In early 2013 the SEC issued no-action letters concluding that FundersClub and AngelList were not required to register as broker-dealers. Both companies were “venture capital fund advisers,” a special flavor of investment adviser, and some people read into the no-action letters a cause-and-effect, concluding that if a Crowdfunding portal registers as an investment adviser, which is relatively easy, then it doesn’t have to register as a broker-dealer, which is very hard.
It’s possible that as the SEC weighed the requests by FundersClub and AngelList, a regulator thought “This is a close call, and because they’re already regulated as investment advisers we’ll give them a pass on broker-dealer registration.” But that’s just speculation, not a legal argument. A portal operating exactly in the manner described in the no-action letters might take comfort. Others, including any real estate portal, should not.
Under the securities laws, investment advisers are one thing and broker-dealers are something complete different – different functions, different rules, different risks. If you want to give investment advice, register as an investment adviser. If you’re in the portal business and think you need a broker-dealer, then either register yourself or use a provider like WealthForge or FundAmerica.
Questions? Contact Mark Roderick.