Jan. 29, 2021
Dear SEC Staff and Commissioners, Small high-risk capital opportunities are not fraudulent by definition, but they are often very risky. As such, they require a particular kind of investor who is often difficult to find. These investors typically know brokers or advisors, however brokers and financial advisors typically cannot or will not sell stock in small risky companies because of selling away rules or the potential for personal or organizational legal liability if the risky investment fails. It is extremely difficult to find high-risk capital and early stage entrepreneurs typically need help accessing high net worth individuals who will tolerate such risk. As such, there is desperate need for honest tiny issuers to have clarity from the SEC about what activities fall short of requiring licensure as a broker. Here is a real-life example: If one of our shareholders (typically a physician) wants to help the company and share with another medical colleague (whose accreditation status they may not know with certainty) that we have an open stock offering, how may they do so without ANY risk of being defined as a broker? If they ask the company for material they can share with their colleague, may we provide any? If so, what? If the company does provide that undefinable material, does the company assume potentially liability of encouraging someone to act as an unlicensed broker if the shareholder crosses the line in their conversations with colleagues from introducing the existence of an opportunity into advocating for it? If the shareholder then benefits financially because one of their colleagues invests and the valuation of their stock goes up, is this financial compensation? The existence of these unanswered questions can and does cause paralysis among issuers and contributes to the inefficiency of the capital market for very small companies. We have reviewed the proposed order and think it goes a long way to providing clarity, red lines, and direction. Thank you! The examples listed by NASAA and others are horrifying, but their logic is wrong. Finders acting as brokers and promoters committing fraud are already prohibited by law—this is shortfall of enforcement, not a shortfall of law. Honest small high-risk issuers are caught up in finder prohibitions because some finders are unscrupulous. The alternatives proposed by FINRA and others are unworkable for tiny companies. The SEC taking a simple step to define finders with clarity not contained in the insufficiently reliable Paul Anka letter is the answer. We applaud the SEC and support the order. THANK YOU! One other potential outcome of this rule is an increase in social good. We believe that the existing framework (which makes brokers gatekeepers and pools most investment money in massive funds controlled by wealthy powerful individuals and organizations) contributes to income inequality and inequity and thus social instability. While this rule may or may not lead to more fraud enforcement need, we believe that on balance enabling less well-off entrepreneurs to raise capital more efficiently will on balance be good for society. We enthusiastically support the order and can’t wait for you to approve it. Mark Holman ____________________ MARK HOLMAN Chairman Expanesthetics, Inc.