Before continuing, I thought I would tell you what happened to the transaction. I was in New Orleans at the IBBA Conference, when my client copied me on an e‐mail saying to the Buyer (a public company) that the deal was “off”. I thought, “I’ve been working on this deal for a long time. I need this large commission to pay my legal bills. Now that my client has notified me, in writing, that the stock deal is “off”, I’m going to step back in.” I did and came up with a way to indemnify the public company against potential future liability, from a possible construction defect suite, by purchasing an insurance policy from Lloyds of London. The deal was “back on.” This just proves the point that the business brokers need to stay in these deals to the end, and cannot back off once the parties notify the broker that they intend to conclude the deal as a stock sale.

The Chief of Enforcement returned from her vacation, and presumably, the Division’s investigators concluded their review of my submission. We have no explanation for what happened next. However, in an hour‐long phone discussion with the Chief of Enforcement, the following were made clear to us:

1. That she needed to have some “political cover” from the Broker‐Dealer who had made the complaint.

2. She had changed her mind and would now accept the Stock Sale Acknowledgment, Notification, and Disclaimer Agreement, as long as we complied with every aspect of the SEC’s 2006 “CBI” no action letter. It was obvious that the fact that I was able to get the parties to sign this document, for each deal conversion, was a major factor that they considered. After all, in this document, I notified the parties that:

• I did not have a securities license,

• I didn’t need one when I listed the business for sale,

• They were the ones who decided to convert the transaction into a stock sale,

• That I was in compliance with the SEC’s “CBI” no‐action letter.

3. She wanted us to make a written proposal, to the Division, outlining the ways that I (i.e. a Nevada business broker) would conclude a transaction that converted from an “asset” sale to a “stock” sale, in the future.

4. She wanted us to include the “Utah letter” and her idea, of converting the “listing agreement” into a “consulting agreement,” in this proposal.

We can only speculate the reasons behind her “about face.” These include:

  •  Maybe the SEC contacted her. After all, the SEC had been made aware of the subpoena and Nevada’s non‐acceptance of their “CBI” no‐action letter.
  • Maybe her father convinced her to drop it and that I was a “good” guy.
  • Maybe her father was afraid that his involvement in the large deal, that was about to close escrow, would have the potential to drag him into this mess.
  • Maybe some of my heavy‐weight supporters had spoken with Ross Miller, Nevada’s Secretary of State, under which the Securities Division falls, and he told them to back off.
  • Maybe, and we like to believe this reason, she changed her mind after she read the Stock Sale Acknowledgment, Notification, and Disclaimer Agreement, our Position Paper, and the fact that I identified the only three deals that had turned into stock deals since 2006.
  • Maybe it was the fact that she was leaving the Division for private practice and did not want this matter to follow her; many influential people perceived this as a personal vendetta against business brokers, since neither the public nor either of the parties were being “harmed” by my actions.
  • Maybe it was a combination of one, or more, those factors.

Regardless, pursuant to her request, we wrote and submitted the proposal on May 23rd. I had an idea that we were going to have to “live with” the items in it, so I included the following:

  1. An example of how a transaction typically converts form an asset deal to a stock deal.
  2. An overview of three deals that had converted, including the reasons for conversion (tax consequence, continuity of license, continuity of contracts, and Nevada 5% bidding preference). Note that the transaction, which is the basis of my current civil suit in Federal Court, was specifically used as an illustration; this deal was the only one where the Seller retained partial equity with a buy‐sell agreement at the end of 2 years following the close of escrow. All the other transactions were the sale of 100% of the shareholder’s stock to the buyer, at closing.
  3. The three methods that I would use to conclude such a transaction, which converts to a stock sale, in the future.

It should be noted that the third proposed method, to convert the “listing agreement” into a “consulting agreement,” purposely omits:

  1. The requirement that he client pay the fee immediately, when the invoice for time at standard rate was given to the client, and
  2. The requirement that the payment not being contingent upon the deal closing escrow.

On May 24th, we received a no‐action letter from the Nevada State Securities Division, accepting our proposal.

The large deal I was involved in closed escrow. Based upon the no‐action letter I had received from the State, I requested my commission be paid in full. My client’s attorney refused to allow my client to pay me unless we could provide either:

  • A letter from the State stating that the payment of a commission would not be in violation with Nevada’s Securities Law, or
  • An “Opinion Letter” from my attorney.

I informed my client that an “Opinion Letter” would cost approximately $3,000, and probably take 30 days to obtain, if at all. My attorney sent an e‐mail to my client’s attorney saying thatp>

  • He was not involved in the large transaction with the public company, so he was not going to write an Opinion Letter,
  • The State would never issue a letter regarding a specific transaction in the form he was asking for, and
  • Offering for me to personally indemnify my client’s shareholder from any liability.

I then sent a letter to my client outlining how I was in compliance with the State’s no‐action letter, the SEC’s “CBI” letter, and personally indemnifying him. We heard nothing and time went on. So I called my client and said the following:

“I have no idea what possible personal liability that you think you might have if you disburse my commission, but I am sure of two things:

  • That potential exposure is infatessimally small, if one exists at all, but
  • The chance of me suing you, and the public company that now owns the business, is exactly 100%.”

He wired the fee into my account two hours later, against the advice of his legal counsel.

Although the “no‐action” letter was written to Len Krick, I believe that the same remedies and standards would apply to any business broker in Nevada. Here are my assessments of the outcome:

1. Solution #1, to comply, in every aspect, with the SEC’s 2006 “CBI” no‐action letter is the only real way to conclude the deals.

2. Compliance with the Utah letter, which requires the business broker to obtain the requisite securities license, cannot work for a business broker who occasionally has a deal convert to a stock sale for the following reasons:

a. By the time a deal is converted to a stock sale by, the Buyer and Seller, it is too late for the business broker to start doing the required tasks to be in compliance with SEC requirements.

b. Since these deals are not “registered securities,“ the business broker cannot advertise the opportunity to the “general public,” but only to his “regular customers” (as a “stockbroker” would have) who are sophisticated investors.

i. First, business brokers do not have “regular sophisticated investor customers.”

ii. Secondly, to be effective, a business broker must use the Internet and solicit targeted Buyer Prospects. If the Business Broker operates in one of the 17 states requiring a Real Estate License (like NV), then restricting marketing efforts to “regular customers” would be deemed to be NOT working in the “best interests” of the broker’s clients, and, thus, be in violation of the State Real Estate Regulations. Obviously, business brokers cannot “serve two masters.”

c. The business broker’s listing agreement is between the business broker and the entity. The business broker is being engaged to sell the assets of the business owned by that entity. Assuming that the business broker is not a Broker‐Dealer, how does the listing agreement transfer from the Business Brokerage firm to the Broker‐Dealer’s firm, under which the Business Broker is licensed? That is, how is the Broker‐Dealer engaged by the client? And, in Nevada, does the Broker‐Dealer have Nevada Real Estate Broker License and Nevada Business Broker Permit? After all, there is no exemption in Nevada Real Estate Law for Broker‐Dealers, regardless of how a business is sold.

d. The business broker’s client is the entity that owns the assets. However, in most cases, when the deal converts to a stock deal, the entity does not issue stock to the buyer. In fact, the stock is owned by one, or more, shareholders. The transaction is between those shareholders and the buyer. The Business Broker was not engaged to sell that stock or represent the shareholders. Therefore, there exists no contract or obligation to pay the Business Broker when those shares are signed over to the Buyer.