The Myth Of The Friends And Family Securities Exemption For Syndications

Tilden Moschetti, a securities attorney with Moschetti Syndication Law Group, specializes in assisting syndicators and funds in setting up offerings for Regulation D Rule 506b and 506c offerings. He addresses a common myth among people that they can conduct a securities offering without filing with the SEC if they just involve friends and family, or if the investment amount is below a certain limit, such as $1 million.

Moschetti clarifies that there is no rule that exempts such securities offerings from filing with the SEC. They could be considered public securities, which require registration, and they don't fall under any protection. If a disgruntled investor decides to sue and the offering didn't follow the SEC's 'safe harbor' rules, the plaintiff's attorney could have a solid case.

The attorney further explains the Howey Test, which is the standard for determining what constitutes a security. The Howey Test looks at four elements: an investment of money in a common venture with the expectation of profit, relying on the efforts of a third party. If these conditions are met, then the arrangement is a security. The exception to this is if the arrangement is a joint venture, where all parties have a say in decision-making, which is often not the case.

If someone has unknowingly created a security, they have the option to file a Form D late, notifying the SEC and the states about the offering. This could result in a penalty from the states but not from the SEC. However, a late filing could potentially prevent the person from filing Form Ds in the future. Despite the risk, Moschetti believes the SEC would be unlikely to penalize someone for late filing, as their ultimate goal is to be informed when a security is being offered.

Read more about Reg D - The SEC and Its Regulation D: https://www.moschettilaw.com/sec-reg-d/

Read more about real estate syndication - How to Syndicate Real Estate: https://www.moschettilaw.com/how-to-syndicate-real-estate/

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Moschetti Syndication Law Group is a boutique syndication law firm, serving small and growth-bound syndicators, and well as private equity firms. We keep our firm ‘boutique’ size so we can tailor the services to each client’s unique needs without turning the firm into a faceless factory or passing unnecessary overhead expenses onto our clients. (As our client, you’ll only pay a fixed fee, so no surprises.) As for the client experience, we give real-time answers without making you book an official appointment. And we’ll work with your ambitions and overall vision to help you close the current deal and fill-in that ‘missing’ piece - whatever you need - to keep adding more syndications to your portfolio. We keep syndicators syndicating (TM).

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