SEC to Revisit Safe Harbor for Finders
In 2013, PBS aired Orchestra of Exiles, a documentary by Academy Award nominated director Josh Aronson about the formation of what became the Israel Philharmonic. The film shows that the orchestra’s first performance, in Tel Aviv on December 26, 1936, led by world-renowned conductor Arturo Toscanini, was the culmination of three years of tireless effort by violinist Bronislaw Huberman.
Concerned about increasing antisemitism in Europe and Hitler’s rise to power in 1933, Huberman was driven to save Jewish musicians from Europe’s rising antisemitism. Inspired by the Balfour Declaration’s promise of a Jewish homeland, Huberman decided to form an orchestra in the British Mandate of Palestine, established by the United Nations in 1920 to implement the Declaration.
Huberman’s mission required that he identify and gain introductions to the specific musicians who might be best for the orchestra. Huberman met with some musicians several times until they committed to the move. Eventually, Huberman convinced 75 musicians comprising the necessary orchestra instrumentation to uproot their families and move to Tel Aviv to join his orchestra. Not only did Huberman likely save hundreds of lives that otherwise might have been snuffed out in the Holocaust, but he also laid the groundwork for what would become one of the top orchestras in the world.
In many ways, Huberman’s task of “selling” musicians on the idea of joining his orchestra was similar to selling securities. However, unlike those selling securities, Huberman was motivated by mission, rather than money. But like those who sell securities, Huberman’s “sales” job required determining who was suitable, pursuing introductions, and “closing” the deal.
Although licensed broker dealers are involved in most sales of securities, smaller issuers such as startups, real estate funds, and musicians may rely on “friends and family” or finders to identify potential investors. Unlike Huberman, most finders seek financial compensation for their efforts.
Yet most issuers don't want to pay a finder if the introduction doesn't result in a successful transaction. If the issuer pays for leads that don't pan out, the information is less valuable to the issuer. And there is less incentive for a finder to procure viable investors if the finder receives the same compensation regardless of whether a prospective investor buys securities.
These challenges primarily affect issuers such as small businesses, real estate syndications, and early-career musicians who cannot attract the attention of broker-dealers due to small offering sizes and volume. This article discusses the history of finders under securities law, the finder safe harbor proposed by the Securities and Exchange Commission (SEC) in 2020, and the spotlight the Trump Administration is putting on this issue.
Current Status of the Law Regarding Finders
The law regarding finders has evolved over time through No-Action letters. Because the SEC hasn’t adopted rulemaking about finders, Courts, lacking clear guidance, have issued fact-specific decisions, some of which appear inconsistent.
Some cases have considered whether the finder is “regularly engaged in the business” of effecting securities transactions. Others have examined whether the finder provides investment advice, explains the merits of the securities, or handles investor funds. One thing, however, has been clear: “transaction-based compensation,” or compensation based on a successful investment, has become an important factor in determining whether a finder must be licensed as a broker-dealer.
Sometimes, an issuer might pay a finder for a contact list or for making an introduction. But then, the finder’s compensation must be paid whether or not the prospective investor(s) purchase securities. And a licensed broker-dealer (or an individual who qualifies under the issuer-agent exemption) must complete (and be compensated for) the sale, making use of a finder impractical and costly.
The 2020 Proposed Safe Harbor
In October 2020, during the final months of the first Trump Administration, the SEC proposed a non-exclusive safe harbor, which would have allowed individuals to 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 would limit the use of Tier I finders in private placements under Rule 506(b). Since those offerings allow general solicitation, finders probably will not be able to sell them. However, the proposed rule leaves open whether a finder may assist in the sale of Rule 506(c) securities if the finder themselves 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 outlining 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 would be able to distribute offering materials to prospective investors.
Discussing Offering Materials–Tier II finders would be permitted to 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 to provide these disclosures, issuers should do so even if not expressly required. That’s because the relationship between the finder and the issuer is likely to be material.
Although the proposal issued during the first Trump administration was promising, it disappeared from the SEC’s agenda under the Biden administration.
Renewed Interest in Finding a Solution to the Finder Problem
Under the second Trump administration, the SEC has shown renewed interest in the finder problem. 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. And, on January 22, 2026, the SEC announced that potential regulatory improvements regarding finders who assist companies raising capital in private markets from accredited investors would be on the agenda for the committee’s February 24, 2026 meeting.
The SEC’s announcements are framed as exploration and potential framework design, not as a proposed exemption or safe harbor. While the announcement is good news for small businesses, real estate syndications, early-career musicians, and others who could benefit from using finders, a solution to the finder problem remains elusive.
Since, unlike Huberman, finders are motivated by money rather than mission. Until the SEC adopts a final rule clarifying how and when finders can be used and what compensation they can receive, issuers should continue to avoid paying transaction-based compensation to unlicensed individuals.
Conclusion
The renewed interest in the finder problem is a welcome development in an area long plagued by confusion over legal requirements. However, it’s important that issuers remember that the law regarding finders hasn’t changed. Until the SEC adopts additional guidance, payment of transaction-based compensation or success fees to individuals without securities licenses is prohibited.
© 2026 by Elizabeth A. Whitman
Any references to clients and their legal situations have been modified to protect client confidentiality.
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