Finders Agreements In A State Of Flux


In light of today’s depressed capital markets, an increasing number of companies and funds are seeking the advice of third-party

intermediaries for the purpose of raising capital or selling all or part of their business. These intermediaries, sometimes known as “finders,” normally have access to a wide ranging network of financial sources and often offer to facilitate fund raising in exchange for a fee. The current legal framework does not clearly define what activities can be undertaken by finders and often finders are not registered with the U.S. Securities and Exchange

Commission, even when they should be. Regulators are becoming more stringent in their enforcement of the broker-dealer registration rules and in light of the major disconnect between the current legal framework and the practices by which capital for early stage

companies is raised, we believe more regulations are about to be promulgated. This article examines the reasons why companies should carefully consider engaging a finder and what potential pitfalls unregistered broker-dealer activities may trigger under federal and New York state laws.

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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.

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