Tilden Moschetti: We syndicators
operate under a regulatory

framework. The basic framework
says that every security needs

to be registered with the SEC
and or the state. However, there

are exceptions that do not need
registration. We have state

rules and federal rules that
govern what we do. When

everything is within the state,
we can choose between whether we

operate under the state rules,
also called called the Blue Sky

laws, or under the SEC's rules.
Now, looking online, you think

this was just sort of an
administrative thing that you do

you check a box because it's
just one form? And it's not

really all that necessary? Let
me tell you, it absolutely is.

I'm an attorney, I can give you
that advice. This matters. When

things go, well, well, then
everybody is okay. And nobody

really looks and everything's
fine. But when something

happens, or someone complains,
everything you've built is

suddenly in jeopardy. If you
haven't done everything right

crossed, all the T's dotted all
the eyes, you may be liable for

civil and criminal penalties.
Now, I'm not trying to scare you

here, I'm just trying to make
the point that this part really,

really matters. And it's not
something that just some guru

can say, well, all you have to
do is raise some money and magic

happens, this part matters.
Because if you mess up, you are

in really, really big hot water.
Now, that said, you can stay on

the right side of the law, when
you know where those boundaries

are, and you just know how to
stay within them.

In this module, we're going to
go through those boundaries and

talk about how to stay within
those bounds. Now you may be in

different states from then I'm
in. And so I don't know

specifically what state you are
in. And so I'm going to speak

generally about it. But this is
the kind of thing where you do

want to do some research and
maybe talk to an attorney either

in your area or somebody who
pray regularly practices in

syndication. For guidance on
Well, am I going to be running

any risks? Chances are these,
what I'm going to tell you today

will apply. But there may be
certain jurisdictions where

there are some nuances that kind
of change the rules. So in

general, when we're talking
about these boundaries, we're

talking about what exceptions
there are to the registration of

a security. Now under our
federal system, as soon as you

have a interstate transaction
where you have somebody in one

state and somebody in another
state, then the federal

government automatically is in
control. So that automatically

falls under the SEC auspices on
what is covered. Now if

everything is in the same state.
So for example, if you are in

Texas, the property is in Texas,
every investor is in Texas, you

can go under the blue sky laws
of Texas and do your syndication

there and not not even deal with
SEC rules. As long as that's

what your the blue sky laws of
Texas say, which they probably

do. Almost every jurisdiction
allows for its own internal

interest state securities
regulation. But as soon as we

get interstate, then you need to
go follow what the SEC rules

are. And even if you are all
interstate because we're a

federal regulated country, then
you also have the option of

following the FCC rules instead
of the exceptions of the

interstate. They all make
references in their codes to the

federal exemptions as well. So
there are three. So I'm going to

speak specifically about the SEC
rules. So the SEC, obviously is

the Security and Exchange
Commission. They're the

regulatory body that oversees
securities in the United States.

There are three different
exceptions

I can't spell today. A to the
SEC rules number, the first one

and the one that you probably
will use the most is Reg D There

are three different exemptions
under reg D, and we'll talk

about those, we have 504, 506b.
And my preferred one, the 506c.

Then there is two others that
aren't used as much, but we'll

go through them because you
probably will see them in

passing. And I don't want you to
be confused as to what they are.

So we have Reg CF. And we have
Reg A. And under Reg, A, we have

two tiers, we have tier one, and
tier two. So let's talk about

Reg D. So there are we're going
to break this down into several

different kind of categories
will build out a matrix and

you'll also have the matrix in
your materials attached to this

particular module. So you may
want to refer to that because

we're going to get not as quite
as detailed as that is, and also

attached in that module notes
will be kind of a flowchart on

how you make a decision on what
which one of these exceptions

most applies to you. So the
things that we are considered

that we need to mostly consider
is how much so how much money

can you raise?

Can you have non accredited
investors

we'll just put it on accredited
save rooms, and advertising.

There are other parts as well.
And those are detailed on that

sheet. So under Reg D, there
basically are these three

different categories we've got
reg D rule 504 Reg D rule 506b,

and Reg D Rule 506c, under reg D
rule 504 You can raise to up to

$10 million per 12 month period.
You can have non accredited

investors, but you cannot
advertise at all. So no

advertising under Rule 504 Which
means that every one of your

investors must be somebody who
you've had a pre existing

relationship with at a business
level, or they fall into some

other category. Like they are a
non accredited or they're an

accredited investor. And the
accredited investors they either

meet certain income
requirements, they either meet

certain net wealth requirements,
or there's a couple categories

for people who have securities
licenses may also qualify and be

accredited investors even if
they don't even if they don't

meet the income requirements, or
the the wealth requirements.

Rule 506b doesn't have a limit
doesn't have a limit you can

have non accredited investors,
you can have up to 35 So that's

a greater than or equal to 35
non accredited investors you

also need to determine that
those non accredited investors

are sophisticated investors that
they know what they're doing

when they invest and but you are
still not allowed to advertise

so these need to be people who
like I said before that you have

that existing relationship with
as long as they are accredited

now. Can you advertise but only
only advertise to people who are

non accredited only advertise
take investors who are

accredited investors advertise
but you'll still take out to the

your unaccredited non accredited
investors. No, no, no, you

cannot. When they when the SEC
says no advertising, they mean

no advertising at all. So do not
do that. We'll find a four or

506b No advertising, only
existing people that you've had.

