Securities and Exchange Commission v. Electronic Comments, et al.

SECURITIES AND EXCHANGE COMMISSION  
[Release No. 34-90112; File No. S7-13-20] 
Notice of Proposed Exemptive Order Granting Conditional Exemption from the Broker 
Registration Requirements of Section 15(a) of the Securities Exchange Act of 1934 for 
Certain Activities of Finders 
 
AGENCY:  Securities and Exchange Commission.   
ACTION:  Notice of proposed exemptive order; request for comment. 
SUMMARY:  Pursuant to Sections 15(a)(2) and 36(a)(1) of the Securities Exchange Act of 
1934 (“Exchange Act”), the Securities and Exchange Commission (“SEC” or “Commission”) is 
proposing to grant exemptive relief to permit natural persons to engage in certain limited 
activities on behalf of issuers (“Finders”), without registering as brokers under Section 15 of the 
Exchange Act.  The proposed exemption provides for two classes of Finders, Tier I Finders and 
Tier II Finders, with corresponding conditions as described below.  
DATES:  Comments should be received on or before [insert date 30 days following the date of 
publication in the Federal Register]. 
ADDRESSES:  Comments may be submitted by any of the following methods: 
Electronic Comments:  
• Use the Commission’s Internet comment form 
(http://www.sec.gov/rules/exorders.shtml); or 
•  Send an e-mail to [email protected].  Please include File Number S7-13-20 on the 
subject line.  
Paper Comments: 
•  Send paper comments to Vanessa A. Countryman, Secretary, Securities and Exchange 
Commission, 100 F Street, NE, Washington, DC 20549-1090. 

2 
 
All submissions should refer to File Number S7-13-20. This file number should be 
included on the subject line if e-mail is used.  To help the Commission process and review your 
comments more efficiently, please use only one method.  The Commission will post all 
comments on the Commission’s Internet website (http://www.sec.gov/rules/exorders.shtml). 
Comments also are available for website viewing and printing in the Commission’s Public 
Reference Room, 100 F Street, NE, Washington, DC 20549, on official business days between 
the hours of 10:00 am and 3:00 pm.  All comments received will be posted without change.  
Persons submitting comments are cautioned that we do not redact or edit personal identifying 
information from comment submissions.  You should submit only information that you wish to 
make available publicly.  
FOR FURTHER INFORMATION CONTACT: Emily Westerberg Russell, Chief Counsel; 
Joanne Rutkowski, Assistant Chief Counsel; Timothy White, Senior Special Counsel; Geeta 
Dhingra, Special Counsel; and Darren Vieira, Special Counsel, Office of Chief Counsel, 
Division of Trading and Markets, at (202) 551-5550, Securities and Exchange Commission, 100 
F Street, NE, Washington, DC 20549-8549. 
  

3 
 
I. Introduction 
 
The Commission’s mission includes facilitating capital formation—not only for public 
companies, but also for the small businesses that are active participants in our private markets.  
Our dynamic markets and economy significantly benefit from a robust pipeline of new small 
businesses, which create the majority of net new jobs in the United States
1
 and greatly contribute 
to innovation.
2
  Small and emerging companies—from start-ups seeking their initial seed 
funding to businesses on a path to become a public reporting company—require capital to grow 
and scale.
3
  One of the ways that small businesses may seek to access critical capital needed to 
grow and scale is through offerings conducted in reliance on an exemption from registration 
under the Securities Act of 1933 (“Securities Act”).
4
  The exempt market supports the capital 
needs of many small companies that contribute substantially to our economy.
5
  
                                                             
1
  See U.S. Small Business Administration Office of Advocacy, Frequently Asked 
Questions (Sept. 2019), available at https://cdn.advocacy.sba.gov/wp-
content/uploads/2019/09/24153946/Frequently-Asked-Questions-Small-Business-2019-
1.pdf. 
2
  See, e.g., Ufuk Akcigit and William R. Kerr, “Growth through Heterogeneous 
Innovations,” Journal of Political Economy 126:4 (Aug. 2018), available at 
https://www.journals.uchicago.edu/doi/full/10.1086/697901 (demonstrating that the 
“relative rate of major inventions is higher in small firms” due to the “outcome of 
innovation investment choices by firms”).
  
3
  See Facilitat ing Capital Format ion and Expanding Investment Opportunities by 
Improving Access to Capital in Private Markets, Release No. 33-10763 (Mar. 4, 2020) 
[85 FR 17956 (Mar. 31, 2020)] (“Harmonization Proposal”) (proposing amendments to 
facilitate capital formation and increase opportunities for investors by expanding access 
to capital for entrepreneurs across the United States and noting that the significance of the 
exempt securities markets has increased over time both in terms of the absolute amounts 
raised and relative to the public registered markets).  
4
  See Harmonization Proposal at 17957.   
5
  Id. 

4 
 
Small business investors play a critical role in fostering the growth and success of small 
companies.
6
  For example, investors can provide expertise as well as financial capital to support 
the businesses’ strategic growth.
7
  Observers have noted, however, that small businesses 
frequently encounter challenges connecting with investors in the exempt market, particularly in 
regions that lack robust capital raising networks.
8
  According to the 2017 Treasury Report, “[f]or 
a small business seeking to raise capital, identifying and locating potential investors can be 
difficult.  It becomes even more challenging if the amount sought (e.g., less than $5 million) is 
below a level that would attract venture capital or a registered broker-dealer, but beyond the 
levels that can be provided by friends and family and personal financing.  The number of 
registered broker-dealers has been falling, and few registered broker-dealers are willing to raise 
capital in small transactions.”
9
  
                                                             
6
  Id.  
7
  See Final Report of the Securities and Exchange Commission Advisory Committee on 
Small and Emerging Companies (“ACSEC”) (Sept. 2017), available at 
https://www.sec.gov/info/smallbus/acsec/acsec-final-report-2017-09.pdf.  
8
  See id.  See also U.S. Department of Treasury, A Financial System that Creates 
Economic Opportunities: Capital Markets (Oct. 2017), available at 
https://home.treasury.gov/system/files/136/A-Financial-System-Capital-Markets-FINAL-
FINAL.pdf (“2017 Treasury Report”).  
A recent report shows that in 2019, 77% of venture capital funding in the United States 
was raised by companies in just three states, California, New York, and Massachusetts.  
See PWC MoneyTree™ Report, Q4 2019, available at 
https://www.pwc.com/us/en/industries/technology/assets/pwc-moneytree-2019-q4-
final.pdf.  
9
  2017 Treasury Report at 43-44.  See e.g., Report and Recommendations of the American 
Bar Association Business Law Section Task Force on Private Placement Broker-Dealers 
(“ABA Task Force”) (June 2005), available at 
https://www.sec.gov/info/smallbus/2009gbforum/abareport062005.pdf (“ABA Task 
Force Report”) (stating that small issuers are almost “never interesting” to professional 
capital and will seldom be able to attract fully licensed members to participate in 
offerings of less than $5 million); Gregory C. Yadley, “Notable by Their Absence: 
Finders and Other Financial Intermediaries in Small Business Capital Format ion,” (June 
2015), available at https://www.sec.gov/info/smallbus/acsec/finders-and-other-financial-

5 
 
In areas that lack robust venture capital (“VC”)
10
 and angel investor
11
 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.
12
  Finders may also help bridge 
gaps between traditionally underrepresented founders, such as women and minorities
13
 and VC 
and start-up capital.
14
  
                                                             
intermediaries-yadley.pdf (“Funding of start-up and new companies is often sought in 
amounts of $100,000 or less, and rarely more than $5 million.  Accordingly, these 
offerings are not of interest to many professional investors such as venture capital or 
private equity funds.”). 
10
  Venture capital funds generally invest capital directly in portfolio companies for the 
purpose of funding the expansion and development of the companies’ business, with the 
goal of eventually either selling the companies or taking them public. See Exempt ions for 
Advisers to Venture Capital Funds, Private Fund Advisers With Less Than $150 Million 
in Assets Under Management, and Foreign Private Advisers, Release No. IA-3222 (Jun. 
22, 2011) [76 FR 39646 (Jul. 6, 2011)] (“VC Fund Adviser Release”). Many advisers to 
VC funds provide managerial assistance to the funds’ portfolio companies. See VC Fund 
Adviser Release at 39661.
 
11
  “Angel investors” are generally high net worth individuals who provide financial backing 
for early-stage businesses.  They typically invest their own funds directly in a business 
located in close proximity, often using convertible debt.  See Office of the Advocate for 
Small Business Capital Formation, Annual Report for Fiscal Year 2019, available at 
https://www.sec.gov/files/2019_OASB_Annual%20Report.pdf (“OASB Report”) at 18.  
12
  See id. at 44-45.  See also comments of Gregory Yadley, Partner, Shumaker, Loop & 
Kendrick, LLC, at the Meeting of the Small Business Capital Formation Advisory 
Committee meeting (May 8, 2020), available at 
https://www.sec.gov/info/smallbus/acsec/sbcfac-transcript-050820.pdf, transcript at 112-
113 (“Particularly these days, where companies are going to become even more desperate 
for money and we are loosening up so many ways for people to be able to raise money, 
there is still a disconnect between issuers who need a little bit of money and accredited 
investors who are willing to invest....”). 
13
  See Transcript of the 39
th
 Annual SEC Government-Business Forum on Small Business 
Capital Format ion available at https://www.sec.gov/file/06182020-small-business-forum-
transcript.pdf.   
 
14
  See OASB Report at 26 and 30.  See also Presentation at Feb. 4, 2020 Small Business 
Capital Formation Advisory Committee meeting by James Gelfer, Senior Strategist, Lead 
Venture Analyst, PitchBook, available at https://www.sec.gov/spotlight/sbcfac/2020-02-

6 
 
A long-standing issue in the area of broker regulation concerns the regulatory status of 
these persons who play a discrete role in bridging the gap between small businesses and 
investors.  Concerns have been raised that “identifying potential investors is one of the most 
difficult challenges for small businesses trying to raise capital . . . [yet] companies that want to 
play by the rules struggle to know in what circumstances they can engage a ‘finder’ or a platform 
that is not registered as a broker-dealer.”
15
  Observers have described a “gray market,” reflecting 
a “major disconnect” between the various laws and regulations applicable to securities brokerage 
activities, and the methods and practices by which capital is raised to fund early stage businesses 
in the United States.
16
  As a result of this uncertainty, individuals potentially could be engaging 
in unregistered brokerage activity, or alternatively, not serving the market because of the 
regulatory uncertainty associated with playing even a limited role in a capital raise.
17
 
                                                             
04-presentation-pitchbook-venture-climate.pdf at 13 (showing that 22.8 percent of VC 
deals and 14.2% of VC dollars in 2019 involved companies with at least one female 
founder and 6.8% of VC deals and 2.7% of VC dollars in 2019 involved companies with 
all female founders.; Banerji, Devika & Reimer, Torsten, Startup Founders and Their 
LinkedIn Connections: Are Well-Connected Entrepreneurs More Successful? 90 
C
OMPUTERS IN HUM. BEHAVIOR 46 (2019) (finding that social connectedness of founders 
was the best predictor of funds raised); Redd, Tammi C. and Wu, Sibin, “Gender 
Differences in Acquiring Business Support from Online Social Networks” (2020), 
available at https://doi.org/10.28934/jwee20.12.pp22-36 (highlighting gender differences 
between social networks and the process of creating network ties for men and women); 
Looze, Jessica and Desai, Sameeksha, “Challenges Along the Entrepreneurial Journey: 
Considerations for Entrepreneurship Supporters” (2020) available at 
https://ssrn.com/abstract=3637048 (noting that aspiring entrepreneurs reported acquiring 
funds to start or grow the business as one of the key challenges, followed by networks 
and connections). 
15
  Recommendation Regarding Finders, Private Placement Brokers, and Investment 
Platforms Not Registered as Broker-Dealers, ACSEC (May 15, 2017), available at 
https://www.sec.gov/info/smallbus/acsec/acsec-recommendation-051517-finders.pdf  
(“ACSEC Recommendation 2017”).  
16
  See ABA Task Force Report.  
17
  See id. (“This vast and pervasive ‘gray market’ of brokerage activity creates continuing 
problems for the unlicensed brokers, the businesses which rely upon them for funding, 

7 
 
Over the years, there have been many calls for Commission action in this area.  In 2005, 
the ABA Task Force recommended that the Commission work with the Financial Industry 
Regulatory Authority (“FINRA,” which was then the National Association of Securities Dealers) 
and state regulators to establish a simplified system that would allow persons to solicit investors 
for small issuers, subject to a reduced, but appropriate, level of regulation.
18
  In recent years, the 
U.S. Department of the Treasury recommended that the SEC, FINRA, and the states propose a 
new regulatory structure for finders and other intermediaries in capital-forming transactions;
19
 
the former SEC Advisory Committee on Small and Emerging Companies (the “ACSEC”)
20
 
recommended that the Commission address questions regarding whether and under what 
circumstances small issuers can engage a finder or other intermediary that is not a registered 
broker-dealer, highlighting the importance of finders for small business capital formation;
21
 and 
                                                             
attorneys and other professionals advising both the brokers and businesses, and, last but 
not least, the federal and state regulators who are charged with the obligation to enforce 
laws and regulations that are out of step with current business practices.”).  
18
  See id. at 2 (stating that, among other things, the proposed solution should modify the 
amount and scope of regulations that apply such that they would be in proper balance 
with the scope of activities to be pursued by those who will be subject to regulations, and 
diminish the number of unlawful securities brokers to a level that will make feasible 
effective enforcement actions against continuing unlawful activity).  
19
  See 2017 Treasury Report at 44.  
20
  The ACSEC was formed in 2011 to provide the Commission with advice on its rules, 
regulations and policies with regard to protecting investors; maintaining fair, orderly and 
efficient markets; and facilitating capital formation in relation to smaller public 
companies.  The ACSEC’s term expired at the end of 2017 and it was replaced by the 
SEC’s new Small Business Capital Format ion Advisory Co mmittee.  See 
https://www.sec.gov/page/small-business-capital-formation-advisory-committee.  
21
  See, e.g., ACSEC Recommendations Regarding the Regulation of Finders and Other 
Intermediaries in Small Business Capital Formation Transactions (Sept. 23, 2015), 
available at https://www.sec.gov/info/smallbus/acsec/acsec-recommendations-regulation-
of-finders.pdf (requesting the Commission address the regulatory issues surrounding 
finders and other private placement intermediaries as referenced in the ABA Task Force 

8 
 
the current SEC Small Business Capital Formation Advisory Committee (the “SBCFAC”) 
recommended that the Commission adopt a clear framework for unregistered finders in light of 
their role as intermediaries in fostering capital formation for smaller businesses.
22
  
The status of these intermediaries has also been a concern for participants in the SEC 
Government-Business Forum on Small Business Capital Format ion (“Small Business Forum”).  
The Small Business Forum has repeatedly recommended that the Commission address the status 
of finders, including recommendations that finders should be exempt from the requirement to 
register as broker-dealers, and that the Commission should define permissible activities in which 
finders can engage without being deemed as engaging in activities that require broker 
registration.
23
  In August 2019, the Small Business Forum’s Small, Emerging Businesses 
                                                             
Report and stating that a failure to address the issue impedes capital formation for smaller 
companies); ACSEC Recommendation 2017 (referencing the ABA Task Force Report). 
22
  See, SBCFAC Recommendations regarding the Capital Formation Proposal (May 28, 
2020), available at https://www.sec.gov/spotlight/sbcfac/capital-formation-proposal-
recommendation-2020-05-08.pdf.  See also Transcript of SBCFAC at 59-61 for 
discussion of finders (May 6, 2019), available at 
https://www.sec.gov/info/smallbus/acsec/sbcfac-transcript-050619.pdf; Transcript of 
SBCFAC at 18, 112 for discussion of finders (Feb. 4, 2020), available at 
https://www.sec.gov/info/smallbus/acsec/sbcfac-transcript-020420.pdf; Transcript of 
SBCFAC at 112-117 for discussion of finders (May 8, 2020), available at 
https://www.sec.gov/info/smallbus/acsec/sbcfac-transcript-050820.pdf (encouraging the 
Commission to adopt a clear framework for unregistered finders).  
23
  See, e.g., 37
th
 Annual Government-Business Forum on Small Business Capital 
Formation, Final Report (Dec. 12, 2018); 36
th
 Annual SEC Government-Business Forum 
on Small Business Capital Formation, Final Report (Nov. 30, 2017); 35
th
 Annual SEC 
Government-Business Forum on Small Business Capital Format ion, Final Report (Nov. 
17, 2016); 34
th
 Annual SEC Government-Business Forum on Small Business Capital 
Formation, Final Report (Nov. 19, 2015); 33
rd
 Annual SEC Government-Business Forum 
on Small Business Capital Format ion, Final Report (Nov. 20, 2014); 32
nd
 Annual SEC 
Government-Business Forum on Small Business Capital Format ion, Final Report (Nov. 
21, 2013); 31
st
 Annual SEC Government-Business Forum on Small Business Capital 
Formation, Final Report (Nov. 15, 2012); 30
th
 Annual SEC Government-Business Forum 
on Small Business Capital Format ion, Final Report (Nov. 17, 2011); 29
th
 Annual Small 
Business Forum, Final Report (Nov. 18, 2010); 28
th
 Annual SEC Government-Business 
Forum on Small Business Capital Format ion, Final Report (Nov. 19, 2009); 27
th
 Annual 

9 
 
breakout group and the Mature and Later Stage Private Companies breakout group both made 
recommendations related to finders, indicating a broad market perception that additional clarity 
and possibly relief may be needed in this area.
24
  Further, at the Small Business Forum in June 
2020, participants made a recommendation related to finders.
25
 
 Against this background, and given the role of intermediaries with respect to capital 
formation and investor protection, especially for smaller issuers, the Commission believes it is 
important to address the regulatory status of persons who engage in certain limited securities-
                                                             
Small Business Forum, Final Report (Nov. 20. 2008); 26
th
 Annual SEC Government-
Business Forum on Small Business Capital Formatio n, Final Report (Sept. 24, 2007); 25
th
 
Annual SEC Government-Business Forum on Small Business Capital Format ion, Final 
Report (2006); and 24
th
 Annual SEC Government-Business Forum on Small Business 
Capital Format ion, Final Report (Sept. 19, 2005).  Copies of these and other Annual 
Government-Business Forum on Small Business Capital Format ion Final Reports making 
recommendations relating to finders are available at 
https://www.sec.gov/info/smallbus/sbforumreps.htm.  
24
  See Report on 38th Annual Government-Business Forum on Small Business Capital 
Formation (Aug. 14, 2019), available at https://www.sec.gov/files/small-business-forum-
report-2019.pdf. 
 The Mature and Later Stage Private Companies breakout group also recommended that 
the M&A Broker Letter be codified.  See M&A Brokers, SEC Staff No-Action Letter (Jan. 
31, 2014) (“M&A Broker Letter”).  In the M&A Broker Letter, the staff agreed not to 
recommend enforcement action under Section 15(a) of the Exchange Act for persons 
facilitating securities transactions in connection with the transfer of ownership of a 
controlling interest in a privately-held operating company under certain facts and 
circumstances.  This proposed exemptive order is limited to the regulatory status of 
individuals who identify and solicit potential investors for an issuer as discussed above, 
and does not address the M&A Broker Letter or the associated recommendation to codify 
the staff position in the M&A Broker Letter.  
25
  See Report on 39th Annual Government-Business Forum on Small Business Capital 
Formation (June 18, 2020), available at https://www.sec.gov/files/2020-oasb-forum-
report-final_0.pdf.  The Small Business Forum recommended that the Commission 
provide an exemption from broker-dealer registration for finders facilitating secondary 
transactions.  Id.  While the scope of this proposed exemptive order is limited to finders 
participating in primary offerings, the Commission is requesting comment on whether we 
should expand the scope to include secondary offerings. 
 

