Welcome to part two of this
video series going through how

to stay in compliance with the
SEC and state regulators. When

you're doing a securities
offering under Regulation D,

this is an exciting video
because this one is going to be

a problem that I see coming up
time and time again, though it's

happening more and more. So
let's go through exactly what

I'm talking about. It's time I
call this section, improper

structures. What exactly does
that mean? Does the structure of

my regulation security have to
do with it? My name is Tilden

Moschetti. I am a securities
attorney with the Moschetti

Syndication luck.

All right, we're going to talk
right now about three different

structures that I call improper
structures. They're structures

that, in my opinion, as a
securities attorney, as somebody

who specializes in syndication
law, these are big, big

problems, I think the SEC is
going to be looking extremely

close at what that these two
kind of three setups, these

kinds of three structures. And
if they found wind of what was

going on, there is going to be
an issue. Now, let's talk real

briefly about how the SEC
normally gets notified about

things. So most of the time, 99%
of the time, the SEC gets wind

of things when there is a
lawsuit filed. So when there's a

lawsuit filed the plaintiff's
attorney most of the time will

file a complaint also, with the
SEC, saying that the Regulation

D is not set up properly, or
it's not compliant, and

therefore, it's not under what
we call the safe harbor of the

of Regulation D. If it's not
under the Safe Harbor of

Regulation D or any of the other
exemptions, then it

automatically is a public
security. And if it's a public

security, and there is a
violation, then the investor

themselves has a right of
rescission. That's what that

means is the investor has the
right to say, hey, there was no

contract whatsoever, give me all
my money back, give me the money

that I lost as opportunity cost.
And SEC states go get them. Just

go get them, grab them, drag
them to the ground. And they

will. So let's go through what
these three structures look like

and why exactly I think they are
a big problem. And what I think

the SEC is going to be doing
about them and looking very,

very closely at. So again, I am
an attorney. And I'm not saying

that they will look closely at
these things. This isn't legal

advice for you. Right. So this
is the kind of normal caveat, I

don't normally put this out
there except in the show notes.

But this isn't legal advice for
you. If you're watching this

video, and you are part of an
investment that gets set up for

this, that may or may not be
something that is relevant to

you. So do not call my office.
If you are an investor in this

is something that happened to
you. We just don't have that

kind of case. I want you to get
help, you should find a

securities attorney who does
litigation and discuss it with

them. But that's just not us. We
help syndicators and fund

managers put these together in
compliance. So if that is you,

you never got you're never
calling on these people because

they're in compliance, they're
doing a great job. So, again, if

this is you, it's not us that
you want to talk to so let's go

through what these structures
are. And they're similar. So

number one is what I call the
fake. J V. I've done another

video on this. It's a phony
system. Let's talk about what a

fake JV is. So JV stands for
joint venture. The idea goes

something like this. We've got a
syndicator here, right? And he's

got this wonderful investment
that he is syndicating out. He's

got a number of investors
actually let's drive over here.

He has some investors over here

who all want to be a part of it.
But this guy has a problem. He

needs more money. Right? So he's
trying to put this great deal

together. But he hasn't raised
all this enough money. Let's say

where I see this happening a lot
is under Rule 506b also. So this

is a 506b offer. So 506b offer,
say that also lists that there

can be no general solicitation,
he cannot put advertisements out

there. He these people here are
just friends and family really

wants to do this deal.
Everybody's going to make a lot

of money in this deal goes
forward, this guy knows it. But

he's doing a 506b, and he's
hasn't come up short. He's come

up short. He's got half of the
money that he needs. So what

does he do? He calls his friend

over here

he calls a friend and says, Hey,
I've got I've got this problem,

I need to raise another $2
million to make this project, go

for it. Forget about the dollar.
It's just we need some sort of

dollar. So I need 2 million more
dollars. In order to do this, do

you want to invest? And he says
I $2 million, I don't have $2

million, you know that? You
know, I've got a lot of friends

who would invest. And so this
guy has a great idea. But he

thinks it's a great idea. This
is supposed to be a lightbulb.