Now I've done 506b and they're
totally doable as long as your

list Have people who you've done
those relationships with is big

enough, there's a lot of benefit
to doing a 506b, because we

don't have the formalities of
needing to prove that everybody

is an accredited investor,
because you already have that

relationship with them, it's
assumed that you can have those

unaccredited investors, because
it's not just the public who's

coming in investing in this.
Now, under 506c, we also have no

limit on how much money we can
raise. We cannot however, have

any non accredited investors.
And I would go so far as to say

that every single one of your
investors should be accredited,

and that they're accredited,
that status should be verified

by a third party verifier, it
just gives you an extra level of

protection that you don't get by
doing it on your own. The

presumption here is that you did
not do it, and that they is that

they slipped through the cracks,
and the SEC can come and get you

I say protect yourself by
getting a third party verifier.

So third party verification is
recommended by me very strongly,

I wouldn't do one without a
third party verification, they

basically go through it all,
issue a certificate that says

yes, we believe this person is
an accredited investor. And

suddenly now all that weight is
off you, you don't have the

burden anymore of showing that
you did your due diligence in

order to to make sure that they
are an accredited investor, you

show that this that the third
party verification is a regular

third party verifier. And
suddenly now, the presumption is

that they probably did
everything by the book. And the

nice thing, and why we do it is
we can advertise. And when I say

advertise, I mean you can put it
on the internet on social media,

you could put a billboard up,
you could hire a plane to fly

with a banner behind no problem.
You cannot take money unless

they're an accredited investor,
and in my opinion, have that

third party verification, but
you definitely can take anybody

who is an accredited investor.
That is why 506c is my preferred

way, I almost always would
rather do a 506c because I also

want to get my name out there
and have it known that I am

syndicating because then I get
more and more investors. So for

me 506 C is the best of the
exemptions. Now there are two

other categories of it two
different regulations of

exceptions. So Regulation CF. CF
stands for crowdfunding, it came

out of the Jobs Act, and under
Regulation CF, you can now raise

a minimum a maximum of $5
million per 12 month period.

That's up from just a million
dollars earlier. And now

suddenly, we're in the ballpark
where it does make sense in

order for it to be a for real
estate. So under reg cf Now you

can have non accredited
investors. But here's the big

caveat. Can you advertise well
kinda. But everything must go

through a registered portal. So
can you just open up your own

portal and say and get it
registered from somewhere? No, a

registered portal is set up.
It's registered with both FINRA

and the SEC in order to let
everybody know that you that

they portal will be doing the
verification of the of the

investors to make sure that
they've received all of their

disclosures, and to make sure
that they know what they're

doing and kind of set that
dollar amount that they can

invest. The SEC wants to police
to make sure that people aren't

investing their life savings in
your deal. Only to put it at

risk and potentially lose it.
Under reg a reg A is also an

exception to the to the the
requirement to register a

security and there's two tiers
for it. So under tier, we'll do

that together under Tier one is
a up to $20 million in a 12

month period. And tier two is up
to $50 million in a 12 month

period. And you definitely can
have accredited investors. And

you definitely can advertise. So
you are probably asking

yourself, Well, why would I not
do a reg A, the reason that you

wouldn't do a reg A is because
it takes for ever, in order to

do a Reg A, you need to file it
with the SEC, who then reviews

it. And then they make them they
suggest changes? Well, I

wouldn't say suggest they tell
you which changes to make. And

then they review. And then
hopefully they approve. And so

all these steps.

It says government we're talking
about take for ever. I mean you,

I think right now you're looking
at well over six months,

probably nine months to a year
in order to get one approved.

Now, if that's the kind of deal
you're working on, fantastic if

you're dealing with a blind pool
or something like that, Reg A is

definitely something to
consider. Because it is a great

mechanism. And you can advertise
and you can take it on

accredited investors and all
that good stuff. The so you can

do all that. Now the nice thing
is, too, you can also advertise,

wow, it's pending. So once you
submit this to the SEC, you can

start advertising, but you
cannot accept any money until

after they approve it. So once
they approve it, then you can

accept money but no touching
their money until after it's

been approved. So this is the
basic framework that we're

looking at. Now, if you fall, if
you did something that was not

quite right, like you kind of
did a 506c, or no, you kind of

did a 506b. So you have
unaccredited investors, but you

did advertise you put it on
social media, what is going to

happen? That's a question I get
a lot. What's going to happen is

this, as soon as something goes
wrong, you have an investor who

gets mad, they are going to file
a complaint in state court

probably and maybe with the SEC
initially. And then you are

going to be under extreme
scrutiny. Now, if you are found

that you did something wrong,
which is likely, given the

scenario I've painted, then you
are suddenly liable for all of

the money, not just the money
that you got from that one

investor, you are liable for the
entire amount immediately. So if

all of the equity was $3 million
of equity that you raised, that

day one, you need to give that
$3 million back right now. No

waiting, it's due now. Your
entire syndication has

completely fallen apart. Because
it fell apart, you committed

fraud, you put something out
there that is fraudulent. And so

now suddenly, we're talking
criminal penalties as well. And

people do go to jail for this.
So that's why it's important to

recognize that this kind of
discussion is very serious. This

is not the kind of thing that we
just look online and and hear

what some guru has to say about
it. You need to ask a lawyer,

I'm a lawyer, I can tell you
that. Yes, there is definitely a

problem here. But here's what
the boundaries look alike. And

here's how you can stay in
compliance with those rules. So

in the next module, we're going
to talk about how we stay within

those rules, using the private
placement memorandum, how its

structured, what it's composed
of why it's so important, why we

don't just pull some template
off the internet. And then why I

tell all of my clients and and
syndicating members The people I

mentor in syndication, why I
tell them, you need to do a

private placement memorandum,
even if you're doing a 506c,

which by the way does not
actually require a private

placement memorandum. But I tell
them, they really, really

should. And we'll go over why
that is in that next module.