Many investment advisers have come to realize that sourcing

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1 Raising Capital is a Risky Business: Here s What You Need to Know By Charles H. Field Charles H. Field is counsel in the San Diego office of Sanford Heisler Kimpel, LLP, and is Co- Chair of the firm s Financial Services Litigation practice.* Many investment advisers have come to realize that sourcing and raising capital for their private funds is neither easy nor inexpensive. Many on a limited budget try to raise capital on their own. For small start-ups, the founders generally share the responsibility for the sake of growing the business. As the start-ups grow, the founders may take on one or more employees to raise capital, paying them salaries, bonuses, a percentage of the amount invested in the fund, or a combination of these. Other investment advisers turn to independent finders to source capital from their rolodexes. In exchange for the source, the investment advisers will pay the finders a percentage of the amount invested in the fund. It is not uncommon for these employees and finders not to be registered as securities broker-dealers. If this is the case, their roles should be limited to sourcing the capital, introducing the capital, and then stepping aside. But what should happen and what actually does happen has become the focus of greater scrutiny by the Securities and Exchange Commission (SEC). The area of sourcing capital has been described as a vast gray market of securities brokerage. 1 Identifying when a person ceases being a finder and begins acting as a securities broker-dealer remains complicated. The uncertainty that exists surrounding the definition of a broker-dealer is confounding for investment advisers. It results from the different analyses that the SEC and the courts have followed to determine whether certain conduct amounts to broker-dealer activity. One known factual analysis advocated by the SEC seeks to determine whether the finder received a fee upon the successful close of a transaction, based on a percentage of the amounts raised. The SEC has long considered this type of fee, known as transaction-based compensation, the hallmark of broker-dealer activity. 2 The SEC will find broker-dealer activity in a transaction simply by concluding that the transaction involved transaction-based compensation. Courts, on the other hand, look beyond this one- factor test and analyze whether 2015, Charles H. Field PRACTICAL COMPLIANCE & RISK MANAGEMENT FOR THE SECURITIES INDUSTRY JULY AUGUST

2 the finder regularly participated in securities transactions at key points in the chain of distribution. Given this complexity, a great number of brokers, investment advisers, and sometimes even their attorneys do not realize that they are operating in violation of securities laws. Simply put, they are unlicensed securities brokers whose fee contracts are unenforceable and whose activities are, in fact, illegal. 3 Those who fall into this category are vulnerable to Identifying when a person ceases being a finder and begins acting as a securities broker-dealer remains complicated. SEC enforcement actions and to claims by unhappy investors who will try to exploit the uncertainty by alleging violations of the Securities Exchange Act of Violations come with significant liabilities. SEC enforcement actions can result in civil penalties, disgorgement of commissions earned, and bars from the industry. Private litigants will seek rescission and monetary damages. Therefore, to stay abreast of the issue, market participants need to educate themselves about the intricacies of the law related to broker-dealer activity. The Federal Statutory Framework A central element of the investor protection scheme established by the federal securities laws is the comprehensive framework for the registration and regulation of persons engaged in the business of buying and selling securities. Section 3(a)(4) of the Securities Exchange Act of 1934 defines the term broker as any person engaged in the business of effecting transactions in securities for the account of others. Section 15(a)(1) of the Exchange Act states (in pertinent part) that It shall be unlawful for any broker or dealer which is either a person other than a natural person or a natural person not associated with a broker or dealer which is a person other than a natural person to make use of the mails or any means or instrumentality of interstate commerce to effect any transactions in, or to induce or attempt to induce the purchase or sale of, any security unless such broker or dealer is registered in accordance with subsection (b) of this section. Violating Section 15 comes with serious consequences. Section 29(b) of the Exchange Act provides that Every contract made in violation of any provision of this title shall be void. The United States Supreme Court has recognized a private right of rescission under this Section. 4 Accordingly, issuers of securities who have retained an unregistered finder to source capital may seek to void their engagement agreement and refuse to pay the finder for services rendered. Investment advisers that use unregistered persons may also find themselves the subject of rescission claims by unhappy investors. Under Section 20(b), It shall be unlawful for any person, directly or indirectly, to do any act or thing which it would be unlawful for such person to do under the provisions of this title or any rule or regulation thereunder through or by means of any other person. Section 21(d)(3) authorizes the SEC to impose civil penalties against the entity ranging from $50,000 to $500,000 plus disgorgement of any pecuniary gain, if the entity is deemed to be engaged in broker activity. In 2013, the SEC ordered an unregistered broker to disgorge nearly $3 million in fees and interest. 