Letter to House Financial Services Committee - Unlocking Capital for Small Businesses Act of 2025

June 9, 2025

The Honorable French Hill                                                     The Honorable Maxine Waters

Chairman                                                                                 Ranking Member

Committee on Financial Services                                          Committee on Financial Services

U.S. House of Representatives                                              U.S. House of Representatives

Washington, D.C. 20515                                                          Washington, D.C. 20515

Re:       Opposition to Unlocking Capital for Small Business Act of 2025 – Preserving Investor Protections and Market Integrity

Dear Chair Hill:

On behalf of Stonehaven, LLC as well as a significant number of peer member firms (see details below), we are writing to express our strong opposition to the proposed Unlocking Capital for Small Businesses Act of 2025 (the “Act”).  

Our position is supported by the FINRA Small Firm Advisory Committee (SFAC), which represents approximately 3,000 small member firms and over 60,000 small firm registered representatives in the financial services industry.  Further, our opposition to the Act concurs with that of SIFMA as outlined in their recent letter to the House Financial Services Committee dated February 26. 2025, which favors passing 8 of the 9 specific bills referenced within SIFMA’s letter, with the only exception being in opposition to the Act. As you are aware, SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. We extend our gratitude to your key staff members for recently taking time to meet and discuss our concerns as outlined herein.

By way of background, Stonehaven, LLC is a broker-dealer platform that supports 150+ independent investment bankers and placement agents that raise capital, conduct M&A and execute secondaries for 200+ clients.  We have raised >$11B since inception for both operating companies and asset management firms across all areas of private markets: venture capital, private equity, private credit, real estate, infrastructure, hedge funds and traditional long-only strategies. 

Key Concerns: Erosion of Investor Protections and Market Integrity

While we fully support the House Financial Services Committee’s bipartisan intent of enhancing access to capital for American small businesses, which are the backbone of local economies and entrepreneurship across red and blue states alike, we are deeply concerned that the proposed legislation, as currently drafted, would have unintended and damaging consequences for both investors and the broader private capital markets. Specifically, the Act’s provisions significantly risk eroding investor protections by (a) exempting certain parties from regulatory oversight and (b) weakening regulatory oversight of other registered parties active in private markets.  This would compromise core conservative principles of transparency and free-market accountability, as well as liberal priorities around consumer protection and financial inclusion.  Ultimately, this undermines the very capital formation objectives the Act seeks to promote by increasing investor risk (with the biggest impact on those most vulnerable) and reducing trust in financial intermediaries amongst companies seeking to raise capital. We urge the House Financial Services Committee to reconsider the proposed legislation to ensure the preservation of essential investor protections, maintain fair and transparent markets, and avoid creating a regulatory environment that invites abuse and misconduct by limiting who and how parties are regulated. 

Given our collective, extensive experience and knowledge within capital markets, we see no evidence to support the assumption of this Act that there’s a meaningful universe of unregistered individuals who could facilitate meaningful capital formation if they were only provided with exceptive relief to do so.  The Act would create an unenforceable boundary between the unregulated and regulated markets, provide misguided incentives for registered-representatives to become finders, and create an uneven playing field.  The onramp for independent financial intermediaries to join broker dealers has already been established by a robust and competitive industry of broker-dealers that support independent contractors at a low cost while maintaining high regulatory standards; many of which are referenced in and support this letter. 

The Act would exempt certain parties from FINRA broker-dealer registration, removing key oversight and infrastructure which protects the integrity of the private market for investors and market participants. 

The Act would provide a safe harbor for “finders” that operate under the following annual limits: transaction-based compensation <$500,000, raise <$15M for any issuer, raise <$30M total, and receive transaction-based compensation for <16 transactions that are not part of the same offering.

1.  FINRA Broker-Dealer Oversight: A Cornerstone of Investor Protection

Both Republican and Democratic administrations have long recognized that market-based regulation administered through FINRA protects investors while allowing for efficient capital formation. By bypassing or weakening the broker-dealer registration requirements, the proposed Act would strip away these critical protections primarily for the most vulnerable investors in the marketplace – retail investors.

