What is an Ambulatory Surgery Center (ASC) Investment Banker or Broker?

What is an ASC Investment Banker or Broker?

By: Blayne Rush, MHP, MBA

August 19, 2010


When many owners of ambulatory surgery centers  (ASC) and radiation oncology centers hear the term “investment banker,” they conjure up images of Wall Street and pinstriped suits, power negotiators and complex financial dealing. In reality, it is far different.

Under Section 15(a) of the Securities Exchange Act of 1933 as amended (Act of 1934), any person acting as a “broker” must be registered with the SEC. According to the Act of 1934, a “broker” is “any person engaged in the business of effecting transactions in securities for the account of others” or, if a natural person, to be associated with a registered broker-dealer. NASD Rule 1032(i) requires a person to register as an investment banker with FINRA and pass a corresponding qualification examination if such persons’ activities involve advising on or otherwise facilitate securities offerings – whether through a public offering or private placement – as well as professionals who advise on or facilitate mergers and acquisitions, asset sales, divestitures, or other corporate reorganizations or business combination transactions.

The Securities & Exchange Commission’s (SEC’s) Guide to Broker-Dealer Registration (http://www.sec.gov/divisions/marketreg/bdguide.htm#II) states: “…each of the following individuals and businesses may need to register as a broker, depending on a number of factors: ‘finders,’ ‘business brokers,’ and other individuals or entities that engage in the following activities: Finding buyers and sellers of businesses (i.e., activities relating to mergers and acquisitions where securities are involved);…persons that act as ‘placement agents’ for private placements of securities.”

People understand that stocks and bonds are securities and know that special laws apply to securities, but many do not realize that the law defines “securities” much more broadly. Congress in section 3a, item 10 of the Act of 1934 defines securities as: “any note, stock, treasury stock, security future, bond, debenture, certificate of interest or participation in any profit-sharing agreement or in any oil, gas, or other mineral royalty or lease, any collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or in general, any instrument commonly known as a ‘security’; or any certificate of interest or participation in, temporary or interim certificate for, receipt for, or warrant or right to subscribe to or purchase, any of the foregoing; but shall not include currency or any note, draft, bill of exchange, or bankers’ acceptance that has a maturity at the time of issuance that does not exceed nine months, exclusive of days of grace, or any renewal thereof the maturity of which is likewise limited.”

The definition is so all encompassing that the state of Utah’s Department of Commerce-Division of Securities stated in a letter dated May 7, 2009, “The Securities Division takes the position that any business broker offering services such as ‘investment banking,’ ‘mergers and acquisitions’ or ‘fund-raising’ is engaging in activities that would be ‘difficult, if not impossible to conduct without being deemed a broker-dealer.'”

Unregistered financial intermediaries that have provided services to physician owners who want to sell their ASC and Cancer Center have pretty much “flown below the regulatory radar.” In some cases, it is conceivable that some financial intermediaries knowingly violated securities laws, hoping they would be lucky enough to avoid the potential legal ramifications for themselves and their clients. Some crossed their fingers and said a prayer that everything goes fine or that the statute of limitation rolls on by before any issues are raised, others just were not aware that what they were doing ran afoul of the law.

“Come on,” you might be thinking. “What’s the worst that can happen if I use my guy for this deal? I know he’s not registered, but…” Unregistered financial intermediaries can create a plethora of problems for a physician owner looking to sell a center. If an unregistered intermediary is determined to be “engaged in the business of selling securities for compensation,” that person may be subject to criminal and/or civil legal actions. The SEC and state securities authorities may bring enforcement action not only against the unregistered intermediary, but also against you – for aiding and abetting a violation of the Exchange Act registration provisions. Sanctions may include civil penalties, injunctive relief, and disgorgement (with interest). Additionally, the use of an unregistered broker could also call into question the validity of the federal and state securities registration exemptions that are often used in private placements. Finally, and perhaps most devastating, the buyer of your ambulatory surgery center or radiation oncology center may have the right to rescind or unwind the deal altogether under Section 29(b) of the Exchange Act. The buyer also may be entitled to damages.

If a seller is represented in a securities transaction by an unregistered financial intermediary, the seller is under no legal obligation to pay any transaction based commission to the unregistered intermediary on the securities portion of the transaction, regardless of the terms of the seller’s contract with the intermediary because that contract will be deemed null and void.

Your unregistered consultant may assure you that you can use him or another unregistered financial intermediary without running afoul of securities laws – or at least without getting caught. While it is possible to structure a transaction and a consultant agreement in a way that reduces the risk to both you and him, the only way to completely eliminate that risk is to use a registered investment banker.


Disclaimer: This article is not intended or offered as legal advice. These materials have been prepared for educational and information purposes only. This posting is not legal advice or legal opinions on any specific matters. No person should act or fail to act on any matter based on the contents of this article. This paper was not written by an attorney licensed in your state. Legal advice depends on the specific facts and circumstances of each individual’s situation. Those seeking legal advice or assistance should contact an attorney.



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