The use of “finders” to raise capital has always been a cloudy area of securities regulation and often a pitfall for the unwary. Many folks, unaware of the regulatory framework governing broker-dealer and investment advisory activity, have walked into the crosshairs of the enforcement arm of the SEC for referring investors to issuers, including private investment funds, in exchange for compensation without being associated with an SEC-registered broker-dealer. The investment funds those investors are solicited for – as well as the investment advisers that manage those funds – also potentially face enforcement actions for paying those individuals. The SEC recently proposed an exemptive order (Exemptive Order) that would permit unregistered finders to engage in certain limited fundraising activities without the need to associate with a broker-dealer. In a guest article, Ralph A. Siciliano, partner at Tannenbaum, provides background on the regulatory status of finders, explains the proposed Exemptive Order and discusses its possible implications for private fund managers. For commentary from another Tannenbaum partner, see our two-part series “The Tax Cuts and Jobs Act One Year Later – Updates and Structuring Considerations for Private Funds and Their Managers”: Part One
(Feb. 14, 2019); and Part Two
(Feb. 21, 2019).