SEC Division of Corporation Finance no-action letter: Brian David Smit

Attention: Erin Wilson, Esq.
Office of Enforcement Liaison
Division of Corporate Finance
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Re: Brian David Smit – Request for Waiver of Disqualification – FINRA Case No. 2015046720601 Dear Office of Enforcement Liaison:
We write on behalf of Brian David Smit (CRD No. 5767978) in connection with the above￾referenced matter with the Financial Industry Regulatory Authority (“FINRA”). Mr. Smit hereby requests a waiver from disqualification arising under Rule 506 of Regulation D (“Rule 506”) under the Securities Act of 1933, as amended (the “Securities Act”) as a result of the Letter of Acceptance, Waiver and Consent, FINRA Case No. 2015046720601, dated March 15, 2016 (“AWC”), submitted pursuant to FINRA Rule 9216. As described below, having been terminated by LPL on August 3, 2015 for participating in an unapproved private securities transaction in violation of NASD Rule 3040, Mr. Smit soon opted for a career change. No longer seeking to associate with a FINRA member firm, and after cooperating with FINRA for several months, rather than depart from a family vacation and incur the expense and time to travel out of state for an “on the record” deposition, Mr. Smit accepted an industry bar. Background Mr. Smit, a resident of South Dakota, entered the securities industry in April 2010, when he associated with LPL Financial, LLC (“LPL”), a FINRA member firm, as a General Securities Representative (Series 7 license). While registered with LPL, Mr. Smit primarily counseled young couples on how to manage their finances and get out of debt. The size of his client base was small, amounting to a modest $7 million of assets under management. In June 2015, in accordance with LPL policy, Mr. Smit submitted a request to LPL to personally invest in a private placement by Inanovate, Inc. (“Inanovate”), a company focused on developing a blood test for breast cancer. Prior to submitting the request to LPL, Mr. Smit spoke with his father and a close friend for their thoughts about whether he should make the investment. At the time, Mr. Smit’s father and the friend were clients of LPL. Mr. Smit informed each of them, however, that he could not advise them about purchasing any type of non-registered investment. The request form that Mr. Smit submitted to LPL contained a question about whether he had communicated to any clients about the investment. He answered “yes.”

Mr. Smit ultimately purchased a convertible note from Inanovate in the principal amount of $250,000. Mr. Smit disclosed his communications about the investment to LPL when submitting the request to invest. Indeed, having nothing to hide, Mr. Smit used his LPL business email which enabled LPL to oversee his communications. The day after submitting the request to LPL, it opened an investigation into Mr. Smit’s communications with his father and close friend. Throughout LPL’s investigation, Mr. Smit cooperated fully and provided all requested information relating to the matter. However, on August 3, 2015, Mr. Smit was told he was being terminated from LPL due to violations of LPL policy – presumably its pre-authorization policy regarding non-registered investments. Mr. Smit was surprised at the termination and, looking back, is not sure whether there was some other reason for it. FINRA Investigation Mr. Smit cooperated with FINRA’s investigation. On August 24, 2015, LPL filed with FINRA a Form U-5 disclosing Mr. Smit’s termination. Following the filing of the U-5, FINRA opened an inquiry into Mr. Smit’s termination from LPL. Having not met his goals to build a significant client base, and feeling disoriented about having been terminated after being transparent with his employer (LPL) about the Inanovate investment, Mr. Smit decided to leave the financial services industry and pursue other business opportunities. Additionally, Mr. Smit was going through difficulties that were not work-related. Around mid-October 2015, Mr. Smit provided full and complete answers (in writing) to FINRA’s written questions. About a month later, in November 2015, and eager to bring the matter to conclusion, Mr. Smit asked FINRA for an update and asked if FINRA needed any additional information from him. He was told that FINRA did not need additional information and that the “inquiry is still pending.” On November 18, 2015, Mr. Smit emailed FINRA to explain his decision to leave the financial services industry and ask if he could surrender his securities license. On December 15, 2015, having heard nothing from FINRA, and having firmly decided to pursue a career change outside of the securities industry, Mr. Smit emailed FINRA again for an update, but also to follow up on his earlier inquiry about whether he could surrender his securities license in hopes that it would conclude the matter. In the email, Mr. Smit noted that he was moving forward with other opportunities and had no intention of working in the securities industry. The same day, a FINRA representative responded that she would speak with her supervisor about how Mr. Smit could go about surrendering his license. Mr. Smit did not hear anything for nearly two months. On February 5, 2016, he emailed FINRA for an update. Mr. Smit was surprised to read the response that on January 21, 2016, FINRA had mailed Mr. Smit a letter informing him that the matter had been referred to FINRA’s enforcement department, that the
enforcement department would contact him about his inquiry and that the enforcement department was the one that “would assist you in surrendering your licenses.” (Mr. Smit had moved and had not seen the letter.) A few days later, FINRA sent Mr.

