Series 79: Rule 15c2-4

Rule 15c2-4

Section 15(c)(2) of the Exchange Act bars the use of any “fraudulent, deceptive, or manipulative act or practice” in connection with the sale of over-the-counter securities. Rule 15c2-4 applies to broker-dealers that (1) participate in an over-the-counter securities distribution other than on a firm commitment basis and (2) accept any part of the security sale price. Two types of behavior are prohibited by the rule.

First, in an all-or-none or minimum-maximum offering, the broker-dealer engages in fraudulent, deceptive, or manipulative conduct if it does not promptly deposit the funds into an escrow account. An escrow account is an account where funds are held by a trusted third party called an escrow agent. In this case, the escrow agent must be a U.S. bank that is unaffiliated with either the issuer or underwriter. Because funds may need to be returned to investors, SEC Rule 15c2-4 requires all $5,000 broker-dealers and all affiliated $25,000 broker-dealers to deliver checks, d