JLSI provides a wide-range of services to investment banks, private equity funds, venture capital investors and other clients based on the following terms:
Securities services provided by Morgan Joseph TriArtisan; LLC
Advice To Private Equity, Venture Capital and Strategic Investors – JLSI provides consulting services to investors on either a retainer, project basis or day fee. These include identifying potential investment opportunities, evaluation of transactions being contemplated by clients, development of strategic plans for portfolio companies and coaching of portfolio company management teams. These services are provided by contract directly to investors and do not place JLSI in the role of Broker/Dealer.
Financial Transaction Advice – JLSI is not a FINRA registered Broker/Dealer and does not act as a commissioned agent for buyers or sellers of businesses. This is consistent with the Securities and Exchange Act of 1934 which directs that brokers and dealers in securities register with the Securities and Exchange Commission (the “SEC”) and that they become members of what is today known as the Financial Industry Regulatory Authority (“FINRA”). The SEC considers the term “broker” to generally include persons providing advice regarding financial transactions who accept “transaction-based” compensation. Transaction-based compensation is defined as any commission or finder’s fee which is dependent or based upon the execution of a transaction. More broadly, advisers on buying or selling companies are subject to SEC regulation because transaction advice generally involves the transfer of securities – typically, equity interests in the company being bought or sold.
If potiential clients require assistance in executing a transaction involving the purchase or sale of securities, as opposed to the sale of assets or negotiation of licensing arrangements, JLSI typically introduces them to the investment banking group at Morgan Joseph TriArtisan; LLC (MJTA). MJTA is an investment bank and licensed broker-dealer with offices in New York and San Francisco.
Interested clients enter into a contract with MJTA to receive the requested services. Because John Lilly is a FINRA licensed, registered representative of MJTA, JLSI can receive compensation from MJTA for referring transactions to them and for providing advisory services through MJTA as part of such a transaction. Transactions which do not involve the purchase or sale of securities or are smaller than MJTA can efficiently manage, are introduced by JLSI to other Investment Banks.
FINRA Requirements – John Lilly, President of JLSI, is a FINRA Registered Person whose license is held by Morgan Joseph TriArtisan, LLC (MJTA) and is thus subject to their supervision. This includes periodic training, industry regulatory updates, etc. In this context, JLSI does not publish either Advertisements or Sales Literature, as defined by the FINRA (NASD Rule 2210 or 2211). JLSI distributes material developed and approved by Morgan Joseph TriArtisan LLC and their investment banking clients to potential buyers or sellers of securities being offered by MJTA. In addition, only MJTA employees negotiate Engagement Letters with clients and contracts related to specific transactions.
Conflicts of Interest – Despite the fact that most JLSI clients operate in one or more parts of the investment industry, conflict of interest issues between JLSI clients have been very rare. In part, this is because JLSI works with clients who have different investment objectives or have different roles in the investment process. For example, most PE funds have very specific size requirements for their investments and very few investment banks are also equity investors. The following principles have proven over time to minimize conflict concerns on behalf of JLSI clients:
- Transactions Between Clients – In situations where one JLSI client is acting as a broker and another as either a buyer or seller, JLSI makes clear at the very beginning which side it will work on. Confidential information which becomes known to JLSI is not provided to the counter party.
- Cross Consulting – In situations where JLSI introduces a service provider to a retainer client – an advertising agency, for example – JLSI does not accept referral fees from the service provider. Said another way, JLSI typically receives fees from one party or the other in a client situation, but not both.
- Idea Introductions – Proprietary ideas developed by JLSI are presented to only one client at a time; the one judged most appropriate for the size and shape of investment (i.e. Venture, Private Equity or Strategic Investor) based on their expressed interests. Only if they are formally declined are they considered for other clients.
Non-Disclosure Agreement – By extension, JLSI is typically made a party to non-disclosure agreements signed by retained clients. JLSI works to adhere to the terms of these agreements, including the return of confidential material when it is requested.