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On DealLawyers.com, we’ve blogged about the recent legislative exemption for M&A brokers, and I shared a detailed memo by Venable providing an overview of when a person is acting as a so-called finder in a post that was focused on state-level registration for M&A Brokers. But the topic of broker registration continues to be one of broader interest to members of this site as well:

The last decade has seen a number of important developments in the securities laws related to the regulation of the activity of persons and entities participating in capital raising and corporate transactions, who have continued to be on the enforcement radar of both federal and state regulators.

As the memo notes, the term “finder” is not defined in federal securities laws but is limited by activities a person cannot perform lest they be deemed a “broker” or “dealer” and therefore subject to registration. Listing 16 factors typical of activity that would trigger registration requirements, the memo continues:

One that draws close attention from the SEC is the existence of transaction-based compensation, which often signals that the individual is more involved in a transaction than simply making introductions. The SEC has stated that “the federal securities laws require that an individual who solicits investments in return for transaction-based compensation be registered as a broker.”

[E]ven where the compensation received by a finder is based on the introduction, and not the outcome of the transaction, the SEC has taken the position that a person who accepts a fee for introduction of capital more than once is probably “engaged in the business of selling securities for compensation” and required to register as a broker-dealer. As a result, the ability of a finder to operate without a broker-dealer license is extremely limited.

Unfortunately for all of us, this isn’t a broker-only problem. There’s also a risk to companies when they pay transaction fees to unregistered brokers.

– Meredith Ervine