Maybe you have a rich friend who is looking to invest in something interesting or fun or worthy. And you have another friend who has just built a better mouse trap, but is living in his mom’s basement.
Together, the two could make millions. So you consider playing business matchmaker. Nothing wrong with that, right?
Even better… maybe you can get a cut in the business or a fee for a successful transaction. That’s just being enterprising. And your inventor friend is enthusiastically willing.
Someone tells me this story casually at least a few times a year.
And every time, I have to be a wet blanket.
Because if you are going to connect an investor with a business, you may be violating the securities laws. If things go wrong, you could be held responsible. Or worse, you could be prosecuted by the SEC and fined or put in jail.
Like many things in law, something with such good and innocent intentions can surprise the people involved by being illegal.
Watch the video to see what I mean.
Say you have a friend who wants you to introduce him to potential investors in your industry in order to raise money for his new start up business.
Can you take a percentage if he successfully raises money from my contacts?
Federal securities law requires a broker’s license for any person who gets paid any fee for obtaining an investor.
This is meant to protect investors from being scammed.
Even if you just make the introduction, you must still comply with this law.
If you are not licensed, the investor can later sue you for a return of his or her money.
You can still make a simple introduction to help out your friend, so long as you aren’t paid for it.
And, of course, you shouldn’t make any representations or guarantees about the wisdom of investing money in your friend’s venture.
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