Finder Fees and Broker Registration
Someone who introduces investors and is paid a percentage of what they bring in is describing a broker, whatever the engagement letter calls them. There is no general exemption for finders, and the consequences of getting this wrong reach the offering itself.
The rule in short
A person engaged in the business of effecting transactions in securities for the account of others is a broker and must be registered. Transaction-based compensation is the factor that most reliably places a person inside the definition. A narrow safe harbor allows certain associated persons of an issuer to sell without registration, but it forbids commissions. The immigration statute adds a separate registration for promoters, and unregistered activity can render contracts voidable.
Projects need investors and investors are found by people who are paid to find them. The payment is where the trouble starts. Federal securities law does not ask what the introducer was called; it asks what the introducer did and how the introducer was compensated. A person paid a percentage of the capital raised is describing a broker, and brokers have to be registered.
What makes a person a broker
The statutory definition is short: a broker is any person engaged in the business of effecting transactions in securities for the account of others. Two phrases carry the weight. Engaged in the business suggests regularity and holding oneself out, rather than a single accidental act. Effecting transactions covers far more than executing a trade; it reaches solicitation, negotiation and participation in the selling process.
Regulators look at a familiar cluster of facts. Did the person solicit potential investors, or merely mention an opportunity. Did the person discuss the merits of the investment or hand over the offering document. Did the person handle subscription agreements, collect funds, or advise on suitability. Did the person do this repeatedly. And above all, was the person paid by reference to whether, and how much, capital came in.
Why calling someone a finder does not help
Finder is a commercial description, not a legal category. There is no general federal exemption for finders, and no threshold below which introductions are free of the registration requirement. The word appears constantly in engagement letters precisely because the people writing them hope it operates as a status. It does not.
What does exist is a narrow safe harbor for associated persons of an issuer. It permits certain officers, directors and employees to participate in selling the issuer's own securities without registering, on conditions that are strict and cumulative. The person must not be compensated by commissions or other transaction-based pay, must not be associated with a broker or dealer, must not be subject to statutory disqualification, and must satisfy one of several limits on the nature and frequency of the selling activity.
The condition that defeats most attempted reliance on the issuer safe harbor is the one prohibiting transaction-based compensation. The whole point of engaging an outside introducer is to pay for results. A person paid a salary regardless of outcome may fit the safe harbor; a person paid per investor almost never does. Structuring around this by paying a bonus that tracks capital raised is transparent and is treated as what it is.
Agents and agencies located abroad
Much of the marketing in investment immigration happens through agencies in the investor's own country, paid substantial sums per investor by the project or the center. Being outside the United States is not by itself a defense. The registration provisions can reach conduct directed at securities transactions with United States issuers, and a separate rule sets out the limited conditions on which a foreign broker may deal with United States persons without registering here.
The practical exposure runs in both directions. A center that pays undisclosed commissions abroad has a problem at home, and an investor who wants to recover fees from an agency abroad faces the ordinary difficulties of pursuing a foreign party, beginning with the questions covered in serving process on a party in another country. Contractual clauses selecting a domestic forum help only if a judgment can be enforced where the agency's assets are.
The registration the immigration statute adds
The securities analysis is only half of it. The investor statute now imposes its own registration on persons who promote an offering, whether they are engaged directly by the project or act as third parties, and requires disclosure of the fees paid to them. Registration is made on a dedicated form and is a condition of participating in the program, separate from and additional to anything the securities laws require.
The statute also requires centers and issuers to certify compliance with the securities laws, so a defect in the securities analysis becomes a representation problem in the immigration filing as well. A center that pays an unregistered person and then certifies compliance has created a second exposure on top of the first, and both surface during the reviews described in the audits and site visits a center is subject to.
