MICHAEL F. BARRETT, JR., ESQUIRE
1275 Pennsylvania Avenue NW, Suite 1100, Washington, DC 20004
(202) 223-7555
November 27, 2024

Memorandum of Law Regarding the Lawful Activities of Allen Gabriel Silberstein and AGS Capital Group, LLC in Connection with Their Settlement with the U.S. Securities and Exchange Commission, In re Global Fixed Income, LLC; Charles Perlitz Kempf; AGS Capital Group, LLC; Allen Gabriel Silberstein; et al.

BACKGROUND OF MICHAEL F. BARRETT, JR., ESQUIRE
Michael F. Barrett, Jr., Esquire has been practicing law for sixty-three years and possesses relevant experience providing expert legal analysis on matters of Securities Law, Administrative Law and the proper functioning of U.S. Government Agencies. His background includes investigating securities law violations as a Staff Attorney with the U.S. Securities and Exchange Commission (“SEC”); serving as Investigative Counsel at the U.S. House of Representatives; serving as Chief Counsel and Staff Director at the House Energy & Commerce Oversight Subcommittee; serving as an Attorney at the Federal Trade Commission; and serving as a Captain in the Army Judge Advocate General’s (JAG) Corps, including four years stationed at the Pentagon. Mr. Barrett also holds a law degree from St. John’s University School of Law and a master’s degree in international law and taxation from Georgetown University.

BACKGROUND OF ALLEN GABRIEL SILBERSTEIN AND AGS CAPITAL GROUP, LLC
Allen Gabriel Silberstein studied at Boston University and Hofstra Law School, where he received a Merit Scholarship. He graduated in the top 1% of his class at Binghamton University and was the first undergraduate in the history of the University to teach his own lecture class on International Economics as a teaching assistant to Professor Clifford Clark. At Binghamton University, Mr. Silberstein participated in Circle K, a student-run community service and volunteer organization. Mr. Silberstein was also active in NYPIRG, a student activism and public-interest group that organized campaigns on water quality, higher education funding, consumer rights, environmental protection and homelessness.
Mr. Silberstein began his career as a Structured Finance Attorney at Cadwalader, Wickersham & Taft (“Cadwalader”), one of the oldest and most respected Wall Street law firms, founded in 1792, with offices in New York, Washington, D.C., London, Dublin and Charlotte. Cadwalader has one of the world’s most prominent Financial Services practices. He later pursued postgraduate studies in Structured Finance at New York University and continued his career at Deutsche Bank and Balyasny Asset Management, a top multi-strategy hedge fund in New York.
Mr. Silberstein formed AGS Capital Group, LLC (“AGS”) to trade for his own account, with a primary focus on PIPEs and structured investments. In furtherance of that work, he developed his own structured financing approach and was invited to lecture on the topic at the PIPEs Conference.

EXECUTIVE SUMMARY
The SEC improperly, arbitrarily, and capriciously brought an administrative proceeding against Mr. Silberstein and AGS (“Silberstein/AGS”), by incorrectly applying the definition of “broker”. Silberstein/AGS was not a broker, and none of the evidence, facts, or governing law supported a Section 15(a) violation requiring registration with the SEC as a broker. See Legal Analysis and the Actual Business Relationship with GFI below.
Silberstein/AGS are not brokers. They do not trade for the account of others, and they do not fall within the framework of Section 15(a). None of their conduct or investment activities satisfies the factors considered by federal courts when analyzing broker activity under Section 15(a). Accordingly, Silberstein/AGS were not required to register with the SEC.
The SEC was unable to identify a single controlling or persuasive authority with the specific facts and evidence concerning Silberstein/AGS.

Counsel for Mr. Silberstein recommended that he proceed to trial because the facts and evidence demonstrated that no violation had occurred and because Silberstein/AGS was being improperly grouped with other respondents where the facts were different. Against counsel’s advice, Mr. Silberstein elected not to try the case and instead settled on February 6, 2015. The only error, in my view, that Silberstein/AGS committed was agreeing to settle the matter rather than challenge it and prevail.
One reason for settlement was the practical reality that an administrative law proceeding is viewed as the most mild of regulatory matters in the legal community and on Wall Street. In addition, many investment firms maintain some type of regulatory matter in their history, this again being the least significant of all of them. Mr. Silberstein also concluded that settlement was more cost-effective and time-efficient, particularly because he had an agreement with Global Fixed Income, LLC (“GFI”) under which GFI would indemnify him for one-half of the settlement cost.
Had Mr. Silberstein elected to litigate the matter, he would have faced millions of dollars in legal fees and many additional years of litigation. For this reason, even though the law and facts were on his side, it was more pragmatic to settle this minor SEC matter. See Legal Analysis below.

