SEC Proposes Exemption for 'Finders' in Private Placements
A newly proposed SEC rule would create a long-sought safe harbor from broker-dealer registration for certain intermediaries who help private companies raise capital.
The U.S. Securities and Exchange Commission has proposed a new exemptive order to create a clear safe harbor for "finders" who assist private companies in raising capital from accredited investors. This proposal addresses a persistent legal gray area where intermediaries, who are not registered as broker-dealers, have faced regulatory risk for connecting issuers with potential funding sources. Historically, their involvement could give disgruntled investors a basis for rescission, jeopardizing the financing.
The proposed framework establishes two classes of finders with distinct roles. Tier I finders would be limited to providing investor contact information for a single offering every 12 months. Tier II finders could engage in more substantial activities, such as distributing offering materials and discussing the issuer with investors, provided they adhere to specific disclosure requirements and other conditions. For sophisticated counsel and their clients in the private capital markets, this proposal could significantly reduce transaction risk and clarify the rules for a common method of capital formation. The next step is the public comment period, which will shape any final rule.