SEC Declines to Exempt From Broker Dealer Registration A Consulting Firm Which Raises Capital For Small Businesses

Hallmark Capital Corporation sought a “No Action” letter from the SEC’s Division of Market Regulation seeking it be given an exemption from registration as a broker-dealer (securities firm).

Hallmark states that it serves small businesses as a financial consultant, to assist such business with capital raising and other matters. It informs clients and potential clients it is not a broker-dealer, does not act as an agent for the client company and does not effect transactions for the account of others. The company also does not offer to sell securities to or solicit investment funds from the general investing public.

More specifically, its CEO stated that Hallmark assists small businesses with revenues under $25 million with their debt and equity capital needs, including preparing confidential information summaries describing the business, identifying broker-dealer firms that might work with these companies and arranging meetings for engaging broker-dealers to raise capital. It then has control over significant aspects of any securities transactions.

The company states that it is compensated with “a modest upfront retainer and a fee based on the outcome of the transaction.” Hallmark states that it also provides its clients assistance with mergers and acquisitions and strategic consulting. These functions, the company contends, do not constitute the activities of a broker-dealer, since it does not effectuate transactions for the account of others, does not act as an agent on behalf of the client company and does not solicit investment funds from the general public.

The SEC Responded by stating that, although Hallmark “does not provide advice regarding ongoing activity, … based on the general descriptions of the activities included … it appears that [it] would be required to register with the Commission as a broker-dealer pursuant to Section 15(b) of the Securities Exchange Act of 1934.”

Isn’t this is the same SEC which, only after losing a lawsuit to investment advisors, stopped exempting large brokerage firms which were acting as investment advisors, from being subject to the Investment Advisors Act of 1940?

Shepherd Smith and Edwards represents investors in securities fraud claims. We have helped thousands of U.S. investors recover financial losses. Call Shepherd Smith and Edwards at 1-800-259-9010 for a free consultation.

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The text of the letter is available on the SEC’s Website