Private Placement Memorandum: A Startup’s best friend for attracting investment.

If you are looking to raise capital for your business, you will inevitably need to utilize a document known as a private placement memorandum (PPM). This is a legal document that you can use to list down disclosures and selling points of your business for prospective investors. It is also known as offering document or offering memorandum.

When do you use a Private Placement Memorandum?

When it comes to selling equity in your company or raising capital via a debt offering for private enterprises in the United States, one needs to be more than familiar with and to follow the rules set forth by the Securities Act of 1933. This requires you to register yourself with the Securities and Exchange Commission (SEC). One of the core elements of the documents you must submit is to explain why the offering made by the business complies with SEC Regulation D, which allows exemption for some companies from registering with the SEC. Regulators in Europe and other regions typically impose similar and sometimes more rigorous standards.

Paul Azous, the Founder/CEO of Broker Dealer LLC, which operates private placement advisory firm Prospectus.com  “The PPM lists down the securities being sold, the terms set by the company and numerous other elements. Also included are the disclosures according to the exemptions used, investor profiles and detailed information of the terms. It will however not include a general offer for investment, making it the perfect tool for attracting investment.”

Where to start from?

Believe it or not, many businesses that rely on PPMs tend to work with templates found online, such as the PPM library, which contains more than 10,000 actual offering documents from companies in more than 100 countries and dozens of industries. Noted Azous, “In many cases, entrepreneurs seeking to raise capital will find themselves engaging a law firm that will charge anywhere from USD $25000 to upwards of USD $50,000 to create a PPM; but those legacy fees often prove to be out-sized when considering the deliverables.”

A PPM is a serious invitation for thoughtful and focused investors who want to know about your business, its future and most important, the profits that they can earn from it. If you go for ready-to-use templates from unreliable sources, you will likely end up with a dry, conventional PPM that will have numerous legal loopholes, which in turn can get you into trouble.

There are a variety of professional services focused on creating a bespoke PPM. This document will be tailored for your business and its prospective investors. The writer will work with you directly and use the information that you provide, ensuring that the final product highlights your company, its potential and why investors should take it seriously.

When you enlist professional PPM writing services, your business will be thoroughly analyzed by experts who will have a full understanding about your enterprise, along with identification of all the legal risks that can be obstacles for investment. They will also be able to identify the best possible approach for your business under the Regulation D of the SEC.

Will my lawyer help me in creating PPM?

A Private Placement Memorandum is a legal document. Using an experienced securities lawyer or a professional service provider specializing in the creation of investor documents makes good sense. However, while the PPM serves as a legal document; it is also a business marketing tool for you to attract investors. A lawyer should be able to draft a foolproof legal document, but in many cases they will lack in the creative thinking that is required to make your PPM attractive.

Professional service providers who specialize in private offerings should offer you advice, consultancy and insight about the best practices when it comes to attracting investors. They have presumably worked on PPMs for companies across a variety of industries, and ideally have cross-border experience to address the needs of Issuers based not only in the United States, but in multiple global jurisdictions as well. By choosing the right professional consultant, you will be working with people who actually know how to leverage a PPM document to raise equity for your company.

Contributor Samuel Goldberg is a 20 year private finance and investment banking veteran who currently serves as an independent consultant and a Board Advisor to PPM Group, a global advisory with offices in New York, London, Hong Kong and Tel Aviv. His knowledge base with respect to private placement documentation, capital formation and business consulting is based on dozens of projects in which he helped negotiate term sheets for multiple public offerings and private issuances that have raised nearly USD $2.5billion for a broad spectrum of companies. Mr. Goldberg’s area of expertise encompasses Reg D, Reg S and 144A issuance, stock exchange listing services, as well as the EB5 market.

2017 Best Practices for Private Placement Memorandums

The post 2017 Best Practices for Private Placement Memorandums appeared first on BrokerDealer Blog.

“If I were President, I would say “YOU”RE FIRED!”

(InvestmentNews.com) Sen. Elizabeth Warren has asked President Barack Obama to replace SEC Chairwoman Mary Jo White, despite two straight years of record-level enforcement actions by the agency.

