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SEC Commissioners Encourage Small Business Advisory Committee to Consider Proposed Registration Exemptions for "Finders"'s picture
Commentary by Steven Lofchie

SEC Chair Jay Clayton and Commissioner Hester Peirce encouraged the Small Business Advisory Committee (the "Committee") to consider the SEC proposed "finders" exemption from broker-dealer registration.

As previously covered, the SEC proposed to establish a new limited and conditional exemption from the broker registration requirements in Exchange Act Section 15(a) for natural persons engaging in certain limited capital-raising activities on behalf of issuers seeking to raise funds from accredited investors.

Mr. Clayton described the lack of clarity on the topic included confusion by small businesses looking to engage finders, and of individuals seeking to avoid engaging in activity potentially requiring registration as brokers. Mr. Clayton stated that meaningful guidance in this area has not advanced "since the days of gas lines, disco and parachute pants," and is "long overdue". Mr. Clayton noted the potential of the proposed order to connect small businesses in need of capital with investors interested in emerging enterprises, particularly in light of the impact of COVID-19 on small businesses.

Ms. Peirce asked the Committee to consider ambiguities surrounding the proposed exemptive framework, including (i) potential limitations presented by state securities laws, (ii) the requirement to be a natural person to qualify for the exemption, (iii) the scope of the activities, and (iv) the availability of the exemption for a secondary offering.


Chair Clayton points out in his remarks that raising money for small businesses is not big business. The costs and registration requirements can be onerous.

It is not obvious that deregistration, rather than registration-lite, is the best answer, but it would seem to provide more potential for helping small businesses than the current regime. The real outcome of deregistration at the federal level would likely be to kick the decision to require registration down to the state level. This may in fact be a good result, and different states may reasonably decide to take different paths as to how to facilitate the raising of money for small businesses within their jurisdiction. See SEC Proposes Exemption from Broker-Dealer Registration for Small Finders.

That said, both Democratic Commissioners dissented from the adoption of the proposal to exempt finders from broker-dealer registration. See statement of Commissioner Crenshaw and statement of Commissioner Lee. Accordingly, this proposal may, as a practical matter, be a non-starter.

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