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grIP Legal Update: SEC Proposes Finder Exemption from Broker-Dealer Registration

On October 7, 2020, the Securities and Exchange Commission (SEC) voted to propose an exemption for finders from broker-dealer registration requirements to raise money from accredited investors. The proposal provides clarity regarding when finders may receive transaction-based compensation. Finders are natural persons who are not registered broker-dealers seeking to raise investment capital for companies in exchange for a success fee.

The exemption proposal creates two classes of finders who may receive success fees: Tier I Finders and Tier II Finders. Tier I Finders may provide contact information of potential investors to companies raising money in connection with a single capital raising transaction by a single company in a 12-month period. Tier I Finders may not have any contact with a potential investor about the company raising money.

Tier II Finders may solicit investors on behalf of a company raising money, distribute offering materials to investors, discuss company information included in offering materials, and participate in meetings with the company and investors. To qualify as a Tier II Finder, a finder would be required to provide potential investors with specified disclosures.

Under the exemption proposal, finders may only raise money from accredited investors and may not engage in a general solicitation. In addition, finders would be prohibited from engaging in the following activities: transaction structuring, participating in offering negotiations, sales material preparation, due diligence activities, or advising on the valuation or financial advisability of the investment.

There will be a 30-day comment period for the exemption proposal following publication in the Federal Register.

For more information about this proposed exemption, SEC regulations, or U.S. or cross-border private M&A transactions or private placements, contact Jed Weiner at

grIP is Mei & Mark LLP’s venture capital and emerging company platform. grIP’s senior advisors for business growth include seasoned Mei & Mark lawyers and leading experts in intellectual property, finance, fundraising, marketing, social media, pricing, go-to-market, media, financial modeling, product management, supply chain, biotech and government contracts.

The contents of this legal update are for information purposes only and should not be construed as legal advice or a legal opinion.