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Polsinelli Shughart PC Corporate Finance and Securities in the News
Corporate Finance and Securities Attorneys

William W. Mahood III
Practice Area Chair

Kelly Sullivan-Deady
Practice Area Vice Chair

Orren S. Adams
Charles R. Berry
Ryan A. Berry
Paul J. Cambridge
Ruben K. Chuquimia
Michael J. Connell
Geoffrey D. Fasel
Donald E. Figliulo
Evan M. Gilbert
Tracey M. Ginn
Phillip P. Guttilla
Larry K. Harris
Darren R. Hensley
Scott M. Herpich
Andrew T. Hoyne
Joseph M. Jarvis
Paul G. Klug
Gregory M, Kratofil, Jr.
Cortney E. Mendenhall
Donna Mo
Brian K. Moll
Sharon R. Nowakowski
Michael F. Patterson
Clifford R. Pearl
Jay E. Pietig
William E. Quick
William M. Schutte
Kevin R. Sweeney
Robert H. Wexler
Andrew M. Wilcox
Eric S. Wu


 

To learn more about
our Corporate Finance
and Securities
practice,
click here.

 

September 2012

 

A Polsinelli Shughart Update:

A Money Finder's Commission by Any Other Name Is Still a Commission

 

Although the use of money finders is prevalent, particularly among smaller businesses seeking capital, many finder arrangements involve the type of activities and compensation structures that would cause the finder to come within the definition of a broker-dealer.  While some finders who cross the broker-dealer line do so without any appreciation of the regulatory risks involved, most recognize that they are probably operating illegally but take comfort in the apparent infrequency of enforcement of broker-dealer laws by regulators. Other finders seek to re-characterize the services they provide as not involving the sale of securities.  However, a recent SEC enforcement action serves as a stark reminder that securities regulators, when they do act, will look only to the substance, and not the form, of a finder arrangement in determining whether registration as a broker-dealer was required.

The subject of the SEC enforcement action, who was not registered as a broker-dealer, entered in to oral agreements to solicit investors in two separate private offerings in exchange for transaction-based compensation.  In an apparent attempt to conceal the true nature of the services he provided, the respondent executed or caused to be executed backdated written agreements following the closing of the transactions that characterized the services to be provided as “strategic consulting services” (later amended to a generic reference to “consulting services”) in the first engagement and “general services” in the second engagement. Notwithstanding the references to consulting and general services in the written agreements, the SEC found that the respondent received transaction-based compensation solely for his selling efforts.  Because of his compensation arrangement and solicitation activities, the SEC found the respondent’s actions with respect to the two companies exceeded those of a “money finder” and instead were actions of a broker-dealer in violation of the Exchange Act.

To read more about this enforcement action, its regulatory background, and the consequences for finders and the businesses who engage them of performing broker-dealer activities without being registered, please click here.

For More Information

If you have questions about this E-Alert and its subject matter, please contact the authors of this Alert, or another member of Polsinelli Shughart’s Corporate Finance practice group:

 

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