He says okay, why don't you go
and tell your three buddies that

they can invest in this in this
property? Well, this guy has

heard of securities rules,
right? So he knows kind of what

he's doing. And he says, Well, I
can't you don't have a personal

relationship with them. And he
says, oh, yeah, I don't this

guy's I don't have a personal
relationship with them. What can

I do? What if you either put
together your own syndication

here. Or sometimes they say,
What if you put together an LLC

and bring them in that way, they
can either come in on that 506b

that you're putting in or they
can come in through this LLC and

then invest up here. And if you
do that, I'm gonna give you 10%

of the equity that you raise,
because I'm desperate. And this

money this is going to make a
big this is gonna make us so

much money we can afford I can
afford to pay a 10% Okay, so so

this is the joint V JV problem.
This guy says, well, we can't do

this. We we know we can't do
this. That's that's not we can't

join like that. And so this guy
being clever, being clever gets

us in trouble here. being clever
says, oh, yeah, we can because

what we're gonna do is on our
paperwork here, on our ppm,

we're gonna say that we're doing
a joint venture. And that's how

you come in, you're coming in as
a joint venture out, which is in

itself investing into this
thing. This is the fake JV JV

problem, because, well, it seems
like this should work. It

doesn't. So he is not this is
not a joint venture at all

right? This guy is acting as a
finder being paid a commission

in order to bring people to the
investment. It's a clear cut

case of what is actually going
on here. The SEC would not like

this, this does not comply with
the rules, and it would

immediately get kicked out. Now
there's actually another kind of

JV fake JV and I've made a video
about this guy as well. So so

we'll let's call this Let's race
here. So we've got fake JV A,

which is finders and then
there's fate jVb. Now we've got

this guy here. He's going to be
unhappy. But right now we're

going to put him not unhappy. So
what his idea is, is, he knows

that he doesn't want to pay a
great syndication attorney, any

money. He doesn't want to pay
the guy, you know, he just wants

to be able to syndicate this. I
mean, after all, all these

people here, who are very
excited about his investment are

gonna come in. That's supposed
to be a certificate are going to

come in, right? After all,
they're all friends and family.

And this isn't for that much
money. It's only for $2 million,

and 4 million, like the last
example. So it's only $4

million. And the they I know
them all really well is what

this guy's thinking. Right? He's
thinking that they that they're

all friends. And I don't want to
pay some amount, you know, I

don't want to pay something to
the to the syndication attorney

to set it up and go comply. I
also don't want to file a Form

D, that sounds really hard. I
don't want to put together a

private placement memorandum
that sounds really hard. So what

I'm going to do is I'm going to
put together this LLC. And I'm

gonna go to all my friends here.
And I'm going to tell them,

Okay, we're all coming into this
LLC together, and we're gonna

invest in this real oops, you
can't see that we're gonna

invest in this really great
property, for example. It's

really great, we're gonna buy
it, we're gonna make lots of

money. And investors listen up.
I know, you want to be passive.

I know, you don't want to be
actively working on this thing

and banging on toilets for this
multifamily building, right? So

you don't have to worry, I am
going to be the manager of this.

And I'm going to take care of
everything. I'm going to do

everything for you. But if you
read the paperwork, if you read

the paperwork, what I'm actually
what we're actually saying is

that you're going to be an
active decision maker, but

you're not okay. You don't need
to be an active decision maker.

You don't need to come to
meetings or do anything, I'm

going to do all the work, I'm
going to get a small management

fee. But just if anyone asks,
tell them that I'm that you're

active, okay. Yeah, well, you
can tell already, because the

guy would say that this can't be
good. This can't be something

that's actually legit. And it's
not legit at all. It's awful.

But there's still some people
out there in the world,

including here on YouTube, where
you can find their videos, who

think this is a compliant
solution, it's not that guy is

going to get have that right of
rescission problem. One of those

investors is gonna get mad and
he's gonna get compensated for

it. So bad, bad, bad. The, we're
gonna call this the SED type of

thing I manage is what we're
going to call it. And they are

we're calling it still under the
umbrella of g v, because it's a

joint venture under that LLC.
With those other people,

everybody is all together doing
a joint venture together. Except

it's not that is a fake JV. This
is a real problem. This is

something that is absolutely
going to bite people in the

butt. And there are going to be
people losing money left and

right. When is it going to start
happening? You know, we've got

bank rates really high right now
and properties are starting to,

you know, need to get reified.
And now the actual amount of

money that's coming in is
tanking. Look at my, the stuff

that I've published about apples
way. Apples way, look it up.

Google it. They lost $240
million of investor money. Do

you think they were in trouble?
Yeah. Do you think they wanted

to lose it? Absolutely not. They
didn't want to lose investor

money but they screwed up. They
did. They weren't doing this

setup, though. Let me preface
that. They're not following the

setup there. They actually set
up a proper way and they're

probably not going to jail for
it. They made mistakes, but not

this kind of mistake. They were
inaccurate in their underwriting

and in MIS sized what the risks
are. That's not illegal, they

born their investors that that
could happen. They're probably

not going to be going to jail.
They're probably okay. The end

of the day now, will we be able
to do another deal? Again? No, I

doubt it possible, but not
likely.

Because that's a pretty bad
mistake losing $240 million.

Would you really invest with
that guy again? Probably not.

