Law Firms as “Finders”: Beware of Broker-Dealer Issues

Download: SEC-Finders-Letter.pdf

Law firms should be careful in assisting their clients who seek debt or equity funding (and being compensated for doing so). By only identifying willing investors and receiving compensation, a law firm is considered a “finder” under a recent Denial of Non-Action Request issued by the Securities and Exchange Commission (“Commission”). “Finder” is someone who acts as an intermediary and is engaged in certain referral activities, which include, but are not limited to, introducing companies to potential investors or providing investment consulting services, finding investors for venture capital financings or for entities issuing securities, making referrals or splitting commissions with registered broker-dealers, hedge funds or mutual funds, or engaging in buying or selling a business involving securities (mergers and acquisitions). This role of a “finder,” while not registered as a broker-dealer under the Securities Exchange Act of 1934 (“Exchange Act”) (which governs the way the securities markets and their participants operate) is generally prohibited by both federal and state securities laws.

More articles on Securities Alerts and Issues can be found in our Securities Alerts: SEC & FINRA Section

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Law Firms as “Finders”: Beware of Broker-Dealer Issues

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