SEC Proposes Exemptive Relief for “Finders” – A Win-Win Scenario?

I was recently quoted by WealthManagement.com on the recent “finders” exemption proposal by the U.S. Securities and Exchange Commission. That proposal would provide clarity to “finders” on how they can avoid allegations that they are acting as broker-dealers in need of registration under Section 15 of the Securities Exchange Act of 1934. The proposal is available here.

The Office of the Advocate for Small Business Capital Formation created a very helpful chart that shows how the proposed finder relief will work, if adopted. That chart is set forth below:

As you can see, the exemption provides two tiers of exemptive relief for finders. Tier 1 provides a finder with the ability to receive transaction-based compensation for (i) simply providing contact information for accredited investors, (ii) to non-reporting (private) companies, (iii) for primary exempt offerings, subject to certain conditions. It would only available for individuals and these referrals are proposed to be limited to once in a 12-month period. My only concern with this tier is that issuers may be able to deceive a finder or ultimately refuse to compensate a finder from their earned compensation, because of how “hands off” the approach must be under the proposal.

Tier 2 allows for the finder to be slightly more involved in the process–namely they can help contact potential investors, distribute offering materials, discuss the issuer, and arrange for meetings.

Lately, I have been finding myself in less agreement with Chariman Clayton on proposals, but I think this proposed relief benefits the industry without necessarily creating any increased risk for the investing public. As a practicing lawyer who works on securities offerings, I see these proposals as a win-win.

These activities are already taking place and investors are already being pitched ideas by unlicensed people who stand to benefit from those pitches. This relief at least provides clarity for the unlicensed people, and at the same time would seem to increase protection for those investors.

Leave a Reply

%d