Finders and Unregistered Broker-Dealers: Understanding the Risks and Recent Developments
Avoiding the Pitfalls of Broker-Dealer Registration Violations, Lessons From SEC Enforcement Actions and SEC Guidance
Course Details
- smart_display Format
On-Demand
- signal_cellular_alt Difficulty Level
Intermediate
- work Practice Area
Banking and Finance
- event Date
Wednesday, May 31, 2023
- schedule Time
1:00 p.m. ET./10:00 a.m. PT
- timer Program Length
90 minutes
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This 90-minute webinar is eligible in most states for 1.5 CLE credits.
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This CLE course will analyze the legal pitfalls for securities issuers who utilize unregistered "finders" to solicit investors, the SEC's restrictive position on permissible activities of finders, activities that require broker-dealer registration, and SEC regulatory actions regarding unregistered broker-dealers.
Mr. Man primarily represents investment advisers, registered closed-end funds (including tender offer and interval funds), and private funds (including exchange funds, hedge funds, and funds of one). His practice centers on regulatory matters relating to the Investment Advisers Act of 1940. Mr. Man also brings substantial experience to the formation of pooled investment vehicles both registered and exempt from registration under the Investment Company Act of 1940. Mr. Man is highly knowledgeable in the application of the Securities Act of 1933 to private investment funds as well as continuously-offered registered closed-end funds offering their interests in private placements, encompassing offerings without and with a general solicitation. He counsels investment advisers ranging from emerging managers to large global firms on all aspects of their operations, including registration and “status” questions, regulation and reporting, SEC examinations, seeding arrangements, and mergers and acquisitions. Among other things, Mr. Man guides clients on matters relating to custody, recordkeeping (including electronic records), trading, principal and cross-transactions, best execution, performance advertising, fiduciary duty and conflicts. He also has a significant practice counseling clients with respect to “wrap” and model portfolio programs. With respect to registered funds, Mr. Man acts as fund and independent trustee counsel. In addition, he regularly advises fund sponsors and finders with respect to broker “status” issues, including the so-called issuer exemption under Rule 3a4-1, in connection with offers and sales of fund securities.
Ms. Rohrer specializes in securities broker-dealer regulatory matters, including broker-dealer status analysis, registration, compliance, and enforcement defense. She represents a broad range of clients in connection with traditional broker-dealer activities and activities involving new technologies such as digital assets, cryptocurrencies, utility tokens, NFTs, distributed ledger technology, digital wallet providers, DeFi applications and protocols and Web3-related businesses. Ms. Rohrer’s broker-dealer practice includes the assessment of whether proposed activities require broker-dealer registration or qualify for an exemption. For decades, she has successfully shepherded firms through the FINRA new membership application process and the FINRA continuing membership application process to obtain approval for changes of ownership and control.
On Oct. 7, 2020, the SEC proposed a conditional exemption for finders, which would operate as a nonexclusive safe harbor from the broker registration requirements of Section 15(a) of the Securities Exchange Act of 1934. The proposed exemption would permit natural persons to engage in certain limited activities on behalf of issuers with private placement offerings. The SEC received over 90 comment letters overwhelmingly critical of the proposal, including state regulators. Unfortunately, no further action has been taken with respect to the proposal, but it remains instructive on the status of brokers and finders.
More recently, on Mar. 28, 2022, the SEC proposed two rules that would clarify the meaning of certain terms in the statutory definitions of "dealer" and "government securities dealer" under, respectively, Sections 3(a)(5) and 3(a)(44) of the Exchange Act. The rules would encompass liquidity providers in the markets--firms that were previously relying on the trader exemption.
Fund managers and companies can be subject to SEC enforcement actions for aiding and abetting a finder's violation of the broker-dealer registration requirements. Besides SEC sanctions, the use of an unregistered broker-dealer brings the risk of rescission under federal and state securities laws. Involving finders in capital raising thus carries significant risks and there is no safe harbor or clear distinction of a finder's duties in the securities laws.
Listen as our authoritative panel of securities practitioners discusses legal pitfalls for securities issuers using unregistered "finders" to solicit capital and the SEC's position on unregistered brokers' permissible activities.
- Securities laws applicable to activities of unregistered broker-dealers
- The SEC's proposed conditional exemption for finders
- The SEC's proposed rulemaking to clarify the definition of dealer and government securities dealer
- Finders under various states' laws
- Finder-related exemptions, including M&A brokers, JOBs Act, bulletin boards, crowdfunding portals
- Regulatory enforcement actions
The panel will review these and other key issues:
- Activities requiring broker-dealer registration with the SEC and FINRA
- Legal pitfalls for issuers who use unregistered broker-dealers in capital-raising efforts
- Finder-related exemptions
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