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Univ. of Toledo College of Law

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Tuesday, August 30, 2011

SEC Seeks Judicial Review of the Definition of a Broker

The Eleventh Circuit will have an opportunity to weigh in on the elusive distinction between a "broker" and a "finder" if the SEC is successful in persuading a Florida federal district court to certify the issue in SEC v. Sky Way Global LLC (No. 8:09-cv-455-T-23TBM, Decided Apr. 1, 2011).  In this case, according to the district court, the SEC failed to meet its burden to show that the defendant Kramer "engaged in the business of effecting transactions in securities in the accounts of others." 

The SEC's allegations involve efforts on the part of Kramer to solicit sales of stock in Skyway Aircraft. Pursuant to a "cooperative"  agreement between Kramer andd another defendant Baker (through his company Affiliated Holdings) to share with each other business opportunities and split fees, Kramer introduced Talib, a registered broker, to Baker and Skyway.  Talib ultimately sold $14 million of Skyway shares to investors, for which Kramer received between $189,000 and $200,000.  This transaction, however, according to the court, did not make Kramer a broker because his only involvement was to bring the two parties together.  Specifically, Kramer did not participate in negotiations or in any way promote an investment in Skyway to Talib or his investors.

Kramer also told "a small but close group" about Skyway, directed them to Skyway's website, opined that Skyway was a "good investment" and received from Baker Skyway shares when he reported the number of Skyway shares members of this group purchased through registered brokers (20% of reported shares).  The court thought this activity was "odd, but not 'broker' activity."  The court concludes that Kramer's conduct was similar to the activity of an "associated person" of an unregistered broker, who, in this case, was Baker or his company Affiliated Holdings.  Kramer did not contact a broker to encourage the broker to sell Skyway shares, did not field investor inquiries, and did not counsel investors to purchase Skyway shares.

According to an BNA Securities Law Daily Report, the federal district court preliminarily agreed to certify as final the judgment to permit the agency to appeal the judgment.  Defendant Kramer has until August 31 to show cause wny the motion should not be granted.

The definition of a "broker" is an important one, and further judicial explication would be welcome.

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Comments

Although the pleadings are listed as SEC v. Sky Way, the Apr. 1 opinion is actually reported as SEC v. Kramer--at least, that's the way it appears on Westlaw. It's at 2011 WL 1230808, for those who have access to Westlaw.

Posted by: Steve Bradford | Aug 30, 2011 10:47:11 AM

The SEC already filed a brief in the 11th on 8/19/2011.

Posted by: Joe | Aug 30, 2011 5:04:56 PM

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