10 
 
related activities on behalf of issuers.  The Commission preliminarily believes that this 
exemption would provide clarity to investors and issuers, and establish clear lanes for both 
registered broker activity and limited activity by finders that would be exempt from 
registration.
26
    
II. Broker Regulatory Framework  
Because of the broker’s role as an intermediary between customers and the securities 
markets, broker-dealers are required to register with the Commission unless they can rely on an 
exception or exemption.
27
  Registered broker-dealers are subject to comprehensive regulation 
under the Exchange Act and under the rules of each self-regulatory organization (“SRO”) of 
which the broker-dealer is a member, including a number of obligations that attach when a 
broker-dealer makes recommendations to a customer, as well as general and specific 
requirements aimed at addressing certain conflicts of interest.
28
 
                                                             
26
  The conditions of this proposed exemptive order for Finders differ from the requirements 
for solicitors under the Commission’s proposed amendments to Rule 206(4)-3 under the 
Investment Advisers Act of 1940 (“Advisers Act”).  See Investment Adviser 
Advertisements; Compensation for Solicitations, Release No. IA-5407 (Nov. 4, 2019), 
[84 FR 67518 (Dec. 20, 2019)] (“Cash Solicitation Rule Proposed Amendments”).  
These differences reflect the particular facts and circumstances surrounding the proposed 
permitted activities for Finders and solicitors, and the characteristics of the applicable 
regulatory regimes, notably that a solicitor would solicit for an investment adviser and 
would be subject to oversight by such investment adviser, while a Finder would solicit 
for an issuer and therefore would not be subject to such oversight.  See Cash Solicitat ion 
Rule Proposed Amendments at 67580.  
27
  See, e.g., Registration Requirements for Foreign Broker-Dealers, Exchange Act Release 
No. 27017 (Jul. 11, 1989), [54 FR 30013 (Jul. 18, 1989)] (“15a-6 Adopting Release”) at 
30014-15.  
28
  See, e.g., Regulation Best Interest, Exchange Act Release No. 86031 (Jun. 5, 2019), [84 
FR  33318 (Jul. 12, 2019)] (“Regulation Best Interest Adopting Release”).  

11 
 
Section 3(a)(4) of the Exchange Act generally defines a “broker” as “any person engaged 
in the business of effecting transactions in securities for the account of others.”
29
  Section 
15(a)(1) of the Exchange Act, in turn, generally makes it unlawful for any broker to use the mails 
or any other means of interstate commerce to “effect any transactions in, or to induce or attempt 
to induce the purchase or sale of, any security” unless that broker is registered with the 
Commission in accordance with Section 15(b) of the Exchange Act.
30
  As a result, absent an 
available exception or exemption,
31
 a person engaged in the business of effecting transactions in 
securities for the account of others is a broker required to register under Section 15(a) of the 
Exchange Act.   
The question of whether a person is a broker within the meaning of Section 3(a)(4) turns 
on the facts and circumstances of the matter.  Because the Exchange Act does not define what it 
means to be “engaged in the business” or “effecting transactions,” courts and the Commission 
have looked to an array of factors in determining whether a person is a broker within the 
meaning of the statute.
32
  Often, a key consideration in these determinations is whether the 
person participates on a regular basis in securities transactions at key points in the chain of 
                                                             
29
  Section 3(a)(4)(A) of the Exchange Act, 15 U.S.C. 78c(a)(4)(A).   
30
  Section 15(a) of the Exchange Act, 15 U.S.C. 78o(a).  Although Section 15(a) applies to 
both brokers and dealers, this proposed exemption would apply only to activities that 
historically have been associated with brokers—that is, effecting securities transactions 
for the account of others.    
31
  See, e.g., Exemptions to Facilitate Intrastate and Regional Securities Offerings, Release 
No. 33-10238 (Oct. 26, 2016) [81 FR 83494 (Nov. 21, 2016)] at 83510 (providing 
guidance on the exemption from registration for broker-dealers whose business is 
exclusively intrastate and who do not use any facility of a national securities exchange).  
32
  See, e.g., 15a-6 Adopting Release (noting that the definition in the Exchange Act of the 
term “broker” and the registration requirements under Section 15(a) of the Exchange Act 
“were drawn broadly by Congress to encompass a wide range of activities involving 
investors and the securities markets”).  

12 
 
distribut ion.
33
  Over the years, the courts and the Commission have identified certain activities as 
indicators of broker status, including:  (1) actively soliciting or recruiting investors;
34
 (2) 
participating in negotiations between the issuer and the investor;
35
 (3) advising investors as to the 
merits of an investment or opining on its merits;
36
 (4) handling customer funds and securities;
37
 
(5) having a history of selling securities of other issuers;
38
 and (6) receiving commissions, 
transaction-based compensation or payment other than a salary for selling the investments.
39
  
This is not an exhaustive list of the relevant factors, and no one factor is dispositive.
40
 
A person who identifies and solicits potential investors for an issuer or other party could 
be viewed as engaging in activity that indicates broker status.
41
  The courts and the Commission 
generally have viewed solicitation as any affirmative effort intended to induce a securities 
                                                             
33
  See SEC v. Bravata, 2009 WL 2245649 (E.D. Mich. 2009), quoting SEC v. Martino.  See 
also Mass. Fin. Servs., Inc. v. SIPC, 411 F. Supp. 411, 415 (D. Mass. 1976), aff’d, 545 
F.2d 754 (1st Cir. 1976), cert. denied, 431 U.S. 904 (1977).  
34
  See SEC v. Hansen, 1984 U.S. Dist. LEXIS 17835, at *26 (S.D.N.Y. April 6, 1984).   
35
  Id.  
36
  Id.  
37
  See SEC v. M&A West, Inc., 2005 WL 1514101, at *9 (N.D. Cal. June 20, 2005); SEC v. 
Margolin, 1992 WL 279735, at *5 (S.D.N.Y. 1992); SEC v. Benger, 697 F. Supp. 2d 932, 
944 (N.D. Ill. 2010).  
38
  See, e.g., SEC v. Hansen, 1984 U.S. Dist. LEXIS 17835, at *26 (S.D.N.Y. April 6, 1984).   
39
  Id.  
40
  See SEC v. Benger, 697 F. Supp. 2d 932, 945.  
41
  See, e.g., Definition of Terms in and Specific Exemptions for Banks, Savings 
Associations, and Savings Banks Under Section 3(a)(4) and 3(a)(5) of the Securities 
Exchange Act of 1934, Exchange Act Rel. No. 44291, 66 FR 27760, 27772-73 at n.124 
(May 18, 2001) (“Solicitation is one of the most relevant factors in determining whether a 
person is effecting transactions.”), cited in Registration Process for Security- Based Swap 
Dealers and Major Security-Based Swap Participants, Exchange Act Rel. No. 75611 
(Aug. 5, 2015), 80 FR 48964, 48976 (Aug. 14, 2015) (“The Commission has previously 
interpreted the term ‘effecting transactions’ in the context of securities transactions to 
include a number of activities, ranging from identifying potential purchasers to settlement 
and confirmation of a transaction.”).  

13 
 
transaction, including, but not limited to, telephone calls, mailings, advertising (online or in 
print), and conducting investment seminars.
42
  Solicitation includes efforts to induce a single 
securities transaction as well as efforts to develop an ongoing securities-business relationship.
43
  
Although it is not required to establish broker status and is not in itself determinative of broker 
status, the receipt of transaction-based compensation in connection with securities activities, 
such as solicitation of potential investors, has been considered by courts as a factor indicating 
that registration as a broker may be required.
44
       
                                                             
42
  See, e.g., SEC v. Century Inv. Transfer Corp., et al., No. 71-cv-3384, 1971 WL 297, at *5 
(S.D.N.Y. Oct. 5, 1971) (Century “engaged in the brokerage business by soliciting 
customers through ads in the Wall Street Journal, and engaging in sales activities 
designed to bring about mergers between private corporations and publically held shells 
controlled by” a co-defendant); SEC v. Hansen, 1984 U.S. Dist. LEXIS 17835, at *26 
(S.D.N.Y. Apr. 6, 1984)  (defendant engaged in unregistered broker activity when he 
“sold or attempted to sell interest in the five [securities] by use of the mails, the 
telephone, advertisements in publications distributed nationally and by other intestate 
means of communication”); SEC v. National Executive Planners, Ltd., et al., 503 F. 
Supp. 1066, 1072-73 (M.D.N.C. 1980) (defendant engaged in unregistered broker activity 
by using the mails and telephone to “solicit[] clients actively” in the offer and sale of 
securit ies);  SEC v. Earthly Mineral Solutions, Inc., No. 2:07-cv-1057, 2011 WL 
1103349, at *2 (D. Nev. Mar. 23, 2011) (defendant engaged in unregistered broker 
activity when, among other things, he “conducted general solicitations through 
newspaper advertisements”); SEC v. Deyon, 977 F. Supp. 510, 518 (D. Maine 1997) 
(defendants engaged in unregistered broker activity when they “solicited investors by 
phone and in person,” “distributed documents and...prepared and distributed sales 
circulars”).  
43
  See 15a-6 Adopting Release at 30018.  
44
  See, e.g., SEC v. Helms, No. 13-cv-01036, 2015 WL 5010298, at *17 (W.D. Tex. Aug. 
21, 2015) (“In determining whether a person ‘effected transactions [for purposes of the 
Exchange Act registration requirements],’ courts consider several factors, such as 
whether the person:  (1) solicited investors to purchase securities, (2) was involved in 
negotiations between the issuer and the investor, and (3) received transaction-related 
compensation.”) (citing cases initiated by the Commission).     

14 
 
While some courts have discussed the issue of finders, their interpretations have varied, 
and address the facts and circumstances of the specific matter.
45
  The Commission has not 
previously recognized a “finders” exemption or exception, nor has the Commission broadly 
addressed whether and under what circumstances a person may “find” or solicit potential 
investors on behalf of an issuer without being required to register as a broker, or even whether 
such activity implicates the Commission’s regulatory regime for brokers.
46
  Instead, the 
Commission understands that market participants have looked to staff no-action letters 
                                                             
45
  See, e.g., SEC v. Collyard, 154 F. Supp. 3d 781, No. 11-CV-3656 (JNE/JJK), 2015 WL 
8483258 at *5 (D. Minn. Dec. 9, 2015) (rejecting the argument that the defendant acted 
as a “finder” not subject to registration under Section 15(a)); SEC v. Bio Defense Corp., 
et al., No. 1:12-cv-11669-DPW (D. Mass. Sept. 6, 2019) (concluding that the defendants 
acted as unregistered brokers in violation of Section 15(a) because the directness of their 
involvement in the securities sales was “certainly broader than that of a mere finder who 
has no broker/dealer experience and simply brings parties together”); SEC v. Kramer, 778 
F.Supp.2d 1320 (M.D. Fla. 2011) (concluding that registration under Section 15(a) was 
not required where the defendant acted like a “finder” and not a broker where he 
introduced friends and family as prospective investors to an issuer and received 
transaction-based compensation); SEC v. Mapp, 2017 U.S. Dist. LEXIS 29267 (E.D. Tex. 
Mar. 2, 2017) (finding that the defendant acted as a “finder, as opposed to a broker, as he 
was “merely facilitating securities transactions rather than performing the functions of a 
broker”).  See also SEC v. Offill, Civil Action No. 3:07-CV-1643-D (N.D. Tex. Jan. 26, 
2012) (“If an individual is a “finder” rather than a broker or dealer, he is not required to 
register under the Exchange Act. ‘The distinction drawn between the broker and the 
finder or middleman is that the latter bring[s] the parties together with no involvement on 
[his] part in negotiating the price or any of the other terms of the transaction.’”).  
46
  Exchange Act Rule 3a4-1 provides a condit ional exemption from broker status when 
“associated persons” of an issuer engage in certain limited activities on behalf of the 
issuer.  However, the ability to rely on the rule is subject to a number of conditions, 
including that the associated person does not receive compensation that is based either 
directly or indirectly on transactions in securities.  The associated person must also 
perform, or be intended primarily to perform at the end of the offering, substantial duties 
for or on behalf of the issuer otherwise than in connection with transactions in securities.  
Exchange Act Rule 3a4-1; see Persons Deemed Not to Be Brokers, Exchange Act 
Release No. 22172, 1985 WL 634795 (June 27, 1985) (“Rule 3a4-1 Adopting Release”).  
Finders are customarily paid transaction-based compensation and few finders perform 
substantial duties for the issuer after the offering.  Thus, finders have generally not been 
eligible to rely on the Rule 3a4-1 exemption.   

15 
 
discussing circumstances under which persons act as “finders” without registering as a broker-
dealer.
47
 
In particular, in connection with private placements, the Commission understands that 
market participants may look to the Paul Anka staff no-action letter with respect to broker 
registration under Section 15(a) of the Exchange Act.
48
  In the Paul Anka Letter, the staff stated 
that it would not recommend enforcement action to the Commission under Section 15(a) of the 
Exchange Act against an individual who, without registering with the Commission as a broker-
dealer: (1) entered into an agreement with an issuer to provide to the issuer a list of names and 
telephone numbers of potential investors he reasonably believed to be accredited investors and 
with whom he had a pre-existing business or personal relationship, (2) had no further contact 
with potential investors concerning the issuer, and (3) received a finder’s fee for doing so.
49
   
                                                             
47
  Staff no-action letters, like all staff guidance, have no legal force or effect: they do not 
alter or amend applicable law, and they create no new or additional obligations for any 
person. 
48
  See Paul Anka, SEC Staff No-Action Letter (July 24, 1991) (“Paul Anka Letter”).  If the 
exempt ion is adopted, the Paul Anka Letter and other staff positions relating to the 
application of Section 15(a) of the Exchange Act in private offerings, including but not 
limited to the letters discussed in footnotes 50 and 52 infra, may be moot, superseded, or 
otherwise inconsistent with the exempt ion.  As discussed below, the Commission is 
requesting comment on which letters, if any, should or should not be withdrawn, and 
why. 
49
  Id.  The facts of the Paul Anka Letter are very narrow.  The staff in its response noted 
that the individual would not: (i) solicit the prospective investors or have any contact with 
them regarding the proposed investment; (ii) participate in any advertisement, 
endorsement, or general solicitation; (iii) participate in the preparation of any sales 
materials; (iv) perform any independent analysis of the sale; (v) engage in any “due 
diligence” activities; (vi) assist or provide financing for such purchases; (vii) provide 
advice as to the valuation or financial advisability of the investment; or (viii) handle any 
funds or securities in connection with the investment.  
The staff’s response also noted that the individual had not previously engaged in any 
private or public offering of securities (other than buying and selling securities for his 
own account through a broker-dealer), had not acted as a broker or finder for other 
private placements of securities, and did not intend to participate in any distribution of 
securities after the completion of the proposed private placement, so that the Paul Anka 

16 
 
As noted above, Commission staff has responded over the years to other requests for staff 
statements in relation to broker status issues, similar to those in the Paul Anka Letter.  
Differences in the facts and circumstances can lead to different results.  In some matters, the staff 
provided the no-action statement that was requested.
50
  A number of the no-action letters in this 
area, for example, involve persons seeking to facilitate the sale of a business or a controlling 
interest therein, a fact pattern different from that presented in the Paul Anka Letter.
51
  But in 
certain other matters, the staff has declined to provide such statements.
52
   
III. Proposed Exemption for Finders 
The Commission acknowledges that so-called “finders” may play an important role in 
facilitating capital formation, particularly for smaller issuers.  At the same time, the absence of a 
regulated intermediary may raise investor protection concerns.  The Commission preliminarily 
believes that there are situations where the need to impose the broker registration requirement 
may be mitigated by other factors.
53
  Accordingly, the Commission is proposing to grant 
                                                             
