The SEC fined and barred two advisers for selling interests in a private equity fund to their clients away from their broker-dealer and other securities law violations. The defendants operated a branch office of a registered IA/BD and held licenses. However, the SEC asserts that they formed the private equity fund and sold interests therein without the knowledge or consent of the BD. The SEC maintains that the selling activity constituted unregistered broker-dealer activity because they acted outside the scope of their employment and their mere association with the broker-dealer did not cover their activities. The SEC also charges the pair with other securities laws violations including misrepresentations and conflicts of interest.
OUR TAKE: Individuals that sell private fund securities must obtain appropriate securities law licenses and submit to broker-dealer supervision. Just having a Series 7 does not give you carte blanche to engage in any securities activity unless your broker-dealer approves and supervises.