On June 1, 2016, the U.S. Securities and Exchange Commission issued an administrative order sanctioning Blackstreet Capital Management LLC and Blackstreet’s managing member and principal owner, Murry N. Gunty, for acting as an unregistered broker-dealer, as well as engaging in certain conduct that violated the Investment Advisers Act of 1940, as amended. Without admitting or denying the allegations, Blackstreet and Gunty consented to issuance of the order and imposition of the sanctions.

Background -

Blackstreet, a registered investment adviser, is the manager of two private equity funds that invest through leveraged buyouts in companies requiring a “turnaround.” Blackstreet disclosed to the fund investors that it would, and the funds’ governing documents expressly permit Blackstreet to, charge fees for brokerage services rendered in connection with the acquisition and disposition of portfolio companies (brokerage fees). The SEC found that Blackstreet received at least $1,877,000 in brokerage fees despite the fact that Blackstreet had never been registered with the SEC as a broker. The brokerage services identified in the order included soliciting deals, identifying buyers and sellers, negotiating and structuring transactions, arranging financing and executing transactions.

Originally published in Law360, New York on June 10, 2016.