Letter only addressed an individual’s first participation in a securities offering and not 
participation in any subsequent offerings by that individual.  
50
  See, e.g., Garrett/Kushell/Assocs. SEC Staff No-Action Letter (Aug. 8, 1980, Pub. Avail. 
Sept.7, 1980); May-Pac Management Co. SEC Staff No-Action Letter (Oct. 23, 1973, 
Pub. Avail. Dec. 20, 1973); Victoria Bancroft SEC Staff No-Action Letter (July 9, 1987); 
Russell R. Miller & Co., Inc. SEC Staff No-Action Letter (July 14, 1977); Corporate 
Forum, Inc. SEC Staff No-Action Letter (Dec. 10, 1972). 
51
  M&A Broker Letter; Country Business, Inc. Staff No-Action Letter (Nov. 8, 2006); 
International Business Exchange Corporation Staff No-Action Letter (Dec. 12, 1986).  
52
  See, e.g., Brumberg, Mackey & Wall, PLC Staff No-Action Letter (May 17, 2010) (denial 
of no-action for a person who would pre-screen investors for eligibility to purchase 
certain privately-placed securities and pre-sell securities to those investors); John 
Loofbourrow Associates, Inc. Staff No-Action Letter (June 29, 2006) (denial of no-action 
for a person who would receive a commission for introducing an investment banking 
client to a registered broker-dealer).  
53
  See Rule 3a4-1 Adopting Release (“Exemptions from registration have traditionally been 
narrowly drawn in order to promote both investor protection and the integrity of the 

17 
 
exemptive relief pursuant to Sections 15(a)(2)
54
 and 36(a)(1)
55
 of the Exchange Act to permit a 
natural person to engage in certain defined activities on behalf of an issuer (a “Finder”) without 
registration as a broker, subject to the conditions described below.
56
  The proposed exemption 
would provide a non-exclusive safe harbor from broker registration.  The safe harbor is intended 
to provide clarity with respect to the ability of a Finder to engage in certain activities without 
being required to register as a broker under Section 15(a).
57
  Accordingly, no presumption shall 
arise that a person has violated Section 15(a) of the Exchange Act if such person is not within the 
terms of the proposed exemption; rather—consistent with how questions under Section 15(a) 
have been evaluated—it would depend on the facts and circumstances of the situation.   
Specifically, the Commission is proposing to exempt two classes of Finders, Tier I 
Finders and Tier II Finders, as described below, based on the types of activities in which they are 
                                                             
brokerage community. At the same time, however, the Commission recognizes that there 
are situations where imposition of the registration requirement would be inappropriate.”).  
54
  Section 15(a)(2) of the Exchange Act authorizes the Commission to conditionally or 
unconditionally exempt from the registration requirements of Section 15(a)(1) any broker 
or class of brokers, by rule or order, as it deems consistent with the public interest and the 
protection of investors.   
55
  Section 36(a)(1) of the Exchange Act authorizes the Commission, by rule, regulation, or 
order, to exempt, either conditionally or unconditionally, any person, security, or 
transaction, or any class or classes of persons, securities, or transactions, from any 
provision or provisions of the Exchange Act or any rule or regulation thereunder, to the 
extent that such exemption is necessary or appropriate in the public interest, and is 
consistent with the protection of investors.   
56
  Nothing in the proposed exemption excuses compliance with all other applicable laws, 
including the antifraud provisions of the Securities Act and the Exchange Act and state 
law.   
57
  As discussed above, whether a person is acting as a “broker” and in particular, whether 
he or she is “engaged in the business” of effecting securities transactions for the account 
of others will depend on the facts and circumstances of the particular matter.  
Accordingly, engaging in some of the limited activities falling within the terms of the 
proposed exemption should not be considered per se to require registration as a broker-
dealer in the absence of the exemption.   
 

18 
 
permitted to engage, and with conditions tailored to the scope of their activities.  The 
Commission’s proposed relief is intended to be narrowly-tailored and seeks to address the capital 
formation needs of certain smaller issuers while preserving appropriate investor protections. 
The proposed exemption for Tier I and Tier II Finders would be available only where: 
• The issuer is not required to file reports under Section 13 or Section 15(d) of the 
Exchange Act; 
• The issuer is seeking to conduct the securities offering in reliance on an applicable 
exempt ion from registration under the Securities Act;
58
 
• The Finder does not engage in general solicitation; 
• The potential investor is an “accredited investor” as defined in Rule 501 of Regulation D 
or the Finder has a reasonable belief that the potential investor is an “accredited 
investor”;  
• The Finder provides services pursuant to a written agreement
59
 with the issuer that 
includes a description of the services provided and associated compensation;  
• The Finder is not an associated person of a broker-dealer; and 
• The Finder is not subject to statutory disqualification, as that term is defined in 
Section 3(a)(39) of the Exchange Act, at the time of his or her participation. 
                                                             
58
  An issuer’s failure to comply with the conditions of an exempt ion fro m registration under 
the Securities Act for an offering would not, in itself, affect the ability of a Finder to rely 
on the proposed exemptive order provided the Finder can establish that he or she did not 
know and, in the exercise of reasonable care, could not have known, that the issuer had 
failed to comply with the conditions of an exemption.  However, a Finder that, through its 
activities on behalf of an issuer, causes an issuer’s offering to be ineligible for an 
exempt ion fro m registration, would not be able to rely on the proposed exemption.  
 This proposed exemptive order is not intended to exempt an issuer from its requirements 
under each offering exemption from registration under the Securities Act.  
59
  See footnote 68 and accompanying text.  

19 
 
Limiting the proposed exemption to activities on behalf of issuers that are not required to 
report under the Exchange Act and in connection with offers and sales of securities made in 
reliance on an applicable exemption from registration under the Securities Act is intended to 
address concerns that have been raised over the years regarding the perceived inability of smaller 
companies to engage the services of a broker-dealer to assist with opportunit ies to raise capital in 
exempt offerings.
60
  Smaller companies, particularly smaller private companies, may be more 
likely to rely on the exemptions from registration, given the initial and ongoing costs associated 
with conducting a registered offering and becoming an Exchange Act reporting company.
61
   
Although relatively smaller issuers that are required to report under the Exchange Act 
may also encounter difficulty raising capital in exempt offerings as compared to larger Exchange 
Act reporting issuers, we have proposed limiting this relief to non-Exchange Act reporting 
issuers because we believe these non-reporting issuers may be the types of companies most 
likely to experience difficulty obtaining the assistance of a broker-dealer, and are therefore most 
likely to need the assistance of a Finder when seeking to raise capital in such offerings.
62
  
  
 
The proposed exemption would also require that a Finder not engage in general 
solicitation of potential investors, and that the potential investors be “accredited investors” or 
investors that the Finder has a reasonable belief
63
 are “accredited investors,” as defined in Rule 
                                                             
60
  See, e.g., ACSEC Recommendation 2017 at 10 (stating that “identifying potential 
investors is one of the most difficult challenges for small businesses trying to raise 
capital”).   
61
  See Harmonization Proposal at 17957.   
62
  See 2017 Treasury Report at 43-44.  
63
  The Commission recently reiterated that the steps necessary to establish a reasonable 
belief as to investor status will depend on the facts and circumstances of the contemplated 
offering and each potential issuer.  See Solicitations of Interest Prior to a Registered 
Public Offering, Release No. 33-10699 (Sept. 25, 2019) [84 FR 53011 (Oct. 4, 2019)] at 

20 
 
501 of Regulation D.
64
  These proposed requirements are intended to provide investor protection 
by limiting the scope of potential investors with whom Finders are permitted to engage on behalf 
of an issuer.
65
  The accredited investor requirement is intended to ensure that Finders solicit only 
potential investors who have a sufficient level of financial sophistication to participate in 
investment opportunities that do not have the additional protections provided by registration 
under the Securities Act.
66
  Accredited investors currently provide the vast majorit y of early-
                                                             
53018.   Finders can look to the methods that other market participants currently use to 
establish a reasonable belief regarding an accredited investor’s status in other contexts.   
64
  17 CFR 230.501(a).  The definition of accredited investor provides that natural persons 
and entities that come within, or that the issuer reasonably believes come within, any of 
the enumerated categories at the time of the sale of the securities are accredited investors.   
 On August 26, 2020, the Commission adopted changes to the accredited investor 
definition to add new categories of qualifying natural persons and entities.  Amending the 
“Accredited Investor” Definition, Release Nos. 33-10824; 34-89669 (Aug. 26, 2020) 
(“Accredited Investor Adopting Release”).  
65
  As the Commission previously indicated, “[w]hether there has been a general solicitation 
is a fact-specific determination.”  See Harmonization Proposal at footnote 70.  One way, 
though not the exclusive way, to demonstrate the absence of general solicitation is by 
establishing the existence of a pre-existing substantive relationship. Id. at 17966. 
 The Commission has stated that it generally viewed a pre-existing relationship as “one 
that the issuer has formed with an offeree prior to the commencement of the securities 
offering or, alternatively, that was established through another person (for example a 
registered broker-dealer or investment adviser) prior to that person’s participation in the 
offering.”  Id.  The Commission has stated that a substantive relationship is “one in which 
the issuer (or a person acting on its behalf, such as a registered broker-dealer or 
investment adviser) has sufficient information to evaluate, and does, in fact, evaluate, an 
offeree’s financial circumstances and sophistication, in determining his or her status as an 
accredited or sophisticated investor.”  Id.  
66
  Regulation D Revisions; Exemption for Certain Employee Benefit Plans, Release No. 33-
6683 (Jan. 16, 1987), [52 FR 3015 (Jan. 30, 1987)].  See also Accredited Investor 
Adopting Release.   
 As the Commission recently stated in the Accredited Investor Adopting Release, the 
accredited investor standard is similar to, but distinct from, other regulatory standards in 
Commission rules that are used to identify persons who are not in need of certain investor 
protection features of the federal securities laws. See Accredited Investor Adopting 
Release at footnote 8.  Each of these other regulatory standards serves a different 
regulatory purpose.  Accordingly, an accredited investor will not necessarily meet these 

21 
 
stage capital to small businesses through exempt offerings,
67
 where they often invest directly 
without the engagement of an intermediary.  We believe the targeted approach we are proposing 
would address the capital raising needs of smaller issuers while maintaining appropriate investor 
protections.    
The requirement that a Finder enter into a written agreement
68
 with the issuer that 
includes a description of the services provided and associated compensation is intended to 
explicit ly define the role of the Finder consistent with the terms of the proposed exemption and, 
in turn, establish accountability between the parties.
69
   
Next, a Finder cannot be an associated person of a broker-dealer as defined under Section 
3(a)(18) of the Exchange Act.
70
  The Commission believes this condition is appropriate because 
                                                             
other standards, and these other regulatory standards are not designed to capture the same 
investor characteristics as the accredited investor standard.  See id. 
 The Commission, in adopting Rule 3a4-1, noted that “the fact that the Commission has 
concluded that, under limited circumstances, investors do not need the protections 
afforded by registration under the 1933 Act does not dictate a conclusion that a broad 
exemption from broker-dealer is appropriate.”  The Commission is not predicating the 
proposed exemption solely on the status of the potential investor.  Rather, as it did with 
Rule 3a4-1, the Commission is considering, among other various approaches, whether 
there are a set of conditions that considered together would be appropriate in a narrow set 
of circumstances.  
67
  From 2009 to 2019, Rule 506(b) offerings to only accredited investors provided between 
93-97% of total capital raised using Rule 506(b), the most commonly used offering 
exemption.  See Accredited Investor Adopting Release at 97.   
 
68
  The Finder could employ electronic media and communications to satisfy the written 
agreement requirement.  
69
  See footnote 26 and accompanying text.   
70
  Section 3(a)(18) of the Exchange Act defines associated person of a broker or dealer as:  
“any partner, officer, director or branch manager of such broker or dealer (or any person 
occupying a similar status or performing similar functions), any person directly or 
indirectly controlling, controlled by, or under common control with such broker or dealer, 
or any employee of such broker or dealer, except that any person associated with a broker 
or dealer whose functions are solely clerical or ministerial shall not be included in the 

22 
 
of the potential for investor confusion and abusive sales tactics when the Finder is also 
associated with a broker-dealer.
71
  Therefore, the relief provided by the proposed exemption 
should not be necessary or available to such persons.  This condition is intended to ensure that 
regulated persons do not attempt to circumvent applicable rules and regulations to which they are 
already subject, including their required standard of conduct when providing recommendations.
72
 
Finally, a Finder cannot rely on the exemption during a time he or she is subject to 
statutory disqualification, as that term is defined in Section 3(a)(39) of the Exchange Act.
73
  The 
Commission preliminarily believes that any person subject to the provisions described in Section 
3(a)(39) should not be able to rely on this exemption as we believe there is potential for abusive 
practices where persons who are subject to a statutory disqualification participate in securities 
transactions without the assurance of adequate supervision or regulatory oversight.
74
  
Tier I Finders.  For purposes of the proposed exemption, a “Tier I Finder” is defined as a 
Finder who meets the above conditions
75
 and whose activity is limited to providing contact 
                                                             
meaning of such term for purposes of section 15(b) of this title (other than paragraph 6 
thereof).”   
71
  See Rule 3a4-1 Adopting Release at *3.  
72
  The Commission recognizes the importance of the protections provided by the standard 
of conduct applicable to broker-dealers when providing recommendations to retail 
investors.  See Regulation Best Interest Adopting Release at Section I.  
73
  Section 3(a)(39).  
74
  See Rule 3a4-1 Adopting Release at *3 (“The Commission believes that there is added 
potential for abusive practices in the sale of an issuer’s securities in circumstances where 
persons who are subject to a statutory disqualification participate without assurance of 
adequate supervision or regulatory oversight.”).  
 
75
  As discussed above, the proposed exemption would only be available where: (i) the issuer 
is not required to file reports under Section 13 or Section 15(d) of the Exchange Act; (ii) 
the issuer conducts the offering in reliance on an applicable exemption from registration 
under the Securities Act; (iii) the Finder does not engage in general solicitation; (iv) the 
potential investor is an accredited investor or the Finder has a reasonable belief that the 
potential investor is an accredited investor; (v) the Finder provides services pursuant to a 

23 
 
information of potential investors in connection with only one capital raising transaction by a 
single issuer within a 12-mo nth period,
76
 provided the Tier I Finder does not have any contact 
with the potential investors about the issuer.  The contact information may include, among other 
things, name, telephone number, e-mail address, and social media informat ion.  The Commissio n 
preliminarily believes limiting the exemption to this activity will appropriately narrow the role of 
the Tier I Finder to preclude the participation in continuous or multiple sales of securities by 
persons that are not subject to broker-dealer registration or to the heightened requirements of 
Tier II Finders.  A Tier I Finder that complies with all o f the condit ions of the exempt ion may 
receive transaction-based compensation for the limited services described above without being 
required to register as a broker under Section 15(a) of the Exchange Act.
77
  
Tier II Finders.  The Commission is also proposing an exemption that would permit a 
Finder, where certain conditions are met, to engage in additional solicitation-related activities 
beyond those permitted for Tier I Finders.  For purposes of the proposed exemption, a “Tier II 
                                                             
written agreement with the issuer that includes a description of the services provided and 
associated compensation; (vi) the Finder is not an associated person of a broker or dealer; 
and (vii) the Finder is not subject to statutory disqualification.   
76
  The Commission notes that requirement is similar to the limitation included in Rule 3a4-
1 for sales activities by associated persons of an issuer.  See Rule 3a4-1(a)(4)(ii)(C) 
(stating that as a condition of the rule, subject to limited exceptions, the associated person 
of an issuer cannot participate in selling and offering of securities for any issuer more 
than once every 12 months).  
77
  As noted above, no presumption shall arise that a person has violated Section 15(a) of the 
Exchange Act if such person is not within the terms of the proposed Tier I Finders 
exemption.  Whether a person is acting as a “broker” and, in particular, whether he or she 
is “engaged in the business” of effecting securities transactions for the account of others 
will depend on the facts and circumstances of the particular matter.  A person who falls 
within the definition of broker must register with the Commission pursuant to Section 
15(a) of the Exchange Act, absent an applicable exemption or exclusion.  The proposed 
exemption is intended to provide a safe harbor from the broker registration requirement 
to market participants for the limited activities described herein.   

24 
 
Finder” is defined as a Finder who meets the above conditions,
78 
and who engages in 
solicitat ion-related activities on behalf of an issuer, that are limited to: (i) identifying, screening, 
and contacting potential investors;
79
 (ii) distributing issuer offering materials to investors; (iii) 
discussing issuer information included in any offering materials,
80
 provided that the Tier II 
Finder does not provide advice as to the valuation or advisability of the investment;
81
 and (iv) 
arranging or participating in meetings with the issuer and investor.
82
  As discussed above, the 
Commission generally views solicitation as any affirmative effort to induce or attempt to induce 
a securities transaction
83
 and broadly views these activities of Tier II Finders to constitute 
solicitat ion.  The identification of these activities is not an exhaustive listing of activities that 
may constitute solicitation.  Rather, these are the limited solicitation-related activities 
permissible under the proposed exemption.
84
  The Commission preliminarily believes that 
limiting the proposed exemption to these specified activities associated with solicitation, along 
                                                             
78
  See supra footnote 75 and accompanying text.   
79
  See SEC v. Hansen, 1984 U.S. Dist. LEXIS 17835, at *26 (S.D.N.Y. April 6, 1984) 
(setting forth actively soliciting or recruiting investors as commonly cited indicia of 
broker activity).  
80
  See SEC v. Offill, 2012 WL 246061 (N.D. Tex. Jan. 26, 2012) (stating that a “finder” will 
be performing the functions of a broker-dealer, triggering registration requirements, if 
activities include, among other things, discussion of details of securities transactions).  
81
  See infra p.    28 (discussing activities that Finders are not permitted to engage in pursuant 
to the proposed exemption).  
82
  A Tier II Finder is not subject to the Tier I Finder’s limitation of participation in only one 
capital raising transaction by a single issuer in a 12-month period.  
83
  See supra p. 13 (stating that solicitation includes efforts to induce a single securities 
transaction as well as efforts to develop an ongoing securities-business relationship).  
84
  See supra footnote 77. 