5 The SEC can also institute cease and desist orders, proceedings to enjoin violators, and actions to bar or suspend persons from associating with securities firms. Unfortunately, Section 3(a)(4) of the Securities Exchange Act of 1934 is not a model of clarity. Because the Exchange Act defines neither effecting transactions nor engag[ing] in the business, an array of factors is analyzed to determine whether a person qualifies as a broker. The SEC s Guide to Broker-Dealer Registration 6 (Broker- Dealer Guide) provides guidance about and various examples of broker status. According to the Guide, each of the following individuals and businesses may need to register as a broker, depending on a number of factors: Finders, business brokers, and other individuals or entities that engage in the following activities: finding investors or customers for, making referrals to, or splitting commissions with registered broker-dealers, investment companies (or mutual funds, including hedge funds) or other securities intermediaries; finding investment banking clients for registered brokerdealers; 22 JULY AUGUST 2015 PRACTICAL COMPLIANCE & RISK MANAGEMENT FOR THE SECURITIES INDUSTRY

3 finding investors for issuers (entities issuing securities), even in a consultant capacity; engaging in, or finding investors for, venture capital or angel financings, including private placements; finding buyers and sellers of businesses (i.e., activities relating to mergers and acquisitions where securities are involved). The SEC looks at the activities that the person actually performs and the Broker-Dealer Guide lists some of the questions that, in the SEC s view, bear upon whether an intermediary is acting as a broker: Do you participate in important parts of a securities transaction, including solicitation, negotiation, or execution of the transaction? Does your compensation for participation in the transaction depend upon, or is it related to, the outcome or size of the transaction or deal? Are you otherwise engaged in the business of effecting or facilitating securities transactions? Do you handle the securities or funds of others in connection with securities transactions? In the SEC Staff s view, a yes answer to any of these questions indicates the intermediary may need to register as a broker. The Elusive Issuer Exemption for Employees For those investment advisers that utilize internal staff to source capital, the SEC s Rule 3a4 1 provides a safe harbor to those who engage in limited sales activities. A member of the SEC Staff has indicated that Rule 3a4 1 also known as the issuer exemption is to be narrowly construed and is very limited in its application. 7 Compliance with the Rule is based on two different levels of requirements. The first level has three conditions. Two are relatively straightforward: the employee cannot be subject to a statutory disqualification or be associated with a securities broker-dealer. The third condition is not so straightforward: the employee may not receive compensation based on investments in the fund. Given how broad the phrase compensation based on investments in the fund can be, investment advisers should be aware that an annual bonus might constitute compensation in connection with an investment in the fund. In Rule 3a4 1 s Adopting Release, 8 the SEC Staff indicated they will consider the following factors relevant when assessing whether a bonus would fall within the safe harbor. These include: when the offering commences and concludes; when the employee s bonus is paid; when it is determined that the employee s bonus will be paid; when sales personnel are informed of the investment adviser s intention to pay a bonus; and whether the bonus paid to a particular salesperson varies with his or her success in selling investments in the fund. Satisfying the first level s three conditions leads the investment adviser to the next compliance level, which requires the investment adviser to comply with one of the following three conditions: (1) restricting sales to registered brokers or dealers, mutual funds and financial institutions; (2) limiting sales duties to one offering every twelve months; or (3) engaging only in passive sales activities. For all practical purposes, these conditions may prove insurmountable for many investment advisers, especially those with employees whose compensation is based on investments into the fund. Non-compliance does not automatically trigger an Exchange Act violation; however, non-compliance removes the investment adviser from the safe harbor and renders it vulnerable to both regulatory sanctions and legal claims for rescission. The safest alternative is for the firm (or an affiliate) to obtain a securities broker-dealer license. Unfortunately, obtaining a license can prove especially burdensome and expensive and, once obtained, the ongoing compliance costs are quite high. This is not an appealing alternative, and leads many to turn to independent finders. SEC No-Action Positions on Finders The broker-dealer issues related to finders are equally, if not more, complex than those related to employees. In determining whether a finder should be registered, it is helpful to review the history of how the SEC and the courts have analyzed and interpreted the importance of these factors. Over time, the SEC s position on unregistered finders has evolved. For many years, the SEC Staff looked at the totality PRACTICAL COMPLIANCE & RISK MANAGEMENT FOR THE SECURITIES INDUSTRY JULY AUGUST

