The staff of the U.S. Securities and Exchange Commission recently addressed broker-dealers’ obligations when they engage in transactions in unregistered securities by issuing FAQs and a risk alert that reported the results of examinations of a number of broker-dealers’ practices in handling unregistered securities. The agency’s core focus in these areas is curbing and preventing activities that undermine, or threaten to undermine, well-functioning markets, including fraud, manipulation and money laundering.

Section 5’s Requirements -

Section 5 of the Securities Act of 1933 (“Securities Act”) requires all offers and sales of securities in interstate commerce to be registered, unless an exemption from registration is available. Specifically, Sections 5(a) and 5(c) of the Securities Act prohibit any person, including broker-dealers, from using the mails or other interstate means to sell or offer to sell, either directly or indirectly, any security, unless a registration statement is in effect or has been filed with the SEC as to the offer and sale of such security, or an exemption from the registration provisions applies.

Originally published in Law360 on October 20, 2014.