SDDco Perspective Newsletter

November 2020

Paul Anka Returns - SEC Votes to Free Finders (not Brokers) from Registration Obligations

Bryon Lyons
CEO, Independent Brokerage Solutions LLC

Bryon Lyons

On October 7, 2020, the Securities and Exchange Commission (“SEC”) voted to propose a new limited, conditional exemption from the broker registration requirements of Section 15(a) of the Exchange Act for natural person “Finders,” who are not registered with a broker-dealer, and do not become involved in a transaction beyond their role as a “Finder.” The ground-breaking SEC vote to create the new “Finder” exemption signals clearly that it is no longer the law of the land that a “salesman’s stake” in a securities transaction requires broker registration.

The new proposed Finder categories would limit a Finder to assisting private issuers to raise capital in private markets from at minimum accredited investors. Chairman Jay Clayton emphasized in the SEC press release that this action is about small businesses and removing the various obstacles that they face raising capital efficiently and cost-effectively. He also recognized that this action helps to clarify uncertainties about the regulatory status of many current “finders.”

Of course, in the quest for investor protection, there are rules. The SEC has proposed a Tier I finder, who is not permitted to solicit. (S)he is permitted to provide to only one private issuer the contact information of potential investors for only one private capital raise in a 12-month period; and, the Tier I Finder is not permitted to “have any contact with” the potential investors about the issuer.

The proposed Tier II Finder is permitted to solicit investors with no limitation on the number of private capital raises or private issuers. The Tier II Finder is limited to (i) identifying, screening, and contacting potential investors; (ii) distributing issuer offering materials to investors; (iii) discussing issuer information included in any offering materials, provided that the Tier II Finder does not provide advice as to the valuation or advisability of the investment; and (iv) arranging or participating in meetings with the issuer and investor.

Very much like an investment advisory solicitor, a Tier II Finder would also need to provide a disclosure document, prior to or at the time of the solicitation, detailing the Finder’s role and compensation in the transaction, which the investor must sign.

Preparing the sales material (which is prepared and provided by the issuer), structuring the offering, negotiating the terms between buyer and seller, conducting due diligence, or giving an opinion, all traditionally a broker’s role, are still not permitted activities of either a Tier I or Tier II Finder.

In the Paul Anka SEC No-Action Letter (issued July 24, 1991) (subsequently rescinded), the Canadian singer-songwriter was permitted by the SEC to make a one-time referral of investor names and numbers to the Ottawa Senators Hockey Team with no other involvement in the transaction for a 10% finder’s fee. The Tier I Finder revives the spirit of that prior action.

SEC Proposes Conditional Exemption
SEC – Paul Anka No-Action Letter (July 24, 1991)

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SEC Fines Broker-Dealer for Failing to Preserve Text Messages

Ross Marlin
Associate Director

Ross Marlin

The SEC fined a broker-dealer $100,000 for failing to retain business-related text messages. The SEC found that the firm’s senior management, including compliance personnel, were among those sending and receiving the violative business-related text messages. The firm’s policies and procedures prohibited the use of text messages for business purposes, and the firm relied upon annual attestations to monitor compliance with these procedures.

SEC Business-Related Text Charge

Learn more about how SDDco can help strengthen your firm’s Broker-Dealer or Investment Adviser compliance program.

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SDDCO Tax Compliance and Consulting

It’s that time of year again.
Tax season is right around the corner.

Fear not. Whether you are a regulated entity or not, our tax professionals can service your tax needs in the face of ever-changing legislation. Our tax team has decades of experience working to make sure your firm meets the requirements of the relevant taxing authorities.

Visit our website for a complete list of our tax services.

Have Plans for Valentine’s Day? Think Twice, New FINRA Rule 3241 Becomes Effective on February 15, 2021

Gary Fox
Director, Business Development

Gary Fox

FINRA has adopted Rule 3241, which limits a registered person of a member firm from being named a beneficiary, executor, or trustee, or to have a power of attorney or similar position of trust for or on behalf of a customer.  This rule will not apply to accounts of “immediate family.”