25 
 
with the additional conditions discussed below, will appropriately narrow the role of the Tier II 
Finder to support the proposed exemption.
85
   
A Tier II Finder wishing to rely on the proposed exemption would need to satisfy certain 
disclosure requirements and other conditions:
86
 
First, the Tier II Finder would need to provide a potential investor, prior to or at the time 
of the solicitat ion, disclo sures that include:  
(1) the name of the Tier II Finder;  
(2) the name of the issuer;  
(3) the description of the relationship between the Tier II Finder and the issuer, including 
any affiliation;  
(4) a statement that the Tier II Finder will be compensated for his or her solicitation 
activities by the issuer and a description of the terms of such compensation arrangement;  
(5) any material conflicts of interest resulting from the arrangement or relationship 
between the Tier II Finder and the issuer; and  
                                                             
85
  As noted above, no presumption shall arise that a person has violated Section 15(a) of the 
Exchange Act if such person is not within the terms of the proposed Tier II Finders 
exemption.  Whether someone is acting as a “broker” and in particular, whether he or she 
is “engaged in the business” of effecting securities transactions for the account of others, 
will depend on the facts and circumstances of the particular matter.  A person who falls 
within the definition of broker must register with the Commission pursuant to Section 
15(a) of the Exchange Act, absent an applicable exemption or exclusion.  The proposed 
exemption is intended to provide a safe harbor from the broker registration requirement 
to market participants for the limited activities described herein.  
86
  The disclosure requirements and conditions applicable to Tier II Finders differ from the 
requirements applicable to solicitors under the Cash Solicitation Rule Proposed 
Amendments.  As discussed above, the Commission preliminarily believes these more 
specific disclosure requirements, including the required acknowledgment, for Tier II 
Finders are appropriate to address the differences in regulatory structures.  See footnote 
26 and accompanying text.  

26 
 
(6) an affirmative statement that the Tier II Finder is acting as an agent of the issuer, is 
not acting as an associated person of a broker-dealer, and is not undertaking a role to act in the 
investor’s best interest.
87
    
The Commission is proposing to allow a Tier II Finder to provide such disclosure orally, 
provided that the oral disclosure is supplemented by written disclosure and satisfies all of the 
disclosure requirements listed above no later than the time of any related investment in the 
issuer’s securities.  
The Commission preliminarily believes that this disclosure would direct an investor’s 
attention to important information, such as the fact that the Tier II Finder is paid by the issuer 
and any associated material conflicts of interest, in order to facilitate the investor’s ability to 
evaluate the role of the Tier II Finder.  In addition, the Commission believes the disclosure 
should be made “prior to or at the time of the solicitation” so that investors have this important 
information early enough in the process to give the investor adequate time to consider the 
information in order to make informed investment decisions.
88 
 While the Commission is 
requiring that the disclosures be written, we believe this can be satisfied either through paper or 
electronic means.
89
  For purposes of this proposed exemption, we believe that delivery of the 
disclosure would be evidenced by the acknowledgment required below. 
The Tier II Finder must obtain from the investor, prior to or at the time of any investment 
in  the issuer’s securities, a dated written acknowledgment of receipt of the Tier II Finder’s 
                                                             
87
  A Tier I Finder or Tier II Finder that complies with the requirements of the proposed 
exemption would not be subject to broker-dealer sales practice rules, including 
Regulation Best Interest.   
88
  See Regulation Best Interest Adopting Release at Section II.C.1.  
89
  The Finder could employ electronic media and communications to satisfy the 
requirement. 

27 
 
required disclosures.  While the Commission is requiring that the acknowledgment be written, 
we believe this can be satisfied either through paper or electronic means, similar to the disclosure 
condition discussed above.
90
  The Commission believes this acknowledgment is important as it 
helps ensure that the investor received the required disclosures. 
Because Tier II Finders may participate in a wider range of activity and have the potential 
to engage in more offerings with issuers and investors, the Commission believes that heightened 
requirements are appropriate.  A Tier II Finder that complies with all of the conditions of the 
proposed exemption may receive transaction-based compensation for services provided in 
connection with the activities described above without being required to register as a broker 
under Section 15(a) of the Exchange Act.   
The Commission preliminarily believes that the proposed exemption is narrowly drawn 
to permit a limited set of activities, subject to conditions intended to address investor protection 
concerns, including the requirement that any potential investors solicited under this proposed 
exemption be accredited investors or investors the Finder has a reasonable belief are accredited 
investors.  In addition, Tier II Finders, who will interact with potential investors, must provide 
those investors with appropriate disclosures of the Tier II Finder’s role and compensation.
91
  
                                                             
90
  Id.  
91
  See supra pp. 25-26 (describing required disclosures to the investors) and infra 29 
(describing the Commission’s antifraud protections).  The Commission is seeking 
comment on questions related to potential investor protection concerns associated with 
this proposed exempt ion.   
Because Tier I Finders would only be providing the investor’s contact information to the 
issuer and would not have any contact with potential investors about the securities 
offering, we preliminarily do not believe that a similar disclosure requirement for Tier I 
Finders is necessary or appropriate.  

28 
 
 Because a Finder would engage in a limited scope of securities-related activities with a 
limited set of investors, would be subject to conditions commensurate with the level of activity, 
and would not handle customer funds or securities or have the power to bind the issuer or the 
investor, the Commission preliminarily believes that the investor protection concerns that 
otherwise would be addressed by registration as a broker and the related requirements in the 
limited circumstances contemplated by the exemption should be addressed by the conditions of 
the proposed exemption for each tier of Finders.  In particular, the disclosure requirement for 
Tier II Finders should help to increase investor awareness of the scope of the Finder’s 
relationship with the issuer and potential conflicts of interest, and as a result help to facilitate an 
informed invest ment decisio n.     
Consistent with the narrow scope of activities contemplated by the proposed exemption, 
as noted above, a Finder could not be involved in structuring the transaction or negotiating the 
terms of the offering.
92
  A Finder also could not handle customer funds or securities or bind the 
issuer or investor; participate in the preparation of any sales materials; perform any independent 
analysis of the sale; engage in any “due diligence” activities; assist or provide financing for such 
purchases; or provide advice as to the valuation or financial advisability of the investment.   
The proposed exemption would apply only with respect to the defined activities for each 
tier of Finder and is limited to activities solely in connection with primary offerings.  A Finder 
could not rely on this proposed exemption to engage in broker activity beyond the scope of the 
                                                             
92
  To assist Finders in applying this standard, we propose to use terms already familiar to 
market participants.  To that end, for the purposes of the proposed exemption, “terms of 
the offering” would be interpreted as the amount of securities offered, the nature of the 
securities, the price of the securities and the closing date of the offering period.  This 
interpretation would be consistent with the Instruction to Rule 204 of Regulation 
Crowdfunding.  See Rule 204 of Regulation Crowdfunding.  

29 
 
proposed exemption, such as to facilitate a registered offering, a resale of securities, or the sale 
of securities to investors that are not accredited investors or that the Finder does not have a 
reasonable belief are accredited investors.  The Commission preliminarily believes these are 
important safeguards that operate as a constraint on the conduct of Finders.   
If a Finder fails to comply with any of the relevant conditions (for example, the Finder 
engages in general solicitation of potential investors), the Finder could not rely on the proposed 
exemption.  The inability to rely on the proposed exemption means that the Finder may need to 
consider whether it is required to register with the Commission as a broker under Section 15(a) 
of the Exchange Act.
93
   
There are two important principles embodied in our regulatory framework that are not 
affected by this exemption.  Significantly, this exemption would not affect a Finder’s obligation 
to continue to comply with all other applicable laws, including the antifraud provisions of the 
Securities Act and the Exchange Act, such as the obligations under Section 10(b) and Rule 10b-5 
under the Exchange Act, and state law.  In addition, this exemption is not intended to affect the 
rights of the Commission or any other party to enforce compliance with other applicable law, or 
the available remedies for violations of the law.  Further, regardless of whether or not a Finder 
complies with this exemption, it may need to consider whether it is acting as another regulated 
entity, such as an investment adviser or a municipal advisor.  An exemption from the obligation 
to register as a broker-dealer does not insulate a person from the registration requirements of the 
Advisers Act if such person is acting as an investment adviser.   
                                                             
93
  As noted above, the proposed exemption would provide a non-exclusive safe harbor from 
broker registration, and no presumption shall arise that a person has violated Section 
15(a) of the Exchange Act if such person is not within the terms of the proposed 
exemption but rather the need for registration would depend on the facts and 
circumstances of the situation.   

30 
 
Thus, the Commission preliminarily believes that the proposed exemption would be 
consistent with the public interest and protection of investors, and would also provide issuers 
with greater access to investment capital and investors with access to investment opportunities.  
Specifically, the proposed conditions for both Tier I Finders and Tier II Finders should 
sufficiently restrict the scope of the proposed exemption such that permitting limited activities 
associated with solicitation in this narrow context would not implicate the need for regulation of 
these activities under the broker regulatory framework.  At the same time, the proposed 
exempt ion would permit Finders to play an important role in facilitat ing capital format ion for 
small businesses, consistent with many of the various recommendations put forth through the 
years.
94
   
Accordingly, for the reasons discussed above, the Commission preliminary believes that 
the proposed conditional exemption would be consistent with the public interest and the 
protection of investors and would be necessary or appropriate in the public interest. 
IV. Request for Comments 
The Commission is seeking comment on all aspects of the proposed exemption.  In 
particular, the Commission requests comment on the following questions as well as the potential 
costs and benefits of the proposed exemption.  When responding to the request for comment, 
please explain your reasoning.   
1. Have we accurately and completely identified the legal uncertainties, if any, around the 
involvement by Finders in connecting investors with small firms in need of capital?   
                                                             
94
  See Section I.  

31 
 
2. Have we appropriately defined Tier I Finders and Tier II Finders?  Should there be two 
tiers of Finders or instead should there be multiple tiers of Finders?  Should there be only 
one tier of Finders?   
3. Should the definition of Finder be limited to natural persons?   
4. Should the definition of Finder be limited to a natural person resident in the U.S.?
95
  
5. Have we appropriately identified the activities in which each tier of Finder should and 
should not be able to engage?  Does the proposed exemption provide a workable path for 
Finders to be engaged in this activity? 
6. Have we appropriately limited the types of investors whom a Finder can “find” or solicit?  
Instead of limiting potential investors to those the Finder reasonably believes are 
accredited investors, should investors identified by Finders be subject to investment 
limitations, regardless of the exemption being relied upon, such as a dollar limit on the 
size of the investment?  If so, please specify.   
7. Should the Finder be prohibited from engaging in general solicitation as proposed?  
Would this create practical problems for a Finder?  For example, would a Finder be able 
to establish a pre-existing substantive relationship with investors in order to not engage in 
general solicitation?
96
 
8. Should we limit the proposed exemption to offerings of a specific size threshold?  If so, 
how should we define such threshold? 
9. Have we appropriately limited the number of offerings a Tier I Finder can participate in 
on an annual basis? 
                                                             
95
  This term would be interpreted consistent with the meaning in Rule 902(k)(1)(i) of 
Regulation S.  
96
  See Harmonization Proposal at footnote 70.   

32 
 
10. Is the limitation that Tier I Finders do not have any contact with potential investors about 
the issuer workable?  Should we instead permit Tier I Finders to have some contact with 
potential investors?   
11. Should we define “capital raising transaction” for purposes of Tier 1?  If so, how?   
12. Have we appropriately defined the conditions that should apply to the proposed 
exemption for each tier of Finder?  Is more clarity, specificity or flexibility required with 
respect to the proposed conditions?  Are there other or different conditions that should 
apply to the proposed exemption?   
13. Should Finders be able to “find” or solicit investors only for exempt offerings, as 
proposed?  Should Finders be able to “find” or solicit investors only for offerings under 
certain exempt ions fro m registration?  If so, which ones?   
14. Should Finders be able to “find” or solicit for all non-Exchange Act reporting companies 
or should they be able to solicit for a narrower or wider range of companies?   
15. Should Finders only be able to “find” or solicit for primary offerings?  Should we expand 
the scope of the proposed exemption to secondary offerings, such as transactions 
facilitating the sale of equity by employees holding options or warrants? 
16. Should the proposed exemption include limitations on the types of securities for which a 
Finder can “find” or solicit investors?     
17. Is more clarity or specificity required with respect to the specific written disclosures that 
are a condition of the proposed exemption for Tier II Finders?  Should we provide more 
guidance about any of the specific written disclosures? 
18. Are there any specific written disclosures to investors that should be required, beyond 
those that are a condition of the proposed exemption for Tier II Finders?  Should the 

33 
 
disclosures be required to be written or should the Finder be permitted to provide them 
orally?  Should the written disclosures be required at all? 
19. Should we adopt comparable disclosure requirements with disclosures required under the 
proposed changes to Rule 206(4)-3 under the Advisers Act
97
 for solicitations of investors 
in private funds, if adopted?  Should the disclosures required by Tier II Finders be 
deemed to satisfy the disclosure requirements under the proposed changes to Rule 
206(4)-3 under the Advisers Act
98
 for solicitations of investors in private funds, if 
adopted?  
20. Should Tier II Finders be required to receive an acknowledgment of receipt of the 
required disclosure from the investor?  If so, are there methods other than an 
acknowledgment, for example, a read receipt for e-mail, that could serve to validate that 
investors received the required disclosure?   
21. Should Tier I Finders be subject to a disclosure and acknowledgment requirement?  
22. Should Tier II Finders be required to enter into a written agreement with the issuer where 
the issuer, without affecting the Finder’s obligations, also assumes liability with respect 
to investors for the Finder’s misstatements in the course of his or her engagement by the 
issuer?   
                                                             
97
  See Cash Solicitation Rule Proposed Amendments.  The Cash Solicitation Proposed 
Amendments require that the solicitor disclosure state: (A) the name of the investment 
adviser; (B) the name of the solicitor; (C) a description of the investment adviser’s 
relationship with the solicitor; (D) the terms of any compensation arrangement, including a 
description of the compensation provided or to be provided to the solicitor; (E) any 
potential material conflicts of interest on the part of the solicitor resulting from the 
investment adviser’s relationship with the solicitor and/or the compensation arrangement; 
and (F) the amount of any additional cost to the client or private fund investor as a result of 
solicitat ion. 
98
  Id. 

34 
 
23. Should the proposed exemption be conditioned on a Finder filing a notice with the 
Commission of reliance on the exemption from registration?  Why or why not?  If so, 
when should Finders be required to file the notice?  What, if any, disclosures should be 
required in the notice? 
24. Should there be any limitations on the amount of fee a Finder can receive? 
25. Should we impose limitations on the form of compensation Finders can receive?  Should 
Finders be prohibited in certain circumstances from receiving transaction-based 
compensation, and instead be required to receive compensation that is not tied to the 
success of the transaction (that is a fixed fee or other arrangement)?  If so, under what 
circumstances and how should Finders then be compensated?
  
26. Should a Finder be able to receive a financial interest in an issuer as compensat ion for its 
services?  Why or why not?   
27. Are the explicit limitations on the activities in which Finders can or cannot engage 
appropriate for each tier of Finder?  What other activities should be expressly permitted 
or prohibited for each class of Finder?  
28. Should we provide guidance on how a Finder can establish that he or she did not know 
and, in the exercise of reasonable care, could not have known, that the issuer had failed to 
comply with the conditions of an exemption? 
29. Should we provide further guidance on the solicitation-related activities in which Tier II 
Finders can engage on behalf of an issuer, for example, guidance surrounding a Tier II 
Finder’s discussion of issuer information and arrangement and participation in meetings 
with issuers and investors? 

35 
 
30. Should we provide guidance regarding activities of private fund advisers, M&A Brokers 
as defined in the M&A Broker Letter,
99
 or real estate brokers that may require registration 
under Section 15(a) of the Exchange Act?  Should we consider codifying the M &A 
Broker Letter?
100
 
31. Are there other areas in which the Commission should provide guidance regarding the 
registration requirements of Section 15(a) of the Exchange Act to other types of limited-
purpose broker-dealers?    
32. If the proposed exemption is adopted, which staff letters, if any, should or should not be 
withdrawn, and why? 
33. Have we appropriately defined the disqualification condition for Finders?   
34. Have we appropriately limited the proposed exemption to individuals who are not 
associated persons of a broker-dealer?   
35. Should the proposed exemption include a limitation such that it would not be available to 
individuals who were associated persons of a broker-dealer within the previous 12 
months?   
36. Should the proposed exemption be limited to individuals who are not associated persons 
of a municipal advisor or investment adviser representatives of an investment adviser?   
37. Should the proposed exemption be limited to individuals who are not associated persons 
of an issuer?  Why or why not? 
                                                             
99
  An M&A Broker is defined as a person engaged in the business of effecting securities 
transactions solely in connection with the transfer of ownership and control of a 
privately-held company through the purchase, sale, exchange, issuance, repurchase, or 
redemption of, or a business combination involving, securities or assets of the company, 
to a buyer that will actively operate the company or the business conducted with the 
assets of the company.  See M&A Broker Letter. 
 
100
  See supra footnote 24 and accompanying text. 

36 
 
38. Would the proposed exemption provide sufficient investor protections while promoting 
capital format ion for small businesses? 
39. Would the proposed exemption have a competitive impact on registered brokers?   
40. With respect to the activities permitted for Tier I Finders, what are the practical 
implications of the requirements if they were subject to broker registration?  What about 
for Tier II Finders? 
41. Should we instead take an alternative approach for either class of Finders?   
42. Are there areas related to the proposed Finders framework for which the Commission 
should provide guidance? 
43. Should we coordinate with other regulators to provide clarity and consistency on what 
types of activities Finders and other limited purpose brokers may engage in?
 
44. Are there any other sources of data or information that could assist the Commission in 
analyzing the consequences of the proposed exemption?  We request that commenters 
provide any relevant data or information.   
  

37 
 
45. Other than the possible obligation of a Finder to register as a broker-dealer, the proposed 
exemption is not intended to affect the rights of the Commission or any other party to 
enforce compliance with applicable law, or the available remedies for violations of the 
law.  This includes, in the case of the Commission, the ability to impose a broker-dealer 
registration bar on a person for misconduct that would warrant a bar.  Are there any other 
considerations in this regard that the Commission should take into account as it considers 
the exemptive relief?  
 
 By the Commission. 
 
       Vanessa A. Countryman 
       Secretary 
 October 7, 2020 

SECURITIES AND EXCHANGE COMMISSION  

[Release No. 34-90112; File No. S7-13-20] 

Notice of Proposed Exemptive Order Granting Conditional Exemption from the Broker 
Registration Requirements of Section 15(a) of the Securities Exchange Act of 1934 for 
Certain Activities of Finders 
 
AGENCY:  Securities and Exchange Commission.   