In a letter to the president Friday morning, Ms. Warren focused on Ms. White’s “refusal to develop a political spending disclosure rule and repeated actions to undermine the agency’s mission of investor protection and the administration’s priorities.”

Ms. Warren, D-Mass., argues that the disclosure rule would increase transparency for investors by requiring companies to report political contributions.

In her letter, Ms. Warren reminded the president that he “may designate a new SEC chair at any time from among the existing SEC commissioners.”

An SEC spokeswoman declined to comment on Ms. Warren’s 12-page letter, which suggests the battle is just getting started.

“Congressional Democrats will fight to remove the recently passed rider from December’s government funding legislation, and I urge you to threaten to veto any effort to extend this corrupt policy,” Ms. Warren wrote. “But these efforts will be meaningless as long as Chair White continues to control the agenda of the SEC.”

Global consultant Private Placement Services LLC provides corporate Issuers seeking to raise capital via debt, equity convertible debt or other structures with a full suite of offering memorandum preparation and prospectus document writing. 

To schedule an initial call to discuss your needs, please click here

Even though Ms. Warren’s passion for increased regulatory oversight of the financial services industry has never been subtle, it might be missing the big picture, according to Todd Cipperman, principal at Cipperman Compliance Services.

“I think you’d have a hard time finding anyone in the investment management industry who would say Mary Jo White has been easy on the industry,” he said. “I think the industry views the SEC’s enforcement staff as being very tough, and [Ms. White] has a very significant enforcement record.”

Elizabeth Warren to SEC Chair Mary Jo White: I Want You Fired! For the full story from InvestmentNews, click here

The post Elizabeth Warren to SEC Chair Mary Jo White: I Want You Fired! appeared first on BrokerDealer Blog.

Agency could alter 2015 proposal, which sought to pull back the curtain on opaque trading venues

In what might be her last major speech to members of the broker-dealer community as the Obama administration winds down and gets ready for the closing bell, SEC Chair Mary Joe White addressed a Washington DC gathering of the Securities Traders Association this week and talked about BDs favorite topic: equities market structure.  After taking a few accolades for approving Finra-recommended regulations that require software developers of algorithmic trading tools to be registered and licensed just as securities traders, Ms White  summarized her accomplishments  and forward looking perspectives regarding SEC efforts to address inequities in the equities market structure.

Courtesy of Mondo Visione, below are the opening extracts from Ms. White’s speech:

Thank you, Jim [Toes], for that kind introduction.  I am honored to join you again for your annual market structure conference.

The American equity markets are the strongest in the world, and one of the Commission’s most important responsibilities is to work every day to maintain their fairness, orderliness, and efficiency.  Optimizing market structure is a continuous process, one that requires the Commission to act with both care and intensity, strictly guided by what is best for investors and capital formation for public companies.

I emphasized this guiding principle when I last joined you in 2013,[1] and in 2014 when I laid out a program for enhancing equity market structure.[2]  Fulfilling our responsibility to investors and issuers, of course, demands that the Commission act quickly to address issues that are demonstrably undermining the interests of investors and issuers.  But it also requires the Commission to carefully consider changes to market structure where the impact on those interests is far less clear and the data to support competing perspectives is lacking or conflicting.

Where improvements to equity market structure are clearly called for, the Commission has acted.  The operational integrity of our markets – my top priority – has been significantly enhanced by a number of measures.  The staff is gathering and analyzing more market data than ever before to inform policymaking, and the consolidated audit trail is becoming reality.  And we have detailed proposals out for comment that will give investors more transparency into how the off-exchange markets operate and broker-dealers handle their orders.

At the same time, the Commission has undertaken a deliberate, data-driven process to assess – and, as appropriate, begun to implement – more fundamental changes to equity market structure.  This process requires great care.  The American equity markets today continue to serve well the interests of retail and institutional investors, delivering better executions at lower costs than ever before.  Broad changes to this market structure – especially those executed precipitously or without adequate data – can have serious unintended consequences for investors and issuers as their impact is fully realized, sometimes years down the road.

