SEC/Licensure News

TO ALL OF OUR FRIENDS AND SPONSORS~

Since the last update I sent you on or about November 1, 2007, we've seen quite a lot of progress towards the successful conclusion of our licensure initiative.

As many of you have already heard, at their meeting in Frisco, TX, in early November IBBA's Board of Directors approved an immediate, additional contribution of $10,000 to support our licensing initiative. They also approved another $30,000 in matching funds to be combined dollar for dollar with contributions to be raised from their members and affiliates and to be applied to legal bills incurred after September 1, 2007.

Ultimately, the only condition IBBA's Board placed on these contributions was that we work closely together with their legal counsel, Craig McCrohon, and IBBA's SITF leadership to craft and propose an addition to our MAB proposal that would turn the concepts in the Country Business, Inc. ("CBI") No Action letter into an SEC exemptive rule and corresponding state model rule. Our objective is to give the relief obtained from the SEC in the CBI No Action letter greater legal effect and make it easier for intermediaries to apply these concepts in everyday practice.

I am very pleased to report that after much hard work on all sides, this has been accomplished. The new exemption proposal is being called the "Small Business Sale Transaction Exemption," which is highlighted in the marked up copies of the latest, revised proposals to both the SEC & NASAA, as well as in a stand alone document that accompanies this update.

Besides incorporating the new Small Business Sale Transaction Exemption, we made a few "clarifying" revisions to our original MAB proposal, based in part on feedback we received from some of the regulators, as well as on detailed review and input from many of our friends and sponsors. The final, revised proposals (one for the SEC and a companion version for the NASAA), in both a "clean" version and a "marked up" version showing all of the changes from the original proposal submitted this past fall, are attached for your review.

These were successfully presented to both the SEC staff and NASAA representatives in conjunction with NASAA's Spring Public Policy Conference and their annual joint meeting with the SEC held on April 1, 2008, in Washington, DC. A summary of Shane Hansen's and Hugh Makens' observations and next steps from these meetings is included below.

Hugh and Shane met with representatives of the SEC Division of Trading and Markets and NASAA to continue to promote our proposed M&A Broker Rules, the Private Placement Broker Rules, and assess the effects of recent changes in senior staff in this SEC Division and current national events such as the Bear Stearns bailout and other market issues. Shane also had the opportunity during the conference to talk informally with several state securities administrators about our proposals. Here's a summary of their news and reconnaissance:

SEC Developments

Recent staffing changes have not affected our project. Two staff attorneys remain assigned to our project, working with a more senior attorney. They continue to work through their internal analysis of the proposals, including their own assessment of the problem and possible ways to address it.
It is clear that at the Commission-level of the SEC, recent events are consuming their attention and priorities. SEC Chairman Cox presented the agency's current priorities during a luncheon address, and they generally center around recent events and some on-going initiatives. Among those priorities, the SEC, NASAA, and FINRA (formerly NASD) are focused on securities sales practices involving "seniors." This is presently the "centerpiece" of their federal-state cooperation efforts. This is focused on retail sales practices. We will continue to present our proposals as a solution the need that "senior" small business owners have for assistance in selling their businesses.
The staff favorably viewed our revised proposal to include the Small Business Sale Transaction exemption (a/k/a the "CBI exemption") in the proposal. The staff view the CBI concepts as important and don't want people to lose sight of the guidance and relief provided in that letter. They understand why we are asking to change the CBI concepts into a rule, and they apparently considered the rulemaking route when the CBI letter was under consideration.
While appreciating our offer, the SEC is not ready for another "summit" to present more general information about the profession like our 7/11/07 meeting in Chicago. When ready, they will prefer to ask us for specific information to address areas where they need it.
The SEC and NASAA representatives have been talking about some kind of dollar cap on the M&A Broker Rule, though we do not know what amount it might be. Obviously, if the concept of a cap is required by regulators, we intend to push for a high dollar value. The fact that these two federal and state regulators were having this conversation about our proposal is very good, and continues to indicate that senior-level staff attention is being paid to it.
No news on timing. The PPB proposal remains ahead of us. It doesn't look like we're going to see the PPB proposal publicly presented in the second quarter, as had been anticipated by the SEC staff attorney in late January. Given the current national priorities at the Commission-level, we can only wait and see.
Independent of our meeting, it appears that the Bush Administration is moving to fill the two Democratic vacancies on the Commission—an important priority in view of the current market turmoil. The Commission's business should move ahead more smoothly when these appointments have been made.
Recent calls for massive federal regulatory restructuring have not been well received in many "camps," as indicated by US Senator Jack Reed (Dem. Rhode Island) in his opening remarks at the conference. Press reports have similarly indicated major concerns by affected regulators. The origin of Treasury Secretary Paulson's proposal go back nearly a year, so are not driven by current market issues.