4 of the facts to determine whether the finder participated in the negotiations or in discussions of the details of the transaction. But in 2010, the Staff shifted its analysis to focus solely on the presence of transaction-based compensation, a shift that would require many finders to register as broker-dealers. In December 1973, the SEC Staff declined to grant relief to the May-Pac Management Co., which specialized in mergers and acquisitions. 9 May-Pac proposed to seek out potential sellers of corporations, bring them together with potential buyers, and work toward closing the transaction. The company acknowledged that in most cases it would participate in whatever negotiations were necessary to close the deal and advise its clients as to the quality of any offer received. On the basis of these described activities, the SEC concluded that May-Pac would be required to register as a broker-dealer. The SEC found that the proposed activities amounted to more than merely bringing together the parties to transactions involving the purchase or sale of securities. The firm proposed to negotiate agreements, engage in other activities to consummate the transactions, and to receive fees for its services that would be proportional to the money or property obtained by its clients and that would be contingent upon such transactions in securities. The SEC Staff emphasized that persons who play an integral role in negotiating and effecting mergers or acquisitions that involve transactions in securities generally are deemed to be either a broker or a dealer, depending upon their particular activities, and are required to register with the Commission. Given this complexity, a great number of brokers, investment advisers, and sometimes even their attorneys do not realize that they are operating in violation of securities laws. Simply put, they are unlicensed securities brokers. In August 1987, the SEC Staff granted no-action relief to Victoria Bancroft, a licensed real estate broker, who established lists of clients who might be interested in buying financial institutions that were for sale. 10 The Bancroft noaction letter describes her activities as being limited merely to the introduction of parties. Bancroft did not participate in the establishment of the purchase price or any other negotiations between the parties. The parties created all materials related to either the sale or purchase of the financial institutions without Bancroft s involvement. Bancroft didn t facilitate exchange of the information. At most, she described to the potential purchaser the type of institution, the asking price, and the general location. If the potential person were interested, Bancroft would arrange a meeting with the seller or seller s representative. Either the buyer or seller would compensate Bancroft by a flat fee or a percentage of the purchase price. The compensation was considered to be a referral fee or finder s fee. In granting no-action relief to Victoria Bancroft, the SEC Staff indicated that: (1) Bancroft had a limited role in negotiations between the purchaser and seller, (2) the businesses represented by Bancroft were going concerns and not shell corporations, (3) transactions affected by means of securities would convey all of a business s equity securities to a single purchaser or group of purchasers formed without the assistance of Bancroft, (4) Bancroft did not advise the two parties whether to issue securities or assess the value of any securities sold, and (5) Bancroft did not assist purchasers in obtaining financing. Up until 1991, the SEC Staff had left open whether a commission-like fee arrangement, standing alone, would constitute grounds for registration as a broker-dealer. In a July 1991 no-action letter involving Paul Anka, the singer, the Staff stated it would not recommend enforcement of the broker-dealer registration requirement against him. 11 In Anka, the Ottawa Senators Hockey Club hired the singer Paul Anka to act as a finder for purchasers of limited partnership units issued by the Senators. Anka agreed to furnish the Senators with the names and telephone numbers of persons in the United States and Canada whom he believed might be interested in purchasing the limited partnership units. Anka would neither personally contact these persons nor make any recommendations to them regarding investments in the Senators. It is noteworthy that in Anka s original proposal letter to the SEC, he would have made the initial contact with prospective investors, but the SEC Staff would not issue a no-action letter under those facts. In exchange for his services, Anka would be paid a finder s fee equal to 10 percent of any sales traceable to his efforts. 24 JULY AUGUST 2015 PRACTICAL COMPLIANCE & RISK MANAGEMENT FOR THE SECURITIES INDUSTRY

