Broker-Dealers, Finders, M&A, and Financings: Frequently Asked Questions

By Charles Alovisetti, Jack Crain

Oct 9, 2025

Raising money is difficult, and it can feel virtually impossible if you’re not from the right social circles or running a hot AI startup. That’s when the world of broker-dealers and finders becomes relevant. These are individuals and firms who assist companies with raising capital and handling mergers and acquisitions (M&A) or other financial advisory work.

But if someone is helping you raise capital or sell your business, do they need to be registered? And what are the consequences of working with someone without the right licensure?

This FAQ explains what you need to know about broker-dealers, finders, and M&A brokers, such as their roles, the rules that apply to them, and the potential risks of working with unregistered intermediaries.

What’s the Difference Between a Broker-Dealer and a Finder?

A broker-dealer is any person who effects securities transactions for others.¹ A finder, by contrast, makes introductions between companies and potential investors but is expected to play a very limited role beyond that point.

The distinction matters because broker-dealers must register with the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA),² while finders operate in a narrow gray area without a statutory exemption.

The SEC and courts look at specific factors to determine if someone acts as a broker rather than a finder.

Key broker-dealer activities³ include:

Participating in discussions or negotiations between issuers and investors
Advising on structure, valuation, or suitability of a transaction
Handling investor funds or securities
Soliciting or pre-screening investors.
Distributing offering materials or conducting sales efforts
Having a history of repeated securities transaction activity
Most importantly, receiving transaction-based compensation (commissions or success fees).

The SEC provides the following advice to help people determine if they need to register as a broker-dealer:

“In order to determine whether any of these individuals (or any other person or business) is a broker, we look at the activities that the person or business actually performs. You can find analyses of various activities in the decisions of federal courts and our own no-action and interpretive letters. Here are some of the questions that you should ask to determine whether you are acting as a broker:

Do you participate in important parts of a securities transaction, including solicitation, negotiation, or execution of the transaction?

Does your compensation for participation in the transaction depend upon, or is it related to, the outcome or size of the transaction or deal? Do you receive trailing commissions, such as 12b-1 fees? Do you receive any other transaction-related compensation?

Are you otherwise engaged in the business of effecting or facilitating securities transactions?

Do you handle the securities or funds of others in connection with securities transactions?”

Some factors weigh more heavily than others. According to the SEC, transaction-based compensation is the “hallmark of a salesman” and often decisive in triggering broker-dealer status.⁴ A finder paid only for making introductions, without a contingent success fee, is less likely to be treated as a broker. However, once compensation is tied to the size or success of the transaction, regulators generally view the intermediary as an unregistered broker subject to enforcement.

The Paul Anka Letter: Narrow Precedent, Broad Misuse

Under federal law, finders are not exempt from statutory requirements. Instead, industry participants rely on a 1991 SEC no-action letter known as the Paul Anka Letter.⁵ However, this letter was narrow and fact-specific and cannot be relied on broadly.

The Paul Anka Letter addressed concerns about Anka’s limited finder activities for the Ottawa Senators Hockey Club, where he connected the team and its managing general partner, Terrace Investments Limited, to prospective purchasers of limited partnership units issued by the Senators. The SEC justified its non-enforcement based on Anka’s restricted involvement in connecting the Senators with prospective accredited investors' names and phone numbers from Anka’s preexisting personal and professional networks.

Anka did not participate in negotiations, solicitations, due diligence, or other activities falling under the broker-dealer umbrella and was only compensated for the transactions with a predetermined finder’s fee. Courts have also rejected the idea of a general “finder’s exception” for liability incurred by unregistered broker-dealer activities.⁶

However, the courts have not always agreed with this analysis and have required the SEC to show more actions beyond introductions, even when transaction-based compensation is used.⁷

For example:

