On October 7, 2020, the SEC proposed a limited, conditional exemption from broker registration requirements for “finders” who assist smaller businesses to raise capital. As noted by SEC Chair Jay Clayton in the SEC’s press release announcing the proposal, “[t]here has been significant uncertainty…about finders’ regulatory status…. If adopted, the proposed relief will bring clarity to finders’ regulatory status [that will address] the capital formation needs of … smaller issuers while preserving investor protections.”
The proposed rules would create two classes of exempt finders:
- “Tier I” finders would be limited to providing contact information of potential investors in connection with a single capital raise by a single issuer in a 12-month period and could not have any contact with potential investors.
- “Tier II” finders could solicit investors on behalf of an issuer, but the permitted solicitation activities would be limited. Tier II finders would also have to satisfy disclosure requirements and other conditions.
Both Tier I and Tier II finders would be subject to a variety of conditions, including conditions relating to the types of issuers, offerings, solicitation activities, and investors. In addition, neither Tier I nor Tier II finders could be involved in structuring the offering or negotiating its terms or engaging in certain other activities.
The proposed rules are subject to a comment period of 30 days following publication in the Federal Register.
More details about the proposed rules will be provided in an upcoming post on The Securities Edge, Gunster’s securities law and corporate governance blog. Until then, please direct any questions or observations to Gunster securities law and corporate governance practice leader Bob Lamm.
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This publication is for general information only. It is not legal advice, and legal counsel should be contacted before any action is taken that might be influenced by this publication.
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