Raiseform is not a broker-dealer

Unlike a broker-dealer, Raiseform has a fiduciary duty to act in the best interests of all parties.

What is a broker-dealer?

A broker-dealer is "any person engaged in the business of effecting transactions in securities for the account of others" as a broker, or for themselves as a dealer (15 U.S. Code ยง 78c).

Unfortunately the term "effecting transactions" is not defined by law, but generally refers to playing a key role in executing, structuring, or facilitating the purchase or sale of securities.

Why must broker-dealers register with SEC?

The Securities Exchange Act of 1934 requires broker-dealers to register with SEC. The primary goal is to mitigate their inherent conflict of interest.

The SEC Chief Counsel explained in 2001: "the broker regulatory structure is built, at least in large part, around managing the conflict of interest arising from a broker acting as a securities salesman, as compared to an investment adviser which traditionally acts as a fiduciary and which should not have that same type of conflict of interest."

Separately, SEC has declared "registration helps to ensure that persons with a "salesman's stake" in a securities transaction operate in a manner consistent with customer protection standards".

Who qualifies as a broker-dealer?

Federal courts regularly apply the same list of "activities that indicate a person may be a 'broker'". This list originated in SEC v. Hansen, 1984 WL 2413 (S.D.N.Y. Apr. 6, 1984). The activites are:

  1. Solicitation of investors to purchase securities
  2. Involvement in negotiations between the issuer and the investor, and
  3. Receipt of transaction-related compensation

This list is the de facto standard, after being cited in many federal cases including:

Is Raiseform a broker-dealer?

No, Raiseform is not classified as a broker-dealer.

First, Raiseform does not conduct any of the 3 activities that indicate someone is a broker. It does not solicit, negotiate, or receive compensation dependent on transaction success.

Second, SEC distinguishes between broker-dealers and escrow agents. SEC effectively requires that broker-dealers use escrow under rules 15c2-4 and 10b-9. FINRA explained in 1987 that for contingent offerings, where funds might be returned to investors, a broker-dealer "may only deposit investors' funds in an escrow account". FINRA elaborated in 2016: "In contingent offerings that require an escrow agent ... The escrow account may not be controlled by the issuer, the broker-dealer or an attorney." SEC also distinguishes between broker-dealers and escrow agents in litigation. For example, see Robert Tretiak (2003). Raiseform is an escrow agent that may be relied upon by broker-dealers, but that does not make it a broker-dealer.

Most importantly, Raiseform does not suffer the conflict of interest that motivates regulation. It does not have a "salesman's stake" in the transaction because it is compensated the same regardless of the success or failure of the transaction. Instead, Raiseform has a fiduciary duty to all parties to the transaction (offeror and investors).

In summary, Raiseform is not a broker-dealer, Raiseform is an escrow agent.