5 Important factors identified in the Anka letter include: (1) Mr. Anka had a bona fide, pre-existing business or personal relationship with these prospective investors, (2) he reasonably believed those investors to be accredited, (3) he would not advertise, endorse or solicit investors, (4) he would have no personal contact with prospective investors, (5) only officers and directors of the Senators would contact the potential investors, (6) compensation paid to the Senators officers and directors would comply with 1934 Act Rule 3a4-1 (governing compensation to issuer s agents), (7) Mr. Anka would not provide financing for any investors, (8) he would not advise on valuation, (9) he would not perform due diligence on the Senators offering, and (10) he had never been a broker-dealer or registered representative of a broker-dealer. By 2010, the SEC Staff had distanced itself from Anka and turned its focus solely to the presence of transaction-based compensation in their opinion, a hallmark of brokerdealer activity. Whether a person receives transaction-related compensation is currently the key factor in the SEC Staff s decision in granting or denying no-action relief to, or bringing enforcement actions against, persons providing services as broker-dealers. The SEC s departure from the multi-factor analysis was solidified in March 2010, when the SEC Staff issued a negative response to a no-action request in Brumberg, Mackey & Wall, P.L.C. 12 The Brumberg firm sought to introduce potential investors to a renewable energy company. In return, Brumberg would receive a percentage of the funds raised from those investors. Brumberg claimed that it would not (1) engage in any negotiations with investors; (2) provide potential investors any information about the energy company that could be used as the basis for funding-related negotiations; (3) be responsible for, or make any recommendation regarding, the terms, conditions, or provisions of any agreement for an investment; or (4) provide any assistance to any potential investor regarding any transaction involving the financing of the energy company. The SEC Staff denied the request for relief on the grounds that the transaction-based compensation described would create a heightened incentive for Brumberg to engage in sales efforts. The Brumberg no-action letter seemed to establish a one-issue checklist: Did the finder or business broker receive transaction-based compensation? If so, broker-dealer registration would be required, because that factor alone, according to the SEC, would trigger such requirements. The Kramer Case 13 In SEC v. Kramer, the federal court in the Central District of Florida was not persuaded by the position the SEC had staked out in Brumberg. Kramer, an unregistered finder, had agreed to source capital for Skyway Aircraft in exchange for a 5 percent commission on the total value of any deal that closed. Kramer contacted Skyway on a regular basis and sought press releases about Skyway s accomplishments. Kramer was also in frequent contact with Skyway s CEO. Kramer encouraged others to read Skyway s press releases and visit Skyway s website. Kramer told potential investors he thought Skyway might be a good deal. Many of Kramer s contacts became investors in Skyway. Kramer also became acquainted with a man named Nick Talib, and he drove Talib to the Skyway headquarters to meet Skyways CEO. After the introduction, Talib and the CEO adjourned to a conference room without Kramer. Ultimately, Talib raised $14 million in capital for Skyway. In the end, Skyway went bankrupt but Kramer had earned hundreds of thousands of dollars in commissions for his efforts. The SEC sued Kramer in a Florida federal court. It cited Brumberg as definitive authority to support its allegation that, by receiving transaction-based compensation, Kramer was an unregistered broker-dealer. The court flatly rejected Brumberg s one-issue analysis of transaction-based compensation, calling it an inaccurate statement of the law. 14 Instead, the court analyzed whether Kramer regularly participated in securities transactions at key points in the chain of distribution. It analyzed Kramer s conduct against a laundry list of non-exclusive factors that the various courts had considered in the past. The most frequently cited factors 15 consist of whether a person: works as an employee of the issuer; receives a commission rather than a salary; sells or earlier sold the securities of another issuer; participates in negotiations between the issuer and an investor; provides either advice or a valuation as to the merit of an investment; actively (rather than passively) finds investors; analyzes the financial needs of an issuer; recommends or designs financing methods; and/or holds oneself out as a facilitator of securities transactions. PRACTICAL COMPLIANCE & RISK MANAGEMENT FOR THE SECURITIES INDUSTRY JULY AUGUST

6 The court found there was no evidence that Kramer (1) sold a share of Skyway, (2) participated in the purchase and sale of a Skyway security, (2) provided advice or other information about the investment, 16 (3) advertised or distributed promotional material for Skyway, (4) sponsored a seminar or social event at which Kramer promoted Skyway, (5) sold the security of another issuer, (6) hired employees to contact potential investors about Skyway, (7) called a potential investor (i.e., someone other than one of Kramer s intimate friends), or (8) encouraged a broker to sell Skyway securities. Accordingly, the court dismissed the SEC s case against Kramer. Whichever factor is analyzed, it is clear from the opinion that the court rejected a single-factor approach. It noted that merely bringing together the parties to transactions, even those involving the purchase and sale of securities, is not enough to warrant broker registration under Section 15(a). The court also flatly rejected the SEC