The rule, “Registered Person Being Named a Customer’s Beneficiary or Holding a Position of Trust for a Customer,” is intended to protect investors by requiring all member firms to actively review and pre-approve registered persons being named beneficiaries or holding positions of trusts for customers. This is a potentially significant new layer of oversight for firms who have customer accounts.

FINRA Rule 3241 becomes effective on February 15, 2021, which is a relatively short lead time for preparation, especially in light of the current pandemic and usual end of the year activities.

If you need help determining the implementation of the new rule, contact us here.

Read the full regulatory notice here:

FINRA - Regulatory Notice 20-38

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2021 Dollar Limits on Retirement and Benefit Plans

Robert Fortino
Managing Partner

Bob Fortino

The Internal Revenue Service released the revised dollar limits for 401(k) and other retirement plans, benefits, and compensation. This is an annual update that the IRS publishes for the next year. Below are some of the key limits for 2021.

Type 2020 2021
401(k)/403(b) $19,600 $19,600
Age 60+ “catch up” contribution for 401(k)/403(b) $6,600 $6,600
IRA contribution $6,000 $6,000
IRA catch up $1,000 $1,000
IRA AGI Phaseout    
Joint Returns $104,000 $105,000
Single/Head of Household $65,000 $66,000

IRS -  COLA Increases for Dollar Limitations on Benefits and Contributions

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Financial Organizations Report Drastic Changes in Cybersecurity Priorities

Michelle Abramowitz
Marketing Manager

Michelle Abramowitz

Organizations in the financial sector reported high levels of concern about security incidents and showed drastic changes in cybersecurity priorities, according to a June 2020 survey performed by Netwrix. The survey was designed to understand how the pandemic and work-from-home environment has changed cybersecurity risks across various industries. IT industry professionals across the globe were surveyed and out of all of the industries represented, the financial industry expressed the most dramatic changes in cybersecurity priorities. For instance, concern about data theft doubled, with twice as many financial organizations expressing concern about data theft by employees compared to pre-pandemic. Additionally, 94% of financial organizations highlighted VPN exploitation as their top cybersecurity concern, as opposed to only 12% pre-pandemic.

PR Newswire - Financial Organizations Are Concerned About Insider Data Theft During Remote Work
Ciso Mag - Financial Sector is Most Concerned About Cybersecurity Risks

SDDco’s cybersecurity program is specific to the securities industry and tailored to your specific compliance needs.

Click here to speak with one of our consultants about strengthening your cyber program.

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Whistleblower Receives a Record $114 Million Award from the SEC

Casey Muller
Director of Legal & Internal Compliance

Casey Muller

No one likes a tattletale… except the Securities & Exchange Commission, as evidenced by the record $114 million that it recently awarded to a whistleblower that “provided substantial, ongoing assistance that proved critical” to the successful enforcement of SEC and related actions. The $114 million payout far exceeds the next highest award of $50 million paid to a whistleblower in June 2020. “Awards are given to whistleblowers who voluntarily provide the SEC with original, timely and credible information that leads to a successful enforcement action.”

Accounting Today - SEC Awards Record $114M to Whistleblower

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RIA Registration
and Compliance

The SDDco Group, through its subsidiary, SDDco Regulatory Services, provides full-service compliance consulting to both new and established Investment Advisers and Broker-Dealers. This month we are highlighting our Investment Adviser consulting services.

We will support your firm’s ongoing compliance with the Investment Advisers Act and associated state requirements including:

  • Administering your IARD profile and all ADV amendments
  • Maintaining and updating your Compliance Manual
  • Reviewing all marketing and performance materials
  • Developing Solicitors Agreements and Disclosure Statements
  • Conducting Annual Reviews
  • Guiding you during regulatory exams
  • Drafting responses to regulators

Learn about our full suite of services by downloading our Investment Adviser Registration & Compliance Services Brochure

Broker-Dealer Membership & Compliance Services Brochure

SDDco Group makes this general information available for educational purposes only, the contents of which were not originated from SDDco. SDDco is not affiliated with any of the publishing persons or entities of the articles herein. The information provided should not be construed as legal advice. This email may constitute an advertisement under U.S. law. | | (212) 751.4422