This two-pronged approach recognizes that market structure can never be perfect and, correspondingly, that the Commission’s work is never – and should never – be done.[3]  Market structure is continually evolving as technology and competition spur innovation.  That fluidity means that the Commission’s review must be both comprehensive and nimble, constantly testing existing assumptions, regulations, and market practices, while remaining poised to act quickly on issues that immediate attention can address.

Today, I want to report on some of our progress on both our targeted enhancements to tackle such issues, and our consideration of more fundamental market structure questions.  While the Commission has been active in a number of areas, I will focus today on operational integrity, market transparency, and algorithmic trading.

In assessing these areas and others, we have been fortunate to have the assistance of our relatively new Equity Market Structure Advisory Committee, or EMSAC.  Especially in addressing some of the more complex issues in market structure today, the EMSAC, which brings deep expertise and a wide range of perspectives, provides a public forum for valuable and timely discussions, both within the Committee itself and as a result of its efforts to reach out to a wide range of others with expertise on key issues.

Strengthening Operational Integrity and Market Stability

Let me begin where I always do, with operational integrity and market stability.  Since I arrived at the Commission, enhancing the reliability and resilience of our markets has been my top priority.  Weaknesses or disruptions in operations can destabilize markets and, in some cases, lead to extreme price volatility and the loss of investor confidence.  The Commission’s work here continues – we can never be complacent – but I am very pleased with the steps we have taken to strengthen the market systems on which investors depend every day.

Regulation SCI

Central to this effort has been Regulation SCI, which the Commission adopted at the end of 2014.[4]  While no measure can eliminate technology disruptions altogether, Regulation SCI is designed to reduce the occurrence of systems issues and to improve resilience and communication when systems problems do occur.  It imposes requirements on key market participants – the exchanges, high‑volume alternative trading systems (ATSs), clearing agencies, the securities information processors (SIPs), the Financial Industry Regulatory Authority (FINRA), and the Municipal Securities Rulemaking Board (MSRB).

These “SCI entities” were required to start complying with most of the requirements of Regulation SCI last November.[5]  In the first instance, this means maintaining comprehensive policies and procedures to ensure the capacity, integrity, resiliency, availability, and security of key automated systems.  It also means: taking appropriate corrective action when systems issues happen; reporting systems problems and changes directly to the Commission and market participants; and conducting periodic reviews and testing of automated systems.

Approaching the first full year of the regulation’s operation, our examiners have been reviewing compliance with Regulation SCI.  It is apparent from these examinations that many market participants have devoted significant resources to compliance, and there has been good progress in implementation.  But a few areas for additional attention have emerged.  For example, it is clear that processes for patching and updating systems deserve close attention – human errors in these routine tasks can create much more significant issues.  Another example is diversifying primary and backup systems – in seeking to fulfill their recovery obligations under Regulation SCI, market participants should focus on not just the geographic locations of those systems, but also consider their reliance on different electrical, telecommunications, and other infrastructure support.  Our staff is continuing to work with market participants in these areas and others to help ensure that the goals of Regulation SCI are achieved.

Improvements to Critical Market Infrastructure

Regulation SCI has been complemented by a number of initiatives by the exchanges and FINRA to enhance the operational integrity of critical market infrastructure like the SIPs and the open/close process.  At my direction, following the Nasdaq SIP outage in 2013 and NYSE’s trading outage in 2015, SEC staff worked with the exchanges and FINRA to correct the defects that caused these incidents, as well as to identify and address other potential single points of failure.  These cooperative efforts were expanded after the unusual volatility of August 24, 2015, and there has been significant progress.

• First, the resilience of the SIPs is considerably improved.  There are now enhanced disaster recovery sites and systems to establish a “hot/warm” backup process, which provides for a failover from the primary site to the backup site in ten minutes or less.[6]
• Second, as of June, the equity listing exchanges now have mutual backup arrangements for their closing auctions, which will address situations when a disruption might prevent the execution of a closing auction on the primary listing exchange.[7]
• And third, the process for opening auctions, especially in volatile markets, has been and continues to be improved.[8] 

Enhancements to Volatility Moderators

Amidst these and other improvements,[9] reminders persist about the continued importance of the volatility moderators implemented after the “Flash Crash,” especially the “limit-up/limit-down” plan designed to reduce extraordinary volatility in individual securities.  The exchanges and FINRA have already implemented basic enhancements to limit-up/limit-down in the wake of the events of August 24, 2015,[10] and I have asked them to address additional issues that emerged during that event. 