s attempt to impose on the court its own legal interpretation of broker-dealer activity. The Kramer ruling may prompt the SEC to reconsider its single, transaction-based compensation analysis in favor of a more flexible multi-factor approach. Ranieri Partners A 2013 case brought by the SEC against a finder for Ranieri Partners 17 proved that the SEC would continue to pursue unregistered finders. Ranieri Partners retained an independent consultant named William M. Stephens to find investors among acquaintances and former colleagues to invest in Ranieri Partners private investment companies. In return, they paid Stephens success fees of 1 percent of the amounts invested. The SEC found that Stephens (1) sent offering and subscription documents to potential investors, (2) actively pursued and met with prospective investors, (3) urged at least one investor to make a portfolio allocation to the company, (4) provided potential investors with an investment performance track record, and (5) provided potential investors with the identity of other investors and their investment amounts. As a result of these efforts, Stephens raised $569 million for the Ranieri funds. In an SEC administrative proceeding, Stephens was found to have been operating as an unregistered broker, was ordered to disgorge the commissions he earned, and was barred permanently from the securities industry. The other aspect of the matter was that the SEC Staff also pursued Ranieri Partners and a senior managing partner. 18 Ranieri Partners testified that it had instructed Stephens to limit his activity to contacting potential investors and arranging meetings, and that Stephens was specifically told not to distribute private placement memoranda for the funds. The SEC found, however, that Ranieri Partners was aware of Stephens active solicitation activities and, because it had turned a blind eye, Ranieri Partners had aided, abetted, and caused the violation. Ranieri Partners was ordered to cease and desist from committing or causing any violations and any future violations of Section 15(a) of the Exchange Act and to pay a $375,000 penalty. The senior managing partner was also ordered to cease and desist from committing or causing any violations and any future violations of Section 15(a) of the Exchange Act and to pay a penalty of $75,000. In addition, the senior managing partner was suspended from association in a supervisory capacity with any broker, dealer, investment adviser, municipal securities dealer, municipal adviser, transfer agent, or nationally recognized statistical rating organization for a period of nine months. For investment advisers, the lesson from Ranieri Partners is that using unregistered finders can be risky business, because investment advisers can be held liable for the activities of an unregistered broker-dealer under the aiding and abetting provisions of Sections 20(a) and (b) of the Exchange Act. This includes not only regulatory penalties, but also possible rescission claims under Section 29(a) from unhappy investors. The latter could have a devastating effect on any investment adviser caught in a down market or during periods of relatively poor performance. Accordingly, investment advisers are well advised to consider all the pros and cons before retaining unregistered finders to source capital. Mitigating Risks Investment advisers that use employees to source capital should carefully consider the types of duties and responsibilities they assign to employees. A marketing department comprised of employees whose sole function is to market to prospective fund investors may imply broker-dealer activity. On the other hand, employees who have multiple duties and responsibilities from administration to operations to technology are not as likely to raise red flags. 26 JULY AUGUST 2015 PRACTICAL COMPLIANCE & RISK MANAGEMENT FOR THE SECURITIES INDUSTRY

7 Equally important is the compensation structure. An investment adviser that operates under a compensation plan that rewards employees for investments in the fund creates a road map for regulators and private litigants. The investment adviser should consider tying bonuses to a variety of achievements, such as overall firm profitability, personal goals, compatibility with other employees, and adherence to the firm s culture and compliance program. Education and training that emphasizes passive sales activities and identifies what constitutes unlawful broker-dealer activity will ameliorate the risk of employees crossing the line and exposing investment advisers to liability. For an investment adviser using an unregistered finder, the investment adviser must control the activities of the finder, both contractually and as a matter of fact. Kramer is very instructive with regard to contractual language. At a minimum, the agreement should specify several things that, if complied with, should provide the investment adviser and the finder with defensible positions. First, the finder will introduce to the adviser only potential accredited investors, preferably those with whom the finder has a preexisting relationship. Second, all negotiations will take place directly between the investment adviser and the potential investor. Third, the finder will not make any representations respecting the fund or furnish any written materials to any potential investor unless expressly authorized by the investment adviser in writing. Fourth, the finder will not handle or hold any funds or securities of the potential investor. The