October 2, 2020

SEC Open Meeting: “Finders” On the Agenda for Next Wednesday

Yesterday, the SEC scheduled an open meeting for Wednesday, October 7th. The topic is one that’s likely to be of interest to anyone involved with small cap companies – a proposal to provide some relief from broker-dealer registration for “finders” involved in capital raising. Here’s an excerpt from the Sunshine Act notice:

The Commission will consider whether to issue a Notice, proposing to grant a conditional exemption, pursuant to Sections 15(a)(2) and 36(a)(1) of the Securities Exchange Act of 1934 (“Exchange Act”), from the broker registration requirements of Section 15(a) of the Exchange Act to permit natural persons to engage in certain limited activities on behalf of issuers, subject to conditions. The Commission would solicit comment on the proposed exemption, which seeks to assist small businesses in raising capital and provide regulatory clarity.

Specifically, observers have noted that small businesses frequently encounter challenges connecting with investors in the exempt market, particularly in regions that lack robust capital raising networks. So-called “finders,” who may identify and in certain circumstances solicit potential investors, often play an important and discrete role in bridging the gap between small businesses that need capital and investors who are interested in supporting emerging enterprises.

The securities laws don’t define the term “finder,” and the SEC’s guidance on distinguishing between a finder and a person who should be registered as a broker-dealer has been provided informally, through various no-action letters and other guidance. Action by the SEC in this area would finally address one of the key recommendations in the final report that the SEC’s Advisory Committee on Small and Emerging Companies issued more than three years ago. As noted in that report, the SEC’s current approach has resulted in “significant uncertainty” in the marketplace about what activities a finder may engage in without registering under the Exchange Act as a broker-dealer.

Some sort of formal relief for finders would also come as welcome news for many small companies that need capital, but whose financings aren’t large enough to attract interest from traditional investment banks.  Finders address this market need, but the ground rules under which they may lawfully assist a company in raising capital are both restrictive and opaque. As the Advisory Committee’s final report observed, this has put companies seeking to comply with the rules in a situation where they “find it hard to determine under what circumstances they can engage a “finder” or online platform that is not registered as a broker-dealer.”

Stock Exchanges: Long-Term Stock Exchange Debuts

We’ve previously blogged about efforts to get the LTSE off the ground – and earlier this month, they culminated with the official opening of the exchange. Here’s an excerpt from the LTSE’s press release announcing its debut:

The Long-Term Stock Exchange (LTSE), the only national securities exchange built to serve companies and investors who share a long-term vision, has opened for business. The exchange went live on Wednesday with the trading of all U.S. exchange-listed securities and a mission to offer companies in every industry a public-market option designed to sustain long-term growth. To list their shares on the exchange, companies are required to publish and maintain a series of policies that are designed to provide shareholders and other stakeholders with insight into their long-term strategies, practices, plans and measures.

The policies are based on five underlying principles, which hold that long term-focused companies consider a broad group of stakeholders, measure success in years and decades, align compensation of executives and directors with long-term performance, engage directors in long-term strategy (and grant them explicit oversight of this strategy), and engage long-term shareholders.

This Davis Polk blog has additional information on the LTSE, including the fact although no companies are yet listed on the exchange, it “allows shares of companies, regardless of whether they are listed on the LTSE or another exchange, to trade simultaneously and in real time across all U.S. exchanges, alternative trading systems and platforms operated by securities dealers.”

This market status information from the NYSE suggests that the LTSE has gotten off to a bit of a bumpy start when it comes to its trading activities, but this PitchBook article highlights the exchange’s big plans to develop an alternative market for IPO companies.

Peak SPAC? Playboy Enterprises to Go Public Through Reverse Merger

When I was in college, I won a raffle in which my prize was a “key” to the luxurious Buffalo Playboy Club. Quite a score, eh? I’m a big fan of Buffalo, but I must admit that this prize was even less impressive than it sounds to those of you who aren’t familiar with the city.

The original Playboy Club was located on the “Magnificent Mile” in Chicago, but this one was located across from the Buffalo airport in Cheektowaga, NY.  Still, the college kid version of me was pretty impressed with the idea of having a key to any Playboy Club, even if I was too chicken to ever pay the club a visit.

Anyway, that’s kind of a rambling introduction to the news I wanted to share with you today – according to this article from, Playboy Enterprises is re-entering the public market by way of a reverse merger with a SPAC:

Playboy is joining the super-hot special acquisition company club, with official plans to go public in a SPAC deal that values the storied brand at $415 million, the company said Thursday. The SPAC deal, which will make the iconic adult-entertainment brand public for the second time in its history, involves being acquired by a blank-check firm, in this case Mountain Crest Acquisition Corp. (MCAC) , which was set up earlier this year and trades on the Nasdaq exchange.

I’m not sure about this one. Putting aside the company’s extended decline prior to its 2011 take-private deal & the recent demise of the print version of its magazine (which I only ever read for the articles anyway), the Playboy brand & legacy just don’t seem in-tune with the current zeitgeist.

In the company’s defense, it has reinvented itself as a “lifestyle brand” and has apparently built a $3 billion business, so maybe its return to the public market will have a happy ending. Still, there are a lot of SPACs chasing deals right now, and I wouldn’t be shocked if we looked back on this one as signifying the moment when the SPAC craze jumped the shark.

John Jenkins