Further Strengthening Market Operations

One such issue is the application of the mechanism to exchange-traded products (ETPs), where we have a broader program underway to help ensure that these increasingly popular products operate robustly in a variety of market conditions.  We saw during the Flash Crash and on August 24 that ETPs can be disproportionately affected when markets become disorderly.  Orderly trading in an ETP requires a smoothly functioning market for the ETP’s holdings so that market makers and authorized participants can reliably value the ETP’s portfolio.  If the underlying market becomes disorderly, or if market makers and authorized participants step away from trading, the arbitrage mechanism can be disrupted and an ETP can trade at prices substantially away from its implied value.

Commission staff, as well as the exchanges and FINRA, are assessing the special characteristics of ETP trading in determining whether particular changes should be made to the limit-up/limit-down mechanism to reflect the sensitivity of ETPs to disorderly market activity.[11]  In addition, I have directed the staff’s ETP Working Group to identify and analyze a broad range of issues relating to the structure, trading, and use of ETPs.  The Working Group is considering, among other things: what portfolio characteristics and market structures support effective arbitrage; the roles and practices of market makers and authorized participants; and the effects of the ongoing exchange pilot programs to incentivize trading in less‑liquid ETPs.

If you haven’t already fallen asleep and would like to read the entire transcript, please click here

The post SEC Chair White Last Major Speech to BDs: Market Structure appeared first on BrokerDealer Blog.

Below, courtesy of Traders Magazine’s Patrick Flannery, please find find a consolidated view of what broker-dealers are now contending with in terms of implementation challenges.

For broker-dealers, the Consolidated Audit Trail (CAT) may seem to be another weighty technical challenge, whose cost and implementation challenges will fall disproportionately on their shoulders (and their budgets). In fact, last week, SIFMA submitted a letter to the SEC detailing exactly how burdensome CAT will be.

The current plan, according to SIFMA, “would impose the vast majority of CAT-related costs on broker-dealers.” In its letter to the SEC, the US lobbyist asked the agency to demand that the parties developing CAT, namely, the exchanges and FINRA, explain how they justify requiring “broker-dealers to bear any of the financial burden of funding a system that exists to receive and process information that broker-dealers are required to report under SEC regulations.”

Global consultant Private Placement Services LLC offers a full suite of professional consulting and offering document preparation services for those seeking to raise money via a private placement of debt, equity or convertible securities. To learn more, visit PPM.co

What’s more, while the data submitted to CAT will give regulators better oversight, which is expected to help promote market fairness, several securities industry insiders have begun to question what type of access broker dealers will have to this data.  As we understand, it’s unclear at this point whether broker-dealers will to be able to directly query the very data that they must bear the burden (and cost) of collecting and reporting.

Despite these challenges, things may not be as bad as they seem. For those who learn to understand the value of the data they’re collecting, and how it can be mined for market insight, there’s potential for significant upshot.

The Heavy Lifting

CAT will be a much more detailed and sophisticated form of audit trail than FINRA’s OATS system, to which firms currently report data for regulatory oversight purposes, and as a result, reporting requirements will be significantly more complex. The data that CAT will consolidate is voluminous, and for many firms, who have this data stored in disparate systems, gathering, organizing and time stamping CAT data for reporting purposes will be a substantial if not a near-colossal undertaking.

Some aspects of CAT reporting are so challenging it’s hard to see the bright side. For example, every broker-dealer, exchange and all other self-regulatory organizations (SROs) reporting to CAT will have to establish and maintain a system of unique IDs for customers, accounts, counterparties and orders. The ultimate goal:  the entire life cycle of any equity or options order can be preserved for future review. A trade, originated through a retail broker, e.g., that is routed through a broker-dealer and executed on an exchange, should be able to be stitched together and reconstructed from CAT data so that the full picture is viewable from multiple perspectives.

