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Blogs | June 21, 2015
3 minute read

COA: A “finder” may not have to register under Michigan’s Uniform Securities Act

In Pransky v. Falcon Group, Inc., No. 319266; 319613, the Court of Appeals held that Michigan’s Uniform Securities Act (“Securities Act”) does not require a “finder” to register as a “broker-dealer,” “agent” or “investment advisor.”  Thus, a consulting agreement requiring Defendant Falcon Group, Inc. (“Falcon”) to perform services as a finder for Plaintiff Pransky was not illegal. Therefore, the Court of Appeals affirmed the trial court’s order dismissing Pransky’s claims premised on the illegality of the consulting agreement but vacated the order compelling Pransky to pay attorney fees.

Pransky intended to open and operate a health and wellness spa. Pransky executed an agreement with Falcon in which Falcon represented that it was in the business of providing consulting services and would help Pransky “build a publicly traded franchised company.” The agreement involved compensating Falcon for its efforts to obtain investments or financing. Less than a year after executing the agreement, Pransky discovered that Falcon was not registered as a broker-dealer under the Securities Act and believed Falcon could not legally perform the services required by the agreement. Pransky attempted to rescind the agreement and sued Falcon for return of the retainer fee. Specifically, Pransky alleged that Falcon acted as a finder under the Securities Act and, as such, had to be registered as a broker-dealer. Because Falcon was not registered, Pransky insisted that the agreement was illegal and void. The trial court granted Falcon’s motion for summary disposition and motion for attorney fees. The primary issue on appeal was whether the consulting agreement required Falcon to perform any service that would require it to be registered under the Securities Act.

According to MCL 451.2401, 451.2402, and 451.2403, the Securities Act prohibits persons from transacting business in Michigan as a broker-dealer, agent, or investment advisor unless registered under the Securities Act.  Pransky contended that because the trial court indicated that Falcon qualified as a finder pursuant to the consulting agreement, Falcon was required to register as a broker-dealer under the Securities Act.  Examining the scheme and construing the statute according to its plain language, the Court of Appeals concluded that the Legislature intended to differentiate finders from broker-dealers, agents, and investment advisors and intended to exempt persons who act solely as finders from registration.  Thus, a finder does not have to register as a broker-dealer, agent, or investment advisor as long as the finder constrains his or her activities to those stated under MCL 451.2102(i).  Additionally, Pransky asserted that agency regulations require finders to register as broker-dealers.  However, the Court of Appeals indicated that the regulations provided no guidance because the current regulations were promulgated under prior versions of the Securities Act and the specific regulation Pransky relied on had been rescinded.

Applying its reasoning to the consulting agreement at issue, the Court of Appeals determined that Falcon could theoretically perform the services required under the consulting agreement as a finder without having to be registered as a broker-dealer, investment advisor or agent under the Securities Act. Thus, Pransky’s claims failed and the consulting agreement was not on its face illegal.  Accordingly, the Court of Appeals affirmed the trial court’s order granting Falcon’s motion for summary disposition. However, the Court of Appeals vacated the trial court’s order compelling Pransky to pay Falcon’s attorney fees because the trial court could only award the fees as damages on a contract claim and Falcon failed to bring a valid contract claim.