If you have started a company that needs outside investors, then you have run into someone who offered to raise money for you. If it hasn’t happened to you yet, it will. Sometimes it is an accountant or attorney who promises to introduce you to the people with the money. Sometimes it is an investment banker. But most of the time it will be someone who is none of those things. The person may call himself an intermediary, a finder or an “advisor.” The name really isn’t important. What is important is whether his fee is contingent upon a successful investment in your company.
If the advisor’s fee is contingent, then any fundraising he/she does breaks a long list of federal and possibly state laws, both civil and, arguably, criminal. The practice of an unlicensed advisor (often called an unlicensed broker) raising money on contingency is so pervasive that many of my clients find it hard to believe that it breaks the law. Why are my clients skeptical? Because the stories of the companies forced to give cash back to investors or hit with civil fines are few and far between. Nonetheless, it’s against the law.
A well-meaning client, who was trying to gauge how troublesome this violation is (and the likelihood of being caught), asked if paying an unlicensed broker was akin to exceeding the speed limit by 5 miles per hour. I told him an automobile analogy appropriate, but it was more like hitting a hobo on a dirt road in West Virginia. And then driving away. Why? I can’t tell you the likelihood of being caught for violating the law. I don’t know if anyone is going to miss the hobo, much less find him in the ditch into which you rolled him in a moment of panic-induced bad judgment. Or if 
any of your neighbors will notice that you washed your car at 3 in the morning inside your garage. Or whether the presumed-dead hobo will start stalking you next summer. But what I do know is that paying an unlicensed broker is a lot more serious than speeding and carries a much larger penalty than a $50 ticket.
As a member of the Firm’s Venture Capital and Corporate Services Team, Joel Nied focuses his practice on securities, mergers and acquisitions, debt and equity financings, and intellectual property. His corporate commercial law practice includes representing clients in matters relating to corporate contracts, securities regulation, joint ventures, fund formation and licensing agreements. 