When an original order is received, firms will have to capture and report an ID number of the customer originating the order, a CAT order ID, an identifier of the firm receiving the order, terms of the order and a time stamp measured to CAT time-stamping requirements (currently 50 milliseconds).

To continue reading, please click here

The post Broker-Dealers: CAT Got Your Tongue? appeared first on BrokerDealer Blog.

(MarketsMuse.com) –Finra, the securities industry’s self-regulator sent out its first monthly “report cards” to brokerage firms warning about manipulative superfast trading practices, marking the beginning of an effort to encourage the firms to cut off traders that aren’t playing fair.

The Financial Industry Regulatory Authority said it made the grades available to brokerage firms Thursday, identifying potential evidence of manipulative practices by firms or their customers. The report cards, which aren’t made public, focus on spoofing and layering, two practices that involve traders submitting orders they don’t intend to execute with the goal of moving prices and capitalizing on the change.

“Spoofing” is an illegal practice in which a trader with long position enters a a buy order for that security and immediately cancels it without filling the order in an effort to artificially create a demand for that security so as to induce other investors to then issue their own buy orders at a higher price, which increases the appearance of heightened demand. The first investor then closes his/her long position by selling the security at the new, higher price.

“These types of manipulation take advantage of other investors and harm public confidence in market integrity,” Finra Chairman and Chief Executive Richard Ketchum said in a news release. “We expect that the firms will use the data to enhance their own surveillance and move swiftly to cut off potential market manipulation.”

The move is part of a broader regulatory effort to stamp out devious practices in response to high-profile cases of alleged manipulation, such as​the case involving ​Navinder Sarao, the British trader accused of contributing to the 2010 stock market “Flash Crash.”

Finra wouldn’t say how many firms received the report cards, but a spokesman said it was “a large number.”

To continue reading the story from MarketsMuse, click here

The post Broker-Dealers Cited by Finra for Spoofing appeared first on BrokerDealer Blog.

SEC Mary Joe White has a dream, and even if she aspires to leverage the inspirational outlook of  Dr. Martin Luther King, securities industry members are debating whether her dream could prove to be a reality any sooner than the civil rights agenda expressed by Dr. King so many years ago.  In a series of comments during the past several weeks from Chairperson White regarding the SEC’s agenda for the remainder of her tenure as President Obama’s designated SEC Chairperson, Ms. White, who is operating with only 3 of 5 Commissioners until two open vacancies are filled before the Second of Never,  she is vowing one of the top three items on her list includes “better understanding exchange-traded funds aka ETFs before the SEC approves prospectuses.” That makes sense.

One only wonders why that elementary concept had never occurred to any one previously—despite repeated calls from among others, former SEC Commissioner Steve Wallman (1994-1997) who has long questioned the approval process for many of the complex exchange-traded products the SEC has rubber-stamped, including inverse and commodities-related products that even professionals often do not understand.  Since his departure from the SEC, Wallman has proven adept at doing the right things while serving at the helm as Founder/Chairman/CEO of the investment firm Foliofn.com.

Other matters of importance according to White include “the desire on part of SEC to introduce “fiduciary definitions for registered advisers and brokers..” which in plain speaks means : White’s agenda is to figure out how to completely change the culture of the securities brokerage industry by forcing people to be ethical and moral. MarketsMuse sources have indicated White is proposing to have those folks swear an oath that says:

“My first obligation is to protect my clients’ interest above all else and to make sure I never even think of trying to sell them something that might be inappropriate for their goals or possibly even toxic—despite the fact my office manager says I have to sell house product only or I’m out of a job. After I meet that first obligation, my second obligation is to then make enough money to pay for my kids college and have enough left over for that condo in Florida.”

Insiders familiar with White’s agenda have told MarketsMuse that she has acknowledged her seemingly altruistic mission is not without challenge or headwinds given that the “securities industry at large is much like the NRA when it comes to influential prowess.”

