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by jessriedel
3172 days ago
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> As a result, brokers (i.e. your hypothetical entity that gobbles up all the shares and then loans them or sells economic/voting rights) must be registered with FINRA and are subject to very extensive regulations, including rules from FINRA, the SEC and the public exchanges. I still don't get it, length and complicatedness of rules notwithstanding. Why can't a holding company not subject to these regulations simply buy from the broker and then resell? Why can't I personally buy and hold a bunch of shares and then sell stakes to people in my office completely off the books? What if I only sell a partial stake (e.g, 90% of dividends and 40% of voting rights)? Repackaging/Securitization happens all the time and in a million forms; is every allowed form simply listed exhaustively in a broker contract somewhere? |
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You can't just buy shares from a registered securities professional (e.g. broker, dealer or underwriter) and then start engaging in "off the books" securities transactions. That is, unless you don't mind a lengthy prison sentence.
The activities you are describing (buy securities and then sell "stakes" and/or profits interests and/or voting rights) fall very squarely within many of the various definitions of securities professional required to register and comply with these extensive regulations. For example, see definitions 11 and 12 here [1]. Also note that the definition of "sell" includes selling any interest in a security--not just selling an entire security outright.
> (11) The term “underwriter” means any person who has purchased from an issuer with a view to, or offers or sells for an issuer in connection with, the distribution of any security, or participates or has a direct or indirect participation in any such undertaking, or participates or has a participation in the direct or indirect underwriting of any such undertaking; but such term shall not include a person whose interest is limited to a commission from an underwriter or dealer not in excess of the usual and customary distributors’ or sellers’ commission. As used in this paragraph the term “issuer” shall include, in addition to an issuer, any person directly or indirectly controlling or controlled by the issuer, or any person under direct or indirect common control with the issuer.
> (12) The term “dealer” means any person who engages either for all or part of his time, directly or indirectly, as agent, broker, or principal, in the business of offering, buying, selling, or otherwise dealing or trading in securities issued by another person.
Here's just a random example from Google of the penalties your hypothetical "off the books" broker could face [2].
[1] https://www.law.cornell.edu/uscode/text/15/77b
[2] http://companycounsel.net/2010/01/21/you-dont-have-to-know-t...