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In this field note, syndication attorney Tilden Moschetti explains why paying finder’s fees for investor introductions in a Regulation D private placement can move a capital raise into broker-dealer registration territory.
Syndication Attorney Field Notes is a short-form educational podcast from Tilden Moschetti for sponsors, real estate syndicators, fund managers, and business owners raising capital through Regulation D offerings, private placements, syndications, and investment funds.
Each episode breaks down one issue from the legal notebook: finder’s fees, broker-dealer registration, Rule 506(b), Rule 506(c), investor verification, private placement memorandums, subscription agreements, Form D, Blue Sky filings, fund structure, and the mistakes that show up before the documents are drafted.
Plain-English field notes. One issue, one misconception, one practical takeaway. Public education only, not legal advice.
Picture this.
A sponsor is raising money for a Regulation D private placement. A friend says, I know investors. Pay me two percent for investor introductions if they come in. The sponsor asks: do I need a license to pay finder’s fees?
This is Syndication Attorney Field Notes with Tilden Moschetti. Today’s field note is about finder’s fees in a Regulation D private placement, and why that question is usually aimed at the wrong person.
The direct answer is this: There is no payer’s license.
The law regulates the person taking the fee, not the sponsor writing the check. If the fee rises or falls based on investor money coming into a syndication capital raise, that is transaction-based compensation. And in a securities offering, transaction-based compensation points toward broker-dealer registration for the person being paid.
The SEC is not looking for a sponsor’s license to pay. It is looking at whether the person taking the success fee is acting like a broker.
That is the part sponsors often miss.
They are used to normal referral fees. Someone refers a tenant. Someone refers a contractor. Someone refers a buyer for a service business. A fee gets paid. No one treats it as a federal securities issue.
But capital raising sits in a different legal box.
When you sell interests in an LLC or LP for a real estate syndication, the investor is not buying the building. The investor is buying a security. That changes the rules around who can be paid to bring investors into the deal.
So the common sponsor mistake sounds like this: I am not asking the finder to sell. I just want introductions. Or: they have a real estate license. Or: we will call it a consulting fee. Or: they can be a 1099 VP of capital markets.
Those labels can make the arrangement feel safer. But the label is not the main question.
The main question is: what is the person doing, and how are they being paid?
Transaction-based compensation means the payment moves because the securities sale moves.
If no investor subscribes, there is no payment. If one investor invests a million dollars, the person gets a percentage. If five investors invest five million, the payment grows. That is the classic pattern.
It does not have to say commission. It could be called a referral fee. It could be called consulting. It could be called marketing. It could even be a flat fee if the flat fee is only paid when the offering closes or when a capital milestone is hit.
The problem is not the label; it is whether the person is being paid for success in selling securities.
Now, compare that to a real flat-fee vendor.
A designer who builds a deck for a fixed monthly fee. A CRM consultant who helps clean up investor records. A content contractor who writes general materials and is paid the same amount whether zero investors or ten investors subscribe.
That is a different fact pattern. It can still need review if the person starts talking directly with investors about the offering. But the pay structure is not the same as a success fee tied to investor money.
Here is a quick example.
A sponsor has a 100-unit apartment syndication. The sponsor is raising eight million dollars in a Regulation D private placement. A local real estate broker says, I know several high-net-worth clients. Pay me two percent of whatever equity they bring in.
At first, the sponsor thinks: this is a real estate deal, and this person has a real estate license.
But that license is for selling real property. It is not a license to receive commissions for selling LLC interests in a securities offering.
If the broker is paid two percent of equity raised, the pay moves with investor subscriptions. That looks like transaction-based compensation. Unless that person is a registered representative of a FINRA-member broker-dealer, or fits a narrow valid exemption, the arrangement may raise broker-dealer registration issues.
And if someone says they are registered, verify it.
A legitimate placement agent should be able to give you a CRD number. You should be able to find that person and their firm on FINRA BrokerCheck. Their broker-dealer will usually have its own paperwork, compliance process, and approval for the offering before solicitation begins.
That process may feel slower than a handshake. But it tells you that the right party is actually licensed to receive that kind of compensation.
Now, there is another path sponsors ask about. What if we bring someone inside the company?
That can be done in some cases, but it is not a way to pay commissions.
There is a limited issuer exemption framework, often discussed under Rule 3a4-1. In plain English, it can allow certain internal people connected to the issuer to help with the issuer’s own offering without registering as brokers, if the facts fit.
But there is a clear line: do not pay that person based on capital raised if you are relying on that path.
A real internal investor relations role is more like fixed salary or fixed pay. The person has real duties beyond selling. They help with investor communications, onboarding, reports, records, and operations. Their pay does not rise because more investor checks arrive.
A title alone does not solve this. Calling someone an officer does not solve it. Paying them as a 1099 contractor does not solve it. The role, the pay, and the actual work matter.
So what should sponsors not assume?
Do not assume a real estate license carries over to syndication commissions.
Do not assume the word finder changes the analysis.
Do not assume a consulting agreement changes the economics.
Do not assume a flat fee is clean if it only gets paid when investors subscribe.
Do not assume every investor-introduction payment is off limits. The point is to structure the role correctly. Outside capital-raising compensation usually points you toward a registered placement agent. Internal roles need fixed pay and real non-selling duties.
And do not overstate the investor remedy issue. Paying an unregistered person does not mean every investor gets their money back. But it can give investors a possible claim or leverage point depending on the facts, especially if the deal later performs poorly.
That is why this issue matters before the first check is written.
Sponsors usually focus on the payment from their side. Can I pay this fee? Can I get a license to pay it? Can I paper it as marketing?
The better question is on the recipient side.
Who is taking the fee? Are they registered? Is the pay tied to capital raised? What role are they actually playing with investors?
If the person is being paid for successful investor commitments, pause before sending money.
If they are outside the issuer, check whether they are a registered representative of a FINRA-member broker-dealer. Verify the CRD number. Check FINRA BrokerCheck. Make sure the firm, not just the person, is involved.
If they are internal, do not build the role around commissions. Use fixed compensation. Give them real operating duties. Keep the work and the pay aligned with the issuer exemption framework.
Final field note.
There is no payer’s license. Capital raising sits in a different legal box. The law regulates the person taking the fee, not the sponsor writing the check.
For finder’s fees in a Regulation D private placement, remember the simple test: verify the person, verify the pay, verify the role.