If you are assisting someone else’s company in raising money and are receiving a fee for doing so you must do such activities within the confines of the securities laws. These laws essentially provide three different ways in which one may legally raise money for another for a fee.

BROKER DEALER LICENSE- First, if you are licensed and are registered with an SEC registered broker dealer you may receive commissions and other forms of compensation for raising money in public or private offerings (e.g. private placements).  The newest form of registration from FINRA is designed to license and regulate those who operate as “investment bankers” and is called a Series 79 license. This license allows a holder to collect commissions and other fees for raising funds for an offering of equity (e.g. stock) or debt (e.g. notes or bonds). In addition to passing the licensing test, you’ll need to associate with a broker dealer.

FINDER’S FEE- Second, if you take a limited role in the raising of funds and are paid a flat or hourly fee, as opposed to commissions based on funds raised, you may be able to be paid a finder’s fee for introducing investors to others. A finder’s fee can only be paid to a finder so long as; a) the finder isn’t involved in negotiations of the securities being sold, b) the finder doesn’t discuss the details of the securities, c) the finder isn’t paid based on money raised (e.g. no commission), d) the finder doesn’t perform “finding” services on a regular basis. In sum, a finder’s fee may be paid but only to someone who makes introductions of potential investors and the fee amount must be based on some factor other than compensation relating the persons or amount of securities sold to those introduced by the finder.

DIRECTOR OR OFFICER OF OFFERING COMPANY- Third, you may be able to assist in raising funds for another if you are an officer or director of the company whom you are raising money for. The SEC promulgated Rule 3a4-1 which is a Safe Harbor from enforcement and allows someone who serves as a paid Director or Officer to assist in selling the company’s securities. There are many ways to qualify under this Rule but the most common is to meet the following criteria; a) be paid as a director or officer by salary or other criteria that is not linked to sales of securities made (e.g. be the CFO or Treasurer and offer financial consulting advice in addition to working with potential investors), b) can’t be associated with a broker dealer and cannot have a prior SEC disciplinary history, c) should stay on with the company following closing of the offering so as to show your purpose as a Director or Officer was not just for raising funds, d) takes a passive and restrictive role in selling the securities and refers to the CEO or President for details and negotiations.

Failure to comply with the securities laws can result in civil and criminal action. In addition, investors who can claim a failure to comply with the laws outlined above are able to rescind their investment and can subject the company’s founders and the person soliciting the investment with personal liability for any losses.

 

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