Oct. 14, 2020
CAUTION: This email originated from outside of the organization. Do not click links or open attachments unless you recognize the sender and know the content is safe. I am a partner of Chessiecap Securities, Inc., a registered broker-dealer. In the normal course of our business, we regularly represent private issuers in equity private placements exclusively with institutional investors. I am in favor of the proposed exemptive order and believe it is a necessary recognition of the role “Finders” play in introducing potential investors (in our case institutional investors) to an investment opportunity without breaching the activities that are properly served by licensed persons. However, there appears to be two things that the proposed order does not take into account. Broker-Dealers Should Be Able to Pay Finders, NOT Just Issuers – To be successful as investment bankers, we must be adept at reaching out to investors who would be appropriate for our client’s investment opportunity, including investors with whom we have not had prior contact or a relationship. Frequently we have a “one degree of separation” with someone (not a broker-dealer or licensed person) who has a personal or professional relationship with someone we are targeting to show the investment opportunity to. The facilitating introduction is of enormous value, potentially providing access that would have otherwise been unlikely, and therefore justify a payment of the portion of a fee paid to the broker-dealer by the issuer. While there are rulings on the paying fees in situations where the Finder only makes the introduction then steps away from further activities reserved for licensed persons, there remains ambiguity about the method of calculating and paying such fee. It remains a question of whether a payment of an agreed percentage of a placement fee that was contingent on the completion of the offering, puts in question whether the Finder was acting as a broker, even if they have otherwise avoided all other prohibited actions. This should be made clear. The Limitation that a Finder Can ONLY be a Natural Person is Too Limiting – As an example, a consulting firm with a specific industry expertise tend to have some of the closest relationships with companies/clients within their field of expertise. They may know personally the business development officers involved with identifying strategic investments. They may know fund managers who subscribe to their research/services and discuss areas of their strategic interest. It would not be uncommon in our industry research or client due diligence that we would be talking to such a consulting firm and suggestions of who might be an interested investor in a company we are discussing. An offer to facilitate an introduction to the right person is again of enormous value for which we would be happy to pay a Finders fee if permitted to do so. But in this case, the Natural Person is providing the introduction in their position as an employee of that consulting firm. Any fee would need to be paid to that consulting firm who would then determine what might be paid to their employee as a bonus or not. In this case, Natural Person is too limiting. Bradford W. Harries Partner Chessiecap, Inc. (703) 442-8644 Office (703) 447-0327 Mobile brad@chessiecap.com All securities transactions are conducted through Chessiecap Securities, Inc., a member of FINRA & SIPC.