Is The Time Ripe for a Finder’s Exemption to SEC Broker-Dealer Registration?

Is The Time Ripe for a Finder’s Exemption to SEC Broker-Dealer Registration?

The current issue of The DealFlow Report highlights the continuing effort of the American Bar Association to pressure the Securities and Exchange Commission to develop a method for intermediaries in securities transactions who are not registered broker-dealers to "come out of the shadows" and be known.

Since I first appeared on an ABA panel which covered the topic among other things in 2005, this has been a high priority issue for an ABA task force established for that purpose. It seemed around 2007 that the issue was gaining traction within the SEC but for some reason went off the radar just as quickly.

This is a critical issue for smaller public and private companies which often rely on these independent folks to help find either direct investment or the right investment bank. It is awkward when there is an issue about whether the intermediary needed to be registered.

The task force thinks now is the time to push the issue again, and earlier this year submitted a detailed proposal to exempt "securities intermediaries" (a term they are now using) from SEC broker-dealer registration. They feel these guys should be able to arrange private placements and other securities issuances without registration.

The article suggests that the SEC might be ok with this if the individual states adopt a registration requirement for these intermediaries. One worries that this may be difficult to achieve, and one wonders if this is the SEC trying to essentially "punt" the issue to the states. We hope not and that the states will seriously consider jumping on board to require finders and intermediaries to let them know they are there for the better protection of investors.

What will happen? Stay tuned.

For additional insights on reverse mergers, SPACs, other alternatives to traditional initial public offerings, the small and microcap markets and the economy, visit the Reverse Merger and SPAC Blog  by David N. Feldman, Esq., Partner of Richardson & Patel LLP.

For more information about LexisNexis products and solutions connect with us through our corporate site.