 Key Protections at Risk:

• Comprehensive Due Diligence: FINRA requires broker-dealers to vet every private placement they offer with thorough due diligence and background checks—analyzing business models, financials, and risk factors. This due diligence process filters out certain problematic offerings from being sold to investors while making sure those offerings that are sold to investors are properly packaged and sold in a fair and balanced manner with all risks and conflicts properly disclosed.  Broker dealers and registered representatives are held accountable for their actions with public records, unlike the proposed finders. 
• Accredited Investor Verification, Suitability & Reg BI: Broker-dealers verify whether investors meet accreditation standards, ensuring they have the financial capacity to bear the significant risks associated with private securities. Loosening verification requirements could allow unqualified investors to participate in risky and illiquid private placements.  FINRA-registered representatives are responsible for ensuring that any private investment recommended to a client is suitable based on the investor’s financial situation, investment objectives, risk tolerance, and other relevant factors, in accordance with FINRA’s suitability rule (Rule 2111).  Further, FINRA-registered representatives are required to observe high standards of commercial honor and just and equitable principles of trade, ensuring that their recommendations are suitable and in the best interest of the customer under Regulation Best Interest (Reg BI) when applicable.  Broker-dealers have spent significant time modifying operating procedures to implement Reg BI since it was passed in 2019.  Under the proposed Act, finders would not have to operate under these standards, and there would be no framework for supervising their activity regardless of any standards the Act may add in future drafting without the role of a broker dealer. 
• Supervision of Sales Practices: Broker-dealers must supervise their representatives to prevent fraudulent sales tactics, misrepresentation, and conflicts of interest. Less-regulated intermediaries would lack the same accountability and invite fraud and abuse into the capital formation arena.  In fact, it is fair to say that removing the foundational common sense controls and regulations in place to protect investors would almost certainly attract predatory actors focused on exploiting the most vulnerable investor demographic: retail investors.  The Act would also encourage many registered representatives currently operating under broker-dealers to deregister, removing much of the supervisory role broker-dealers currently play in private markets which presents an unintended consequence that would accelerate the growth of a largely unregulated environment and the malfeasance that directly correlates with these types of forums.
• Education, Licensing & Vetting: FINRA requires individuals to go through upfront education and testing to be licensed as registered representatives.  Further, consistent information is captured and maintained to ensure proper vetting and public disclosure through BrokerCheck (https://brokercheck.finra.org).  This ensures registered representatives meet consistent criteria and information is publicly available to protect investors.  Lastly, ongoing maintenance of knowledge proficiency for registered representatives is addressed through annual Continuing Education requirements which helps to ensure registered representatives stay abreast of the relevant rules and regulations in the dynamic regulatory environment within which they operate. This simple and reasonable framework, which has been in place for decades, does not present any material barriers to entry for any individuals who may be seeking to become financial intermediaries in the capital markets arena. 
• Increased Risk of Fraud and Misrepresentation: Private placements are inherently less transparent and more illiquid than publicly traded securities. They involve fewer public disclosures and less regulatory scrutiny. To mitigate these risks, broker-dealers are required to conduct thorough due diligence and provide full and fair disclosures to investors. By reducing regulatory oversight, the proposed Act would create an environment for bad or careless actors to promote unvetted or misleading investment opportunities, thereby exposing vulnerable investors to higher-risk, opaque products without the benefit of broker-dealer due diligence and oversight. Investors would also face reduced recourse options and weaker protections in cases of misconduct which would predictably rise in this unchecked environment. This is not a theoretical concern: enforcement data shows that looser oversight directly correlates with higher incidence of fraud and abuse— a fact recognized by legislators across the aisle.

Why It Matters: Without broker-dealer oversight, the proposed finders in the Act could knowingly or unknowingly subject vulnerable investors to issuers that would not pass due diligence standards or are not packaged appropriately to disclose risks or conflicts of interest.  These so-called finders would operate with much lower sales standards than registered representatives who are also vetted and educated to perform this critical role in capital formation.  There would be no regulatory oversight to prevent fraudulent schemes, aggressive sales tactics, and high-risk investments being sold to vulnerable investors. This threatens to undermine the long-standing bipartisan consensus that supports safe participation in capital markets by retirement savers, small investors, and working families. 

2.  Rigorous Marketing Material Review and Disclosure Standards

• Principal Review and Approval: Under FINRA Rule 2210, broker-dealers must have a registered principal review and approve all marketing materials related to private placements prior to dissemination.
• Fair and Balanced Communication: These materials are held to strict standards of accuracy and must be fair, balanced, and not misleading, ensuring that investors receive truthful and complete information.
• Mandatory Disclosure of Risks and Conflicts: Broker-dealers are required to disclose all material facts, including conflicts of interest and the fees they receive pursuant to Reg BI. This allows investors to make informed decisions with full knowledge of potential biases.

