Spotters Fee Agreement
In NTV Management, Inc., vs. Lightship Global Ventures, LLC, Massachusetts Supreme Judicial Court struck a first instance that found that a finder fee agreement was not applicable, since it was null and void under Massachusetts and Federal securities laws, since the finder was not registered as a broker. The Finder`s compensation agreement in question, like many of these agreements, held that The Finder (NTV Management, Inc.) had a commission on obtaining capital from investors and/or lenders that lightship Global Ventures, LLC needed to acquire Salary.com. The agreement also provided that, under certain conditions, if Lightship did not use NTV`s sources of capital to acquire Salary.com, a $330,000 consulting fee would be paid instead of a commission. After terminating its contract with NTV, Lightship completed the acquisition of Salary.com with a source of capital that was not associated with it by NTV. In the end, Lightship found that NTV was not owed to a commission or advisory fees related to the acquisition of Salary.com, and NTV sued for the payment of the commission or, failing that, the payment of the advisory fees. After a jury trial, the jury returned a verdict in favour of NTV, which awarded it damages for consulting costs, and to pay three times as much damages under G.L.c 93A. In response to the motions that followed the trial, the judge awarded the jury award and concluded that the Finder`s fee agreement was invalid and unenforceable because NTV was necessary but had not registered as a broker-dealer. Under Massachusetts law, a person who «is involved in securities transactions on behalf of others or on his own behalf» is registered as a broker-dealer (federal law is similar).
If such a person or entity is not registered, it cannot enforce a contract in violation of securities law. In deciding whether NTV`s agreement with Lightship should be implemented, the SJC considered whether the agreement on its face had triggered an obligation for NTV to register as a broker-dealer. To do so, the CJS used a two-part analysis and determined: «1) whether the instrument being traded is a «guarantee» and, if so, (2) whether the conduct required by the contract amounts to «transactions.» The SJC found that the language of NTV`s agreement with Lightship was broad and indeterminate as to the specific form of the transaction that such a capital raising would take, and found that «NTV`s contract did not require securities transactions.» While the decision was undoubtedly a relief to the Finder, it is not advisable to act as a finder without carefully considering existing securities laws. This can not only lead to the cancellation of the compensation agreement (as almost happened here), but can also result in serious sanctions on the part of financial market supervisors. Rich May`s Investment Management practice group regularly helps clients navigate these issues. Research costs are a reward and therefore an incentive to maintain business contacts and resources that pass on the needs of a company or organization to potential customers or partners. While contracts are not necessary in such agreements, the structuring and approval of the terms of research costs can be maintained by all parties on the extent of the compensation. This can be especially useful for contacts that constantly attract companies into the business.