The SEC on May 17, 2010 denied a No-Action letter for a law firm seeking to receive transaction-based compensation if they were successful in introducing investors to their client.
The SEC ruled that if compensation is based on the successful funding from an investor introduced by the law firm then the law firm is required to register as a broker-dealer. Only licensed broker-dealers are allowed to receive success-based commissions for raising capital. If you are not a licensed broker-dealer you cannot receive success-based compensation for raising capital for clients.
So for all you entrepreneurs seeking to raise capital for your business and you are using unlicensed money “finders” the SEC and State regulators are watching. Just because some people get away with it does not make it legal. They just have not been caught. Yet! Attorneys, CPA’s, Accountants, financial consultants, insurance salesman or anyone else that is not a licensed broker-dealer cannot raise capital and received success-based compensation. Period. There are no grey areas.
The only legal way to compensate an unlicensed money “finder” is with a monthly retainer whether or not they are successful in raising capital for you. If you are not prepared to follow the SEC security laws when raising capital then both you and the unlicensed money “finder” will be subject to both civil and criminal penalities. You either pay now to do it legally or you pay a great deal later on.
This is the second time I have written on this subject. I am doing it again because I am still getting requests from entrepreneurs to raise capital for them on a success-based fee. When I explain the realities and the law they just do not get it.
Tags: finders, raising capital, sec
