October 8, 2020
43. Should we coordinate with other regulators to provide clarity and consistency on what types of activities Finders and other limited purpose brokers may engage in?
If the Commission adopts the proposed regulations, the regulations will be incongruous to the rules and regulations of the several state's securities laws. For example, California strictly prohibits sales of securities from parties who are not registered broker dealers. California has a limited Finder's exemption found in Section 25206.1 of the Corporations Code. A finder in California may be able to rely upon the Tier 1 exemption, but it does not allow any of the activities found in the proposed Tier 2 finder's regulations. The result is that a finder in California could not sell securities under the Tier 2 exemption.
I believe that the Commission should consider sales by finders under the proposed regulations to come within the purview of the covered securities rules of 15 U.S. Code 77r. This would provide a uniform application nationwide of the proposed regulations. States could still enforce their anti-fraud and civil liability statutes and require a notice filing (with a fee) for those persons operating as a finder in such state.
The rational in NSMIA that applies primarily to Rule 506(b) and (c) offerings under Regulation D applies to the finders' rules. A uniform system is necessary to assure access to capital. A similar rational was used in regard to Regulation A, Tier 2 offerings. In that instance, states are preempted from review. The same preemption should apply in the case of the Tier 2 finders' proposed regulations.