The action may have significant implications for PE advisers performing brokerage services; highlights SEC’s focus on advisers receiving transaction-based compensation.

On June 1, 2016, the Securities and Exchange Commission (SEC) announced a settlement with Blackstreet Capital Management (Blackstreet) and its owner, Murry N. Gunty (Gunty), following an investigation finding that Blackstreet received transaction-based compensation for performing certain brokerage services for funds that Blackstreet managed, without registering as a broker-dealer. Blackstreet performed the services in connection with the purchase and sale of portfolio companies. The settlement marks the first enforcement action against a private equity adviser for violating Section 15(a) of the Securities Exchange Act of 1934 (Exchange Act) by failing to register as a broker-dealer, and, notably, follows more than three years after a speech by David Blass, the former Chief Counsel of the SEC’s Division of Trading and Markets, that addressed the potential application of broker-dealer registration requirements under the Exchange Act in connection with services performed by private equity sponsors. The Blackstreet settlement, together with recent comments from current SEC officials, suggests that broker-dealer registration issues for private equity firms remain a significant area of focus for the SEC.