Directly and indirectly, Wall Street firms and its executives contribute hundreds of millions of dollars every year to lobby SEC Officials and members of Congress(which the SEC reports to) on behalf of their interests—which presumably includes two big drivers that have driven the investment industry since the days of Joe Kennedy Sr.: (i) selling investment vehicles that look great on paper and in marketing collateral [even if they might or might not prove to be toxic at some point and might or might not be appropriate for a specific individual given that people’s moods change a lot] (ii) how to pay the mortgage on the brokers’ first house, the $200k for each of their kids college tuition bills, the country club memberships that provides venues in which to sell those investment products,  sharpen up the golf game, and of course, pay for the second and third homes, etc etc.

Another item on White’s laundry list is to expand the  exam program for registered brokers and advisers. Currently, 10% of the nearly 12,000 advisers sit and take ‘refresher tests’ that are abridged versions of the Series 7—an exam that has approximately 40% brokers FAIL the first time and 30% fail the second time. Some could argue the test is maybe too difficult, given the national average score is 67 vs. a passing grade of 72. Or, one could argue the barrier to entry to become a registered broker or adviser is simply being a good test taker. Idiots and Muppets can get licensed, as long as they take 8 practice exams the night before the actual exam and memorize the correct answers. So, Chairperson White wants more folks taking more tests; a good thing for the SEC because this is big a revenue-generator for the Agency—which has repeatedly claimed it does not have enough money to even pay for air conditioning in its Washington DC office. Staff members have said this alone is vexing, given that SEC examiners and enforcement agents have become accustomed to keeping windows wide open five months of the year and continuously grapple with files on their desks blowing out of their windows and many of those files pertain to complaints filed by investors and updated paper notes sent by from enforcement agents in the field via courier pigeons.

Courtesy of  an admittedly more illustrious news media outlet than MarketsMuse might be, the following is ‘official coverage from InvestmentNews.com:

To continue reading, please click here

The post SEC Chair Wants To Reign In ETFs appeared first on BrokerDealer Blog.

While no “Black Friday Sale” signs are expected to appear (that’s right, Black Friday is a negative in the world of Wall Street), according to coverage from InvestmentNews.com, coupled with a further investigation by the curators at BrokerDealer.com, prices for IBDs are going lower, not higher; creating opportunities for new entrants and headaches for rumored sellers that include Cetera Financial Group.

(InvestmentNews.com) November 25 A glut of independent broker-dealer firms (IBDs) for sale is creating a buyer’s market for independent broker-dealers that could put pressure on the prices sellers are able to attract.

Firms for sale include Cetera Financial Group, AIG Adviser Group and Next Financial Group, which collectively represent 15 individual broker-dealers and more than 15,000 registered representatives and advisers.

BrokerDealer.com maintains the world’s largest directory of broker-dealers in more than three dozen countries and a robust database of those interested in buying or selling broker-dealers

“There is a higher number of potential opportunities than we have ever seen before,” said Richard Lampen, president and chief executive of Ladenburg Thalmann Financial Services, which has completed five broker-dealer acquisitions since 2007. “The $64,000 question is, how many deals are going to get done?”

“With so many potential sellers in the market, and rumors of more sellers, I’m curious to see how the market-clearing process will work,” Mr. Lampen said. “There are some willing buyers, but is there a price that’s going to work?”

Mr. Lampen said sellers are going to have a reality check when it comes to offers their properties are likely to attract. He said the industry has put behind it the outsized valuations of independent broker-dealers used in acquisitions by RCS Capital Corp., a brokerage holding company that one-time real estate mogul Nicholas Schorsch put together in a flurry of acquisitions between 2013 and 2014.

“Some sellers still think it’s 2014, and Nick Schorsch price expectations are out there,” Mr. Lampen said. “But it’s hard to imagine any one overpaying at this stage in the process.”

CETERA TOPS THE LIST

The largest of the firms reportedly in play is Cetera Financial Group, the network that Mr. Schorsch put together. It is made up of 10 broker-dealers with about 9,500 reps and advisers. Larry Roth, the CEO of Cetera and its parent company, RCS Capital, told advisers on a conference call recently that a half dozen companies had shown interest in the firm and that a new owner or significant private-equity investor would be in place by year-end.

