SEC brings unregistered broker-dealer “finders” case

By Scott Purcell 

Founder, CEO FundAmerica,

The SEC just brought action against a firm operating an online platform for EB5 investors for acting as an unregistered broker-dealer: http://www.sec.gov/litigation/admin/2015/34-75268.pdf  This is good timing, considering the article I just published regarding the do’s & don’ts of general solicitation.

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Although this is regarding a firm in the EB5 space, the implications are broad and I think can be seen as applying directly to our industry. It’s great to see the SEC taking action on these situations. There’s a huge, ongoing need for education on this topic, something my General Counsel, Scott Andersen, and I write about frequently.

In this case the Respondents did a couple of things wrong…
a. they provided advice and made recommendations directly to investors individually (not general solicitation via appropriate exemptions); and,
b. received contingent compensation tied directly to an investor successfully making an investment.
==> they did these things without being a BD or being associated with a BD.
People keep making dumb mistakes which are so easy to avoid. It’s going to take some situations like this to wake them up. We’ll undoubtably see some 506b/c & Reg A platforms get tagged by the SEC and by individual states for this kind of stuff and get shut down and fined. This is a huge part of what FundAmerica Securities and other broker-dealers do: helping people stay out of this kind of trouble so they can pursue their business models.
Special thanks to Sara Hanks at CrowdCheck for catching this.
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Scott Purcell

Founder & CEO

In 2011 Scott founded FundAmerica. He is an active Board member of the Crowdfunding Intermediary Regulatory Association (CFIRA) and the author of the book “The Definitive Guide to Equity and Debt Crowdfunding” as well as the “Industry Best Practices for Funding Portals”.

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