The New York Attorney General has been keeping busy. Yesterday it was a lawsuit against the National Rifle Association. There are the previous lawsuits against the Trump Foundation and the Trump Organization. I missed the April announcement of proposed changes to some of the securities regulations in New York.
One caught my eye and caught the eye of Goodwin Procter lawyers Peter W. LaVigne, Nicholas J. Losurdo, and Jana Steenholdt. New York is stepping into the gray area of regulating finders.
Finders are not quite brokers and not quite investment advisers. They don’t give financial advice. They just have a big rolodex and want it to generate some revenue.
As pointed out by the Goodwin lawyers, the classic case is in the Paul Anka No-action letter. (Yes, the crooner.) He ended up connected with ownership syndicate trying to finance the newly formed Ottawa Senators hockey team. Anka was from Ottawa and was rooting for his home team, but didn’t want to do so for free. He would hand over his rolodex but wanted a cut of the money coming in. Anka also had good lawyers and they asked the Securities and Exchange Commission to bless the arrangement.
Mr. Anka did not:
- participate in any negotiations between the Senators and any potential investors,
- make any recommendations to them regarding an investment in the Senators,
- participate in any advertisement, endorsement, or general solicitation for the investment,
- participate, in the preparation of any materials relating to the sale or purchase of the investment
- distribute the materials to any potential investor,
- perform any independent analysis of the sale,
- engage in any “due diligence” activities,
- assist in or provide financing for the investment,
- provide any advice relating to the valuation of or the financial advisability of such an investment.
He simply let the hockey club contact the people in his rolodex.
New York is interested in finders who did a bit more than Mr. Anka. The proposed definition of a “Solicitor”:
a person who as part of a regular business, engages in the business of providing investment advice to the limited extent that such person receives compensation for introducing a prospective investor or investors to an investment adviser or federally covered investment adviser…
Solicitors are subject to the same registration and examination requirements as investment advisers, and principals and representatives of solicitors are subject to the same registration and examination requirements as investment adviser representatives…
Mr. Anka probably falls outside that definition. He wasn’t in the regular business of making introductions. It may hit many organizations that are in that business.
Sources:
- Attorney General James Moves to Modernize and Streamline Securities Filings In NYS
- Summary of IPB Rule Proposals
- Full Text of Proposed Changes to 13 NYCRR 10
- Full Text of Proposed Changes to 13 NYCRR 11
- “Finders” and the “Issuer’s Exemption”: The SEC Sheds New Light on an Old Subject
- Paul Anka No Action letter
- A Look At SEC Enforcement Against Unregistered Finders