ACTION:  Notice of proposed exemptive order; request for comment. 

SUMMARY:  Pursuant to Sections 15(a)(2) and 36(a)(1) of the Securities Exchange Act of 

1934 (“Exchange Act”), the Securities and Exchange Commission (“SEC” or “Commission”) is 

proposing to grant exemptive relief to permit natural persons to engage in certain limited 

activities on behalf of issuers (“Finders”), without registering as brokers under Section 15 of the 

Exchange Act.  The proposed exemption provides for two classes of Finders, Tier I Finders and 

Tier II Finders, with corresponding conditions as described below.  

DATES:  Comments should be received on or before [insert date 30 days following the date of 

publication in the Federal Register]. 

ADDRESSES:  Comments may be submitted by any of the following methods: 

Electronic Comments:  

• Use the Commission’s Internet comment form 

(http://www.sec.gov/rules/exorders.shtml); or 

•  Send an e-mail to [email protected].  Please include File Number S7-13-20 on the 

subject line.  

Paper Comments: 

•  Send paper comments to Vanessa A. Countryman, Secretary, Securities and Exchange 

Commission, 100 F Street, NE, Washington, DC 20549-1090. 



2 
 

All submissions should refer to File Number S7-13-20. This file number should be 

included on the subject line if e-mail is used.  To help the Commission process and review your 

comments more efficiently, please use only one method.  The Commission will post all 

comments on the Commission’s Internet website (http://www.sec.gov/rules/exorders.shtml). 

Comments also are available for website viewing and printing in the Commission’s Public 

Reference Room, 100 F Street, NE, Washington, DC 20549, on official business days between 

the hours of 10:00 am and 3:00 pm.  All comments received will be posted without change.  

Persons submitting comments are cautioned that we do not redact or edit personal identifying 

information from comment submissions.  You should submit only information that you wish to 

make available publicly.  

FOR FURTHER INFORMATION CONTACT: Emily Westerberg Russell, Chief Counsel; 

Joanne Rutkowski, Assistant Chief Counsel; Timothy White, Senior Special Counsel; Geeta 

Dhingra, Special Counsel; and Darren Vieira, Special Counsel, Office of Chief Counsel, 

Division of Trading and Markets, at (202) 551-5550, Securities and Exchange Commission, 100 

F Street, NE, Washington, DC 20549-8549. 

  



3 
 

I. Introduction 
 
The Commission’s mission includes facilitating capital formation—not only for public 

companies, but also for the small businesses that are active participants in our private markets.  

Our dynamic markets and economy significantly benefit from a robust pipeline of new small 

businesses, which create the majority of net new jobs in the United States1 and greatly contribute 

to innovation.2  Small and emerging companies—from start-ups seeking their initial seed 

funding to businesses on a path to become a public reporting company—require capital to grow 

and scale.3  One of the ways that small businesses may seek to access critical capital needed to 

grow and scale is through offerings conducted in reliance on an exemption from registration 

under the Securities Act of 1933 (“Securities Act”).4  The exempt market supports the capital 

needs of many small companies that contribute substantially to our economy.5  

                                                             
1  See U.S. Small Business Administration Office of Advocacy, Frequently Asked 

Questions (Sept. 2019), available at https://cdn.advocacy.sba.gov/wp-
content/uploads/2019/09/24153946/Frequently-Asked-Questions-Small-Business-2019-
1.pdf. 

2  See, e.g., Ufuk Akcigit and William R. Kerr, “Growth through Heterogeneous 
Innovations,” Journal of Political Economy 126:4 (Aug. 2018), available at 
https://www.journals.uchicago.edu/doi/full/10.1086/697901 (demonstrating that the 
“relative rate of major inventions is higher in small firms” due to the “outcome of 
innovation investment choices by firms”).  

3  See Facilitating Capital Formation and Expanding Investment Opportunities by 
Improving Access to Capital in Private Markets, Release No. 33-10763 (Mar. 4, 2020) 
[85 FR 17956 (Mar. 31, 2020)] (“Harmonization Proposal”) (proposing amendments to 
facilitate capital formation and increase opportunities for investors by expanding access 
to capital for entrepreneurs across the United States and noting that the significance of the 
exempt securities markets has increased over time both in terms of the absolute amounts 
raised and relative to the public registered markets).  

4  See Harmonization Proposal at 17957.   
5  Id. 

https://cdn.advocacy.sba.gov/wp-content/uploads/2019/09/24153946/Frequently-Asked-Questions-Small-Business-2019-1.pdf
https://cdn.advocacy.sba.gov/wp-content/uploads/2019/09/24153946/Frequently-Asked-Questions-Small-Business-2019-1.pdf
https://cdn.advocacy.sba.gov/wp-content/uploads/2019/09/24153946/Frequently-Asked-Questions-Small-Business-2019-1.pdf
https://www.journals.uchicago.edu/doi/full/10.1086/697901


4 
 

Small business investors play a critical role in fostering the growth and success of small 

companies.6  For example, investors can provide expertise as well as financial capital to support 

the businesses’ strategic growth.7  Observers have noted, however, that small businesses 

frequently encounter challenges connecting with investors in the exempt market, particularly in 

regions that lack robust capital raising networks.8  According to the 2017 Treasury Report, “[f]or 

a small business seeking to raise capital, identifying and locating potential investors can be 

difficult.  It becomes even more challenging if the amount sought (e.g., less than $5 million) is 

below a level that would attract venture capital or a registered broker-dealer, but beyond the 

levels that can be provided by friends and family and personal financing.  The number of 

registered broker-dealers has been falling, and few registered broker-dealers are willing to raise 

capital in small transactions.”9  

                                                             
6  Id.  
7  See Final Report of the Securities and Exchange Commission Advisory Committee on 

Small and Emerging Companies (“ACSEC”) (Sept. 2017), available at 
https://www.sec.gov/info/smallbus/acsec/acsec-final-report-2017-09.pdf.  

8  See id.  See also U.S. Department of Treasury, A Financial System that Creates 
Economic Opportunities: Capital Markets (Oct. 2017), available at 
https://home.treasury.gov/system/files/136/A-Financial-System-Capital-Markets-FINAL-
FINAL.pdf (“2017 Treasury Report”).  
A recent report shows that in 2019, 77% of venture capital funding in the United States 
was raised by companies in just three states, California, New York, and Massachusetts.  
See PWC MoneyTree™ Report, Q4 2019, available at 
https://www.pwc.com/us/en/industries/technology/assets/pwc-moneytree-2019-q4-
final.pdf.  

9  2017 Treasury Report at 43-44.  See e.g., Report and Recommendations of the American 
Bar Association Business Law Section Task Force on Private Placement Broker-Dealers 
(“ABA Task Force”) (June 2005), available at 
https://www.sec.gov/info/smallbus/2009gbforum/abareport062005.pdf (“ABA Task 
Force Report”) (stating that small issuers are almost “never interesting” to professional 
capital and will seldom be able to attract fully licensed members to participate in 
offerings of less than $5 million); Gregory C. Yadley, “Notable by Their Absence: 
Finders and Other Financial Intermediaries in Small Business Capital Formation,” (June 
2015), available at https://www.sec.gov/info/smallbus/acsec/finders-and-other-financial-



5 
 

In areas that lack robust venture capital (“VC”)10 and angel investor11 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.12  Finders may also help bridge 

gaps between traditionally underrepresented founders, such as women and minorities13 and VC 

and start-up capital.14  

                                                             
intermediaries-yadley.pdf (“Funding of start-up and new companies is often sought in 
amounts of $100,000 or less, and rarely more than $5 million.  Accordingly, these 
offerings are not of interest to many professional investors such as venture capital or 
private equity funds.”). 

10  Venture capital funds generally invest capital directly in portfolio companies for the 
purpose of funding the expansion and development of the companies’ business, with the 
goal of eventually either selling the companies or taking them public. See Exemptions for 
Advisers to Venture Capital Funds, Private Fund Advisers With Less Than $150 Million 
in Assets Under Management, and Foreign Private Advisers, Release No. IA-3222 (Jun. 
22, 2011) [76 FR 39646 (Jul. 6, 2011)] (“VC Fund Adviser Release”). Many advisers to 
VC funds provide managerial assistance to the funds’ portfolio companies. See VC Fund 
Adviser Release at 39661. 

11  “Angel investors” are generally high net worth individuals who provide financial backing 
for early-stage businesses.  They typically invest their own funds directly in a business 
located in close proximity, often using convertible debt.  See Office of the Advocate for 
Small Business Capital Formation, Annual Report for Fiscal Year 2019, available at 
https://www.sec.gov/files/2019_OASB_Annual%20Report.pdf (“OASB Report”) at 18.  

12  See id. at 44-45.  See also comments of Gregory Yadley, Partner, Shumaker, Loop & 
Kendrick, LLC, at the Meeting of the Small Business Capital Formation Advisory 
Committee meeting (May 8, 2020), available at 
https://www.sec.gov/info/smallbus/acsec/sbcfac-transcript-050820.pdf, transcript at 112-
113 (“Particularly these days, where companies are going to become even more desperate 
for money and we are loosening up so many ways for people to be able to raise money, 
there is still a disconnect between issuers who need a little bit of money and accredited 
investors who are willing to invest….”). 

13  See Transcript of the 39th Annual SEC Government-Business Forum on Small Business 
Capital Formation available at https://www.sec.gov/file/06182020-small-business-forum-
transcript.pdf.   

 
14  See OASB Report at 26 and 30.  See also Presentation at Feb. 4, 2020 Small Business 

Capital Formation Advisory Committee meeting by James Gelfer, Senior Strategist, Lead 
Venture Analyst, PitchBook, available at https://www.sec.gov/spotlight/sbcfac/2020-02-



6 
 

A long-standing issue in the area of broker regulation concerns the regulatory status of 

these persons who play a discrete role in bridging the gap between small businesses and 

investors.  Concerns have been raised that “identifying potential investors is one of the most 

difficult challenges for small businesses trying to raise capital . . . [yet] companies that want to 

play by the rules struggle to know in what circumstances they can engage a ‘finder’ or a platform 

that is not registered as a broker-dealer.”15  Observers have described a “gray market,” reflecting 

a “major disconnect” between the various laws and regulations applicable to securities brokerage 

activities, and the methods and practices by which capital is raised to fund early stage businesses 

in the United States.16  As a result of this uncertainty, individuals potentially could be engaging 

in unregistered brokerage activity, or alternatively, not serving the market because of the 

regulatory uncertainty associated with playing even a limited role in a capital raise.17 

                                                             
04-presentation-pitchbook-venture-climate.pdf at 13 (showing that 22.8 percent of VC 
deals and 14.2% of VC dollars in 2019 involved companies with at least one female 
founder and 6.8% of VC deals and 2.7% of VC dollars in 2019 involved companies with 
all female founders.; Banerji, Devika & Reimer, Torsten, Startup Founders and Their 
LinkedIn Connections: Are Well-Connected Entrepreneurs More Successful? 90 
COMPUTERS IN HUM. BEHAVIOR 46 (2019) (finding that social connectedness of founders 
was the best predictor of funds raised); Redd, Tammi C. and Wu, Sibin, “Gender 
Differences in Acquiring Business Support from Online Social Networks” (2020), 
available at https://doi.org/10.28934/jwee20.12.pp22-36 (highlighting gender differences 
between social networks and the process of creating network ties for men and women); 
Looze, Jessica and Desai, Sameeksha, “Challenges Along the Entrepreneurial Journey: 
Considerations for Entrepreneurship Supporters” (2020) available at 
https://ssrn.com/abstract=3637048 (noting that aspiring entrepreneurs reported acquiring 
funds to start or grow the business as one of the key challenges, followed by networks 
and connections). 

15  Recommendation Regarding Finders, Private Placement Brokers, and Investment 
Platforms Not Registered as Broker-Dealers, ACSEC (May 15, 2017), available at 
https://www.sec.gov/info/smallbus/acsec/acsec-recommendation-051517-finders.pdf  
(“ACSEC Recommendation 2017”).  

16  See ABA Task Force Report.  
17  See id. (“This vast and pervasive ‘gray market’ of brokerage activity creates continuing 

problems for the unlicensed brokers, the businesses which rely upon them for funding, 



7 
 

Over the years, there have been many calls for Commission action in this area.  In 2005, 

the ABA Task Force recommended that the Commission work with the Financial Industry 

Regulatory Authority (“FINRA,” which was then the National Association of Securities Dealers) 

and state regulators to establish a simplified system that would allow persons to solicit investors 

for small issuers, subject to a reduced, but appropriate, level of regulation.18  In recent years, the 

U.S. Department of the Treasury recommended that the SEC, FINRA, and the states propose a 

new regulatory structure for finders and other intermediaries in capital-forming transactions;19 

the former SEC Advisory Committee on Small and Emerging Companies (the “ACSEC”)20 

recommended that the Commission address questions regarding whether and under what 

circumstances small issuers can engage a finder or other intermediary that is not a registered 

broker-dealer, highlighting the importance of finders for small business capital formation;21 and 

                                                             
attorneys and other professionals advising both the brokers and businesses, and, last but 
not least, the federal and state regulators who are charged with the obligation to enforce 
laws and regulations that are out of step with current business practices.”).  

18  See id. at 2 (stating that, among other things, the proposed solution should modify the 
amount and scope of regulations that apply such that they would be in proper balance 
with the scope of activities to be pursued by those who will be subject to regulations, and 
diminish the number of unlawful securities brokers to a level that will make feasible 
effective enforcement actions against continuing unlawful activity).  

19  See 2017 Treasury Report at 44.  
20  The ACSEC was formed in 2011 to provide the Commission with advice on its rules, 

regulations and policies with regard to protecting investors; maintaining fair, orderly and 
efficient markets; and facilitating capital formation in relation to smaller public 
companies.  The ACSEC’s term expired at the end of 2017 and it was replaced by the 
SEC’s new Small Business Capital Formation Advisory Committee.  See 
https://www.sec.gov/page/small-business-capital-formation-advisory-committee.  

21  See, e.g., ACSEC Recommendations Regarding the Regulation of Finders and Other 
Intermediaries in Small Business Capital Formation Transactions (Sept. 23, 2015), 
available at https://www.sec.gov/info/smallbus/acsec/acsec-recommendations-regulation-
of-finders.pdf (requesting the Commission address the regulatory issues surrounding 
finders and other private placement intermediaries as referenced in the ABA Task Force 

https://www.sec.gov/page/small-business-capital-formation-advisory-committee


8 
 

the current SEC Small Business Capital Formation Advisory Committee (the “SBCFAC”) 

recommended that the Commission adopt a clear framework for unregistered finders in light of 

their role as intermediaries in fostering capital formation for smaller businesses.22  

The status of these intermediaries has also been a concern for participants in the SEC 

Government-Business Forum on Small Business Capital Formation (“Small Business Forum”).  

The Small Business Forum has repeatedly recommended that the Commission address the status 

of finders, including recommendations that finders should be exempt from the requirement to 

register as broker-dealers, and that the Commission should define permissible activities in which 

finders can engage without being deemed as engaging in activities that require broker 

registration.23  In August 2019, the Small Business Forum’s Small, Emerging Businesses 

                                                             
Report and stating that a failure to address the issue impedes capital formation for smaller 
companies); ACSEC Recommendation 2017 (referencing the ABA Task Force Report). 

22  See, SBCFAC Recommendations regarding the Capital Formation Proposal (May 28, 
2020), available at https://www.sec.gov/spotlight/sbcfac/capital-formation-proposal-
recommendation-2020-05-08.pdf.  See also Transcript of SBCFAC at 59-61 for 
discussion of finders (May 6, 2019), available at 
https://www.sec.gov/info/smallbus/acsec/sbcfac-transcript-050619.pdf; Transcript of 
SBCFAC at 18, 112 for discussion of finders (Feb. 4, 2020), available at 
https://www.sec.gov/info/smallbus/acsec/sbcfac-transcript-020420.pdf; Transcript of 
SBCFAC at 112-117 for discussion of finders (May 8, 2020), available at 
https://www.sec.gov/info/smallbus/acsec/sbcfac-transcript-050820.pdf (encouraging the 
Commission to adopt a clear framework for unregistered finders).  

23  See, e.g., 37th Annual Government-Business Forum on Small Business Capital 
Formation, Final Report (Dec. 12, 2018); 36th Annual SEC Government-Business Forum 
on Small Business Capital Formation, Final Report (Nov. 30, 2017); 35th Annual SEC 
Government-Business Forum on Small Business Capital Formation, Final Report (Nov. 
17, 2016); 34th Annual SEC Government-Business Forum on Small Business Capital 
Formation, Final Report (Nov. 19, 2015); 33rd Annual SEC Government-Business Forum 
on Small Business Capital Formation, Final Report (Nov. 20, 2014); 32nd Annual SEC 
Government-Business Forum on Small Business Capital Formation, Final Report (Nov. 
21, 2013); 31st Annual SEC Government-Business Forum on Small Business Capital 
Formation, Final Report (Nov. 15, 2012); 30th Annual SEC Government-Business Forum 
on Small Business Capital Formation, Final Report (Nov. 17, 2011); 29th Annual Small 
Business Forum, Final Report (Nov. 18, 2010); 28th Annual SEC Government-Business 
Forum on Small Business Capital Formation, Final Report (Nov. 19, 2009); 27th Annual 



9 
 

breakout group and the Mature and Later Stage Private Companies breakout group both made 

recommendations related to finders, indicating a broad market perception that additional clarity 

and possibly relief may be needed in this area.24  Further, at the Small Business Forum in June 

2020, participants made a recommendation related to finders.25 

 Against this background, and given the role of intermediaries with respect to capital 

formation and investor protection, especially for smaller issuers, the Commission believes it is 

important to address the regulatory status of persons who engage in certain limited securities-

                                                             
Small Business Forum, Final Report (Nov. 20. 2008); 26th Annual SEC Government-
Business Forum on Small Business Capital Formation, Final Report (Sept. 24, 2007); 25th 
Annual SEC Government-Business Forum on Small Business Capital Formation, Final 
Report (2006); and 24th Annual SEC Government-Business Forum on Small Business 
Capital Formation, Final Report (Sept. 19, 2005).  Copies of these and other Annual 
Government-Business Forum on Small Business Capital Formation Final Reports making 
recommendations relating to finders are available at 
https://www.sec.gov/info/smallbus/sbforumreps.htm.  

