8 Actions Taken by Unregistered MicroCap Finders That Create Legal Risks


In the most recent issue of The MicroCap Review, attorneys Eric Hellige and Francesca Djerejian of Pryor Cashman LLP discuss “The Risks of Engaging Unregistered Finders in Securities Offerings“. 

Although the SEC has never officially defined what a ‘finder’ is, they have become fixtures in the world of small-cap and early-stage capital raising. The article highlights that while many small public and private companies use ‘finders’ to assist in locating and introducing qualified investors, issuers should be mindful of the risks associated with using finders to obtain capital.

The primary concern for finders and issuers is that the finder acts as an unregistered broker-dealer. Determining if a finder is indeed acting as an unregistered broker-dealer is not ‘black and white’ thus the SEC and state securities regulators typically employ a facts and circumstances analysis.

According to the article, activities which have been found to create a presumption that a finder is acting as a broker include:

– Soliciting prospective investors for an offering of securities;

– Offering or providing advice or recommendations with respect to the merits of an offering of securities, or the likelihood of success of the issuer’s business activities;

– Negotiating the price or other material terms of an offering of securities;

– Assisting the issuer with the preparation of offering documents;

– Distributing offering or sales materials or other related financial data;

– Handling or assisting in the transfer of investor funds in a securities offering;

– The payment of transaction-based compensation (i.e., compensation that is based on the size or success of the securities transaction); and

– Previous involvement, the frequency of involvement and possible future involvement in the sale of securities.

Read the full article in the Winter/Spring 2017 issue of the MicroCap Review


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