Finders are individuals or entities that help connect issuers with potential investors, often in exchange for a fee. They play a crucial role in capital raising, but their activities are subject to various rules and regulations to ensure transparency and protect investors.
Which of the following best describes a finder's role in the securities industry?
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Correct!
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A) Underwriters help issuers bring securities to market, not finders. B) Investment advisers provide investment advice, not finders. C) Finders often connect issuers with potential investors in exchange for a fee. D) Broker-dealers trade securities on behalf of clients, not finders.
Which of the following is NOT a requirement for an accredited investor?
A) A net worth of at least $1 million is a requirement for an accredited investor. B) An annual income of at least $200,000 is a requirement for an accredited investor. C) Registration with a broker-dealer is not a requirement for an accredited investor. D) A history of investing in securities is not a requirement for an accredited investor, but it may be considered when determining an investor's sophistication.
What is the primary difference between a finder and a placement agent?
A) Both finders and placement agents can be individuals or firms. B) Both finders and placement agents connect issuers with investors, but underwriters handle securities offerings. C) A finder is not registered with regulatory authorities, while a placement agent is a registered broker-dealer. D) Both finders and placement agents can be involved in public or private offerings, but placement agents often focus on private placements.
In the early 2000s, a group of unregistered finders was involved in a scheme to defraud investors by promoting fraudulent private placements. The finders received substantial fees for their efforts, but the investments were worthless. This case led to increased scrutiny of finders and their activities, resulting in new regulations to protect investors.
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Example Series 65 Example Practice Question
A technology company is seeking to raise capital to fund its growth. The company engages a finder to help identify potential investors interested in purchasing its securities. The finder connects the company with several accredited investors, who ultimately invest in the company's private placement. The finder receives a fee for their services.
Finders find the funds we need, connecting issuers with investors indeed. But regulations they must heed, to ensure transparency and prevent greed.
- *Finders*: Finders are individuals or entities that help connect issuers of securities with potential investors. They are not registered as broker-dealers but may receive compensation for their services. - *Rules Finders must abide by*: Finders must follow specific rules and regulations set forth by the Securities Act of 1933 and the Securities Exchange Act of 1934. These rules include not engaging in negotiations, not providing investment advice, and not handling customer funds or securities.
- *Finders*: A retired investment banker who introduces a startup company seeking capital to a group of potential investors without providing investment advice or handling any funds would be considered a finder. - *Rules Finders must abide by*: The finder in the example above must not participate in negotiating the terms of the investment, provide advice on the merits of the investment, or handle any funds or securities related to the transaction.