What happens if a sponsor is not a registered Broker-Dealer?.

In the US, independent sponsors often rely on the “issuer exemption” to raise capital without being a broker-dealer.

However, they cannot receive “transaction-based compensation” (a commission) for raising the money unless they use a licensed placement agent.

• Red Flag: If a sponsor takes a “success fee” strictly for raising capital (not for managing the deal) without a license, the entire deal could be legally rescinded.