SEC Proposes Conditional Exemption for ‘Finders’ Assisting with Capital Raising
On October 7, 2020, the SEC proposed a conditional exemption from the broker registration requirements of Section 15(a) of the Exchange Act for “finders” who assist issuers with raising capital in private markets from accredited investors.
“Many small businesses face difficulties raising the capital that they need to grow and thrive, particularly when they are located in places that lack established, robust capital raising networks,” said Chairman Jay Clayton in the SEC’s press release. “Particularly in these ecosystems, finders may play an important role in facilitating capital formation… If adopted, the proposed relief will bring clarity to finders’ regulatory status in a tailored manner that addresses the capital formation needs of certain smaller issuers while preserving investor protections.”
The proposed exemption would create two classes of exempt finders, Tier I Finders and Tier II Finders:
Tier I Finder
A Tier I Finder would be limited to providing contact information of potential investors in connection with only a single capital raising transaction by a single issuer in a 12-month period and could not have any contact with potential investors about the issuer.
Tier II Finder
A Tier II Finder could solicit investors on behalf of an issuer, but the solicitation-related activities would be limited to:
- identifying, screening, and contacting potential investors;
- distributing issuer offering materials to investors;
- discussing issuer information included in any offering materials, provided that the finder does not provide investment advice; and
- arranging or participating in meetings with the issuer and investors.
See the SEC’s press release for a summary of additional conditions.