24  See Report on 38th Annual Government-Business Forum on Small Business Capital 
Formation (Aug. 14, 2019), available at https://www.sec.gov/files/small-business-forum-
report-2019.pdf. 

 The Mature and Later Stage Private Companies breakout group also recommended that 
the M&A Broker Letter be codified.  See M&A Brokers, SEC Staff No-Action Letter (Jan. 
31, 2014) (“M&A Broker Letter”).  In the M&A Broker Letter, the staff agreed not to 
recommend enforcement action under Section 15(a) of the Exchange Act for persons 
facilitating securities transactions in connection with the transfer of ownership of a 
controlling interest in a privately-held operating company under certain facts and 
circumstances.  This proposed exemptive order is limited to the regulatory status of 
individuals who identify and solicit potential investors for an issuer as discussed above, 
and does not address the M&A Broker Letter or the associated recommendation to codify 
the staff position in the M&A Broker Letter.  

25  See Report on 39th Annual Government-Business Forum on Small Business Capital 
Formation (June 18, 2020), available at https://www.sec.gov/files/2020-oasb-forum-
report-final_0.pdf.  The Small Business Forum recommended that the Commission 
provide an exemption from broker-dealer registration for finders facilitating secondary 
transactions.  Id.  While the scope of this proposed exemptive order is limited to finders 
participating in primary offerings, the Commission is requesting comment on whether we 
should expand the scope to include secondary offerings. 

 



10 
 

related activities on behalf of issuers.  The Commission preliminarily believes that this 

exemption would provide clarity to investors and issuers, and establish clear lanes for both 

registered broker activity and limited activity by finders that would be exempt from 

registration.26    

II. Broker Regulatory Framework  

Because of the broker’s role as an intermediary between customers and the securities 

markets, broker-dealers are required to register with the Commission unless they can rely on an 

exception or exemption.27  Registered broker-dealers are subject to comprehensive regulation 

under the Exchange Act and under the rules of each self-regulatory organization (“SRO”) of 

which the broker-dealer is a member, including a number of obligations that attach when a 

broker-dealer makes recommendations to a customer, as well as general and specific 

requirements aimed at addressing certain conflicts of interest.28 

                                                             
26  The conditions of this proposed exemptive order for Finders differ from the requirements 

for solicitors under the Commission’s proposed amendments to Rule 206(4)-3 under the 
Investment Advisers Act of 1940 (“Advisers Act”).  See Investment Adviser 
Advertisements; Compensation for Solicitations, Release No. IA-5407 (Nov. 4, 2019), 
[84 FR 67518 (Dec. 20, 2019)] (“Cash Solicitation Rule Proposed Amendments”).  

These differences reflect the particular facts and circumstances surrounding the proposed 
permitted activities for Finders and solicitors, and the characteristics of the applicable 
regulatory regimes, notably that a solicitor would solicit for an investment adviser and 
would be subject to oversight by such investment adviser, while a Finder would solicit 
for an issuer and therefore would not be subject to such oversight.  See Cash Solicitation 
Rule Proposed Amendments at 67580.  

27  See, e.g., Registration Requirements for Foreign Broker-Dealers, Exchange Act Release 
No. 27017 (Jul. 11, 1989), [54 FR 30013 (Jul. 18, 1989)] (“15a-6 Adopting Release”) at 
30014-15.  

28  See, e.g., Regulation Best Interest, Exchange Act Release No. 86031 (Jun. 5, 2019), [84 
FR  33318 (Jul. 12, 2019)] (“Regulation Best Interest Adopting Release”).  



11 
 

Section 3(a)(4) of the Exchange Act generally defines a “broker” as “any person engaged 

in the business of effecting transactions in securities for the account of others.”29  Section 

15(a)(1) of the Exchange Act, in turn, generally makes it unlawful for any broker to use the mails 

or any other means of interstate commerce to “effect any transactions in, or to induce or attempt 

to induce the purchase or sale of, any security” unless that broker is registered with the 

Commission in accordance with Section 15(b) of the Exchange Act.30  As a result, absent an 

available exception or exemption,31 a person engaged in the business of effecting transactions in 

securities for the account of others is a broker required to register under Section 15(a) of the 

Exchange Act.   

The question of whether a person is a broker within the meaning of Section 3(a)(4) turns 

on the facts and circumstances of the matter.  Because the Exchange Act does not define what it 

means to be “engaged in the business” or “effecting transactions,” courts and the Commission 

have looked to an array of factors in determining whether a person is a broker within the 

meaning of the statute.32  Often, a key consideration in these determinations is whether the 

person participates on a regular basis in securities transactions at key points in the chain of 

                                                             
29  Section 3(a)(4)(A) of the Exchange Act, 15 U.S.C. 78c(a)(4)(A).   
30  Section 15(a) of the Exchange Act, 15 U.S.C. 78o(a).  Although Section 15(a) applies to 

both brokers and dealers, this proposed exemption would apply only to activities that 
historically have been associated with brokers—that is, effecting securities transactions 
for the account of others.    

31  See, e.g., Exemptions to Facilitate Intrastate and Regional Securities Offerings, Release 
No. 33-10238 (Oct. 26, 2016) [81 FR 83494 (Nov. 21, 2016)] at 83510 (providing 
guidance on the exemption from registration for broker-dealers whose business is 
exclusively intrastate and who do not use any facility of a national securities exchange).  

32  See, e.g., 15a-6 Adopting Release (noting that the definition in the Exchange Act of the 
term “broker” and the registration requirements under Section 15(a) of the Exchange Act 
“were drawn broadly by Congress to encompass a wide range of activities involving 
investors and the securities markets”).  



12 
 

distribution.33  Over the years, the courts and the Commission have identified certain activities as 

indicators of broker status, including:  (1) actively soliciting or recruiting investors;34 (2) 

participating in negotiations between the issuer and the investor;35 (3) advising investors as to the 

merits of an investment or opining on its merits;36 (4) handling customer funds and securities;37 

(5) having a history of selling securities of other issuers;38 and (6) receiving commissions, 

transaction-based compensation or payment other than a salary for selling the investments.39  

This is not an exhaustive list of the relevant factors, and no one factor is dispositive.40 

A person who identifies and solicits potential investors for an issuer or other party could 

be viewed as engaging in activity that indicates broker status.41  The courts and the Commission 

generally have viewed solicitation as any affirmative effort intended to induce a securities 

                                                             
33  See SEC v. Bravata, 2009 WL 2245649 (E.D. Mich. 2009), quoting SEC v. Martino.  See 

also Mass. Fin. Servs., Inc. v. SIPC, 411 F. Supp. 411, 415 (D. Mass. 1976), aff’d, 545 
F.2d 754 (1st Cir. 1976), cert. denied, 431 U.S. 904 (1977).  

34  See SEC v. Hansen, 1984 U.S. Dist. LEXIS 17835, at *26 (S.D.N.Y. April 6, 1984).   
35  Id.  
36  Id.  
37  See SEC v. M&A West, Inc., 2005 WL 1514101, at *9 (N.D. Cal. June 20, 2005); SEC v. 

Margolin, 1992 WL 279735, at *5 (S.D.N.Y. 1992); SEC v. Benger, 697 F. Supp. 2d 932, 
944 (N.D. Ill. 2010).  

38  See, e.g., SEC v. Hansen, 1984 U.S. Dist. LEXIS 17835, at *26 (S.D.N.Y. April 6, 1984).   
39  Id.  
40  See SEC v. Benger, 697 F. Supp. 2d 932, 945.  
41  See, e.g., Definition of Terms in and Specific Exemptions for Banks, Savings 

Associations, and Savings Banks Under Section 3(a)(4) and 3(a)(5) of the Securities 
Exchange Act of 1934, Exchange Act Rel. No. 44291, 66 FR 27760, 27772-73 at n.124 
(May 18, 2001) (“Solicitation is one of the most relevant factors in determining whether a 
person is effecting transactions.”), cited in Registration Process for Security- Based Swap 
Dealers and Major Security-Based Swap Participants, Exchange Act Rel. No. 75611 
(Aug. 5, 2015), 80 FR 48964, 48976 (Aug. 14, 2015) (“The Commission has previously 
interpreted the term ‘effecting transactions’ in the context of securities transactions to 
include a number of activities, ranging from identifying potential purchasers to settlement 
and confirmation of a transaction.”).  

http://opc-ad-mossfe1/sites/bro/enforcement/Enforcement%20Documents/Cases%20Cited/Massachusetts%20Financial%20Services,%20Inc.%20v.%20Securities%20Investor%20Protection%20Corp.,%20411%20F.%20Supp.%20411%20(D.%20Mass.%201976).doc
http://opc-ad-mossfe1/sites/bro/enforcement/Enforcement%20Documents/Cases%20Cited/Massachusetts%20Financial%20Services,%20Inc.%20v.%20Securities%20Investor%20Protection%20Corp.,%20545%20F.2d%20754%20(1st%20Cir.%201976).doc
http://opc-ad-mossfe1/sites/bro/enforcement/Enforcement%20Documents/Cases%20Cited/Massachusetts%20Financial%20Services,%20Inc.%20v.%20Securities%20Investor%20Protection%20Corp.,%20545%20F.2d%20754%20(1st%20Cir.%201976).doc


13 
 

transaction, including, but not limited to, telephone calls, mailings, advertising (online or in 

print), and conducting investment seminars.42  Solicitation includes efforts to induce a single 

securities transaction as well as efforts to develop an ongoing securities-business relationship.43  

Although it is not required to establish broker status and is not in itself determinative of broker 

status, the receipt of transaction-based compensation in connection with securities activities, 

such as solicitation of potential investors, has been considered by courts as a factor indicating 

that registration as a broker may be required.44     

                                                             
42  See, e.g., SEC v. Century Inv. Transfer Corp., et al., No. 71-cv-3384, 1971 WL 297, at *5 

(S.D.N.Y. Oct. 5, 1971) (Century “engaged in the brokerage business by soliciting 
customers through ads in the Wall Street Journal, and engaging in sales activities 
designed to bring about mergers between private corporations and publically held shells 
controlled by” a co-defendant); SEC v. Hansen, 1984 U.S. Dist. LEXIS 17835, at *26 
(S.D.N.Y. Apr. 6, 1984)  (defendant engaged in unregistered broker activity when he 
“sold or attempted to sell interest in the five [securities] by use of the mails, the 
telephone, advertisements in publications distributed nationally and by other intestate 
means of communication”); SEC v. National Executive Planners, Ltd., et al., 503 F. 
Supp. 1066, 1072-73 (M.D.N.C. 1980) (defendant engaged in unregistered broker activity 
by using the mails and telephone to “solicit[] clients actively” in the offer and sale of 
securities);  SEC v. Earthly Mineral Solutions, Inc., No. 2:07-cv-1057, 2011 WL 
1103349, at *2 (D. Nev. Mar. 23, 2011) (defendant engaged in unregistered broker 
activity when, among other things, he “conducted general solicitations through 
newspaper advertisements”); SEC v. Deyon, 977 F. Supp. 510, 518 (D. Maine 1997) 
(defendants engaged in unregistered broker activity when they “solicited investors by 
phone and in person,” “distributed documents and…prepared and distributed sales 
circulars”).  

43  See 15a-6 Adopting Release at 30018.  
44  See, e.g., SEC v. Helms, No. 13-cv-01036, 2015 WL 5010298, at *17 (W.D. Tex. Aug. 

21, 2015) (“In determining whether a person ‘effected transactions [for purposes of the 
Exchange Act registration requirements],’ courts consider several factors, such as 
whether the person:  (1) solicited investors to purchase securities, (2) was involved in 
negotiations between the issuer and the investor, and (3) received transaction-related 
compensation.”) (citing cases initiated by the Commission).     



14 
 

While some courts have discussed the issue of finders, their interpretations have varied, 

and address the facts and circumstances of the specific matter.45  The Commission has not 

previously recognized a “finders” exemption or exception, nor has the Commission broadly 

addressed whether and under what circumstances a person may “find” or solicit potential 

investors on behalf of an issuer without being required to register as a broker, or even whether 

such activity implicates the Commission’s regulatory regime for brokers.46  Instead, the 

Commission understands that market participants have looked to staff no-action letters 

                                                             
45  See, e.g., SEC v. Collyard, 154 F. Supp. 3d 781, No. 11-CV-3656 (JNE/JJK), 2015 WL 

8483258 at *5 (D. Minn. Dec. 9, 2015) (rejecting the argument that the defendant acted 
as a “finder” not subject to registration under Section 15(a)); SEC v. Bio Defense Corp., 
et al., No. 1:12-cv-11669-DPW (D. Mass. Sept. 6, 2019) (concluding that the defendants 
acted as unregistered brokers in violation of Section 15(a) because the directness of their 
involvement in the securities sales was “certainly broader than that of a mere finder who 
has no broker/dealer experience and simply brings parties together”); SEC v. Kramer, 778 
F.Supp.2d 1320 (M.D. Fla. 2011) (concluding that registration under Section 15(a) was 
not required where the defendant acted like a “finder” and not a broker where he 
introduced friends and family as prospective investors to an issuer and received 
transaction-based compensation); SEC v. Mapp, 2017 U.S. Dist. LEXIS 29267 (E.D. Tex. 
Mar. 2, 2017) (finding that the defendant acted as a “finder, as opposed to a broker, as he 
was “merely facilitating securities transactions rather than performing the functions of a 
broker”).  See also SEC v. Offill, Civil Action No. 3:07-CV-1643-D (N.D. Tex. Jan. 26, 
2012) (“If an individual is a “finder” rather than a broker or dealer, he is not required to 
register under the Exchange Act. ‘The distinction drawn between the broker and the 
finder or middleman is that the latter bring[s] the parties together with no involvement on 
[his] part in negotiating the price or any of the other terms of the transaction.’”).  

46  Exchange Act Rule 3a4-1 provides a conditional exemption from broker status when 
“associated persons” of an issuer engage in certain limited activities on behalf of the 
issuer.  However, the ability to rely on the rule is subject to a number of conditions, 
including that the associated person does not receive compensation that is based either 
directly or indirectly on transactions in securities.  The associated person must also 
perform, or be intended primarily to perform at the end of the offering, substantial duties 
for or on behalf of the issuer otherwise than in connection with transactions in securities.  
Exchange Act Rule 3a4-1; see Persons Deemed Not to Be Brokers, Exchange Act 
Release No. 22172, 1985 WL 634795 (June 27, 1985) (“Rule 3a4-1 Adopting Release”).  
Finders are customarily paid transaction-based compensation and few finders perform 
substantial duties for the issuer after the offering.  Thus, finders have generally not been 
eligible to rely on the Rule 3a4-1 exemption.   



15 
 

discussing circumstances under which persons act as “finders” without registering as a broker-

dealer.47 

In particular, in connection with private placements, the Commission understands that 

market participants may look to the Paul Anka staff no-action letter with respect to broker 

registration under Section 15(a) of the Exchange Act.48  In the Paul Anka Letter, the staff stated 

that it would not recommend enforcement action to the Commission under Section 15(a) of the 

Exchange Act against an individual who, without registering with the Commission as a broker-

dealer: (1) entered into an agreement with an issuer to provide to the issuer a list of names and 

telephone numbers of potential investors he reasonably believed to be accredited investors and 

with whom he had a pre-existing business or personal relationship, (2) had no further contact 

with potential investors concerning the issuer, and (3) received a finder’s fee for doing so.49   

                                                             
47  Staff no-action letters, like all staff guidance, have no legal force or effect: they do not 

alter or amend applicable law, and they create no new or additional obligations for any 
person. 

48  See Paul Anka, SEC Staff No-Action Letter (July 24, 1991) (“Paul Anka Letter”).  If the 
exemption is adopted, the Paul Anka Letter and other staff positions relating to the 
application of Section 15(a) of the Exchange Act in private offerings, including but not 
limited to the letters discussed in footnotes 50 and 52 infra, may be moot, superseded, or 
otherwise inconsistent with the exemption.  As discussed below, the Commission is 
requesting comment on which letters, if any, should or should not be withdrawn, and 
why. 

49  Id.  The facts of the Paul Anka Letter are very narrow.  The staff in its response noted 
that the individual would not: (i) solicit the prospective investors or have any contact with 
them regarding the proposed investment; (ii) participate in any advertisement, 
endorsement, or general solicitation; (iii) participate in the preparation of any sales 
materials; (iv) perform any independent analysis of the sale; (v) engage in any “due 
diligence” activities; (vi) assist or provide financing for such purchases; (vii) provide 
advice as to the valuation or financial advisability of the investment; or (viii) handle any 
funds or securities in connection with the investment.  

The staff’s response also noted that the individual had not previously engaged in any 
private or public offering of securities (other than buying and selling securities for his 
own account through a broker-dealer), had not acted as a broker or finder for other 
private placements of securities, and did not intend to participate in any distribution of 
securities after the completion of the proposed private placement, so that the Paul Anka 



16 
 

As noted above, Commission staff has responded over the years to other requests for staff 

statements in relation to broker status issues, similar to those in the Paul Anka Letter.  

Differences in the facts and circumstances can lead to different results.  In some matters, the staff 

provided the no-action statement that was requested.50  A number of the no-action letters in this 

area, for example, involve persons seeking to facilitate the sale of a business or a controlling 

interest therein, a fact pattern different from that presented in the Paul Anka Letter.51  But in 

certain other matters, the staff has declined to provide such statements.52   

III. Proposed Exemption for Finders 

The Commission acknowledges that so-called “finders” may play an important role in 

facilitating capital formation, particularly for smaller issuers.  At the same time, the absence of a 

regulated intermediary may raise investor protection concerns.  The Commission preliminarily 

believes that there are situations where the need to impose the broker registration requirement 

may be mitigated by other factors.53  Accordingly, the Commission is proposing to grant 

                                                             
Letter only addressed an individual’s first participation in a securities offering and not 
participation in any subsequent offerings by that individual.  

