I previously covered regulations relating to those who broker securities transactions and get compensated a "success" fee (a recurring question that comes up periodically in my practice). Such persons have to register with the SEC as broker-dealers prior to conducting any such activities. Here is my earlier blog about it. Today I decided to bring it up again because I came across a comprehensive and well-written blog post "Finders Are Not Always Keepers"(found here) and wanted to share it with you.
Individuals who make introductions, identify potential investors, help structure the deal, and who get compensated a fee that is based on the amount of capital raised are considered to be "brokers" and are required to register as broker-dealers with the SEC. The SEC has consistently viewed the presence of transaction-based compensation as one of the key attributes of a broker's activity. According to the blog post, there is really no "finder" exemption to the rule. Using unregistered broker-dealers presents risks to the companies as well as to the unregistered broker-dealers themselves. If a sale of securities of a company was done through such unregistered "finders," investors may get the right to rescind the entire transaction, which can have disastrous consequences for the company.
To all companies out there raising capital: beware of using the services of unregistered broker-dealers or finders.
This article is not a legal advice, and was written for general informational purposes only. If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author, Arina Shulga. Ms. Shulga is the founder of Shulga Law Firm, P.C., a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of business, corporate, securities, and intellectual property law.
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