Finders As Broker-Dealers: The Plot Thickens

Joseph W. Bartlett, Special Counsel, McCarter & English, LLP

The most recent development in the never-ending saga of the SEC Staff's attitudes as finders not registered as broker dealers was recently published. In an Administrative Proceeding, the SEC, courtesy of the Staff in the Chicago Regional Office, dragooned a settlement from not only the finder, Stephens, but from Donald Phillips, a senior managing director who headed up capital raising efforts for Ranieri Partners the manager of the fund that was the issuer of the units, Stephens was placing. Phillips was responsible for overseeing Stephens' activities and communicated with prospective investors and their advisors and provided them with key investment documentation that he received from Ranieri Partners.

Phillips, the equivalent of an employee of the issuer, agreed to a 9 months suspension from Ranieri Partners because Phillips … "aided and abetted Stephens' violations by providing Stephens with key fund documents and information while ignoring red flags indicating that Stephens had gone well beyond the limited role of a finder and was actively soliciting investments." [1]

The case against the finder, Stephens, is not of the 'stop-the-presses' variety. Presumably, the District Court in Kramer [2] would agree because, at least in the SEC Staff's view:

"Stevens sent private placement memoranda, subscription documents, and due diligence materials to potential investors, and urged at least one investor to consider adjusting portfolio allocations to accommodate an investment with Ranieri Partners. Stephens provided potential investors with his analysis of the strategy and performance track record for Ranieri Partners' funds, and also provided confidential information identifying other investors and their capital commitments." [3]

But the charges against Phillips are of universal interest.

It appears Phillips tried to be cautious … more cautious than many other issuer executives. Thus:

"Phillips was responsible for coordinating the activities of Stephens and others engaged by Ranieri Partners to find potential investors for the Selene Funds. According to Phillips, he informed Stephens that Stephens' activities on behalf of Ranieri Partners were limited to contracting potential investors to arrange meetings for the principals of Ranieri Partners and that he specifically informed Stephens that he was not permitted to provide PPMs directly to potential investors. Ranieri Partners controlled the distribution of PPMs for the Selene Funds. According to Phillips, he also informed Stephens that Stephens was not permitted to contact investors directly to discuss his views of the merits and strategies of the Selene Funds." [4]

The SEC countered:

"Ranieri Partners failed to adequately oversee Stephens' activates. Although Stevens was not permitted to send documents like PPMs and subscription agreements to potential investors, he was able to obtain such documents from Ranieri Partners, as Ranieri Partners failed to limit Stephens' access to key documents. Stephens, in turn, sent such documents to potential investors. Ranieri Partners also received Stephens' requests for expense reimbursements, which reflected Stephens' extensive contact with potential investors. Yet Ranieri Partners did nothing to monitor or limit Stephens' contact with investors."


"Phillips assisted Stephens' in his solicitation efforts by providing Stephens with key fund documents and information. Phillips also failed to limit Stephens' activities despite knowing that Stephens was supposed to play a limited role in introducing potential investors. Further, Phillips eventually became aware that Stephens was having substantive communications with potential investors, yet he still failed to do anything to curb Stephens' activities. Phillips did little to monitor Stephens' activities other than hold a weekly meeting at which Stephens and others discussed their progress in raising capital for the Selene Funds." [5]

Apparently, the lesson from this proceeding (and the SEC brings Administrative proceedings because its record is a lot better in that venue than in the Federal courts), is that an issuer and its management are not (may not be) vulnerable if all the finder does is provide the issuer's management with a list of potential investors and, perhaps, call to introduce the issuer. But, if there is the employee/executive/manager of the issuer in the SEC's gun-sights, the executive needs to insure that the finder will pay only "a limited role" … set up the meeting and then withdraw to the sidelines.

[1] In the Matter of Ranieri Partners LLC and Donald W. Phillips, Defendants, Exchange Act Rel. 69091, March 8, 2013.

[2] Bartlett, Unregistered Finders: The Kramer Case. etc,, Buzz of the Week .

[3] Ibid.

[4] Ibid.

[5] Ibid.

Joseph W. Bartlett, Special Counsel,

Full Bio

McCarter & English, LLP

McCarter & English, LLP is a firm of over 400 lawyers with offices in Boston, Hartford, Stamford, New York City, Newark, Philadelphia and Wilmington. In continuous business for more than 160 years, we are among the oldest and largest law firms in America.

Clients come first at McCarter & English. Their goals and priorities are what count. Our job is to listen to our clients, stay on top of the frequent changes that can affect their goals, and implement the strategies that will lead to success. Applying this approach effectively and consistently requires dedication and constant attention to many details. This client-centered philosophy has served our clients well and is responsible for our success and stability.

We are honored to be the chosen law firm of clients ranging from Fortune 100 companies to mid-market and emerging growth companies to individual people. When our clients do great things, we are pleased to get the assist.

Material in this work is for general educational purposes only, and should not be construed as legal advice or legal opinion on any specific facts or circumstances, and reflects personal views of the authors and not necessarily those of their firm or any of its clients. For legal advice, please consult your personal lawyer or other appropriate professional. Reproduced with permission from Joseph W. Bartlett. This work reflects the law at the time of writing in March 2013.