| Who is paid | May take transaction-based pay | Securities registration | Promoter registration under the immigration statute | Principal exposure |
|---|---|---|---|---|
| Registered broker-dealer | Yes | Already registered | Required if promoting the offering | Suitability and supervision failures |
| Officer or employee within the issuer safe harbor | No | Not required if every condition is met | Required if promoting the offering | Loss of the safe harbor if paid per sale |
| Unaffiliated finder paid per investor | In substance, yes | Required and usually absent | Required | Enforcement, rescission rights, tainted offering |
| Overseas migration agency | Commonly, yes | Required unless a foreign broker exemption fits | Required | Undisclosed fees and enforcement across borders |
| Professional referring a client for no fee | Not applicable | Not required | Ordinarily not required | Conflict of interest if a fee is later paid |
What an unregistered fee ends up costing
Three consequences follow, and they compound. Regulators can pursue the unregistered person and can pursue those who aided the activity, which typically means the issuer that engaged and paid them. Purchasers gain leverage, because a contract made in violation of the Act is voidable at the innocent party's election, and a rescission right held by every investor in an offering is an existential fact for a project that has already spent the money.
The third consequence is the immigration one. Capital returned under a rescission right is capital that is no longer invested, which unravels the position the petition depends on, and undisclosed fees paid out of investor capital reduce the amount actually placed in the enterprise. Those interact directly with the requirements described in the securities analysis of the offering itself. Any project discovering a payment of this kind mid-raise should stop and take advice, because the sequencing of disclosure, rescission and further sales is a judgment that broker registration attorney should make before another subscription is accepted.
Points to carry away
- A broker is any person engaged in the business of effecting transactions in securities for the account of others.
- Transaction-based compensation is the single strongest indicator of broker status.
- There is no general exemption for finders under the federal securities laws.
- The safe harbor for an issuer's associated persons prohibits commission-based pay.
- The immigration statute requires promoters of an investment offering to register separately with the agency.
- Contracts made in violation of the registration requirement may be voidable by the other party.
Questions readers ask
Does a flat fee instead of a percentage solve the problem?
It helps and it does not decide the question. Transaction-based compensation is the strongest single indicator of broker status, so removing it removes the loudest fact. The rest of the analysis survives: whether the person solicited investors, handled subscription documents, gave advice on the merits, participated regularly in offerings, or held out as being in that business. A flat monthly retainer paid to someone who does all of those things still describes a broker. A one-off introduction fee paid to a person who does nothing else is a very different case.
Are lawyers and accountants who refer clients caught by this?
They can be. A professional who mentions an opportunity to a client in the course of unrelated work, takes no fee for the referral and plays no part in the sale is not in the business of effecting securities transactions. A professional who accepts a payment tied to whether the client subscribes has crossed into compensation that regulators treat as the mark of a broker. Professional conduct rules add a second problem, since a referral fee taken without informed consent creates a conflict independent of the securities question.
Can an issuer simply return the fee once the problem is discovered?
Unwinding helps but rarely cures. Repayment addresses the flow of money and shows good faith, which matters to regulators weighing what to do. It does not undo the sales that were made through unregistered activity, and it does not extinguish a purchaser's statutory right to walk away from a contract made in violation of the registration provisions. Issuers who discover the problem mid-offering usually have to consider whether to stop selling, whether to disclose the defect to purchasers, and whether a rescission offer is the cheaper path.
Sources
- Cornell Legal Information Institute — 15 U.S.C. 78c, Definitions and ApplicationThe definition of broker as a person engaged in the business of effecting securities transactions for others.
- Cornell Legal Information Institute — 15 U.S.C. 78o, Registration and Regulation of Brokers and DealersThe registration requirement and the conduct it prohibits for unregistered persons.
- eCFR — 17 CFR 240.3a4-1, Associated Persons of an Issuer Deemed Not to Be BrokersThe safe harbor conditions, including the prohibition on commission-based compensation.
- Cornell Legal Information Institute — 15 U.S.C. 78cc, Validity of ContractsThe provision making contracts made in violation of the Act voidable by the innocent party.
- eCFR — 17 CFR 240.15a-6, Exemption of Certain Foreign Brokers or DealersThe conditions under which a foreign broker may deal with United States persons without registering.
- USCIS — Form I-956K, Registration for Direct and Third-Party PromotersThe separate registration the immigration statute requires of persons who promote an investment offering.
- Cornell Legal Information Institute — 8 U.S.C. 1153, Allocation of Immigrant VisasThe integrity provisions governing promoters, fee disclosure and the conduct of persons associated with a center.
Liberty Law Library is a publication, not a law firm. This article states general rules and cites its sources; it is not advice about any particular case, and the law differs by state and changes over time.
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