Legal Definitions - associated person

An associated person refers to an individual or entity that has a close and significant relationship with a financial firm, such as a broker-dealer, or with a company that issues securities (known as an "issuer"). This term is used in securities law to identify individuals or entities whose actions or positions are closely tied to the operations, management, or control of these financial entities.

Generally, an associated person includes:

• Partners, officers, directors, or managers of a broker-dealer or an issuer.
• Any person performing similar high-level functions or holding a similar status.
• Any person or entity that directly or indirectly controls, is controlled by, or shares common control with the broker-dealer or issuer.
• Most employees of a broker-dealer or an issuer, excluding those whose duties are purely administrative or clerical, or those whose only connection is being an issuer of securities themselves.

This definition helps regulators identify individuals who can influence or are responsible for the conduct of a securities firm or an issuing company, ensuring accountability and compliance with securities laws.

Here are some examples illustrating the concept of an associated person:

• Example 1: A Senior Investment Advisor

  Imagine Maria, a senior investment advisor at "Global Wealth Management," a large brokerage firm. She manages portfolios for numerous clients, executes trades, and provides financial advice. Because Maria is an employee of a broker-dealer and her functions are central to the firm's securities business (not purely clerical), she is considered an associated person. Her actions and compliance with securities regulations directly reflect on Global Wealth Management, and she is subject to regulatory oversight.

• Example 2: The Chief Financial Officer of a Startup

  Consider David, the Chief Financial Officer (CFO) of "InnovateTech Inc.," a new technology company that is planning to offer its shares to the public for the first time. InnovateTech Inc. is the "issuer" of these new securities. As a key officer of the issuer, David plays a critical role in the company's financial reporting and disclosures related to the public offering. Therefore, David is an associated person of InnovateTech Inc., and his responsibilities are subject to scrutiny under securities laws to ensure accurate and transparent information for investors.

• Example 3: A Controlling Parent Company

  "Capital Holdings Group" is a large corporation that owns 70% of the voting shares of "Regional Securities LLC," a smaller firm that acts as a broker-dealer. Even though Capital Holdings Group does not directly execute trades or advise clients, its significant ownership stake means it "controls" Regional Securities LLC. In this scenario, Capital Holdings Group is an associated person of Regional Securities LLC. This means that regulators can hold Capital Holdings Group accountable for certain aspects of Regional Securities LLC's operations and compliance, especially concerning overall governance and financial stability.