SEC Schedules Open Meeting on Finders

The Securities and Exchange Commission has scheduled an open meeting on the topic of “finders.” The Commission will consider a conditional exemption from broker registration requirements for individuals to engage in “certain limited activities” on behalf of securities issuers.

To quote the Commission:

“The Commission would solicit comment on the proposed exemption, which seeks to assist small businesses in raising capital and provide regulatory clarity. Specifically, observers have noted that small businesses frequently encounter challenges connecting with investors in the exempt market, particularly in regions that lack robust capital raising networks. So-called “finders,” who may identify and in certain circumstances solicit potential investors, often play an important and discrete role in bridging the gap between small businesses that need capital and investors who are interested in supporting emerging enterprises.”

The concept of a finder is a nagging topic that has dogged the SEC for years. A finder is a person who is paid to assist small businesses to find capital by making introductions to investors. Many entrepreneurs, or small business owners, do not have access to affluent individuals that may be willing to invest in their business and shoulder the affiliated risk. More affluent individuals frequently have established relationships with wealthy individuals they can tap to back a startup or new business venture – thus a significant demographic is short-changed by current rules. By allowing finders to provide a regulated service, the Commission may be looking to bridge this capital gap and improve broader access to capital

In recent years, legislation has surfaced in Congress to address this issue but no bill has yet become law.

David Burton, a Senior Fellow on Economic Policy at the Heritage Foundation, wrote a report some time ago asking Congress to create a statutory exemption for “small-business finders who are not engaged in the business of effecting transactions in securities for the account of others.” Burton explained that a “bright-line safe harbor would eliminate much of the regulatory uncertainty associated with the use of finders.”

Burton outlined a series of possible conditions regarding potential legislation on the issue of finders.  The Commission may now be poised to address the issue directly via rulemaking, a decision that holds greater importance during the time of COVID when many smaller firms are in need of capital.

The Open Meeting will be held on Wednesday, October 7, 2020, at 10:00 a.m. ET. The event will be live-streamed on the SEC’s website.

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