Recently, a REIT sought to avoid using a broker-dealer in a distribution.  Woe, onto those who seek to avoid the broker-dealer, especially when it leads to a SEC investigation and enforcement action. 

The REIT charged a 3% commission as part of its sales process, and used its website, social media, and radio ads.  These commissions and marketing tactics violated Exchange Act Rule 3a4-1, and, as a result, the REIT was operating as a broker-dealer in violation of Section 15(a) of the Securities Exchange Act of 1934.  The REIT was also charged with failing to comply with the Securities Act of 1933’s prospectus requirements. 

The REIT’s actions fly in the face of well-settled law.  It could have been easily remedied.  Essentially, the REIT could have avoided the enforcement action if it had used a broker-dealer or taken modest precautions by not charging a commission or engaging in these marketing scenarios.    See https://www.sec.gov/litigation/admin/2019/33-10702.pdf.  Remember always consult counsel before declining the use of a broker-dealer’s services.

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