THE SEC’S EXPANSIVE INTERPRETATION WAS RULED UNLAWFUL
In a similar matter of SEC overreach, the SEC unlawfully attempted to adopt Rules 3a54 and 3a442 (the “New Rules”) under the Exchange Act on February 6, 2024. Those “New Rules” would have inappropriately expanded the definition of “dealer” and imposed additional broker-dealer regulatory requirements.
In response, two groups of plaintiffs filed suit against the SEC, alleging that the “New Rules” exceeded the SEC’s statutory authority under the Exchange Act and were arbitrary and capricious under the Administrative Procedure Act.
On November 21, 2024, the U.S. District Court for the Northern District of Texas agreed with the plaintiffs, held that the SEC acted unlawfully, exceeded its statutory authority by expanding the definition of dealer beyond the text, history, and structure of the Exchange Act, and vacated the “New Rules”. Following that ruling, SEC Chairman Gary Gensler announced that he would step down effective January 20, 2025.

THE ACTUAL BUSINESS RELATIONSHIP WITH GFI
Silberstein/AGS were solicited by GFI to invest with GFI in new issue bonds and to seek greater allocations. Unlike other participants in the case, Silberstein/AGS did not enter into profit-splitting agreements or guarantees of payment with GFI under which other participants were compensated with $300 for every $1 million of corporate debt.
Instead, Mr. Silberstein and AGS negotiated a distinct arrangement under which they would share 45% of any profits or losses based on GFI’s eventual sale of the new issue bonds in the secondary market.
In establishing their relationship, Silberstein/AGS entered into a lawful contract with GFI to act as its directed agent and co-investor for the purpose of expanding GFI’s opportunity for new bond allocations while sharing in the net profits or losses of the subsequent trading of those bonds.

PURCHASE TRANSACTIONS
GFI identified the desirable new issue bonds and recommended them to Silberstein/AGS for independent investment consideration.

Upon receiving that information, Silberstein/AGS independently determined whether they wished to invest in the bonds identified by GFI. If they did not, the matter ended there. If they were interested in the opportunity, they contacted the bond underwriters as directed agent for GFI pursuant to written agreements.
The actual purchase transaction, however, was facilitated by GFI through its prime broker, Fortis, which settled the trades, used GFI’s funds, and took delivery of the bonds. Silberstein/AGS did not effectuate the bond trades. Rather, Fortis/ICBC facilitated the securities transactions.

To be clear, Silberstein/AGS never received commissions or any transaction-based compensation. They never received compensation of any kind based on the purchase of the new issue bonds.

SECONDARY SALE TRANSACTIONS
Silberstein/AGS had no involvement in the later sale of the bonds. GFI alone decided when, how, or whether to sell the bonds in the secondary market. Silberstein/AGS had no input, participation, or assistance in that decision or in effectuating the sales transactions.

When GFI sold the bonds, it determined whether there was a net profit or loss to its position and to AGS, which shared 45% of those profits or losses. GFI then passed along any profits, advised of any losses, and sought payment from Silberstein/AGS for trading ticket charges.
The SEC asserted that Silberstein/AGS traded without risk, but the record shows otherwise. Silberstein/AGS in fact incurred net losses of $100,000 before ultimately recovering and generating net profits from GFI’s trades for Silberstein/AGS’s position.

COMPENSATION
Silberstein/AGS never acted as brokers and were never compensated as brokers. Rather, they were co-investors in bonds purchased by GFI, which they believed might be profitable based on the purchase discount and the spread between market demand and supply.
Silberstein/AGS did not provide investment advice to GFI or to any other party.

LEGAL ANALYSIS

SECTION 15(a) WAS NOT VIOLATED BY SILBERSTEIN/AGS
Silberstein/AGS did not violate Section 15(a) because they never acted as brokers and therefore were not required to register.
Section 3(a)(4) of the Exchange Act defines “broker” as “any person engaged in the business of effecting transactions in securities for the account of others.” Silberstein/AGS were never in the business of effecting securities transactions for others. Not before, not then, and not ever. They traded solely for their own account, and all GFI trades were facilitated in their entirety by Fortis/ICBC, not by Silberstein/AGS.

Equally important, Section 15(a) applies to persons utilizing exchange facilities. No such facilities were used here, because the purchase of the new issue bonds was conducted directly through the bond underwriters. As discussed supra, Silberstein/AGS had no involvement in the sale of the bonds in the secondary market.
Accordingly, the bond purchases were not covered by Section 15(a) and cannot form the basis of a violation. Nor can Silberstein/AGS’s lack of participation in the secondary market sales constitute a statutory violation.
As a matter of law, Section 15(a) does not apply to Silberstein/AGS based on the facts and evidence. Moreover, brokers do not share in losses or pay ticket charges for another party’s trades, as Silberstein/AGS did here. That conduct is inconsistent with broker status. Silberstein/AGS were co-investors with GFI pursuant to lawful contract.

