## Facts

- Skyway Communications Holding Corp. sought capital through sales of its shares and compensated “finders” with Skyway shares.
- Kenneth R. Kramer, associated with Skyway through longtime associate Bruce Baker, told acquaintances about Skyway and introduced at least one person (Nick Talib) connected to substantial Skyway share sales.
- Baker asked Kramer to report information about Skyway share purchases made by people Kramer had informed about the company.
- Kramer received compensation described as “20 percent of the number of shares purchased” by those buyers.
- The Securities and Exchange Commission (SEC) brought a civil enforcement action alleging Kramer acted as an unregistered broker in violation of Exchange Act § 15(a)(1), seeking a permanent injunction, a penny-stock bar, disgorgement, prejudgment interest, and civil penalties.
- After a January 2011 bench trial, the court addressed liability and pending motions, including disputes over admissibility of investigative statements by Baker that were not subject to cross-examination and were found unreliable and uncorroborated in key respects.

## Issues

1. Whether Kramer’s conduct, including investor introductions and receipt of transaction-tied compensation, made him a “broker” required to register under Exchange Act § 15(a)(1).
2. Whether the SEC proved that Kramer was “engaged in the business of effecting transactions in securities for the account of others,” rather than performing limited “finder” activity.

## Decision

- The court found the SEC did not prove Kramer acted as an unregistered broker under Exchange Act § 15(a)(1).
- The court declined to treat transaction-based compensation as dispositive and required a totality-of-the-activities assessment.
- The court limited the SEC’s reliance on certain investigative statements attributed to Baker, finding significant reliability and corroboration problems for the portions offered to establish additional broker conduct.
- The court denied the SEC’s requested injunctive and monetary relief, resulting in judgment for Kramer on the broker-registration claim.

## Legal Principles

- Exchange Act § 15(a)(1) prohibits an unregistered broker from using interstate means to effect transactions in, or induce or attempt to induce, securities purchases or sales.
- A “broker” is a person “engaged in the business of effecting transactions in securities for the account of others.”
- Broker status is determined through a fact-specific, multi-factor inquiry; no single factor automatically establishes broker activity.
- Transaction-based compensation is an important indicator of broker status but is not sufficient by itself absent additional broker-like conduct (e.g., professional solicitation, negotiation, order execution, or handling of funds/securities).
- In an SEC enforcement action, the SEC bears the burden to prove broker status and entitlement to injunctive and monetary remedies based on admissible, reliable evidence.

## Conclusion

The court held that the SEC failed to carry its burden to show that Kramer’s compensated introductions and related activities amounted to being “engaged in the business” of effecting securities transactions for others, and it therefore denied the SEC’s requested injunction and monetary remedies under Exchange Act § 15(a)(1).


Sec. & Exch. Comm’n v. Kramer, 778 F. Supp. 2d 1320 (M.D. Fla. 2011)