So. But when loans are coming
due, and when things are gonna

have to get renewed, this is
gonna bite. This is gonna eat up

a lot of people. And when this
comes out, there's gonna be

lawsuits filed. And that's how
the SEC is gonna see. Wait a

minute, Howard, why are they
setting up and trying to claim

that they're not under
Regulation D. They're not under

Regulation D actually. Which
means it's a securities

violation because this shirt is
a security. So these people are

gonna get nailed. I don't know
if they'll go after the gurus

who told them that this is an
okay setup, because it's not, or

this is going to bite them.
Because those finders, those

people are going to be desperate
to get their money back. And

they're going to immediately be
telling they're playing their

plaintiff's attorney. Hey, you
know what? This was Joe Smith,

who brought me in, he actually
didn't really have anything to

do with the deal. He just sold
me the security. So We're suing

him. But you know who the real
bad guy is, is the guy who put

it all together and said it was
okay the guy with the lightbulb.

He's got a problem. So fake JV,
these people are going down.

That's my prediction. We'll see
if I'm right, I'm sure well,

legally, I know I'm right,
whether or not they go down or

not. We'll see that's up to the
regulators to figure out number

two we'll save the worst for
last. So number two, we'll put

compensation Oh, my goodness,
compensation of investors. Now

this is actually a problem that
I do see from time to time

happen. It looks something like
this. It's not a problem in the

structure. It's a problem of
disclosure. And so inherent in

that as a problem of structure
because if it was disclosed

properly, it would be properly
structured. So you've got this

guy here. He put together an
amazing LLC and he did

everything absolutely right or
so he thought he did a great PPM

right. And you've raised money
from investors now the investors

are actually all happy

all right, the investors are
actually all happy they're

making money now what was this
investing into? It was investing

into this company up here or a
let's let's call it a project

and this project what happened
the LLC just goes and invest

right? It doesn't matter if it
was a development project or

some other kind of security
doesn't the one I heard about

this happening on first wasn't
even a wasn't real estate at

all. It was another kind of
security altogether. Which guy

and will be kept private because
the may be figured out double

who that was that we're talking
about. So it is a it was a

project to make money. It was
completely sound business idea,

and it made total sense. Now
that project was run by these

guys. And these guys were super
smart. Oops

okay, it was run by this guy,
let's say and he's super smart.

Right? He's he's doing
everything right. Everything was

totally legit paper looks good.
So the compensation problem is

this. He this guy. Now he's that
comes up with a brilliant idea.

His brilliant idea is I'm gonna
make it so here. There's no fees

Right, there's no management
fees, and incredible splits.

Were like 98% to the investor.
Wow, that sounds pretty good. So

98% to the investor. And then
we've got, we've got all these

people investing here. So
that's, that sounds pretty

amazing. I want to go in on that
deal. But how is this guy

getting paid? Well, this guy is
getting paid by that guy,

because he wants to get this
project done. Right. And it

looks legit, it's set up in a
way that is not a it's not a

fake JV. It's not anything like
that. It looks compliant. And

probably would be, except for
one problem. This guy here is

the problem. Actually, this
guy's the I actually, this guy's

well, actually everybody on this
site is the problem, because

they have no idea that this is
going on, they have no idea that

you can see, they have no idea
that that this guy is being

compensated by this guy. And
that's a problem. And so what

happened in the instances that I
know about is the regulator's

said, Ah, so here's the, the
regulator.

Aha, I know how we can protect
our my investors, I know how I

can protect this guy, this guy,
this guy, I know how I can

protect people from this state,
because they never had the

opportunity to look at this
compensation, this compensation

was being made, it's quite
possible that if he knew about

it, he wouldn't have been an
investor at all. And this guy,

if he knew about it, he wouldn't
be an investor at all. And if he

knew about it, he wouldn't be an
investor at all, because you've

got this conflict of interest
here. And you know what? He's

right. It's right, it is a
conflict of interest. And the

problem with conflicts of
interest are, they can exist,

but they've got to be disclosed
in your PPM everywhere, make it

super clear, so that everybody
knows that it actually exists.

So that is the compensation
problem. That happens, why is it

an inverted structure because it
was structured everything,

right? Except the disclosure
wasn't structured at all. So you

can take that money, but you got
to tell them that, uh, you got

that you're gonna take that
money and make it super clear,

and give a basis for allowing
you to, if it's part of some

sort of thing that requires a
licensee gotta disclose whatever

it is, it's got to be disclosed,
and that the mechanism for

getting that paid should be
disclosed as well. Otherwise, it

is a failure to disclose, which
is punishable by right of

rescission, which comes with
lost opportunity costs, and

possible criminal penalties for
fraud. So bad, bad, bad. That is

the compensation problem. The
third, and my new favorite way

of of trying to cheat the system
is the fun fund of funds. And

want to use the most egregious
form of it that I've seen

recently, and why it's bad. Now,
this gets really complicated,

and I'm going to try desperately
to try and simplify it. So I'm

going to focus really on what is
inherently bad, most of all

the fund of funds problem, so
we're going to abstract it a

little bit. So we've got this
guy here. He thinks to himself.

