SEC Needs More Than Transaction-Based Compensation To Prove Broker Activity

A Florida court has rejected the Securities and Exchange Commission's single-factor transaction-based compensation test for broker activity, perhaps signaling a more favorable view toward "finders" in the future. The court held that an array of non-exclusive factors should be evaluated to determine whether a finder engaged in broker activity. These factors include—in addition to receipt of transaction-based compensation—participation in securities transactions at key points, negotiation of the terms or details of a transaction, offering of advice or valuation information, and the aggressive pursuit of investors, for example.

In SEC v. Kramer, No. 8:09-cv-455-T-23TBM (M.D. Fla. Apr. 1, 2011), Kenneth Kramer and Bruce Baker were business partners. Baker had facilitated a reverse merger on behalf of Skyway Communications Holding Corp. and continued to be compensated, pursuant to an agreement, for his efforts in promoting Skyway. As his partner, Kramer helped Baker