The full story from InvestmentNews.com is here

The post BrokerDealers For Sale-Glut Makes Buyers Market appeared first on BrokerDealer Blog.

Will New Regs Create A Boon For BDs?  Brother, Can You Raise $1mil?

(RaiseMoney.com)–If only coincident to the Halloween Trick or Treat Holiday, it’s now official, on Friday Oct 30 the US Securities & Exchange Commission (SEC) passed new equity crowdfund regs, opening the path to what some believe will be a multi-billion dollar tidal wave of startup funding, and also, what more cautious experts believe could be an entirely new cycle of speculative investing by unsophisticated investors. The new rules approved will make it easier for start-ups to sell shares directly to the masses. Brother, can you spare $1million?

They could also be big business for a broad universe of broker-dealers, as well as handful of Los Angeles firms (among many others) that want to act as the stock exchanges where these deals will take place.

The rules, which will take effect in about six months, allow private companies to raise up to $1 million a year from small-time investors without most of the reporting and auditing required of larger firms or companies raising more money.

For the entire story from RaiseMoney.com, please click here

The post SEC Passes Equity Crowdfunding Rules-A Boon For BDs? appeared first on BrokerDealer Blog.

At least 13 unregistered Massachusetts investment advisers used Fidelity’s platform, according to a statement from secretary of the commonwealth William Galvin.

For those advisers, “Fidelity served as a haven from regulatory oversight as it ignored blatant unregistered investment advisory activity,” according to a statement from Mr. Galvin’s office.

“We do not believe that Fidelity has violated any laws or regulations in connection with this matter,” said Adam Banker, a Fidelity spokesman. “We look forward to reviewing the details of this matter and addressing them appropriately.”

“Fidelity, of all companies, knows full well the range of investor protection provisions resulting from regulatory oversight,” Mr. Galvin said in the statement. “For them to knowingly allow unregistered activity on their broker-dealer platform is a profound failure of their regulatory obligations.”

In one instance, more than 20 Fidelity customers paid one unregistered investment adviser who was trading on their behalf $732,000 in advisory fees over a 10-year period, according to the complaint. The complaint alleges that Fidelity had knowledge that the individual was acting as an adviser during that entire period and encouraged his trading activity by providing the purported adviser, who made thousands of trades in the accounts of his clients, with gifts such as frequent flyer miles and tickets to a professional sporting event.

Fidelity had policies in place since 2011 that specified red flag risk warnings for certain levels of third-party trading, but those were ignored until recently, according to the statement from Mr. Galvin.

The post Fidelity Brokerage Arm Is Broken Says Regulator appeared first on BrokerDealer Blog.

Traditional wire-house brokerdealers and brokers/investment advisors are increasingly departing big securities firms and migrating to equity-owned boutiques that provide these brokers with private equity ownership in a business model that makes more sense to them, and hopefully more dollars.

WSJ’s Michael Wursthorn summarized this new trend in a recent column “Rise of the Broker Turned Entrepreneur…” and gives an update to continuing saga in the now multi-year “breakaway-broker” movement with extract below..

For financial advisers who launch their own independent practices, having equity is king.

Those ownership stakes are very different from the shares many held in big securities firms that previously employed them. The private-company equity comes with big advantages but also risks.

During the financial crisis, brokers at the major brokerage firms suffered a steep drop in a key portion of their compensation: the value of the shares they were given in those firms. Since then, some brokers say they generally have less interest in receiving shares in the firms they work for, instead favoring higher cash payouts, if possible.

But that attitude is being put aside by brokers who are taking flight from the big firms to launch their own practices or who join one already established. In fact, the allure of an ownership stake in a private practice is helping to push more advisers to join the growing number of so-called breakaway brokers.

For the entire 10 October article from the WSJ, click here

The post Broker-Dealers Breakaway to Equity-Owned Boutiques appeared first on BrokerDealer Blog.