Recently, an unregistered broker-dealer was able to retain its finder’s fees in a lawsuit brought by a SEC Receiver. The Receiver was appointed as a result of an SEC action brought against an investment advisory group. The Receiver sought to recover a finder’s fee, claiming that the party was acting as an unregistered broker-dealer for the defendant charged in the SEC action.
The court, ultimately, ruled that the Receiver’s action was untimely, and had violated the statute of limitations. The Receiver was unable to convince the court that the action should have been equitably tolled because the Receiver had not been appointed before the statue of limitations had run. Essentially, the court determined that, although the defendant was not a registered broker-dealer, the defendant in the SEC case could have determined if the finder was a registered broker-dealer, and, since there was no allegation of fraud, the court allowed the finder to keep the finder’s fee because it would not run afoul of the Securities Exchange Act of 1934.
This action is interesting because not all cases involving unregistered broker-dealers will result in the forfeiture of finder’s fees. In this case, the SEC Receiver was unsuccessful in convincing a court to force repayment. Unfortunately, however, the SEC did not comment on this action. Nonetheless, this matter may be indicative of future matters involving unregistered broker-dealers or finders, and the retention of their fees.