Reed Smith Client Alerts

On October 7, 2020, in a narrow three-to-two decision, the Securities and Exchange Commission (the Commission) proposed an exemption (available at sec.gov) from the broker-dealer registration requirements for natural persons who assist issuers in raising capital from accredited investors in private transactions. The proposed exemption is intended to provide clarity to investors, issuers, and the “finders” who assist them by creating two classes of finders, Tier I Finders and Tier II Finders (herein Tier I Finders, Tier II Finders, or Finders), that would be exempt from broker-dealer registration. The two tiers would be characterized by the scope of their respective activities, and, importantly, both tiers would be permitted to accept transaction-based compensation.

Authors: Gerard S. DiFiore Thao Ngo Danielle Carbone John O. Lukanski Emerson A. Bianchi

The Gray Area of Finders

A long-standing issue in the area of broker regulation concerns the regulatory status of unregistered persons acting as funding intermediaries between small businesses and investors. The Commission has not previously recognized a finders exemption or exception, nor has the Commission adopted a rule clearly specifying whether and under what circumstances a person may solicit potential investors without being required to register. Instead, market participants were forced to analyze various informal staff positions, no action letters, and court decisions to decide whether a finder’s conduct in a specific instance triggered registration. The proposal would bring clarity to the analysis, at least with respect to the limited circumstances under which it applies.