THE ABSENCE OF LEGAL AUTHORITY SUPPORTING A VIOLATION
No legal authority supported the SEC’s position. There are no decisions in the United States that are materially comparable to the facts here, particularly where Silberstein/AGS served as co-investors with GFI and traded for themselves.
In the absence of a clear statutory definition or an express statutory violation, courts have applied multiple factors to determine whether broker activity occurred.
Over the past 45 years, courts have rarely addressed Section 15(a) claims, but when they have, they have identified multiple factors to assess whether broker-dealer activity existed. Silberstein/AGS do not satisfy those factors:
1. Silberstein/AGS were not employees of the corporate bond issuers, the underwriters, or GFI.
2. Silberstein/AGS did not receive transaction-based compensation or commissions, and they never had a “salesman’s stake.”
3. Silberstein/AGS were not in the business of selling bonds. They never sold any of the bonds at issue.
4. Silberstein/AGS were never engaged in transaction negotiations for bonds. The issuer and underwriters set the price on a “take it or leave it” basis.
5. Silberstein/AGS did not provide investment advice or valuations to others.
6. Silberstein/AGS never solicited investors and never had customers.
7. Silberstein/AGS did not regularly participate in securities transactions in the manner of a broker or prime broker.
8. Silberstein/AGS never analyzed the financial needs of a bond issuer.
9. Silberstein/AGS did not discuss or negotiate the bond transactions beyond their own independent investment review.
10. Silberstein/AGS never recommended or designed financing methods for bond issuers.
11. Silberstein/AGS never made investment recommendations to anyone else.
12. Silberstein/AGS never advertised brokerage services and never had customers.
13. Silberstein/AGS never promoted corporate bond issues through seminars, social events, or promotional materials.
14. Silberstein/AGS never had employees engaged in solicitation of customers or investors.
15. Silberstein/AGS never held the GFI bonds at issue; the bonds were held in GFI accounts through GFI’s broker, Fortis/ICBC.

A SINGLE-FACTOR ANALYSIS IS LEGALLY INSUFFICIENT
The SEC incorrectly relied on the assertion that Silberstein/AGS received transaction-based compensation and argued that this factor alone is sufficient to establish a Section 15(a) violation.
However, in SEC v. Kramer, 778 F. Supp. 2d 1320, 1341 n.54 (M.D. Fla. 2011), the district court expressly rejected that position:
Furthermore, the SEC’s proposed single-factor “transaction-based compensation” test for broker activity ... is an inaccurate statement of the law both in 2003 and 2011. As this order exhaustively explains, an array of factors determines the presence of broker activity. In the absence of a statutory definition enunciating otherwise, the test for broker activity must remain cogent, multi-faceted, and controlled by the Exchange Act.

ANGELLIST SUPPORTS THE ABSENCE OF TRANSACTION-BASED COMPENSATION
The SEC No-Action Letter in AngelList LLC, 2013 WL 127914 (Mar. 28, 2013), supports the conclusion that no Section 15(a) violation occurred here.

The profit-sharing arrangement in AngelList is similar to the arrangement between Silberstein/AGS and GFI.
In AngelList, AngelList LLC advised the SEC that it intended to register as an investment adviser and provide certain administrative services without registering as a broker-dealer. AngelList explained its compensation structure as follows:
Courts have held and the SEC has routinely stated that having a “salesman’s stake” in a securities transaction is a hallmark of “broker” activity. A “salesman’s stake” is typically present when a person receives commissions or other compensation based directly or indirectly on the size, value, or completion of securities transactions. Because the receipt of transaction-based compensation can lead to high-pressure sales tactics, the SEC has stated that any person who receives such compensation must register as a broker-dealer and operate pursuant to the customer protection standards governing broker-dealers and their associated persons.

Neither AngelList Advisors nor the Lead Angels will receive any transaction-based compensation and therefore will have no “salesman’s stake” in any securities transactions. Rather, the only compensation to be paid to AngelList Advisors or the Lead Angels will be a carried interest tied exclusively to the overall profitability of the portfolio companies. This compensation structure provides an incentive for AngelList Advisors and the Lead Angels to identify profitable investment opportunities and seek to increase their value, not to sell securities.

The Division of Trading and Markets concluded that the SEC would not recommend an enforcement action against AngelList, notwithstanding the receipt of compensation tied to the increase in value, if any, of the investment at the termination of the investment vehicle. That structure is materially similar to the arrangement between Silberstein/AGS and GFI.


Sincerely,
/s/ Michael F. Barrett,Jr. Esquire
Michael F. Barrett, Jr., Esquire