NASAA Developments

It was the consensus of NASAA's board of directors at this Spring Meeting to wait to see what the SEC proposes before it moves further ahead on our model state rules. Many states have new administrators (political appointments in many states), who are learning their new jobs, and many states are facing budget issues that force their agencies to look hard at their staffing and expenditures. So given those limited resources, because the SEC's acting is a necessary step to solving the problem, they want to better see where the SEC is going first. Board-level consideration of our proposal is a very positive development, even if they have decided to wait for the SEC.
We received continuing support from several influential state securities administrators and NASAA board members and we have good relationships with several other NASAA board members, who have previously expressed their support. We will continue to expand our contacts with other influential state securities administrators and NASAA board members, providing them with advance copies -- as well as informal briefings -- of our latest, revised proposals, answering their questions, and garnering their support.
Tanya Solov, our primary NASAA contact, would like us to arrange for a couple half-day visits to two M&A firms in the Chicago area so that she can learn more about what M&A brokers do.

Our proposals do move forward at both the SEC and state levels, and the feedback we have received to date has been positive. While regulatory staff will never give a specific timetable nor provide much of a view into their internal decision-making, there continue to be many positive signs, some of which are noted above.

Next Steps

Identify a couple Chicago area M&A firms for Tanya to visit over the next couple months.
Continue providing advance copies and informal briefings to other influential state securities administrators and NASAA board members.
Draft model forms and templates that will help state regulators visualize what we propose for them to require—these documents will be of less interest to the SEC, who will defer these kinds of matters to the states anyway.

The timing of regulators' public announcement of our proposals remains an unknown. While national issues draw the attention of the SEC Commissioners, we need to be patient. We do need to continue balancing the promotion of awareness of these compliance issues within the profession, without generating unnecessary general public interest before a solution is closer to the SEC's public discussion of our proposals.

Another noteworthy event this past quarter was MBBI's highly successful winter conference in Rosemount, IL on January 26, 2007, which included a panel discussion on the issue of proper licensure for M&A intermediaries. Featured on the panel were Tanya Solov, IL Securities Commissioner and Chair of the NASAA Special Project on Finders, Kristina Fausti, Special Counsel, Office of Chief Counsel for the Division of Market Regulation, Faith Colish, Co-Chair of ABA's Task Force on Finders, and our own Shane Hansen. The active participation in this program by the SEC staff and NASAA representatives, as well as their commitment of time, underscore the importance they place on our proposals and a resolution of these compliance issues.

In closing, we continue to be gratified by the widespread support – both intellectual and financial – that our licensure initiative has received from other regional and national professional associations, which has already grown to include the following groups, in alphabetical order:

Business Brokers of Florida (BBF)
California Association of Business Brokers (CABB)
Colorado Association of Business Intermediaries (CABI)
Institute of Certified Business Consultants (ICBC)
International Network of M&A Professionals (IMAP)
International Business Brokers Association (IBBA)
M&A Source
Mid Atlantic Association of Business Intermediaries (MABIA)
Midwest Business Brokers & Intermediaries (MBBI)
Texas Association of Business Brokers (TABB)

If you appreciate the time and money that many, many others are now investing to clarify the complex system of regulations that will affect your practice as an M&A advisor for years to come, please consider giving your fair share through one of these regional associations, some of whom have programs to match your contribution, or directly to the AM&AA Marketplace Leadership Fund, C/O AM&AA, 150 N. Michigan Avenue, 27th Floor, Chicago, IL 60601. As guide to suggested giving levels for various sized firms is also attached for your consideration.

Call/contact me or any of the other members of our Licensure Task Force if you have any questions, and again, thanks for your continuing support of this vital project.

Mike Ertel, BSEE, MSIA, CBI, M&AMI
Co-Chair, AM&AA Licensure Task Force

Principal, Broker
The Bradway Group
1101 Channelside Drive, Suite 290
Tampa, FL 33602-3611
813.299.7862 Cell
866.353.0382 Efax
ertel@bradwaygroup.com
www.bradwaygroup.com

James W. Cornell
MBA, CMC, CTP, CM&AA,
MCBA, CPP, CSC, CVC, CRA, CBC
Co-Chair, AM&AA Licensure Task Force

President
Praxiis Business Advisors
5266 Seneca Street
West Seneca, NY 14224
716-675-6001 x 223v
716-867-6461 cel
716-675-5434 fx

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