Finder's Fees and SEC regulations

I've been advised on multiple occasions that agreeing to a finder's fee as a percentage of capital raised is illegal in the United States, unless the "finder" is a licensed broker-dealer.

Despite this, finder's fees seem to be ubiquitous in the startup world, and I've already encountered multiple firms/people who professionally connect startups with investors in exchange for a finder's fee, and yet are NOT licensed broker-dealers. This casual attitude towards finder's fee among the startup community in the United States seems totally oblivious of the potential legal ramifications.

So my question(s) is:

(1) Am I correct that finder's fees are actually illegal under SEC regulations?

And (2), if so, what are the potential undesirable legal consequences of agreeing to pay a finder's fee?

(1) In 2010, the SEC issued a no-action letter about finders. In this letter, it said that "a person's receipt of transaction-based consideration is . . . a hallmark of broker-dealer activity." In other words, if you are being paid based either on the amount of the transaction or its success, then you are probably acting as a broker-dealer. And broker-dealers have to be registered.

(2) For the company, the biggest risk is probably losing its exemption from federal securities laws -- if that happens, every single investor could sue to get his/her money back.

Now, it's true that there are people out there who engage in this sort of activity. And the SEC doesn't really appear to be cracking down on them. But, that doesn't make their activities any more legitimate.

Note that Finders are not as ubiquitous or successful as they would like you to believe. The best way to generate investment interest is the old-fashioned way: develop a good product and network, network, network.

No , you are not correct about your first question ,Its not illegal, the finder's were paid for their work, because they are the one who brings investors to the company.