Why It Matters: The Act’s provisions would materially loosen these disclosure standards, enabling unregulated market participants to distribute promotional materials without appropriate oversight—leaving investors vulnerable to misleading or incomplete information relating to perceived and real conflicts of interest critical to making investment decisions.  The absence of oversight coupled with the general levels of unsophisticated investors would make this framework a prime target for malfeasance which would ultimately damage capital formation through the rapid erosion of trust for smaller issuers in capital markets.

3.      Weakening of AML, Recordkeeping, and Transparency Protections

Broker-dealers are subject to anti-money laundering (AML) regulations, customer identification requirements, and strict recordkeeping obligations. This ensures that transactions are transparent, traceable, and compliant with financial crime prevention rules.

The proposed Act would reduce these protections by allowing less-regulated intermediaries to facilitate private placements. This increases the risk of:

• Illicit actors using private placements to launder money or engage in market manipulation.
• Reduced transparency, making it harder for regulators to monitor suspicious activity.
• Inadequate recordkeeping, making it more difficult to track and investigate irregular transactions.

Why It Matters: Weakening AML and recordkeeping requirements would compromise market integrity and materially increase the probability for financial crime and abuse.

4.      Reduced Recourse for Investors

Currently, investors harmed by broker-dealer misconduct have access to FINRA’s arbitration and mediation forums, providing a structured and widely recognized avenue for dispute resolution. Additionally, FINRA’s enforcement powers allow it to investigate and sanction member firms and registered-representatives for violations, deterring misconduct.

The proposed Act would weaken these investor protections by:

• Exposing vulnerable investors to intermediaries with no FINRA oversight, reducing their ability to pursue claims through established FINRA mechanisms such as arbitration.
• Limiting enforcement capabilities, making it harder for regulators to detect and punish misconduct.
• Increasing the volume of litigation in civil and criminal courts relating to fraud and abuse outside of the purview of FINRA which is precisely why the FINRA arbitration forum was established.
• Reducing transparency, making it more difficult for investors to assess and verify the legitimacy of private placement investment opportunities.

Why It Matters: Without effective oversight and enforcement, vulnerable investors would face greater exposure to fraud and fewer avenues for recourse.  Civil and criminal court cases are already at levels stressing the state and local frameworks which further protracts the process of dispute resolution in these respective forums.  Eliminating access to the FINRA Arbitration forum would only exacerbate this issue.  What’s to prevent a person banned by FINRA from operating as a finder?  If a finder has a checkered past, how would an investor research their record without FINRA Broker Check?

5.      Long-Term Harm to Capital Formation and Market Integrity

Ironically, while the Unlocking Capital for Small Business Act of 2025 aims to boost capital formation, it could ultimately undermine investor confidence and reduce market participation and capital formation.

• Reduced trust in private markets: Weakening investor protections would likely lead to increased instances of fraud, deterring capital from flowing into legitimate small business offerings.  This damage to trust in private markets would have a long-lasting effect which would be challenging and time consuming to reverse and restore.
• Lower participation from sophisticated investors: Institutional investors and wealth managers may limit their participation in private placements if they perceive reduced transparency and oversight.
• Long-term reputational damage: Malfeasance resulting from reduced oversight could tarnish the reputation of the private markets, making capital formation more difficult in the long run.

Why It Matters: Strong investor protections enhance market credibility, attracting more capital and fostering sustainable small business growth. Weakening those protections risks harming the very markets the Act aims to support.

The Act would create an unenforceable boundary between the unregulated and regulated market, provide incentives for registered representatives to become finders, and create an uneven playing field. 

1.      Unenforceable Boundary

Under the Act, finders wouldn’t be subject to any direct regulatory oversight by FINRA.  Hence, there would be no way to even identify the universe of parties acting as finders.  Furthermore, without broker-dealer oversight, there would be no way to track when finder fees, amounts raised and number of clients crosses any proposed thresholds.  This self-reporting creates perverse incentives for finders to avoid becoming registered representatives.  Who’s going to even know if they crossed a proposed boundary, and why would they want to be subject to the standards of registered representatives if nobody’s looking or holding them accountable?

