The Risks of Using Finders and Unregistered Brokers

Contact: Joshua H. Watson, Morse Barnes-Brown Pendleton
Posted Jun 28, 2017

The managers of private investment funds often use placement agents, finders, and other intermediaries to help raise capital for their investment funds. Before retaining an intermediary, however, fund managers should evaluate whether the intermediary is, or should be, registered as a broker-dealer with the Securities and Exchange Commission. Fund managers that use unregistered brokers expose themselves to significant legal liability and reputational risk.

The SEC takes an expansive view as to who is required to register as a broker

A broker is any person engaged in the business of effecting transactions in securities for the account of others. A person acting in this capacity is required to register as a broker with the Securities and Exchange Commission, except in very limited circumstances.

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