80 Pages Posted: 6 Sep 2016 Last revised: 17 Jan 2017
Date Written: January 1, 2017
Finders, or “matchmakers” in layman’s parlance, a specific category of business intermediaries, also labeled as “merchant bankers,” “investment bankers,” “financial public relations advisors,” and simply “business consultants,” entered the newest millennium with their old-world “yenta” books replaced by Facebook, Twitter and all the other appurtenances of the Digital Age’s virtual reality. Despite their epochal transformations, finders have hardly changed their stance on the legal roles they play, distinct from “brokers” in their eyes, for not “effecting” securities transactions by simply bringing together potential buyers and sellers of securities. Naturally, finders, who permeate all forms of securities transactions in our economy, have always defended their legal freedom to be exempt from broker-deal registration and regulation. Given the extensive range of operating contexts and sub-contexts of finder’s activities, it has been more than difficult to discern, let alone pinpoint, finder’s exemption criteria. A process of filing no-action letters with the SEC staff seeking guidance on the finder’s exemption has been tacitly formed over the past few decades. To investigate the potential changing nature of finder’s activities across time and reveal the changing winds of the finder’s regulatory “lawscape,” the current article compiled, categorized and characterized a whole set of 126 finder’s no-action letters over forty-four years from 1971 to 2014. This paper establishes a method of quantifying the range of finder’s operating contexts, granted or denied exemption from registration, and performed a quantitative as well as qualitative temporal analysis on a full body of the SEC’s no-action letters issued to finders.
The author’s historical analysis on the evolution of 126 finder’s no-action letters reveals a significant shift in the SEC staff’s philosophy for the finder’s exemption, occurring first in the 1980s (more lenient), then 1990s (less lenient) and finally an even greater shift around 2000 (much stricter). A detailed categorical analysis was conducted on finders operating in three different contexts: finders for broker-dealers, for issuers and for investors. Within each category of temporal analysis, this paper correlated the finder’s legal landscape with the broad social landscape, which rebreeds the regulated entities with a new epistemic, social and existential culture that adapts to the given “age” of our history. This article hypothesizes possible correlations between the virtuality of the Information “super-highway” for the modern finding activities, as well as the regulators’ post-Enron and Financial Crisis of 2008 anxieties, and the changing winds over the finder’s regulatory “lawscape”. This article’s computational as well as empirical analysis of finder’s no-action letter reliefs suggest that the lawmakers have been assessing finder’s issues on a case by case basis, and finders’ compliance strategies have long since been tailored for the new season. Such inefficacy and inefficiency of such regulatory adaptation uncovers a “missing link” between the regulatory and the regulated entities in the finder’s area of the securities laws. The author finally proposes tentative solutions to bridge the widening chasm between these two critical sectors of our society.
Keywords: Finders; Broker-Dealers; Securities Regulation; Broker-Dealer Regulation; Empirical Legal Studies; Exchange Act; Administrative Law
JEL Classification: K22; K23
Suggested Citation: Suggested Citation
Chertok, Seth, Cracking the Problem of Finders – An Empirical and Computational Analysis (January 1, 2017). Wake Forest Law Review, Vol. 51, 2016; Peking University School of Transnational Law Research Paper No. 16-5. Available at SSRN: https://ssrn.com/abstract=2834863