2.      Shifting Regulated Parties Into Unregulated Market

A large universe of current registered representatives currently operate under the proposed thresholds that would enable them to become finders under the Act.  In fact, most registered representatives focused on private placement activities likely earn less than $500k in fees and raise less than $30M annually.  Why wouldn’t they deregister and only register again if they think they might cross the threshold?  Can registered representatives take client engagements signed on a broker dealer with them when they deregister?  How are broker-dealers supposed to sustainably support registered representatives constantly registering and deregistering?  Is the movement of registered representatives into the unregulated market achieving the goals of this Act?  These are just a few of the material questions that need to be addressed when reviewing the proposed legislation of the Act.

3.      Uneven Playing Field

In the lower middle market, the Act would cause registered representatives to compete head-to-head against finders.  Forcing registered representatives to operate with higher standards and costs than finders creates an uneven playing field.   Currently finders can make passive introductions with flat fees (no success-based pay), but they can’t negotiate terms, provide materials or engage in any discussion of the subject private securities.  The concept of a finder was never meant to be a business model but instead a carve-out for a one-off introduction.  The current construct already provides a limited pathway, but the proposed Act eliminates the distinction entirely. 

The Act would reduce the regulatory oversight of broker dealers focused on the private market to the limited framework used for Funding Portals, removing foundational standards that protect investors and market participants. 

The Act states that “the Commission shall promulgate regulations with respect to private placement brokers that are no more stringent than those imposed by funding portals”.

Investor protections provided by full-service FINRA broker-dealers and funding portals under Regulation Crowdfunding (Reg CF) differ significantly due to their varying roles, regulatory requirements, and the scope of services they offer.

Key Differences Between FINRA Broker-Dealers and Funding Portals

• Limited Due Diligence: Funding portals under Reg CF have less stringent due diligence obligations than broker-dealers. While they are required to ensure that issuers comply with Reg CF’s disclosure requirements (such as providing financial statements and a description of the business), they are not required to conduct in-depth due diligence and are not responsible for the quality, accuracy, and completeness of disclosures regarding the investment opportunity itself.
• No Financial Advice: Unlike broker-dealers, funding portals cannot provide investment advice, recommend investments, or engage in any active role in vetting the viability of the business or the offering.  The reality of raising capital for private companies or funds is that facilitating an introduction between an issuer and an investor is akin to making a recommendation and providing financial advice.  There’s no clear boundary, and Reg CF was intended to operate websites offering investment opportunities, not the direct facilitation of capital raising between parties.  Why is it in the best interest of investors and capital formation for the regulatory framework to remove suitability standards and all the protections provided by Reg BI? 
• Investor Risk Education: While portals are required to provide educational materials about the risks of investing in private companies and the nature of crowdfunding, they do not conduct the level of analysis or monitoring that broker-dealers do.

Why It Matters: FINRA broker-dealers provide effective and reasonable investor protections, including thorough due diligence, suitability assessments, ongoing monitoring, and the requirement to act in the best interests of their clients. They are also subject to stringent oversight and offer a higher level of fiduciary responsibility.  Funding portals, on the other hand, have lower due diligence requirements and do not provide the same level of investor protection. While they ensure basic disclosure and investor education, they are not responsible for assessing the viability of the investment or the suitability of the investment for specific investors. This renders these basic disclosure requirements impotent. Their role is more limited to facilitating transactions in compliance with Reg CF rules.

While we are certainly supportive of democratizing access to the private placement marketplace and enhancing capital formation within the lower levels of this marketplace, this Act would be a monumental step backward in the regulation of private markets.  We too seek smarter regulation for broker-dealers, and we would be more than happy to engage in a productive conversation to focus on more precise legislation that is effective in practice without creating a large universe of material and unintended consequences. 

Notable Statistics: The inception of Funding Portals traces back to 2016 when Reg CF became effective.  The growth trajectory of Funding Portals and the transaction volume they’ve facilitated in private markets is less than impressive. 

Based on our research, the total number of Funding Portals has essentially flatlined over the last 4+ years and actually declined in 2024 to 84 firms.

Additionally, based on data from the SEC, the total number of Reg CF offerings decreased by over 60% from 2023 to 2024.  In terms of absolute dollar comparisons between total private placement volume versus total Reg CF offering volume reflects that Reg CF offerings volume has represented less than 0.50% of the total private placement capital invested for each year dating back to inception of Funding Portals in 2016.  While Reg CF has provided an avenue for small businesses and startups to raise capital, its share of the overall private placements market remains quite modest and has actually declined according to the most recent data. This suggests that rule promulgation focused on loosening regulatory requirements, which were codified almost a decade ago, has not enhanced or expanded capital formation in any meaningful way as it was intended to do.  We believe the Act would have a similarly impotent positive impact, while having a significant negative impact based on the arguments included herein.

