Be Cautious of the Investment Mechanism
Heard on the subject of venture catalysts? These innovative matchmakers might have great connections to angel investors as well as venture capitalists, excluding they may also be breaking the law.
Consequently warns Cynthia Sadick, a previous counsel for the National Association of Securities Dealers and a partner at Sadick & O’Brien, in Boulder, Colo. Making beginning is one thing, speaks by Sadick, however “we’re running into quite a little situations where business enterprise catalysts and money finders are out there negotiating deals for companies and getting paid for the contract without knowing the securities laws.”
The quandary: the matchmakers are not broker-dealers. Essentially, under the Securities Exchange Act of 1934, every person who negotiates the sale of stock along with receives a percentage of the transaction as payment should be a registered broker-dealer. Those running afoul of the broker-dealer condition are frequently “neophytes, investment-banker wanna-bes,” says Sadick. However some violators are as well experienced moneymen. For the most part famous: Michael Milken, who, even after he was barred from securities trading, negotiated a contract for which he received $42 million. In the year 1998 he was forced to give it all back in the company of interest.