Smit an 8210 request asking him to appear in New York for on-the-record testimony on February 19, 2016 (nine days later), relating to allegations that he participated in an unapproved private securities transaction in violation of NASD Rule 3040.1 Mr. Smit had just arrived in Florida on a family vacation. Due to the short notice period for a deposition in New York, his lack of legal representation, his decision to not associate with a FINRA member firm and his having just begun his vacation, Mr. Smit informed FINRA that he did not wish to travel to New York for the deposition; rather, he would simply accept whatever FINRA proposed to end the matter. Mr. Smit and FINRA entered into the AWC, effective March 15, 2016, in which Mr. Smit acknowledged violation of FINRA Rules 8210 and 2010 (not Rule 3280). Under the terms of the AWC, Mr. Smit is permanently barred from associating with any FINRA member in any capacity. Other than with respect to the matter described above, Mr. Smit does not have any disciplinary history with the Securities and Exchange Commission (the “Commission”), FINRA, any other self-regulatory organization or any state securities regulator. Discussion We hereby respectfully request a waiver of the disqualification that arises, pursuant to Rule 506(d)(1)(vi), as a result of the AWC with respect to Mr. Smit’s prospective service as a promoter, director, executive officer, lead developer, or similar role2 in one or more real estate development projects that may, from time to time, engage in capital raising activities in reliance on the safe harbor exemption from registration under Regulation D. Since leaving the financial services industry nine years ago, Mr. Smit has worked as a commercial real estate agent in South Dakota and, through his involvement in the real estate industry, has the opportunity to participate in various real estate development projects. Absent a waiver, any real estate development project in which Mr. Smit participates would be unable to rely on Regulation D for any securities offerings it may choose to undertake. The Commission, or the Division of Corporation Finance (the “Division”), acting pursuant to its delegated authority, has the authority to waive disqualification under Regulation D upon a 1 NASD Rule 3040 has been superseded by FINRA Rule 3280, which prohibits registered brokers and associated persons from participating in securities transaction outside the regular scope of their employment unless they provide prior written notice to their employing firm. Rule 8210 requires member firms and associated persons to provide information, documents, and sworn testimony in connection with FINRA investigations, examinations, or proceedings. Rule 2010 requires member firms and associated persons to "observe high standards of commercial honor and just and equitable principles of trade." 2 See 17 CFR § 230.506(d)(1) (applying the disqualification to “any director, executive officer, other officer participating in
the offering, general partner or managing partner of the issuer…”).

showing of good cause that such disqualification is not necessary under the circumstances.3 Here, we believe there is good cause and it is not necessary, under the circumstances, that the waiver request be denied. The Violations Found in the AWC Do Not Involve the Offer and Sale of Securities. The violative conduct described in the AWC and the basis for FINRA’s bar of Mr. Smit was his decision to not appear for an on-the-record deposition in February 2016, which FINRA noted was a violation of Rules 8210 and 2010. (see AWC No. 2015046720601). That decision by Mr. Smit, and the two Rules violated, did not involve the offer or sale of securities. To be sure, LPL’s initial investigation arose out of Mr. Smit’s purchase of a security (the Inanovate investment), and FINRA was looking at Mr. Smit’s purchase of that investment. But the violations referenced by FINRA related to Rules 8210 and 2010. The Misconduct Described in the AWC Does not Involve Criminal Activity or Scienter-Based Statutes The AWC does not involve a criminal conviction or a scienter-based violation. Mr. Smit’s Acceptance of Responsibility Supports the Requested Waiver Mr. Smit has acknowledged his responsibility for entering into the Inanovate investment without LPL’s prior authorization. He also acknowledged his responsibility for deciding not to appear for the 8210 deposition in February 2016. Importantly, Mr. Smit cooperated with both LPL’s internal investigation as well as the subsequent FINRA inquiry up to the moment he decided for personal reasons (career change, no legal counsel, short deadline to travel to a deposition, etc.) to not travel to New York for the deposition and instead agree to the bar. The Misconduct was of Limited Duration This was a “one-off” situation. Mr. Smit’s discussions concerning the Inanovate offering involved a single investment over a brief period in the Spring of 2015 and did not involve any repeated pattern of misconduct. Mr. Smit’s Subsequent Actions Support the Requested Waiver The actions taken by Mr. Smit since entering into the AWC “support a conclusion that, despite the past violation, the party would be less likely to engage in future misconduct.” Following his termination from LPL, Mr. Smit decided he no longer wanted to associate with a FINRA member firm or pursue a career in the financial services industry, and has since worked in 3 See 17 CFR § 230.506(d)(2)(ii) (disqualification “shall not apply … [u]pon a showing of good cause and without prejudice to any other action by the Commission, if the Commission determines that it is not necessary under the circumstances that an exemption be denied”).

