When issuing securities, navigating all SEC rules without risking regulatory intervention can be difficult and intimidating.
Tobin & Company has been managing securities offerings for 20 years and our clients who issue securities tell us that SEC Rule 3a4-1 causes them the most concern because of its broad broker definition and its seemingly ambiguous legalistic language.
In its simplest form the rule says that a salaried employee of a security issuer cannot sell a security more often than once in a 12-month period without being a licensed broker. If that happens the employee is at risk of breaking federal law.
If a regulatory review reveals that one of your employees has sold a securities offering more than one time in a year – in other words two separate offerings – without a broker license, that act (or two in this case) can lead to civil enforcement action, fines and other ancillary implications.
Rule 3a4-1, referred to as the issuers’ exemption, provides a non-exclusive safe harbor for employees of an issuer. However, the rule defines a broker very broadly and includes any person engaged in the business of effecting transactions in securities for the account of others. Merriam-Webster defines effecting as to cause to come into being.
Concern from issuers is that employees and officers of an issuer could be deemed brokers when they are assisting the issuer in the sale of its securities, even if they are not earning commissions, bonuses, or other contingent compensation. In simpler terms, unsuspecting salaried employees not deemed to be brokers can be at risk of breaking federal law when working on a firm’s offerings, while otherwise just doing routine tasks of their job.
The conflict arises when a company issuing more than one offering a year within a given parent entity, its employees and/or business owners, are at risk of having the federal government believe that they are a broker selling securities. In the United States an issuer can’t be a broker without being licensed through FINRA, and most issuers don’t want to own a broker-dealer or manage the FINRA licenses of their employees.
As a Managing Broker Dealer, Tobin & Company deals with Rule 3a4-1, FINRA and issuers of securities daily. We know how to protect issuers, issuer’s employees and fulfill all the obligations of a broker-dealer through the lens of securities law. If you don’t employ brokers and your employees are selling securities, our presence as your Managing Broker-Dealer protects them from regulatory actions.
If you’re planning to issue a new securities offering, call us. We’ll help reduce your Rule 3a4-1 stress!
Warm regards,
Justine Tobin
When issuing securities, navigating all SEC rules without risking regulatory intervention can be difficult and intimidating.
Tobin & Company has been managing securities offerings for 20 years and our clients who issue securities tell us that SEC Rule 3a4-1 causes them the most concern because of its broad broker definition and its seemingly ambiguous legalistic language.
In its simplest form the rule says that a salaried employee of a security issuer cannot sell a security more often than once in a 12-month period without being a licensed broker. If that happens the employee is at risk of breaking federal law.
If a regulatory review reveals that one of your employees has sold a securities offering more than one time in a year – in other words two separate offerings – without a broker license, that act (or two in this case) can lead to civil enforcement action, fines and other ancillary implications.
Rule 3a4-1, referred to as the issuers’ exemption, provides a non-exclusive safe harbor for employees of an issuer. However, the rule defines a “broker” very broadly and includes any person “engaged in the business of effecting transactions in securities for the account of others.” Merriam-Webster defines effecting as to cause to come into being.
Concern from issuers is that employees and officers of an issuer could be deemed “brokers” when they are assisting the issuer in the sale of its securities, even if they are not earning commissions, bonuses, or other contingent compensation. In simpler terms, unsuspecting salaried employees not deemed to be brokers can be at risk of breaking federal law when working on a firm’s offerings, while otherwise just doing routine tasks of their job.
The conflict arises when a company issuing more than one offering a year within a given parent entity, its employees and/or business owners, are at risk of having the federal government believe that they are a broker selling securities. In the United States an issuer can’t be a broker without being licensed through FINRA, and most issuers don’t want to own a broker-dealer or manage the FINRA licenses of their employees.
As a Managing Broker Dealer, Tobin & Company deals with Rule 3a4-1, FINRA and issuers of securities daily. We know how to protect issuers, issuer’s employees and fulfill all the obligations of a broker-dealer through the lens of securities law. If you don’t employ brokers and your employees are selling securities, our presence as your Managing Broker-Dealer protects them from regulatory actions.
If you’re planning to issue a new securities offering, call us. We’ll help reduce your Rule 3a4-1 stress!
Due Diligence
We conduct an investigation and perform due diligence and analysis with respect to the business and operations of the issuer. We document these for our own files as well as for the soliciting broker-dealers and for our regulators.
A Closer Look at Due Diligence
Offering Materials
We structure, prepare and/or review financial models and analysis, private placement memoranda, subscription documents, investor questionnaires, organizational documents and other documents pertaining to the securities offering by the issuer.
Broker-Dealer Agreements
We enter into soliciting broker-dealer agreements with brokers and broker-dealers willing and able to market and sell the securities of the issuer.
Documentation
We assist with the processing of all subscription documents, offering documents and other documents necessary for finalizing the sale of securities of the issuer.
Compliance
We ensure that our client’s offering complies with state and federal securities laws, where applicable, and that all filings that are required by regulators are completed and filed.
CASE STUDY
Knowledge, Responsiveness Keys to Building Long-Term Relationships
Atlanta-based Roberts Properties, Inc. specializes in designing, developing, building, and managing upscale apartment communities. Staying on schedule raising capital, while fairly representing the benefits and risks of an offering, is critical to success. That’s where a knowledgeable, efficient, responsive, and astute Managing Broker-Dealer comes into play.
Roberts Properties had previously exited a 20-year broker-dealer relationship; it held an extensive interview and search process to select a new Managing Broker-Dealer.
Roberts Properties had very specific criteria for its search. The Firm that Roberts Properties would eventually select had to have intimate knowledge of Financial Industry Regulatory Authority (FINRA) rules and regulations and needed to have an unwavering confidence in its knowledge of FINRA compliance. And of course, the chosen Firm needed to be service-oriented and responsive.
Beyond that, there was one for thing the Firm needed; a proven record of building and nurturing strong relationships.
We’re a very relationship-oriented business so once we get a relationship working it generally becomes long-term, says Roberts Properties CFO Anthony Shurtz.
After screening a number of investment banking Firms, reducing the number down via conference call interviews, and vetting two finalists, Roberts selected Tobin & Company.
In the past four years Tobin & Company has helped Roberts Properties navigate FINRA compliance on three equity-raising projects; two in Atlanta, one for $6.5 million and another for $10.5 million, plus a $10.725 million project named Tapestry Park in Savannah. Plans are now underway for a $21.3 million equity-raise for a mixed-use project with an apartment community, including an IHG Hotel Indigo.
Justine’s been very effective in her compliance role, says Shurtz. She vets the deals and makes sure everyone is properly informed about the details. Investors get approved quickly and she’s done a great job substantiating the accreditation.
Since engagement, Tobin & Company has reviewed and managed each of Roberts Properties’ equity transactions. The Firm has answered reviews as questions have arisen with the ultimate result that FINRA has had no further comments on any of the offerings.
The bottom line is that Roberts Properties and Tobin & Company are building a long-term relationship, one day at a time.
With Tobin & Company our Registered Reps maintain their reputation through a company that has never had any violations, fines, or citations for questionable behavior throughout the history of the Firm.
Eleanor Brewer, Attorney
US Freedom Capital