In SEC v. Kramer, the U.S. District Court for the Middle District of Florida rejected the SEC’s unregistered broker-dealer argument despite the presence of transaction-based compensation due to the informal nature of Defendant’s communications, with the court emphasizing the totality of the circumstances and consideration of multiple factors to establish the broker-dealer versus finder distinction.⁸
A similar approach was applied by the U.S. District Court for the Eastern District of Texas in SEC v. Mapp, rejecting the SEC’s unregistered broker-dealer argument despite transaction-based compensation. However, the court in Mapp placed a heightened emphasis on actual control over the accounts of others as being more dispositive than the other factors.⁹

This totality of circumstances analysis has also been applied at the circuit court level, though with less success than in district court cases.¹⁰

In addition, at the state level, some jurisdictions also expect finders to register unless a specific carve-out exists. A handful of states, such as California and Texas, provide limited paths for finders to operate with restrictions. However, the default rule is that unregistered finders paying success fees are illegal under federal and state law.

Are There Special Rules for M&A Brokers?

Yes. M&A brokers are subject to a special set of rules that differ from the general treatment of finders.

2014 SEC No-Action Letter

In January 2014, the SEC staff issued a no-action letter allowing unregistered intermediaries to facilitate private company sales without registering as broker-dealers, provided strict conditions were met. The relief applied only to change-of-control transactions in privately held companies, where the buyer would actively manage the business post-closing.

The letter permitted transaction-based compensation and typical deal advisory activities, but prohibited handling client funds, forming buyer groups, or selling to passive investors.¹¹

2023 Statutory Exemption

Congress codified the 2014 no-action letter framework in March 2023 through Section 15(b)(13) of the Exchange Act and withdrew the letter as moot. The new law tracks the 2014 no-action relief but adds size limits: the target must have less than $25 million in EBITDA or less than $250 million in revenue in the prior fiscal year. The exemption also repeats the core restrictions: no public offerings, no financing (other than arranging third-party financing with disclosure), no custody of funds, no passive buyers, and no authority to bind the parties.¹²

Note that this federal law change does not impact state laws.

I Heard There Was a New Rule for Finders. Is That True?

No. There is no new binding SEC rule for finders.

In October 2020, the SEC proposed a conditional exemption¹³ that would have created two categories of permissible finder activity in private offerings to accredited investors:

Tier I Finders could only make a one-time introduction between a company and potential investors in 12 months, without communications about the investment.
Tier II Finders could do more, such as distribute offering materials and set up meetings, but still could not advise on valuation, negotiate terms, or handle funds. Both tiers would have been allowed to receive transaction-based compensation.

However, this proposal was never adopted. It lapsed after SEC leadership and priorities changes, and as of 2025, no general federal “finders exemption” exists. Today, finders remain in a legal gray area.¹⁴ Outside of very narrow, fact-specific no-action letters, an unregistered finder who accepts a commission for sourcing investors is usually deemed an unregistered broker.

Are M&A Brokers and Finders Regulated at the State Level?

Yes. Even though Congress created a federal exemption for M&A brokers in 2023, it does not preempt state law. Finders are also subject to regulation at the state level. Each state maintains its own broker-dealer rules, independent of federal regulations, so even M&A brokers relying on the federal exemption need to consider state law.

How are Investment and Crowdfunding Websites Regulated?

Investment and crowdfunding platforms are generally treated as brokers because they connect issuers and investors in securities offerings. Unless an exemption applies, they must register with the SEC and FINRA.¹⁵

There are two key regulatory bases for platforms:

Rule 506 (Regulation D) Platforms: The Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) created a narrow exemption for online platforms that host private offerings under Rule 506. To qualify, the platform cannot accept transaction-based compensation, handle investor funds, or be run by “bad actors.” The SEC has read this exemption very narrowly. Platforms that do more than provide a passive online space for offerings risk being deemed unregistered brokers.¹⁶
Regulation Crowdfunding Portals: In 2015, the SEC adopted rules implementing the JOBS Act crowdfunding provisions. Issuers can raise up to $5 million in a 12-month period from both accredited and non-accredited investors, but they must do so through a registered broker-dealer or a registered “funding portal.” A funding portal is exempt from broker registration if it follows strict limits, such as not providing investment advice, not soliciting sales, and not handling customer funds.¹⁷

What About M&A Deals Structured as Asset Sales?

