Paul Anka and Matchmaking for Investors: the SEC’s Proposed Finder Rule May Be Getting a Second Chance

In the Broadway musical Fiddler on the Roof, the matchmaker Yente takes pride in her occupation. She knows the business of every family in Anatevka, makes introductions, suggests arrangements, and nudges courtships along.

Yente’s matches don’t always end in marriage, so she doesn’t always get paid. For instance, Tzeitel famously rejects her pairing with the much older butcher Lazar Wolf in favor of marrying the younger Motel, who is a poor tailor. Yente’s role is to make an introduction, not negotiate a dowry.

In the securities industry, a person who facilitates a meeting between two parties and then steps aside is called a “finder.” Finders introduce small businesses and real estate sponsors to potential investors, typically in private placements. The finder does not provide investment advice, negotiate terms, or handle investor funds. Instead, the finder performs the equivalent of Yente’s matchmaking in the capital markets.

But unlike Yente, who works in a world that embraces her role, the modern-day finder operates in a regulatory gray area. Over the past several decades, the Securities and Exchange Commission (SEC) has interpreted the Securities Exchange Act of 1934 (1934 Act) to prohibit many types of finder activity by individuals who aren’t licensed securities professionals.

In October 2020, during the final months of the first Trump administration, the SEC proposed a framework to exempt finders from licensure under the 1934 Act. The idea of a finder exemption received no attention during the Biden administration. However, the SEC recently announced that the Small Business Capital Formation Advisory Committee would be exploring the possibility of a finder’s exemption, starting with a presentation about the 2020 proposal.

This article discusses the history of SEC regulation of finders, the 2020 proposal, and how a finder rule might change how US businesses, real estate sponsors, and musicians can obtain investors.

Paul Anka – Singer, Songwriter, and Finder

Paul Anka is best known as a singer/songwriter. However, in securities law circles, he’s known for the SEC No-Action letter that bears his name.

Anka had been asked to help a friend raise capital and agreed to provide the names of a few acquaintances who might be interested in investing. Anka would be compensated only if an introduction led to an investment. Anka didn’t believe he needed a broker-dealer license for those activities, and the SEC agreed.

SEC staff reasoned that Anka, much like Yente, was simply making introductions and wasn't involved in negotiating terms or the handling of funds. The SEC concluded that his limited role did not require him to register as a securities broker-dealer.

Since the “law” regarding finders has evolved via No-Action letters, there has been confusion regarding what activities are legal. Because the SEC hasn’t adopted rulemaking about finders, Courts, lacking clear guidance, have issued fact-specific decisions, some of which appear inconsistent.

Some have considered whether the finder is "regularly engaged in the business" of effecting securities transactions. Others have looked at whether the finder gives investment advice, explains the securities' merits, or handles investor funds.

One thing, however, has been clear. “Transaction-based compensation” or compensation based upon a successful investment has become an important consideration when determining whether a finder must be licensed as a broker-dealer.

Like Yente, finders usually expect to be paid, so the transaction-based compensation prohibition eliminates most finder activities. Sometimes, an issuer might be able to pay a finder for a contact list or for making an introduction, regardless of the outcome. But then, the finder’s compensation must be paid whether or not the prospective investor(s) purchase securities.

As with Yente's matchmaking, most people don't want to pay a finder if the introduction doesn't result in a successful transaction. If the issuer is paying for leads that don't pan out, the information is less valuable to the issuer. And there is less incentive for finders to procure solid investors if the finder receives the same compensation regardless of whether the prospective investor buys securities. Without a success fee or other transaction-based compensation, it makes little sense for most issuers to use finders.

These challenges have mostly affected smaller issuers, who cannot attract the attention of broker-dealers due to small transaction sizes. And as the music industry has moved away from the traditional record contract, early career musicians are finding themselves in a similar situation – they need to raise money for their activities, but don’t yet have the following necessary to attract big-name sponsors.

The 2020 Proposal

In October 2020. The SEC proposed a non-exclusive safe harbor under which individuals could act as finders under specified circumstances. The proposed rule would have created two classes of finders: Tier I and Tier II.

