Finders, Consultants, and the Unregistered Broker-Dealer Problem

Finders, Consultants, and the Unregistered Broker-Dealer ProblemCompanies raising capital often hire “finders,” consultants, advisors, or business-development professionals to introduce them to potential investors. But under federal securities laws, the person’s title does not control the legal analysis. What matters is what that person actually does—and how they are paid.In this episode, securities attorney and former SEC enforcement attorney Frederick M. Lehrer explains why seemingly informal capital-raising arrangements may constitute unregistered broker activity. He discusses the warning signs regulators examine, including investor solicitation, investment recommendations, participation in negotiations, handling documents or funds, and transaction-based compensation.The episode also explains an important distinction for issuers: qualifying for a private-offering exemption, including Regulation D, does not automatically permit an unregistered intermediary to sell the securities.Topics include:When a finder or consultant may be acting as a brokerWhy transaction-based compensation is a major warning signPayments made through commissions, shares, warrants, or success feesThe difference between an exempt offering and lawful intermediary activityPotential rescission, disclosure, attribution, and enforcement risksProblems that may surface during later financings, audits, mergers, or public offeringsWhy carefully drafted agreements cannot cure prohibited conductSteps issuers should take before an intermediary contacts investorsThe central lesson is simple: broker-dealer status is determined by substance, not labels. Companies should evaluate an intermediary’s registration status, activities, compensation, communications, and supervisory controls before capital-raising work begins.This podcast is provided for general educational purposes only and does not constitute legal advice.Learn more: SecuritiesAttorney1.comFrederick M. Lehrer is a securities attorney and former enforcement attorney with the U.S. Securities and Exchange Commission. He advises companies on securities offerings, going-public transactions, SEC filings and reporting, Regulation A, private placements, disclosure compliance, and responses to SEC comment letters.Drawing on his experience inside the SEC and more than two decades in private practice, Lehrer helps issuers structure transactions and prepare disclosures with an understanding of how regulators evaluate compliance, risk, and investor protection in practice.He hosts Inside Securities Law with Frederick M. Lehrer, an educational podcast examining the legal and regulatory issues companies encounter when raising capital, making disclosures, and operating within the federal securities-law framework.