Interpretive Letter to Jonathan K. Lagemann, Esq., Law Offices of Jonathan Kord Lagemann

June 27, 2001

Jonathan K. Lagemann, Esq.
Law Offices of Jonathan Kord Lagemann
300 East 42nd Street, 10th Floor
New York, NY 10017

Re: Jeffrey Matthews Financial Group, LLC

Dear Mr. Lagemann:

This is in response to your letters dated March 24, 2000 and May 17, 2001, in which you ask whether Jeffrey Matthews Financial Group, LLC ("JMFG"), a broker/dealer, would be permitted to obtain "employee leasing services"" from EPIX Holdings Corp. ("EPIX"a professional employer organization, without violating NASD Rule 2420.

Based on your letters, we understand the pertinent facts to be as follows. EPIX provides a range of human resource and employee benefit services to clients, including advice regarding compliance with applicable employment laws, employment benefits including traditional insurance products such as medical and life insurance plans, accidental death and dismemberment insurance, and 401(k) retirement plans, risk management services including workers' compensation insurance, services relating to unemployment compensation benefits, and payroll processing.

EPIX is seeking to provide these services to JMFG. In providing such services, EPIX will place on its payroll the employees of JMFG, who will become joint employees of EPIX and JMFG. The joint employees will, however, at all times remain employees of JMFG, which will maintain complete supervision and control over them. JMFG will be responsible for the recruitment, registration, training and supervision of its employees for compliance with all applicable securities laws, rules and regulations. JMFG will retain the traditional rights of an employer, including the right to hire, set pay for, give raises and bonuses to, terminate, discipline and reassign personnel of the broker/dealer. EPIX will have no authority over any of these activities.

In addition, the human resource and employee benefit services provided by EPIX will be performed under the control and supervision of JMFG. All books and records relating to these services will be deemed property of JMFG and will be available for inspection by, among others, the Securities and Exchange Commission ("SEC") and NASD Regulation.

All promotional activities, including any promotional material that EPIX distributes, will relate solely to employee leasing services and will not in any way relate to brokerage activities. In addition, EPIX will not identify or promote any broker/dealer in its promotional activities or materials. Furthermore, EPIX will not engage in any securities-related activities (other than with respect to its own EPIX securities).

Under the employee leasing arrangement, EPIX will receive payment from JMFG for salaries, wages, and commissions, which EPIX will then pay to the JMFG employees. EPIX also will provide all health, life, disability and other insurance coverage to the JMFG employees. For its services, EPIX will assess an administrative fee (which includes its profit) based upon JMFG's gross payroll. This fee will not be based upon brokerage commissions received or generated by JMFG or the employees. Moreover, EPIX will not have discretion to determine the amount or frequency of the payments that will be distributed to the employees of JMFG.

NASD Rule 2420 generally prohibits payment of fees and commissions to non-member broker/dealers. This rule has been interpreted by NASD Regulation staff to apply equally to persons that are not registered, but are required to be registered as broker/dealers under the Securities Exchange Act of 1934 ("Exchange Act"). As part of your correspondence, you have provided a copy of a "no-action" letter EPIX has obtained from the staff of the SEC's Division of Market Regulation stating that it will not recommend enforcement action to the SEC under Section 15(a) of the Exchange Act if EPIX engages in the above-described employee leasing activities without registering as a broker/dealer under Section 15(b) of the Exchange Act.¹

In view of the fact that EPIX has obtained a no-action letter from SEC staff, the staff of NASD Regulation believes that the proposed employee leasing activities of EPIX, as described above, would not cause JMFG to violate Rule 2420. This position is contingent upon EPIX performing the services in the manner described above, and the continuing validity of the SEC's no-action letter. If, for example, EPIX were to modify its activities such that the SEC's no-action letter would no longer be valid, NASD Regulation's Office of General Counsel would need to reconsider your request.

Please note that the opinions expressed herein are staff opinions only and have not been reviewed or endorsed by the Board of Directors of NASD Regulation. This letter responds only to the issues you have raised based on the facts as you have described them in your letters, and does not necessarily address any other rule or interpretation of the NASD or all the possible regulatory and legal issues involved.

Very truly yours,

Gary L. Goldsholle
Associate General Counsel

1 See EPIX Holdings Corporation, SEC No-Action Letter, 2001 SEC No-Act. LEXIS 466 (April 2, 2001).