Most finders probably would have been Tier I finders, who would need to meet these requirements:

Non-Reporting Issuers–The securities issuer must not be a reporting company under Section 13 or Section 15(d) of the Exchange Act. Most small business issuers can meet this requirement.

Securities Exempt from Registration–Finders may not be used in public offerings.

No General Solicitation–This requirement functionally limits the use of finders in private placements, most of which are made under the exemption in Rule 506(b). Since Rule 506(c) offerings allow general solicitation, those offerings, finders probably will not be able to sell those offerings. However, the proposed rule remains open regarding whether a finder may assist in the sale of Rule 506(c) securities if the finder, themself, doesn’t engage in general solicitation.

Only Accredited Investors–The finder must reasonably believe that the investor is an accredited investor.

Written Finder Agreement–The finder must have a written agreement, which must outline the services to be provided and the compensation the issuer agrees to pay. Although not required of Tier I finders, the finder’s agreement should be disclosed to the investor, so the investor knows before investing what incentive the finder has to place them in the investment.

Finder Cannot Be Licensed–The finder cannot be an associated person with a broker-dealer.

Finder is not a “Bad Actor”–The finder cannot be subject to statutory disqualification under Section 3(a)(39) of the Exchange Act.

Only One Capital Transaction Per 12 Months–A Tier I finder can assist only one issuer in only one capital transaction in any 12-month period.

May Only Provide Contact Information–A Tier I finder can only provide contact information (e.g., name, telephone number, email address, social media information) to the issuer.

Tier II finders would be given more freedom, including:

Investor Contact–Tier II finders could identify, screen, and contact potential investors.

Distributing Materials–Unlike Tier I finders, Tier II finders could distribute offering materials to prospective investors.

Discussing Offering Materials–Tier II finders could discuss information in the offering materials with prospective investors.

No Investment Advice–Like Tier I finders, Tier II finders could not advise investors regarding the valuation or the advisability of an investment.

Participating in Meetings–Tier II finders could arrange for and participate in meetings between the issuer and the prospective investor.

Tier II finders would have needed to provide additional disclosures to investors, including a description of the relationship between the Tier II finder and the issuer, a description of the compensation, and any conflicts of interest. The Tier II finder also would have had to provide prospective investors with written notice that the finder was acting on behalf of the issuer and did not have to act in the investor's best interest. And the Tier II finder would have needed written acknowledgment of these disclosures from the investor.

Although Tier I finders wouldn’t have had to provide these disclosures, issuers might have been required (or at least would be well advised) to do so. That’s because the relationship between the finder and the issuer is likely to be material.

But the proposal was short-lived. When the Biden administration took over in January 2021, the finder rule disappeared from the agenda.

Fast Forward to 2025

However, in a July 2025 news release, the SEC announced that its Small Business Capital Formation Advisory Committee would meet to revisit the 2020 proposal and explore the potential for future regulatory action.

That’s good news for small businesses and for anyone who works with early-stage capital. The problem the 2020 proposal attempted to address has not gone away. If anything, it has become more urgent. Capital formation continues to concentrate in a few major markets. Entrepreneurs without access to venture networks still face significant challenges raising early capital. And the line between permitted introductions and prohibited solicitation remains as murky as ever.

Matchmaking in Capital Formation

Yente's role uses her knowledge of her community and individuals' needs to make introductions and lets the interested parties negotiate their arrangement. Finders, serve a similar function; they help issuers meet potential investors who they otherwise might never meet. Finders don't act as advisors or guarantee a match. Like Yente, they help the parties start a conversation about a possible relationship.

The SEC's 2020 proposal recognized that reality. It didn't suggest that all finder activity should be deregulated. It proposed a way to allow limited activity within well-defined limits, including disclosure, investor sophistication, and a clear prohibition on advisory functions.

It's promising that the conversation about finders is being reopened. Maybe we will finally have a solid framework that resolves the question that has lingered since the Paul Anka No-Action Letter:  Is there room under US securities law to compensate someone who operates as a matchmaker between investors issuers?

© 2025 by Elizabeth A. Whitman

Any references to clients and their legal situations have been modified to protect client confidentiality.

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