On July 24 I posted about a lawsuit which emphasizes the risks of companies raising capital through finders unregistered with FINRA under Federal securities laws.  It must be noted that the much-discussed SEC no-action letter of earlier this year provided some comfort, however imperfect, to unregistered finders in M&A, but not in equity raises.

Monday of this week the SEC issued one of its periodic Investor Alerts, listing ten “red flags” suggesting a scam offering.  The second red flag was that unregistered persons who sell securities perpetrate many of the frauds that target retail investors.  The SEC invites investors to go to the FINRA website to confirm registration.

Although our focus has been on the risks of using unregistered finders in non-retail raises (albeit typically underneath the institutional level), and although this warning is directed at “retail” investors who generally do not make venture investments, the SEC Alert reminds us that the official position of the SEC is that it is illegal to be a finder in the sale of securities if not registered.  The softening up of the landscape to facilitate capital formation, particularly through the JOBS Act, has not dented this aspect of the SEC’s armor against freer capital formation marketplaces.

Absent specific legislative relief, it does not look like there will be SEC action permitting unregistered finders in sales of securities any time soon.  Forewarned is — well, you know.