1.1.2.2. Finders
Instead of using a placement agent, issuers may opt to employ a finder to locate potential investors. Finders may be registered broker-dealers, but usually they are not. Finders are not required to be registered broker-dealers as long as they limit their activities to introducing prospective investors to an issuer and the introductions do not occur more than once. Finders cannot by law promote or recommend securities to a prospective investor, develop terms, or negotiate for either the issuer or investor. Moreover, they must base their compensation on either a flat fee or a percentage fee that is not contingent on the closing of a securities sale. Form D requires issuers to disclose any finder’s fees. Registered broker-dealers and registered representatives may not split their compensation with an unregistered finder.
Foreign finders. Member firms, however, may share their compensation with unregistered foreign finders, provided that:
• The member firm is sure that the finder does not need to register as a broker-dealer in the U.S. and the compensation arrangement doesn’t violate foreign law.
• The customer is a foreign national (not a U.S. citizen) or a foreign entity domiciled abroad.
• The finder is a foreign national (not a U.S. citizen) or a foreign entity domiciled abroad.
• Customers receive a document disclosing the compensation paid to the finder by the member firm.
• Customers acknowledge receipt of this disclosure to the member firm in writing, which the firm retains and keeps available for inspection.
• The member firm maintains records on their books reflecting payments to finders, and actual agreements between the member firm and the finder are available for inspection by FINRA.
• Confirmation of each transaction indicates that a finder’s fee is being paid by written agreement.
Remember: If a non-foreign person receives transaction-based fees, the person must be reg