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Can You 'Find' Capital: NASD Action vs. John Hancock

VC Experts Staff



The First Shot Fired against Unregistered Placement Agents

The following excerpt from a recent Boston Globe [1] report may be the first shot in what will necessarily be an extended campaign to compel "finders" and financial advisers to register as broker dealers and qualify as NASD members.

"Federal and state regulators are looking into whether a unit of John Hancock Financial Services engaged in unregistered broker-dealer activity, investigators confirmed yesterday. The Massachusetts Securities Division and the National Association of Securities Dealers are investigating allegations that at least two employees of Hancock's distribution arm, Signator Financial Network, operated an unregistered venture capital business on the side.

..."The individuals face possible revocation of their insurance and securities licenses, and a ban from working in the industry. Hancock could face fines of up to $10,000 per infraction - or each time the employees solicited money from a potential investor - if it is proven that company executives knew or should have known about the activity.

The case revolves around a Wellesley organization called the Venture Gap. Founded in September 2000 by Jeffries, TVG, as it was known, hosted golf tournaments and other outings that paired venture capitalists with potential investors.

Investigators say Jeffries and Scionti intended to collect a finder's fee for venture investments that resulted from the gatherings, although it's unclear whether any money was raised. The agents also hoped to rub elbows with high-roller investors who might also have turned out to be big insurance buyers for Hancock's products.

"Securities regulators are looking into whether TVG was attempting to solicit and place investment funds. To do that, the agents would have needed to register with the NASD and state securities regulators as broker-dealers and get approval from Hancock's internal compliance division to make sure they weren't overstepping any legal or regulatory boundaries.

Informal indications surfaced a couple of years ago that the SEC staff would move in this area. But the Staff's efforts were derailed, naturally, by the onrush of other business following the Enron affair.

Whether Commission action on a broad front will be triggered (as has happens frequently these days) by the initiative of pro-active state authorities is, as yet, an open question. If the SEC moves, literally thousands of individuals and entities will be affected.


[1] Nelson, Boston Globe, Feb. 21, 2003, p. D1 Section: Business.