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US Securities and Corporate Governance

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SEC Proposes Limited Exemption for Persons Acting as “Finders” in Private Capital Transactions to Accredited Investors

The SEC announced on October 7, 2002 that it had approved, by vote of 3-2, a proposed limited conditional exemption for individuals acting as “finders” in private market transactions with accredited investors.  The text of the proposed exemption can be found here.

When small businesses engage in capital raising transactions in reliance on exemptions from registration under the Securities Act of 1933 (the “1933 Act”), they often look to “finders” to assist in identifying and, in some cases, soliciting potential investors.  Such finders (and issuers using them) must determine whether they are required to register as “broker dealers” under the Securities Exchange Act of 1934 (the “1934 Act”). In making that assessment, finders and issuers (and their legal counsel) have been left to parse through various no-action letters and SEC enforcement actions to discern the SEC’s regulatory position.  In that context, certain activities, as well as the presence of “transaction-based compensation” in these arrangements, have proved to be particularly nettlesome. The proposal would provide a non-exclusive safe harbor from broker registration, and would enable those who qualify to receive transaction-based compensation.

The proposal would be limited to natural persons, and would create two categories: Tier I Finders and Tier II Finders.  Both tiers would be subject certain conditions:

  • the issuer must not be required to file reports under the 1934 Act and must be conducting the offering in reliance on an applicable exemption from registration under the 1933 Act;
  • the finder must not engage in a “general

SEC alerts public companies of increase in sophisticated ransomware attacks

The SEC’s Office of Compliance and Examinations (OCIE) issued a risk alert on July 10 about its observation of an apparent increase in sophistication of ransomware attacks on SEC registrants, including broker-dealers, investment advisers,  investment companies, and impacting service providers to public financial institutions.

Recognizing the SEC’s alert and other recent cyber incidents, we encourage all public companies, financial institutions and their service providers to consider their cybersecurity preparedness and operational resiliency to address hacking and, in particular ransomware attacks, consistent with the advice of the OCIE and the Department of Homeland Security.  This is particularly important given that OCIE once again advised financial institutions, in its 2020 Examination Priorities release, that Information Security was one of its top priorities.

In its risk alert, OCIE cited recent reports of one or more threat actors orchestrating phishing and other campaigns designed to penetrate financial institution networks, primarily to access internal resources and deploy ransomware, a type of malware designed to provide unauthorized access to institutions’ systems and deny the institution use of its system until a ransom is paid.  OCIE also noted ransomware attacks impacting service providers to public companies.

OCIE encouraged public companies and their service providers to monitor cybersecurity alerts published by the Department of Homeland Security Cybersecurity and Infrastructure Security Agency (CISA), including the alert published on June 30, 2020, relating to a particular malware focused on financial institutions and their customers.

The OCIE alert noted that information security is a key risk area on

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