50  See, e.g., Garrett/Kushell/Assocs. SEC Staff No-Action Letter (Aug. 8, 1980, Pub. Avail. 
Sept.7, 1980); May-Pac Management Co. SEC Staff No-Action Letter (Oct. 23, 1973, 
Pub. Avail. Dec. 20, 1973); Victoria Bancroft SEC Staff No-Action Letter (July 9, 1987); 
Russell R. Miller & Co., Inc. SEC Staff No-Action Letter (July 14, 1977); Corporate 
Forum, Inc. SEC Staff No-Action Letter (Dec. 10, 1972). 

51  M&A Broker Letter; Country Business, Inc. Staff No-Action Letter (Nov. 8, 2006); 
International Business Exchange Corporation Staff No-Action Letter (Dec. 12, 1986).  

52  See, e.g., Brumberg, Mackey & Wall, PLC Staff No-Action Letter (May 17, 2010) (denial 
of no-action for a person who would pre-screen investors for eligibility to purchase 
certain privately-placed securities and pre-sell securities to those investors); John 
Loofbourrow Associates, Inc. Staff No-Action Letter (June 29, 2006) (denial of no-action 
for a person who would receive a commission for introducing an investment banking 
client to a registered broker-dealer).  

53  See Rule 3a4-1 Adopting Release (“Exemptions from registration have traditionally been 
narrowly drawn in order to promote both investor protection and the integrity of the 



17 
 

exemptive relief pursuant to Sections 15(a)(2)54 and 36(a)(1)55 of the Exchange Act to permit a 

natural person to engage in certain defined activities on behalf of an issuer (a “Finder”) without 

registration as a broker, subject to the conditions described below.56  The proposed exemption 

would provide a non-exclusive safe harbor from broker registration.  The safe harbor is intended 

to provide clarity with respect to the ability of a Finder to engage in certain activities without 

being required to register as a broker under Section 15(a).57  Accordingly, no presumption shall 

arise that a person has violated Section 15(a) of the Exchange Act if such person is not within the 

terms of the proposed exemption; rather—consistent with how questions under Section 15(a) 

have been evaluated—it would depend on the facts and circumstances of the situation.   

Specifically, the Commission is proposing to exempt two classes of Finders, Tier I 

Finders and Tier II Finders, as described below, based on the types of activities in which they are 

                                                             
brokerage community. At the same time, however, the Commission recognizes that there 
are situations where imposition of the registration requirement would be inappropriate.”).  

54  Section 15(a)(2) of the Exchange Act authorizes the Commission to conditionally or 
unconditionally exempt from the registration requirements of Section 15(a)(1) any broker 
or class of brokers, by rule or order, as it deems consistent with the public interest and the 
protection of investors.   

55  Section 36(a)(1) of the Exchange Act authorizes the Commission, by rule, regulation, or 
order, to exempt, either conditionally or unconditionally, any person, security, or 
transaction, or any class or classes of persons, securities, or transactions, from any 
provision or provisions of the Exchange Act or any rule or regulation thereunder, to the 
extent that such exemption is necessary or appropriate in the public interest, and is 
consistent with the protection of investors.   

56  Nothing in the proposed exemption excuses compliance with all other applicable laws, 
including the antifraud provisions of the Securities Act and the Exchange Act and state 
law.   

57  As discussed above, whether a person is acting as a “broker” and in particular, whether 
he or she is “engaged in the business” of effecting securities transactions for the account 
of others will depend on the facts and circumstances of the particular matter.  
Accordingly, engaging in some of the limited activities falling within the terms of the 
proposed exemption should not be considered per se to require registration as a broker-
dealer in the absence of the exemption.   

 



18 
 

permitted to engage, and with conditions tailored to the scope of their activities.  The 

Commission’s proposed relief is intended to be narrowly-tailored and seeks to address the capital 

formation needs of certain smaller issuers while preserving appropriate investor protections. 

The proposed exemption for Tier I and Tier II Finders would be available only where: 

• The issuer is not required to file reports under Section 13 or Section 15(d) of the 

Exchange Act; 

• The issuer is seeking to conduct the securities offering in reliance on an applicable 

exemption from registration under the Securities Act;58 

• The Finder does not engage in general solicitation; 

• The potential investor is an “accredited investor” as defined in Rule 501 of Regulation D 

or the Finder has a reasonable belief that the potential investor is an “accredited 

investor”;  

• The Finder provides services pursuant to a written agreement59 with the issuer that 

includes a description of the services provided and associated compensation;  

• The Finder is not an associated person of a broker-dealer; and 

• The Finder is not subject to statutory disqualification, as that term is defined in 

Section 3(a)(39) of the Exchange Act, at the time of his or her participation. 

                                                             
58  An issuer’s failure to comply with the conditions of an exemption from registration under 

the Securities Act for an offering would not, in itself, affect the ability of a Finder to rely 
on the proposed exemptive order provided the Finder can establish that he or she did not 
know and, in the exercise of reasonable care, could not have known, that the issuer had 
failed to comply with the conditions of an exemption.  However, a Finder that, through its 
activities on behalf of an issuer, causes an issuer’s offering to be ineligible for an 
exemption from registration, would not be able to rely on the proposed exemption.  

 This proposed exemptive order is not intended to exempt an issuer from its requirements 
under each offering exemption from registration under the Securities Act.  

59  See footnote 68 and accompanying text.  



19 
 

Limiting the proposed exemption to activities on behalf of issuers that are not required to 

report under the Exchange Act and in connection with offers and sales of securities made in 

reliance on an applicable exemption from registration under the Securities Act is intended to 

address concerns that have been raised over the years regarding the perceived inability of smaller 

companies to engage the services of a broker-dealer to assist with opportunities to raise capital in 

exempt offerings.60  Smaller companies, particularly smaller private companies, may be more 

likely to rely on the exemptions from registration, given the initial and ongoing costs associated 

with conducting a registered offering and becoming an Exchange Act reporting company.61   

Although relatively smaller issuers that are required to report under the Exchange Act 

may also encounter difficulty raising capital in exempt offerings as compared to larger Exchange 

Act reporting issuers, we have proposed limiting this relief to non-Exchange Act reporting 

issuers because we believe these non-reporting issuers may be the types of companies most 

likely to experience difficulty obtaining the assistance of a broker-dealer, and are therefore most 

likely to need the assistance of a Finder when seeking to raise capital in such offerings.62     

The proposed exemption would also require that a Finder not engage in general 

solicitation of potential investors, and that the potential investors be “accredited investors” or 

investors that the Finder has a reasonable belief63 are “accredited investors,” as defined in Rule 

                                                             
60  See, e.g., ACSEC Recommendation 2017 at 10 (stating that “identifying potential 

investors is one of the most difficult challenges for small businesses trying to raise 
capital”).   

61  See Harmonization Proposal at 17957.   
62  See 2017 Treasury Report at 43-44.  
63  The Commission recently reiterated that the steps necessary to establish a reasonable 

belief as to investor status will depend on the facts and circumstances of the contemplated 
offering and each potential issuer.  See Solicitations of Interest Prior to a Registered 
Public Offering, Release No. 33-10699 (Sept. 25, 2019) [84 FR 53011 (Oct. 4, 2019)] at 



20 
 

501 of Regulation D.64  These proposed requirements are intended to provide investor protection 

by limiting the scope of potential investors with whom Finders are permitted to engage on behalf 

of an issuer.65  The accredited investor requirement is intended to ensure that Finders solicit only 

potential investors who have a sufficient level of financial sophistication to participate in 

investment opportunities that do not have the additional protections provided by registration 

under the Securities Act.66  Accredited investors currently provide the vast majority of early-

                                                             
53018.   Finders can look to the methods that other market participants currently use to 
establish a reasonable belief regarding an accredited investor’s status in other contexts.   

64  17 CFR 230.501(a).  The definition of accredited investor provides that natural persons 
and entities that come within, or that the issuer reasonably believes come within, any of 
the enumerated categories at the time of the sale of the securities are accredited investors.   

 On August 26, 2020, the Commission adopted changes to the accredited investor 
definition to add new categories of qualifying natural persons and entities.  Amending the 
“Accredited Investor” Definition, Release Nos. 33-10824; 34-89669 (Aug. 26, 2020) 
(“Accredited Investor Adopting Release”).  

65  As the Commission previously indicated, “[w]hether there has been a general solicitation 
is a fact-specific determination.”  See Harmonization Proposal at footnote 70.  One way, 
though not the exclusive way, to demonstrate the absence of general solicitation is by 
establishing the existence of a pre-existing substantive relationship. Id. at 17966. 

 The Commission has stated that it generally viewed a pre-existing relationship as “one 
that the issuer has formed with an offeree prior to the commencement of the securities 
offering or, alternatively, that was established through another person (for example a 
registered broker-dealer or investment adviser) prior to that person’s participation in the 
offering.”  Id.  The Commission has stated that a substantive relationship is “one in which 
the issuer (or a person acting on its behalf, such as a registered broker-dealer or 
investment adviser) has sufficient information to evaluate, and does, in fact, evaluate, an 
offeree’s financial circumstances and sophistication, in determining his or her status as an 
accredited or sophisticated investor.”  Id.  

66  Regulation D Revisions; Exemption for Certain Employee Benefit Plans, Release No. 33-
6683 (Jan. 16, 1987), [52 FR 3015 (Jan. 30, 1987)].  See also Accredited Investor 
Adopting Release.   

 As the Commission recently stated in the Accredited Investor Adopting Release, the 
accredited investor standard is similar to, but distinct from, other regulatory standards in 
Commission rules that are used to identify persons who are not in need of certain investor 
protection features of the federal securities laws. See Accredited Investor Adopting 
Release at footnote 8.  Each of these other regulatory standards serves a different 
regulatory purpose.  Accordingly, an accredited investor will not necessarily meet these21 
 

stage capital to small businesses through exempt offerings,67 where they often invest directly 

without the engagement of an intermediary.  We believe the targeted approach we are proposing 

would address the capital raising needs of smaller issuers while maintaining appropriate investor 

protections.    

The requirement that a Finder enter into a written agreement68 with the issuer that 

includes a description of the services provided and associated compensation is intended to 

explicitly define the role of the Finder consistent with the terms of the proposed exemption and, 

in turn, establish accountability between the parties.69   

Next, a Finder cannot be an associated person of a broker-dealer as defined under Section 

3(a)(18) of the Exchange Act.70  The Commission believes this condition is appropriate because 

                                                             
other standards, and these other regulatory standards are not designed to capture the same 
investor characteristics as the accredited investor standard.  See id. 

 The Commission, in adopting Rule 3a4-1, noted that “the fact that the Commission has 
concluded that, under limited circumstances, investors do not need the protections 
afforded by registration under the 1933 Act does not dictate a conclusion that a broad 
exemption from broker-dealer is appropriate.”  The Commission is not predicating the 
proposed exemption solely on the status of the potential investor.  Rather, as it did with 
Rule 3a4-1, the Commission is considering, among other various approaches, whether 
there are a set of conditions that considered together would be appropriate in a narrow set 
of circumstances.  

67  From 2009 to 2019, Rule 506(b) offerings to only accredited investors provided between 
93-97% of total capital raised using Rule 506(b), the most commonly used offering 
exemption.  See Accredited Investor Adopting Release at 97.   

 
68  The Finder could employ electronic media and communications to satisfy the written 

agreement requirement.  
69  See footnote 26 and accompanying text.   
70  Section 3(a)(18) of the Exchange Act defines associated person of a broker or dealer as:  

“any partner, officer, director or branch manager of such broker or dealer (or any person 
occupying a similar status or performing similar functions), any person directly or 
indirectly controlling, controlled by, or under common control with such broker or dealer, 
or any employee of such broker or dealer, except that any person associated with a broker 
or dealer whose functions are solely clerical or ministerial shall not be included in the 



22 
 

of the potential for investor confusion and abusive sales tactics when the Finder is also 

associated with a broker-dealer.71  Therefore, the relief provided by the proposed exemption 

should not be necessary or available to such persons.  This condition is intended to ensure that 

regulated persons do not attempt to circumvent applicable rules and regulations to which they are 

already subject, including their required standard of conduct when providing recommendations.72 

Finally, a Finder cannot rely on the exemption during a time he or she is subject to 

statutory disqualification, as that term is defined in Section 3(a)(39) of the Exchange Act.73  The 

Commission preliminarily believes that any person subject to the provisions described in Section 

3(a)(39) should not be able to rely on this exemption as we believe there is potential for abusive 

practices where persons who are subject to a statutory disqualification participate in securities 

transactions without the assurance of adequate supervision or regulatory oversight.74  

Tier I Finders.  For purposes of the proposed exemption, a “Tier I Finder” is defined as a 

Finder who meets the above conditions75 and whose activity is limited to providing contact 

                                                             
meaning of such term for purposes of section 15(b) of this title (other than paragraph 6 
thereof).”   

71  See Rule 3a4-1 Adopting Release at *3.  
72  The Commission recognizes the importance of the protections provided by the standard 

of conduct applicable to broker-dealers when providing recommendations to retail 
investors.  See Regulation Best Interest Adopting Release at Section I.  

73  Section 3(a)(39).  
74  See Rule 3a4-1 Adopting Release at *3 (“The Commission believes that there is added 

potential for abusive practices in the sale of an issuer’s securities in circumstances where 
persons who are subject to a statutory disqualification participate without assurance of 
adequate supervision or regulatory oversight.”).  

 
75  As discussed above, the proposed exemption would only be available where: (i) the issuer 

is not required to file reports under Section 13 or Section 15(d) of the Exchange Act; (ii) 
the issuer conducts the offering in reliance on an applicable exemption from registration 
under the Securities Act; (iii) the Finder does not engage in general solicitation; (iv) the 
potential investor is an accredited investor or the Finder has a reasonable belief that the 
potential investor is an accredited investor; (v) the Finder provides services pursuant to a 



23 
 

information of potential investors in connection with only one capital raising transaction by a 

single issuer within a 12-month period,76 provided the Tier I Finder does not have any contact 

with the potential investors about the issuer.  The contact information may include, among other 

things, name, telephone number, e-mail address, and social media information.  The Commission 

preliminarily believes limiting the exemption to this activity will appropriately narrow the role of 

the Tier I Finder to preclude the participation in continuous or multiple sales of securities by 

persons that are not subject to broker-dealer registration or to the heightened requirements of 

Tier II Finders.  A Tier I Finder that complies with all of the conditions of the exemption may 

receive transaction-based compensation for the limited services described above without being 

required to register as a broker under Section 15(a) of the Exchange Act.77  

Tier II Finders.  The Commission is also proposing an exemption that would permit a 

Finder, where certain conditions are met, to engage in additional solicitation-related activities 

beyond those permitted for Tier I Finders.  For purposes of the proposed exemption, a “Tier II 

                                                             
written agreement with the issuer that includes a description of the services provided and 
associated compensation; (vi) the Finder is not an associated person of a broker or dealer; 
and (vii) the Finder is not subject to statutory disqualification.   

76  The Commission notes that requirement is similar to the limitation included in Rule 3a4-
1 for sales activities by associated persons of an issuer.  See Rule 3a4-1(a)(4)(ii)(C) 
(stating that as a condition of the rule, subject to limited exceptions, the associated person 
of an issuer cannot participate in selling and offering of securities for any issuer more 
than once every 12 months).  

77  As noted above, no presumption shall arise that a person has violated Section 15(a) of the 
Exchange Act if such person is not within the terms of the proposed Tier I Finders 
exemption.  Whether a person is acting as a “broker” and, in particular, whether he or she 
is “engaged in the business” of effecting securities transactions for the account of others 
will depend on the facts and circumstances of the particular matter.  A person who falls 
within the definition of broker must register with the Commission pursuant to Section 
15(a) of the Exchange Act, absent an applicable exemption or exclusion.  The proposed 
exemption is intended to provide a safe harbor from the broker registration requirement 
to market participants for the limited activities described herein.   



24 
 

Finder” is defined as a Finder who meets the above conditions,78 and who engages in 

solicitation-related activities on behalf of an issuer, that are limited to: (i) identifying, screening, 

and contacting potential investors;79 (ii) distributing issuer offering materials to investors; (iii) 

discussing issuer information included in any offering materials,80 provided that the Tier II 

Finder does not provide advice as to the valuation or advisability of the investment;81 and (iv) 

arranging or participating in meetings with the issuer and investor.82  As discussed above, the 

Commission generally views solicitation as any affirmative effort to induce or attempt to induce 

a securities transaction83 and broadly views these activities of Tier II Finders to constitute 

solicitation.  The identification of these activities is not an exhaustive listing of activities that 

may constitute solicitation.  Rather, these are the limited solicitation-related activities 

permissible under the proposed exemption.84  The Commission preliminarily believes that 

limiting the proposed exemption to these specified activities associated with solicitation, along 

                                                             
78  See supra footnote 75 and accompanying text.   
79  See SEC v. Hansen, 1984 U.S. Dist. LEXIS 17835, at *26 (S.D.N.Y. April 6, 1984) 

(setting forth actively soliciting or recruiting investors as commonly cited indicia of 
broker activity).  

80  See SEC v. Offill, 2012 WL 246061 (N.D. Tex. Jan. 26, 2012) (stating that a “finder” will 
be performing the functions of a broker-dealer, triggering registration requirements, if 
activities include, among other things, discussion of details of securities transactions).  

81  See infra p. 28 (discussing activities that Finders are not permitted to engage in pursuant 
to the proposed exemption).  

82  A Tier II Finder is not subject to the Tier I Finder’s limitation of participation in only one 
capital raising transaction by a single issuer in a 12-month period.  

83  See supra p. 13 (stating that solicitation includes efforts to induce a single securities 
transaction as well as efforts to develop an ongoing securities-business relationship).  

