LawCast Guide to Broker-Dealer Registration and Finders Fees
Posted by Attorney Laura Anthony on August 23, 2017
LawCast Guide to Broker-Dealer Registration and Finders Fees- Periodically, and most recently in April 2008, the SEC updates its Guide to Broker-Dealer Registration explaining in detail the rules and regulations regarding the requirement that individuals and entities that engage in raising money for companies must be licensed by the SEC as broker-dealers. On a daily basis, thousands of individuals and entities offer to raise money for companies as “finders” in return for a “finder’s fee.” Other than as narrowly set forth above, such agreements and transactions are prohibited and carry regulatory penalties for both the company utilizing the finders’ services, and the finders.
Each of the following individuals and businesses is required to be registered as a broker if they are receiving transaction-based compensation (i.e., a commission):
0 “finders,” “business brokers,” and other individuals or entities that engage in the following activities:
o Finding investors or customers for, making referrals to, or splitting commissions with registered broker-dealers, investment companies (or mutual funds, including hedge funds) or other securities intermediaries;
o Finding investment banking clients for registered broker-dealers;
o Finding investors for “issuers” (entities issuing securities), even in a “consultant” capacity;
o Engaging in, or finding investors for, venture capital or “angel” financings, including private placements;
o Finding buyers and sellers of businesses (i.e., activities relating to mergers and acquisitions where securities are involved);
• investment advisers and financial consultants;
• persons that market real estate investment interests, such as tenancy-in-common interests, that are securities;
• persons that act as “placement agents” for private placements of securities;
• persons that effect securities transactions for the accounts of others for a fee, even when those other people are friends or family members;
• persons that provide support services to registered broker-dealers; and
• persons that act as “independent contractors,” but are not “associated persons” of a broker-dealer (for information on “associated persons,” see below).