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Banking and Finance

SEC Advisory Group Recommends Private Placement Finders Be Exempted From Broker Registration

 Yesterday, the SEC’s Advisory Committee on Small and Emerging Companies, comprised of a number of smart and thoughtful people I know, made some terrific recommendations to the Commission. The biggest, something for which many have been waiting for quite a while: that private placement finders, who simply introduce investors to companies, should not have to be registered as brokers even if they take a commission for the work. And that even if a finder gets involved in negotiating the transaction, they should still only have to register with their state, not the SEC. Since 2001 the SEC’s position in so-called no-action letters has been that taking a commission requires broker registration. They recently acted to exempt M&A brokers from registration, so hopefully the next step is ready to happen.

Why is this important? Because smaller companies often don’t attract the attention of the established investment banking firms that help larger businesses with capital formation. There are many legitimate and well-meaning individuals and small firms that wish to help smaller companies to raise money but cannot earn a commission to do so. Opportunities for capital raising would be notably expanded if the SEC allowed these folks to operate and take commissions without the significant cost and hassle of broker-dealer registration. Let’s hope the Commissioners act on this promptly, ideally before the political silly season begins next year.

Separately, the Committee also suggested removing some impediments to in-state crowdfunding, something it appears more than half the states have done or are about to do. This is also intelligent. Keep at it committee!

 Read additional articles at the David Feldman Blog.

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