First time in the seven or so years of blogging I have posted on the same matter twice in one day but SEC commissioners have commented (expectedly) on the proposals and the Commission itself has issued a detailed press release.
The proposal first: Two tiers of exemption. Tier One: Once a year a pure finder can turn over one name to one company. Finder has no contact with investor. Purist possible model. No other rules or things to say or do. Presumably finder can be compensated. Tier Two: no finder registration. Need written agreement with company. Finder must tell investors about his deal and compensation. Can offer only to accredited investors. Company must be privately held (not reporting). Here the finder can identify and screen investors, distribute offering materials, discuss same, and can arrange and sit in on issuer-investor meetings. Finder cannot: structure or negotiate the terms of the offering (not sure why that is; typically comes up); handle the money; prepare sales materials; perform independent deal analysis or do diligence; arrange investor financing; advise as to valuation or advisability to invest.
The actions allowed the finder are quite broad, but the conceptual limitation in preparing the offering materials, for example, seems strange. Indeed, many finders have justified their function in part by serving as consultants to help structure the deal and package the disclosure. The SEC seems to draw a line between facilitation of discussion and advocacy.
Reaction: not surprisingly the pro-regulation two-person Democratic SEC members opposed the new regulation as too broad and dangerous in a market-place which is opaque, risky and prone to unsubstantiated valuation assumptions. Since accredited investors are allowed to process these issues when they are offerees in Regulation D transactions, why the introduction of an intermediary would make investment risk less apparent to an accredited investor is hard to fathom.
Warnings: first, there will be a 30 day comment after publication in the Federal Register that is sure to raise very many issues, and at best take time for the SEC to process; second, while a majority of the Commission now is in favor of this proposal, they can change their mind; third, this is not a total carte blanche as finders cannot generally solicit interest; fourth, as mentioned previously at this time the proposal does not negate typically stringent State regulation under State laws which typically parallel the ’34 Act.
A great first step for capital formation and logic, but it’s still a long row to hoe.