The Broker Trap: When Networking Goes Bad


The truism “it’s not what you know, it’s who you know” sums up the availability of capital for most businesses. Networking is often essential to the survival of small businesses looking for money or an exit plan through a merger or acquisition. In fact, some small businesses hire attorneys, accountants and investment professionals (“Advisers”) based on their seeming ability to provide this nexus to capital. For their part, Advisers often want to play this matchmaking role to help their client succeed, especially if success results in the Adviser’s bill being paid. But when does networking cross the line from being a successful business strategy to being a violation of the securities laws? According to the Securities and Exchange Commission’s (the “SEC”) sweepingly broad definitions, it can be a slippery slope from being an accommodating advocate to an unregistered broker-dealer.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Christine McKillip, Chapman and Cutler LLP | Attorney Advertising

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