Asset sales are not treated as securities transactions under federal law. If a broker helps arrange the sale of equipment, inventory, contracts, or even real estate, that activity is outside the Exchange Act’s broker-dealer registration requirement.

Note that the distinction doesn’t matter regarding the SEC’s M&A broker exemption, as its language covers asset and equity sales.

What are the Risks of Working With an Unregistered Broker-Dealer?

Any decision regarding working with a finder or unlicensed broker-dealer should be made while working closely with an attorney. Much of the risk will depend on the nature of the services provided by the unregistered broker-dealer and how they will be compensated.

The SEC treats transaction-based compensation as the hallmark of broker activity. But if all the finder does is make introductions and absolutely nothing else, some cases can be cited to support the legality of this approach.

Risk may lie dormant for a while and emerge later: when a deal fails, an investor sues, or a future acquirer scrutinizes past capital raises. That is when using an unlicensed broker-dealer could have a negative impact.

Potential risks include:

SEC enforcement: The SEC or state regulators can impose fines, order fee disgorgement, or ban individuals from the industry. In re Ranieri Partners LLC and Donald W. Phillips (2013), the SEC sanctioned both the fund and a consultant who received transaction-based fees without registration. The fund paid a $375,000 penalty.¹⁸
State-level liability: Most states treat compensated securities intermediaries as brokers absent a clear exemption.
Investor rescission rights: Investors may be able to void their purchase and demand their money back if an unlicensed finder was used.¹⁹ State laws like California’s expressly allow rescission in certain cases.
Loss of exemptions: Using an unlicensed finder can undermine reliance on exemptions like Regulation D by implicating the “bad actor” rule.²⁰ If an issuer or certain parties are deemed to have engaged in specified bad acts, they are prohibited from relying on Regulation D.
Future complications: Illegal finder arrangements often resurface in diligence for later financings, acquisitions, or IPOs. Discovery can delay or derail transactions.
Unenforceable fee agreements: A finder paid illegally often cannot enforce the right to collect a commission. Courts could treat the agreement as void. While some issuers may see this more as a boon than a risk, note that this is not a get-out-of-paying-fees-free car; there are always complications.

Contact Vicente LLP

The SEC and FINRA continue to scrutinize unregistered intermediaries, making compliance and documentation essential.

To reduce risk and maintain compliance, work with qualified counsel who can help interpret both federal exemptions and state-level rules governing these intermediaries. If you need guidance on broker-dealer registration, finder exemptions, or M&A financing compliance, contact Vicente LLP’s Corporate Practice Group for tailored advice.