Fortunately, the industry already provides a clear on-ramp for independent intermediaries seeking a regulatory platform without running their own broker dealer:

Over the last ~15 years, a modern business model has emerged where certain broker dealers support independent contractor financial intermediaries with respect to their own investment banking and placement agent businesses under the oversight of the broker dealer.  While there are many different business models, these broker dealers enable independent contractors to solicit the purchase and sale of private securities in the marketplace, solicit clients and investors, actively market, promote, and reach out to potential investors about investment opportunities in private placements, receive transaction-based compensation based on the success or size of a securities transaction (e.g., a percentage of capital raised), and negotiate investment terms, handle offering documents, and facilitate closings of securities transactions.

These broker dealers provide full regulatory oversight and additional support related to contracting, due diligence, finance, operations and many have been building RegTech and LegalTech over the past several years to automate and scale their respective businesses.  This business model enables independent financial intermediaries to operate without the need to maintain their own broker dealer with a very affordable cost structure.  Gone are the days of needing to launch your own broker dealer to run your own financial intermediary boutique.  While these broker dealers support larger businesses, the majority of the people on these broker dealers operate solo as one-person organizations.  Thus, these broker dealers support a whole “gig economy” of independent operators.  Given these broker dealers are built to support this demographic, they provide a great compliance solution to protect investors and market integrity.  Please refer to Exhibit A for more information regarding this modern business model and burgeoning industry within the small broker-dealer universe.

Examples of some of the 25+ broker dealers that support this business model (Note: those with asterisks have confirmed direct support of this letter):

• Stonehaven, LLC - www.stonehaven-llc.com (my firm) *
• Finalis, LLC – www.finalis.com *
• GT Securities, Inc. – www.gtsecurities.net *
• Pickwick Capital Partners, LLC – www. pickwickcapitalpartners.com *
• Invicta Capital LLC - www.invictacapitaladvisors.com
• Britehorn Securities - www.britehorn.com
• RainMaker Securities, LLC – www.rainmakersecurities.com *
• FNEX Capital, LLC – www.fnex.com
• Old City Securities – www.oldcitycapital.com *
• StillPoint Capital – www.stillpointcap.com
• Independent Investment Bankers Corp. - www.iibcorp.com *
• League Capital Markets - https://www.leaguecapitalmarkets.com/
• BA Securities LLC - www.basecuritiesllc.com *
• Burch & Company Inc - www.burchco.com *
• Butler Capital Partners - www.butlercap.com *
• Castle Placement - www.castleplacement.com
• Crito Capital - www.critocapital.com *
• Equus Financial Consulting - www.equusfinancialconsulting.com *
• Frontier Solutions, LLC - www.frontiersolutionsllc.com *
• Hollister Associates, LLC - www.hollisterassociatesllc.com *
• INTE Securities - www.intesecurities.com
• M&A Securities Group, Inc. - www.securities-group.com *
• March Capital Corp. - www.marchcapital.com *
• Profor Securities LLC - www.proforsecurities.com
• Young America Capital, LLC - www.youngamericacapital.com *

Conclusion: Protecting Investors and Preserving Market Integrity

We respectfully oppose the Unlocking Capital for Small Business Act of 2025, and we urge the House Financial Service Committee to focus on the other initiatives that will strengthen capital formation. While we support the objective of expanding access to capital, Republicans and Democrats alike understand that this must not come at the expense of critical investor protections, sound market governance, accountability, transparency, and market integrity.  This Act is seeking to solve a problem that’s already been addressed in the market with a competitive landscape of broker dealers that support independent financial intermediaries at very competitive pricing. 

We welcome the opportunity to collaborate with the House Financial Services Committee to develop balanced reforms that foster capital formation while preserving the integrity, transparency, and fairness of the private markets.

Sincerely,

/s/ Steven Jafarzadeh

Steven Jafarzadeh, CAIA, CRCP

Chief Compliance Officer & Partner

Stonehaven, LLC

Member, FINRA Small Firm Advisory Committee

/s/ David T. Frank

David T. Frank, CFA

CEO & Managing Partner

Stonehaven, LLC