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SEC Advisory Committee Calls for Bringing 'Finders' in From the Shadows

The Street reported that an "influential" Securities and Exchange Commission advisory committee chaired by Fenwick & West partner Stephen Graham has recommended that the SEC regulate private placement “finders.” Graham spoke with The Street about finders and the Advisory Committee on Small and Emerging Companies’ recommendations. He said committee members would meet via telephone conference and prepare an official recommendation for the SEC’s September quarterly meeting.

Finders are used by small companies or companies lacking the capital to hire an investment bank for a private placement. These companies hire finders to secure investors as well as to help with the financial side deals and provide counsel. Finders are not registered with the SEC or the Financial Industry Regulatory Authority and are not employed by registered broker-dealers. Unlike broker-dealers, finders are not regulated by the SEC.

Graham and his committee believe that this lack of regulation should change. While finders benefit companies, absence of regulation presents opportunity for corruption and damage to companies and investors.

“They can help companies. They have knowledge of the niche, though they are not broker-dealers," Graham told The Street. “But there are also people in this area who are not ethical and can cause problems for issuers and investors.”

Regulations would provide finders with consistent standards, removing the ambiguity and potential for unethical action that currently exist, The Street reported. As a result, both finders and companies will enjoy more security.

The American Bar Association has called for recognition and regulation of finders for years. However, they and other advocates face challenges in supporting their argument with hard data.

“You can't point to any data to show how important finders are to small issuers,” Graham said. “It's like trying to prove a negative.”

However, Graham is optimistic that the SEC will consider his committee’s recommendations and move to solve the problems.

“There is genuine interest among the commissioners on this issue,” said Graham. “Chair White was around for more than half the day during our last session, and so were a couple of the other commissioners. I could see the commission taking the lead on this.”

The full article is available through The Street website.​​​​​