unregistered finder should not have a disciplinary history, hold himself or herself out as placing securities, or have a finder business. The investment adviser must remain vigilant in monitoring the finder s compliance with these terms. To that end, the investment adviser should insist on the right to inspect the finder s books and records on an annual basis, particularly all written communications between the finder and investors. It may also prove useful to require the finder periodically certify that the finder understands and has complied with the provisions of the agreement. A finder who will not agree to these basic terms is, in all likelihood, not the one on whom the investment adviser should risk its reputation and financial well-being. Conclusion Raising capital for investment advisers is fraught with risk, and failure to follow the rules can make participants easy prey for regulators and private litigants alike. Once broker-dealer activity is established in adviser capital raising, the penalty is strict and can be unforgiving. Unfortunately, trying to assess whether broker-dealer activity exists is confusing because the SEC is saying one thing and the courts are occasionally saying another. Those advisers with the means are more likely to follow the licensed broker-dealer route. However, those less fortunate are left to deal with the legal uncertainty of the finder at their own risk. As this area of the law is both unsettled and highly complex, for those who take the risk it pays to be well versed in the particular activities that give rise to a requirement to register as a broker-dealer under the Exchange Act. ENDNOTES * Charles H. Field has been practicing in the securities law area for more than 28 years. His practice focuses on protecting the interests of investors. Having served from 2002 to 2013 as the General Counsel of Nicholas-Applegate Capital Management and its successor, Allianz Global Investors Capital, he brings a combination of private practice experience and a deep knowledge of the laws governing investment advisers, broker-dealers, and commodity trading advisers. Mr. Field is licensed to practice in California and Indiana and in the Federal Court of the Southern District of California. He is a member of the San Diego and California Associations, and is a former member of the Board of Directors of the National Society of Compliance Professionals. He is a frequent speaker to business, professional and service groups on a variety of securities law and regulatory topics. 1 Cornhusker Energy Lexington, LLC v. Prospect Street Ventures, No , 2006 WL (D. Neb. Sept. 12, 2006). The court found genuine issues of material fact with respect to whether certain activities amounted to broker-dealer activities or whether, if they did, equity would require the court to declare the contract unenforceable. 2 See Blass, David W A Few Observations in the Private Fund Space. (April 5, 2013), available at: Speech/ Cornhusker, note 1 supra. 4 Transamerica Mortgage Advisors v Lewis, 444 U.S. 11 (1979). 5 William M. Stephens, Securities Exchange Act Release No , Investment Company Act of 1940 Release No , Administrative Proceeding File No (March 8, 2013). 6 U.S. Securities and Exchange Commission, Guide to Broker-Dealer Registration (April 2008). At bdguide.htm. 7 See Blass, note 2 supra. 8 Persons Deemed Not To Be Brokers, Exchange Act Release No , 1985 WL (June 27, 1985), at 17 CFR Part 240.3a May-Pac Management Co., SEC No-Action Letter, 1973 SEC No-Act. LEXIS 1117 (December 20, 1973). 10 Victoria Bancroft, SEC No-Action Letter, 1987 SEC No-Act. Lexis 2517 (Aug. 9, 1987). PRACTICAL COMPLIANCE & RISK MANAGEMENT FOR THE SECURITIES INDUSTRY JULY AUGUST

8 11 Paul Anka, SEC No-Action Letter, LEXIS 925 (July 24, 1991). 12 Brumberg, Mackey & Wall, P.L.C., SEC No-Action Letter, 2010 WL (May 17, 2010). 13 SEC v. Kramer, 778 F. Supp. 2nd 1320 (M.D. Fla. 2011). 14 Id. at footnote Citing SEC v. Hansen, No , 1984 WL 2413 (S.D.N.Y. April 6, 1984). The SEC found broker activity where it was established that the defendant (1) prepared letters that extolled the virtues of the investment; (2) advertised in newspapers; (3) sponsored seminars and social events; (4) distributed gifts, bumper stickers, and other promotional items ; (5) participated in a financial symposium called The Money Show at the New York Coliseum; and (6) hired employees and provided prepared scripts for the employees telephone calls to prospective investors. 16 The court was not persuaded that Kramer s sharing his opinion that Skyway was a good company and a good deal equated to investment advice. 17 William M. Stephens, Securities Exchange Act Release No , Investment Company Act of 1940 Release No , Administrative Proceeding File No (March 8, 2013). 18 Ranieri Partners LLC and Donald W. Phillips, Securities Exchange Act Release No , Investment Advisers Act of 1940 Release No. 3563, Administrative Proceeding File No (March 8, 2013). This article is reprinted with permission from Practical Compliance and Risk Management for the Securities Industry, a professional journal published by Wolters Kluwer Financial Services, Inc. This article may not be further re-published without permission from Wolters Kluwer Financial Services, Inc. For more information on this journal or to order a subscription to Practical Compliance and Risk Management for the Securities Industry, go to pcrmj.com or call JULY AUGUST 2015 PRACTICAL COMPLIANCE & RISK MANAGEMENT FOR THE SECURITIES INDUSTRY