84  See supra footnote 77. 



25 
 

with the additional conditions discussed below, will appropriately narrow the role of the Tier II 

Finder to support the proposed exemption.85   

A Tier II Finder wishing to rely on the proposed exemption would need to satisfy certain 

disclosure requirements and other conditions:86 

First, the Tier II Finder would need to provide a potential investor, prior to or at the time 

of the solicitation, disclosures that include:  

(1) the name of the Tier II Finder;  

(2) the name of the issuer;  

(3) the description of the relationship between the Tier II Finder and the issuer, including 

any affiliation;  

(4) a statement that the Tier II Finder will be compensated for his or her solicitation 

activities by the issuer and a description of the terms of such compensation arrangement;  

(5) any material conflicts of interest resulting from the arrangement or relationship 

between the Tier II Finder and the issuer; and  

                                                             
85  As noted above, no presumption shall arise that a person has violated Section 15(a) of the 

Exchange Act if such person is not within the terms of the proposed Tier II Finders 
exemption.  Whether someone is acting as a “broker” and in particular, whether he or she 
is “engaged in the business” of effecting securities transactions for the account of others, 
will depend on the facts and circumstances of the particular matter.  A person who falls 
within the definition of broker must register with the Commission pursuant to Section 
15(a) of the Exchange Act, absent an applicable exemption or exclusion.  The proposed 
exemption is intended to provide a safe harbor from the broker registration requirement 
to market participants for the limited activities described herein.  

86  The disclosure requirements and conditions applicable to Tier II Finders differ from the 
requirements applicable to solicitors under the Cash Solicitation Rule Proposed 
Amendments.  As discussed above, the Commission preliminarily believes these more 
specific disclosure requirements, including the required acknowledgment, for Tier II 
Finders are appropriate to address the differences in regulatory structures.  See footnote 
26 and accompanying text.  



26 
 

(6) an affirmative statement that the Tier II Finder is acting as an agent of the issuer, is 

not acting as an associated person of a broker-dealer, and is not undertaking a role to act in the 

investor’s best interest.87    

The Commission is proposing to allow a Tier II Finder to provide such disclosure orally, 

provided that the oral disclosure is supplemented by written disclosure and satisfies all of the 

disclosure requirements listed above no later than the time of any related investment in the 

issuer’s securities.  

The Commission preliminarily believes that this disclosure would direct an investor’s 

attention to important information, such as the fact that the Tier II Finder is paid by the issuer 

and any associated material conflicts of interest, in order to facilitate the investor’s ability to 

evaluate the role of the Tier II Finder.  In addition, the Commission believes the disclosure 

should be made “prior to or at the time of the solicitation” so that investors have this important 

information early enough in the process to give the investor adequate time to consider the 

information in order to make informed investment decisions.88  While the Commission is 

requiring that the disclosures be written, we believe this can be satisfied either through paper or 

electronic means.89  For purposes of this proposed exemption, we believe that delivery of the 

disclosure would be evidenced by the acknowledgment required below. 

The Tier II Finder must obtain from the investor, prior to or at the time of any investment 

in the issuer’s securities, a dated written acknowledgment of receipt of the Tier II Finder’s 

                                                             
87  A Tier I Finder or Tier II Finder that complies with the requirements of the proposed 

exemption would not be subject to broker-dealer sales practice rules, including 
Regulation Best Interest.   

88  See Regulation Best Interest Adopting Release at Section II.C.1.  
89  The Finder could employ electronic media and communications to satisfy the 

requirement. 



27 
 

required disclosures.  While the Commission is requiring that the acknowledgment be written, 

we believe this can be satisfied either through paper or electronic means, similar to the disclosure 

condition discussed above.90  The Commission believes this acknowledgment is important as it 

helps ensure that the investor received the required disclosures. 

Because Tier II Finders may participate in a wider range of activity and have the potential 

to engage in more offerings with issuers and investors, the Commission believes that heightened 

requirements are appropriate.  A Tier II Finder that complies with all of the conditions of the 

proposed exemption may receive transaction-based compensation for services provided in 

connection with the activities described above without being required to register as a broker 

under Section 15(a) of the Exchange Act.   

The Commission preliminarily believes that the proposed exemption is narrowly drawn 

to permit a limited set of activities, subject to conditions intended to address investor protection 

concerns, including the requirement that any potential investors solicited under this proposed 

exemption be accredited investors or investors the Finder has a reasonable belief are accredited 

investors.  In addition, Tier II Finders, who will interact with potential investors, must provide 

those investors with appropriate disclosures of the Tier II Finder’s role and compensation.91  

                                                             
90  Id.  
91  See supra pp. 25-26 (describing required disclosures to the investors) and infra 29 

(describing the Commission’s antifraud protections).  The Commission is seeking 
comment on questions related to potential investor protection concerns associated with 
this proposed exemption.   
Because Tier I Finders would only be providing the investor’s contact information to the 
issuer and would not have any contact with potential investors about the securities 
offering, we preliminarily do not believe that a similar disclosure requirement for Tier I 
Finders is necessary or appropriate.  



28 
 

 Because a Finder would engage in a limited scope of securities-related activities with a 

limited set of investors, would be subject to conditions commensurate with the level of activity, 

and would not handle customer funds or securities or have the power to bind the issuer or the 

investor, the Commission preliminarily believes that the investor protection concerns that 

otherwise would be addressed by registration as a broker and the related requirements in the 

limited circumstances contemplated by the exemption should be addressed by the conditions of 

the proposed exemption for each tier of Finders.  In particular, the disclosure requirement for 

Tier II Finders should help to increase investor awareness of the scope of the Finder’s 

relationship with the issuer and potential conflicts of interest, and as a result help to facilitate an 

informed investment decision.     

Consistent with the narrow scope of activities contemplated by the proposed exemption, 

as noted above, a Finder could not be involved in structuring the transaction or negotiating the 

terms of the offering.92  A Finder also could not handle customer funds or securities or bind the 

issuer or investor; participate in the preparation of any sales materials; perform any independent 

analysis of the sale; engage in any “due diligence” activities; assist or provide financing for such 

purchases; or provide advice as to the valuation or financial advisability of the investment.   

The proposed exemption would apply only with respect to the defined activities for each 

tier of Finder and is limited to activities solely in connection with primary offerings.  A Finder 

could not rely on this proposed exemption to engage in broker activity beyond the scope of the 

                                                             
92  To assist Finders in applying this standard, we propose to use terms already familiar to 

market participants.  To that end, for the purposes of the proposed exemption, “terms of 
the offering” would be interpreted as the amount of securities offered, the nature of the 
securities, the price of the securities and the closing date of the offering period.  This 
interpretation would be consistent with the Instruction to Rule 204 of Regulation 
Crowdfunding.  See Rule 204 of Regulation Crowdfunding.  



29 
 

proposed exemption, such as to facilitate a registered offering, a resale of securities, or the sale 

of securities to investors that are not accredited investors or that the Finder does not have a 

reasonable belief are accredited investors.  The Commission preliminarily believes these are 

important safeguards that operate as a constraint on the conduct of Finders.   

If a Finder fails to comply with any of the relevant conditions (for example, the Finder 

engages in general solicitation of potential investors), the Finder could not rely on the proposed 

exemption.  The inability to rely on the proposed exemption means that the Finder may need to 

consider whether it is required to register with the Commission as a broker under Section 15(a) 

of the Exchange Act.93   

There are two important principles embodied in our regulatory framework that are not 

affected by this exemption.  Significantly, this exemption would not affect a Finder’s obligation 

to continue to comply with all other applicable laws, including the antifraud provisions of the 

Securities Act and the Exchange Act, such as the obligations under Section 10(b) and Rule 10b-5 

under the Exchange Act, and state law.  In addition, this exemption is not intended to affect the 

rights of the Commission or any other party to enforce compliance with other applicable law, or 

the available remedies for violations of the law.  Further, regardless of whether or not a Finder 

complies with this exemption, it may need to consider whether it is acting as another regulated 

entity, such as an investment adviser or a municipal advisor.  An exemption from the obligation 

to register as a broker-dealer does not insulate a person from the registration requirements of the 

Advisers Act if such person is acting as an investment adviser.   

                                                             
93  As noted above, the proposed exemption would provide a non-exclusive safe harbor from 

broker registration, and no presumption shall arise that a person has violated Section 
15(a) of the Exchange Act if such person is not within the terms of the proposed 
exemption but rather the need for registration would depend on the facts and 
circumstances of the situation.   



30 
 

Thus, the Commission preliminarily believes that the proposed exemption would be 

consistent with the public interest and protection of investors, and would also provide issuers 

with greater access to investment capital and investors with access to investment opportunities.  

Specifically, the proposed conditions for both Tier I Finders and Tier II Finders should 

sufficiently restrict the scope of the proposed exemption such that permitting limited activities 

associated with solicitation in this narrow context would not implicate the need for regulation of 

these activities under the broker regulatory framework.  At the same time, the proposed 

exemption would permit Finders to play an important role in facilitating capital formation for 

small businesses, consistent with many of the various recommendations put forth through the 

years.94   

Accordingly, for the reasons discussed above, the Commission preliminary believes that 

the proposed conditional exemption would be consistent with the public interest and the 

protection of investors and would be necessary or appropriate in the public interest. 

IV. Request for Comments 

The Commission is seeking comment on all aspects of the proposed exemption.  In 

particular, the Commission requests comment on the following questions as well as the potential 

costs and benefits of the proposed exemption.  When responding to the request for comment, 

please explain your reasoning.   

1. Have we accurately and completely identified the legal uncertainties, if any, around the 

involvement by Finders in connecting investors with small firms in need of capital?   

                                                             
94  See Section I.  



31 
 

2. Have we appropriately defined Tier I Finders and Tier II Finders?  Should there be two 

tiers of Finders or instead should there be multiple tiers of Finders?  Should there be only 

one tier of Finders?   

3. Should the definition of Finder be limited to natural persons?   

4. Should the definition of Finder be limited to a natural person resident in the U.S.?95  

5. Have we appropriately identified the activities in which each tier of Finder should and 

should not be able to engage?  Does the proposed exemption provide a workable path for 

Finders to be engaged in this activity? 

6. Have we appropriately limited the types of investors whom a Finder can “find” or solicit?  

Instead of limiting potential investors to those the Finder reasonably believes are 

accredited investors, should investors identified by Finders be subject to investment 

limitations, regardless of the exemption being relied upon, such as a dollar limit on the 

size of the investment?  If so, please specify.   

7. Should the Finder be prohibited from engaging in general solicitation as proposed?  

Would this create practical problems for a Finder?  For example, would a Finder be able 

to establish a pre-existing substantive relationship with investors in order to not engage in 

general solicitation?96 

8. Should we limit the proposed exemption to offerings of a specific size threshold?  If so, 

how should we define such threshold? 

9. Have we appropriately limited the number of offerings a Tier I Finder can participate in 

on an annual basis? 

                                                             
95  This term would be interpreted consistent with the meaning in Rule 902(k)(1)(i) of 

Regulation S.  
96  See Harmonization Proposal at footnote 70.   



32 
 

10. Is the limitation that Tier I Finders do not have any contact with potential investors about 

the issuer workable?  Should we instead permit Tier I Finders to have some contact with 

potential investors?   

11. Should we define “capital raising transaction” for purposes of Tier 1?  If so, how?   

12. Have we appropriately defined the conditions that should apply to the proposed 

exemption for each tier of Finder?  Is more clarity, specificity or flexibility required with 

respect to the proposed conditions?  Are there other or different conditions that should 

apply to the proposed exemption?   

13. Should Finders be able to “find” or solicit investors only for exempt offerings, as 

proposed?  Should Finders be able to “find” or solicit investors only for offerings under 

certain exemptions from registration?  If so, which ones?   

14. Should Finders be able to “find” or solicit for all non-Exchange Act reporting companies 

or should they be able to solicit for a narrower or wider range of companies?   

15. Should Finders only be able to “find” or solicit for primary offerings?  Should we expand 

the scope of the proposed exemption to secondary offerings, such as transactions 

facilitating the sale of equity by employees holding options or warrants? 

16. Should the proposed exemption include limitations on the types of securities for which a 

Finder can “find” or solicit investors?     

17. Is more clarity or specificity required with respect to the specific written disclosures that 

are a condition of the proposed exemption for Tier II Finders?  Should we provide more 

guidance about any of the specific written disclosures? 

18. Are there any specific written disclosures to investors that should be required, beyond 

those that are a condition of the proposed exemption for Tier II Finders?  Should the 



33 
 

disclosures be required to be written or should the Finder be permitted to provide them 

orally?  Should the written disclosures be required at all? 

19. Should we adopt comparable disclosure requirements with disclosures required under the 

proposed changes to Rule 206(4)-3 under the Advisers Act97 for solicitations of investors 

in private funds, if adopted?  Should the disclosures required by Tier II Finders be 

deemed to satisfy the disclosure requirements under the proposed changes to Rule 

206(4)-3 under the Advisers Act98 for solicitations of investors in private funds, if 

adopted?  

20. Should Tier II Finders be required to receive an acknowledgment of receipt of the 

required disclosure from the investor?  If so, are there methods other than an 

acknowledgment, for example, a read receipt for e-mail, that could serve to validate that 

investors received the required disclosure?   

21. Should Tier I Finders be subject to a disclosure and acknowledgment requirement?  

22. Should Tier II Finders be required to enter into a written agreement with the issuer where 

the issuer, without affecting the Finder’s obligations, also assumes liability with respect 

to investors for the Finder’s misstatements in the course of his or her engagement by the 

issuer?   

                                                             
97  See Cash Solicitation Rule Proposed Amendments.  The Cash Solicitation Proposed 

Amendments require that the solicitor disclosure state: (A) the name of the investment 
adviser; (B) the name of the solicitor; (C) a description of the investment adviser’s 
relationship with the solicitor; (D) the terms of any compensation arrangement, including a 
description of the compensation provided or to be provided to the solicitor; (E) any 
potential material conflicts of interest on the part of the solicitor resulting from the 
investment adviser’s relationship with the solicitor and/or the compensation arrangement; 
and (F) the amount of any additional cost to the client or private fund investor as a result of 
solicitation. 

98  Id. 



34 
 

23. Should the proposed exemption be conditioned on a Finder filing a notice with the 

Commission of reliance on the exemption from registration?  Why or why not?  If so, 

when should Finders be required to file the notice?  What, if any, disclosures should be 

required in the notice? 

24. Should there be any limitations on the amount of fee a Finder can receive? 

25. Should we impose limitations on the form of compensation Finders can receive?  Should 

Finders be prohibited in certain circumstances from receiving transaction-based 

compensation, and instead be required to receive compensation that is not tied to the 

success of the transaction (that is a fixed fee or other arrangement)?  If so, under what 

circumstances and how should Finders then be compensated?  

26. Should a Finder be able to receive a financial interest in an issuer as compensation for its 

services?  Why or why not?   

27. Are the explicit limitations on the activities in which Finders can or cannot engage 

appropriate for each tier of Finder?  What other activities should be expressly permitted 

or prohibited for each class of Finder?  

28. Should we provide guidance on how a Finder can establish that he or she did not know 

and, in the exercise of reasonable care, could not have known, that the issuer had failed to 

comply with the conditions of an exemption? 

29. Should we provide further guidance on the solicitation-related activities in which Tier II 

Finders can engage on behalf of an issuer, for example, guidance surrounding a Tier II 

Finder’s discussion of issuer information and arrangement and participation in meetings 

with issuers and investors? 



35 
 

30. Should we provide guidance regarding activities of private fund advisers, M&A Brokers 

as defined in the M&A Broker Letter,99 or real estate brokers that may require registration 

under Section 15(a) of the Exchange Act?  Should we consider codifying the M&A 

Broker Letter?100 

31. Are there other areas in which the Commission should provide guidance regarding the 

registration requirements of Section 15(a) of the Exchange Act to other types of limited-

purpose broker-dealers?    

32. If the proposed exemption is adopted, which staff letters, if any, should or should not be 

withdrawn, and why? 

33. Have we appropriately defined the disqualification condition for Finders?   

34. Have we appropriately limited the proposed exemption to individuals who are not 

associated persons of a broker-dealer?   

35. Should the proposed exemption include a limitation such that it would not be available to 

individuals who were associated persons of a broker-dealer within the previous 12 

months?   

36. Should the proposed exemption be limited to individuals who are not associated persons 

of a municipal advisor or investment adviser representatives of an investment adviser?   

37. Should the proposed exemption be limited to individuals who are not associated persons 

of an issuer?  Why or why not? 

                                                             
99  An M&A Broker is defined as a person engaged in the business of effecting securities 

transactions solely in connection with the transfer of ownership and control of a 
privately-held company through the purchase, sale, exchange, issuance, repurchase, or 
redemption of, or a business combination involving, securities or assets of the company, 
to a buyer that will actively operate the company or the business conducted with the 
assets of the company.  See M&A Broker Letter. 

 
100  See supra footnote 24 and accompanying text. 



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38. Would the proposed exemption provide sufficient investor protections while promoting 

capital formation for small businesses? 

39. Would the proposed exemption have a competitive impact on registered brokers?   

40. With respect to the activities permitted for Tier I Finders, what are the practical 

implications of the requirements if they were subject to broker registration?  What about 

for Tier II Finders? 

41. Should we instead take an alternative approach for either class of Finders?   

42. Are there areas related to the proposed Finders framework for which the Commission 

should provide guidance? 

43. Should we coordinate with other regulators to provide clarity and consistency on what 

types of activities Finders and other limited purpose brokers may engage in? 

44. Are there any other sources of data or information that could assist the Commission in 

analyzing the consequences of the proposed exemption?  We request that commenters 

provide any relevant data or information.   

  



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45. Other than the possible obligation of a Finder to register as a broker-dealer, the proposed 

exemption is not intended to affect the rights of the Commission or any other party to 

enforce compliance with applicable law, or the available remedies for violations of the 

law.  This includes, in the case of the Commission, the ability to impose a broker-dealer 

registration bar on a person for misconduct that would warrant a bar.  Are there any other 

considerations in this regard that the Commission should take into account as it considers 

the exemptive relief?  

 

 By the Commission. 

 
       Vanessa A. Countryman 
       Secretary 
 October 7, 2020