commercial real estate. Mr. Smit has no plans to reassociate with a regulated entity or work as a securities broker. As explained by the Commission:
Persons who are subject to an indefinite bar who do not wish to reassociate but do wish to participate in Rule 506 offerings could consider applying for a waiver. . . . We have, nonetheless, identified in this adopting release a number of circumstances (such as a change of control, change of supervisory personnel, absence of notice and opportunity for hearing, and relief from a permanent bar for a person who does not intend to apply to reassociate with a regulated entity) that could, depending on the specific facts, be relevant to the evaluation of a waiver request. This is not an exhaustive list, and we expect that other factors would also be relevant to our consideration of waiver requests in particular cases. (See SEC Release No. 33-9414, at 45 & 71 (emphasis added).) This too supports the waiver. In nearly ten years since the AWC, Mr. Smit has no other disciplinary history with the Commission, FINRA, any other self-regulatory organization or any state securities regulator. Nor has Mr. Smit had any issues with law enforcement in his individual capacity or as a representative of another entity. Mr. Smit represents that he will provide notice to any prospective investor in a Reg D offering that he was barred by FINRA from associating with any FINRA member. The Impact on Mr. Smit Absent a Waiver Supports the Requested Waiver Failure to grant a waiver to Mr. Smit would constitute a “disproportionate hardship in the light of the parties involved in, and the nature of, the misconduct.”4 Since his termination from LPL, Mr. Smit has pursued a career in commercial real estate in South Dakota. Through his involvement in the real estate industry, Mr. Smit has the opportunity to participate in various real estate projects as a promoter, director, executive officer or similar role in which his knowledge and experience would be a valuable asset. However, such projects would be unable to raise capital in reliance on Regulation D due to Mr. Smit’s indefinite bar/disqualification. Mr. Smit is the sole owner and employee of a single-member South Dakota LLC called Inspired Development, LLC (“Inspired”), a real estate development firm. Inspired would be a 4 See https://www.sec.gov/about/divisions-offices/division-corporation-finance/waivers-disqualification-under￾regulation-regulation-d

“covered person” under Rule 506(d) in light of Mr. Smit’s roles with the company, and thus tainted by Mr. Smit’s “bad actor” status. A particular project may involve, for example, converting a piece of farmland into an industrial park. Inspired would serve as lead developer on each project, for which a separate LLC (or similar limited partnership) would be created (each, a “Project Entity”). Each Project Entity would have two classes of shares, management shares (or similar general partner interests) and limited shares. The management shares, a majority of which would be held by Inspired, would entitle holders to sole governance rights and decision-making authority, while the limited shares would be held by passive investors, entitled only to economic rights, whose risk would be limited to the amount of their investment. The Project Entity relating to each development project would sell limited shares to a limited group of passive investors. For its part, in its role as lead developer on each project, Inspired would raise capital and sell shares of the Project Entity formed for such development project. Inspired, as the majority owner of the respective management shares, would also oversee the development projects. Inspired’s role would include management of the project, sale of shares of the project entity, collecting proceeds from the sale of shares, securing financing, selecting and overseeing the development contractor, paying contractor invoices, sale of build ready lots or completed buildings, repayment of financing, and distribution of profits. If a waiver is not granted, Mr. Smit would be unable to rely on Regulation D to take on development projects of the type described above. Continued “bad actor” status would negate Mr. Smit’s ability to pursue his career as a developer as described above. Request for Waiver In light of the non-fraud, non-scienter nature of the misconduct involved, the lack of any customer solicitation or harm, his intent not to reassociate with a regulated entity and the potential impact of a Regulation D disqualification on his real estate career, disqualification of Mr. Smit under Regulation D is not necessary. Under the circumstances, we believe that Mr. Smit has shown good cause that the requested relief should be granted. We respectfully request the Division, on behalf of the Commission, or the Commission, pursuant to Rule 506(d)(2)(ii) of Regulation D, waive the disqualification provisions in Rule 506 of Regulation D that apply to Mr. Smit as a result of the AWC. We sincerely appreciate your consideration of this request. Please feel free to contact me at (612) 492-7180 with any questions or if we can provide additional information.

Very truly yours, s/Matthew T. Boos
Matthew T. Boos
Direct Dial: 612.492.7180
Email: mboos@fredlaw.com
Cc: Ms. Erin Wilson
Mr. Hughes Bates