interest to Private Equity Firms
From: "Eric Schwerin" <[email-masked]>
To: "Hunter Biden" <[email-masked]>
Cc: "Devon Archer" <[email-masked]>
Date: Wed, 12 Feb 2014 11:02:15 -0500

I will of course play the role of the risk averse contrarian but my read of this is that it only relates to referral fees if the investment is made for 25% or more of a company or investment (see the qualification, "if the active operation requirement is met through governance arrangements").  

That is, a $1m investment into a blind pool wouldn't count unless it was for more than 25% of the GP. 

But, if RSTP wanted to do investment banking for Counsyl and raise money for someone to buy 25% or more of the company, Counsyl could pay RSTP an investment banking fee for doing so and RSTP wouldn't have to do it through a BD.    To me, it also would mean that RSTP could pay a referral fee to a third party who identifies the money for the transaction.  

So I wouldn't throw out the book just yet, Devon.  :-)

Eric D. Schwerin
[email-masked]

Sent from my iPhone

> On Feb 12, 2014, at 9:48 AM, Hunter Biden <[email-masked]> wrote:
> 
> "Many private equity firms rely on consultants, finders and other persons for referrals to possible investment and acquisition targets. Compensation for these referrals typically depends on the consummation of the transaction, which, under the SEC’s longstanding position, raised the issue whether persons making referrals should be registered as broker-dealers. In these circumstances, the question for private equity firms was whether they had exposure for facilitating transactions by an unregistered broker-dealer. The M&A Broker no-action letter addresses this concern, at least for referrals by persons meeting the requirements of the letter. In addition, the letter’s approach to the requirement of buyer control and operation of the target suggests that private fund sponsors could pay referral fees to M&A Brokers not only in transactions resulting in the transfer of the entire ownership interest of the target, but also in certain types of minority and venture capital investments, if the active operation requirement is met through governance arrangements."
> 
> This seems to suggest that a third party can be paid a referral fee for raising money not only for a specific deal but for the funds' blind pool.
> 
> R. Hunter Biden
> Rosemont Seneca Partners
> Washington D.C.
> 202-333-1880
> 
> 
> 
>> On Feb 12, 2014, at 6:44 AM, Devon Archer <[email-masked]> wrote:
>> 
>> http://www.ropesgray.com/news-and-insights/Insights/2014/February/SEC-Issues-Broker-Dealer-No-Action-Letter-of-Interest-to-Private-Equity-Firms.aspx
>> 
>> 
>> Devon Archer
>> 646 436 3745
>=2