¹ 15 U.S.C. § 78c(a)(4)(A).
² 15 U.S.C. § 78o.
³ “A finder, however, will be performing the functions of a broker-dealer, triggering registration requirements, if activities include: analyzing the financial needs of an issuer, recommending or designing financing methods, involvement in negotiations, discussion of details of securities transactions, making investment recommendations, and prior involvement in the sale of securities.” See Cornhusker Energy Lexington, LLC v. Prospect St. Ventures, No, 8:04CV586, 2006 U.S. Dist. LEXIS 68959, at *19 (D. Neb. Sept. 12, 2006).
⁴ David W. Blass, A Few Observations in the Private Fund Space, SEC (Apr. 5, 2013), https://www.sec.gov/newsroom/speeches-statements/2013-spch040513dwghtm#P38_10414. In an SEC speech, David W. Blass, then Chief Counsel, Division of Trading and Markets, noted “The SEC and SEC staff have long viewed receipt of transaction-based compensation is a hallmark of being a broker.” See also SEC v. Kramer, 778 F. Supp. 2d 1320, 1334 (M.D. Fla. 2011) (citing Cornhusker Energy Lexington, LLC v. Prospect St. Ventures, No, 8:04CV586, 2006 U.S. Dist. LEXIS 68959, at *6 (D. Neb. Sept. 12, 2006)).
⁵ Paul Anka, SEC Staff No-Action Letter, 1991 SEC No-Act. LEXIS 925, (July 24, 1991).
⁶ SEC v. Collyard, 861 F.3d 760, 767–68 (8th Cir. 2017).
⁷ Kramer, 778 F. Supp. 2d at 1336, 1339–41.
⁸ “In the absence of a statutory definition of either ‘effecting securities transactions’ or ‘engaged in the business,’ certain factors determine whether a person qualifies as a broker. One factor may evidence broker activity while another factor suggests the absence of broker activity. Accordingly, the nature of a person’s relationship with another (although not determinative, of course) may support either the absence or the presence of broker activity.” Id. at 1339. See also SEC v. Hansen, No. 83 Civ. 3692., 1984 U.S. Dist. LEXIS 17835, at *26 (S.D.N.Y. Apr. 6, 1984); SEC v. Martino, 255 F. Supp. 2d 268, 283 (S.D.N.Y. 2003).
⁹ SEC v. Mapp, 240 F. Supp. 3d 569, 592–93 (E.D. Tex. 2017).
¹⁰ SEC v. Murphy, 50 F.4th 832, 840–41 (9th Cir. 2022).
¹¹ M&A Brokers, SEC Staff No-Action Letter, 2014 SEC No-Act. LEXIS 92, (Jan. 31, 2014).
¹²15 U.S.C. § 78o(b)(13).
¹³SEC Proposes Conditional Exemption for Finders Assisting Small Businesses with Capital Raising, SEC (Oct. 7, 2020), https://www.sec.gov/newsroom/press-releases/2020-248.
¹⁴ Comm’r Hester M. Peirce, Finders/Seekers: Exemption Features, SEC (July 22, 2025), https://www.sec.gov/newsroom/speeches-statements/peirce-remarks-sbcfac-072225.
¹⁵ The SEC has granted very limited no-action relief to specific platforms, like AngelList and FundersClub, under unique conditions. The AngelList no-action relief concerned online angel investing platforms, in which the SEC based its non-enforcement on several conditions, including requirements that AngelList Advisors register as investment advisers with the SEC, that no AngelList employee receives any transaction-based compensation connected to interest from any of the investments made through the platform, and relevant bad actor disqualifications. The FundersClub no-action relief pertained to the operation of an online venture capital fund adviser and its associated website, both of which were only accessible by pre-screened, accredited investor members of the FundersClub. The SEC based its non-enforcement on very similar grounds to the reasons cited in its AngelList no-action letter, including how FundersClub employees may not receive transaction-based compensation and the applicability of relevant bad actor disqualifications. These cases emphasize that transaction-based compensation is off-limits unless the operator is a registered broker. AngelList LLC and AngelList Advisors LLC, SEC Staff No-Action Letter, 2013 SEC No-Act LEXIS 294, (Mar. 28, 2013); FundersClub Inc. and FundersClub Management LLC, SEC Staff No-Action Letter, 2013 SEC No-Act. LEXIS 271, (Mar. 26, 2013).
¹⁶ Jumpstart Our Businesses Startups Act, Pub. L. No. 112-106, § 201, 126 Stat. 306, 314 (2012).
¹⁷ Regulation Crowdfunding: Guidance for Issuers, SEC (July 21, 2025), https://www.sec.gov/resources-small-businesses/regulation-crowdfunding-guidance-issuers; Funding Portals, FINRA, https://www.finra.org/registration-exams-ce/funding-portals (last visited Oct. 3, 2025).
¹⁸ In re Ranieri Partners LLC and Donald W. Phillips, Exchange Act Release No. 69091, Investment Advisers Act Release No. 3563, 2013 SEC LEXIS 971 (Mar. 8, 2013).
¹⁹ Paul J. Foley et al., Many “Finders” Provide Broker-Dealer Services Without Proper Registration, Akerman LLP (May 9, 2024), https://www.akerman.com/en/perspectives/many-finders-provide-broker-dealer-services-without-proper-registration.html.
²⁰ SEC General Rules and Regulations, Securities Act of 1933, 17 C.F.R. § 230.506(d) (2021).