Carla DiBello may be the mother of all unregistered broker cases
Did you see this story in the Wall Street Journal a couple weeks ago? In it, we learn that sometime Kardashian friend Carla DiBello:
“has become a high-profile figure in Saudi Arabia’s investment scene for her connections with the kingdom’s [$300 billion] Public Investment Fund, or PIF. She is helping PIF negotiate a $445 million deal to buy a majority stake in England’s Newcastle United soccer team, say people familiar with her dealings. She has told acquaintances she was involved in talks around a $15 billion deal with Indian conglomerate Reliance Industries Ltd. . . . Ms. DiBello also has a close relationship with the Saudi fund’s 49-year-old chief, Yasir al-Rumayyan.”
Naturally, this relationship has “raised concerns among some PIF officials . . . .” And it doesn’t seem to be entirely clear what value DiBello brings to the deals she becomes involved with.
“Sometimes, Mr. Rumayyan’s office has told investment teams in PIF to meet with people whose involvement in the talks they didn’t understand. . . . That was the case with Ms. DiBello in early 2019, when managers couldn’t figure out why they had been scheduled to meet with her when she came to PIF offices to pitch the Newcastle United deal . . . .”
And yet:
“Ms. DiBello arranges compensation for her role in such deals, generally from the company seeking PIF investment or from others involved in a potential transaction, often through her firm, Sarasota-based CDB Advisory, the people say.”
Okay, that’s enough quotations for now. The legal angle in the Journal’s story focuses on the possibility that she could be part of a series of FCPA violations. Her lawyer assures readers that nothing like that is going on. We think that worry might be a bit misplaced, and overly focused on the fact that she is a third party to a lot of money flowing past her. Yes, FCPA violations often involve under-scrutinized independent contractors, but we don’t see a lot else here to suggest bribery issues.
But . . . we also have an American citizen who inserts herself in the middle of deals in which companies seeking investments from Saudi Arabia’s sovereign wealth fund pay her for her role in making the deals happen. The SEC would say that there’s a name for somebody who does that: a securities broker.
What’s that? Section 3(a)(4)(A) of the Exchange Act generally defines a “broker” broadly as
any person engaged in the business of effecting transactions in securities for the account of others. Somebody who executes transactions for others on a securities exchange clearly is a broker, but other situations are less clear.
The SEC says this sort of activity can easily get a person into “broker” territory:
finding investors for entities issuing securities, even in a “consultant” capacity;
engaging in, or finding investors for, venture capital or “angel” financings, including private placements; and
acting as "placement agents" for private placements of securities.
I mean, is DiBello not doing those things? We don’t know the exact terms of the deals, so maybe securities are somehow not involved. Maybe every single part of all of these deals is happening overseas and maybe she isn’t doing this work on behalf of U.S. enterprises and maybe her involvement doesn’t implicate U.S. securities laws at all!
But Section 15(a)(1) of the Exchange Act generally makes it unlawful to act as an unregistered broker. And the SEC’s Trading and Markets Division haaaaates it when unregistered people get paid for putting themselves in the middle of private placement deals. Trading and Markets can’t always convince the Enforcement Division to bring cases solely on this basis and in the absence of fraud, but those cases do happen, and recently the SEC has brought some. Rule 15a-6 does provide conditional exemptions from registration for foreign broker-dealers that have indirect contacts with U.S. persons through unsolicited transactions and other means. But we can’t see how DiBello would qualify for any of those exemptions.
DiBello claims to have been part of $250 million in deals. The SEC could seek massive disgorgement figures or penalties against her based on those figures. Also, no culpable state of mind is required to find a violation. Maybe worse for other participants in these deals, issuers can face liability for knowingly aiding and abetting or causing an unregistered broker-dealer’s violation.
If we were on the SEC’s staff, we would be very interested in kicking the tires on this....