In the 2020 case, NTV Management, Inc. v. Lightship Global Ventures, LLC,[1]  the Massachusetts Supreme Judicial Court dealt with a financial intermediary (“NTV”) that entered into an agreement with a client (“Client”) to “source capital and structure financing transactions from agreed upon target investors and/or lenders.”  NTV expected “to introduce [to the Client] and facilitate investment from third party sources . . .to finance all level of the transactions (i. e. both equity and debt).”  If  NTV “sourced capital,” it would reap a success fee.  NTV, in fact, did not “source capital” for the Client, but sued the Client for, among other things, collection of an advisory fee under the contract.  A jury found for NTV, but the trial judge vacated the verdict and found for the Client, because NTV had not registered as a “broker” under the federal Securities Exchange Act  or as a “broker-dealer” under the Massachusetts securities’ law, thus rendering, under both statutes, the contract void and unenforceable.

The Supreme Judicial Court reversed and found the contract enforceable.  It agreed that both the state and federal securities laws make it unlawful for any person to transact business as a broker-dealer unless registered and that contracts in violation thereof were unenforceable.  The Court then defined a broker-dealer as one who “effects” transactions in “securities.”  The Court did not focus on the business of NTV but on the contract between NTV and the Client.  The Court held that two issues determine whether a contract requires registration.  First, does the contract require that the transactions “effected” be in securities?  Next, does the contract require a person to “effect” such transaction?  The Court did not consider the second issue  because it held that the contract “on its face, did not require NTV to ‘effect’ transactions in ‘securities’” because the financing contemplated by the contract could have been effected with transactions other than securities. The Court distinguished a 10 year old Appeals Court decision[2] and also observed an “evolution” of  “bespoke” financial transactions at the federal level, noting, with apparent approval, M & A Brokers,[3] a 2014 SEC no action letter that stated that, if certain steps were taken, the SEC would not recommend enforcement action against business brokers who may engage in an occasional stock sale.

There are several take-aways from this case.

  1. One question relates to the scope of the decision.  The case involved a contract between NTV and its Client which involved an advisory fee not to the success fee contemplated which may have involved a “security.”  What would have happened if NTV was successful in placing a “security” and was due a success fee  and sued, not for the advisory fee, but for the success fee?  I would guess that the a Massachusetts court would uphold the contract, following Justice Lenk’s rationale, and focus on the contract (and not the intermediary’s business) assuming the same contractual provisions as in NTV’s contract.
  2. The case involved a state court construing a state and a federal statute. Would a federal court construe the federal statute in the same way as Justice Lenk?  Would another state court in another jurisdiction?
  3. A business-broker is in an analogous position with NTV, only it may be dealing with “securities” in the context of an acquisition involving a sale of stock to the buyer. With the Court’s favorable reference to M & A Brokers, it is likely that a Massachusetts court would apply its ruling to a business broker’s contract for fees.   Must the contract have language consistent with NTV’s contract with the Client? (See fn. 3)
  4. The M & A Brokers no action letter, like all no action letters does not state the SEC’s position but rather states, “without necessarily agreeing with [the requester’s] analysis [the SEC] would not recommend enforcement action” on a set of facts. The M & A Brokers no action letter, however, addresses the general situation of the business broker and would appear to have greater application than the typical no action letter addressed to a specific set of facts and for a particular client.
  5. The M & A Brokers letter notes therein, that to avoid SEC enforcement action when avoiding registration, 10 specific requirements were set forth.  In my practice, I have noted some apparent non-compliance with those requirements, at or in connection with the closing of a stock purchase acquisition, probably through oversight.  I would urge financial intermediaries or investment bankers/business brokers to review their practices in light of NTV’s contract and M & A Brokers.
  6. The Massachusetts securities’ act makes it “unlawful for any person to transact business . . .as a broker-dealer . . .unless. . . registered.”  (emphasis supplied). The federal act has a similar provision.   The Court’s focus on the contract involved rather than the business of NTV leaves open the possibility (however remote) that an intermediary in NTV’s position (or less likely a business broker) could result, depending on the business of the intermediary, in liability for a violation under both statutes, even though a contract with a client might be enforceable.


            Although the NTV and M & A Brokers case appears to go a long way toward permitting financial intermediaries or investment bankers/business brokers avoid the pain of registration, there are still risks.  These risks arise from non-compliance with NTV and M & A Brokers, and also because there may be instances where the SEC or a court may not apply the rationale of NTV and M & A Brokers.

[1]                 484 Mass. 235 (2020).

[2]                 I was a little puzzled why Justice Lenk did not overrule or decline to follow her earlier decision, as an Appeals Court Justice, in Indus Partners, LLC v. Intelligroup, Inc., 77 Mass. App. Ct. 793 (2010).  With respect to NTV’s contract, she stated that “it is undisputed that the contract [in Indus] required a transaction in securities.  .  .”  NTV Management, Inc. v. Lightship Global Ventures, Inc.,  494 Mass at 448.   The contract in Indus does not require a transaction in securities but in fact states:

“The Agreement provided in relevant part that Indus was to consult with and advise Intelligroup regarding “a possible Transaction … involving [Intelligroup] and any other party.” “Transaction” was defined to include, among other things, the “sale or other transfer, directly or indirectly, of all or any portion of the assets or securities, (whether outstanding or newly issued) of [Intelligroup].”Indus Partners, LLC v. Intelligroup, Inc., 77 Mass. App. Ct. 793, 794, fn,1. (Emphasis supplied)

Clarification would have been helpful to business brokers and like intermediaries in drafting engagement letters.

[3]                 SEC No Action Letter M & A Brokers, January 31, 2014, revised February 4, 2014.