Wow, I've got a great idea. I am
going to put together this guy

actually let's talk about him
first. Very smart has a master's

degree in finance. He knows a
lot about securities. He knows a

lot about alternative
investments. He knows a lot

about cryptocurrency, he knows
everything about money, right?

He knows how the whole system
works. He doesn't know about the

laws, but he knows how the money
system itself works and how to

make good money. And his
friends, he's got two friends.

And both of them are like, Whoa,
dude, you know a lot about

making money. Can you help us
and invest some of this money

for us? And the answer, he
answers Well, sure, I know how

to do this. So he goes to a
securities attorney and says,

Hey, can I do this? The
securities attorney says, Well,

I don't know. Let's look at it.
You know, that's a complicated

question. Okay. And then he
asked, well, what's the fee, so

he tells him the fee, and he's
like, Oh, I can, I don't need to

pay that. These are just
friends, I'm just going to

invest it for, after all, I
found this amazing.

website with a YouTube video
that plays at the top. And it

says that I can set this up.
That basically this beautiful

website, what it does is it lets
this guy come in, and it lets

this guy come in, and it lets me
charge fees to manage their

account. That's amazing. So I
get to manage this account for

these guys. And these guys all
have their own individual

accounts, they can keep making
money deposits in, they can put

money in, and they just keep
getting money back. This kind of

starting to sound like
something, something that may be

a little familiar. Well think
about what a broker dealer does?

Isn't this pretty similar to
what a broker dealer or a

registered investment advisor
does? And so this guy is already

thought of that. He's like,
Yeah, I know, I know all about

them. But here's where it's
different. Is that these assets

that I'm putting in here,
they're not they're not full on

things. These are funds. This
are your this is your I'm just

choosing, you know, different,
different certifications out

there that I think are really
good. And I'm putting them into

this hopper. And then these guys
get to choose which ones of

those they like? Well, that's
certainly interesting, because

now it sure sounds like this guy
is putting together a fund of

funds. Wow, maybe on the
surface. But to me, what, and

probably my guess, is to the
SEC, and every state regulator,

who were would look at this is
gonna say, No, that's a big

problem. You're not acting as a
true fund of funds. You're

acting as a broker dealer.
You're buying securities, on

behalf of clients, probably
advising them on what exactly

they need to do and what they
need to be doing. And if you're

not advising them, well, then
you're certainly acting in their

stead, which is definitely a
problem. Because they're not

actually if they're not actually
making the problem, then it's

another problem. But if you're
making a management fee after

placing them into these funds,
well, you're either acting as an

unregistered broker, or you're
buying them for your own

account, and then divvying
things up which is basically

acting as an unregistered
dealer. Either way, you're going

down. And so the SEC or the
state regulator, sees what to do

and bows it up. Now, I have seen
that this is heavily in

existence right now. There are
this platform. These platforms

exist. They're out there. I've
read the policeman memorandums

for them. I know how they work.
My prediction these guys are

gonna go down by facilitating
and unlawful thing there They're

going to be, they've got
multiple problems. Right? These

guys are not only giving out
PPMS. But they're not attorneys.

So they're going to be hit with
unauthorized practice of law.

But they're also facilitating
the functions of not even the

broker dealer, but the guy who
holds the license under the

broker dealer. These guys have a
big, big problem coming. I

predict sec and FINRA, sec,
FINRA, and the states are coming

after that guy with with
vengeance and look for that

fairly soon, we've got a
recession coming, people are

going to start losing money. And
when that happens, they are not

going to be in business too much
longer, and they have a mountain

of securities problems coming.
If they had, if that guy with a

brilliant idea had just called a
securities attorney, we could

have set up a system for him to
basically do what he's wants to

do in a manner that would be
totally compliant. But he fell

into the marketing hype from
another company, or from a

company that thinks it knows
what it's doing is not an

attorney, and is causing
massive, massive problem on its

subscribers. So those companies
are out there, a big, big

problem is coming down the pipe.
So hope that helps. That is the

section on improper structures,
I see those three things as

major problems of structure that
are going to start hitting

people or could be four. So
we've got the fate jayvees,

we've got the Finder System
where it's like, hey, we'll be

partners, and I'm going to and
will basically just been paying

you find your fees and not going
to work. We've got the fake JV

of the SED. What's all the buzz,
I'll pretend that I'm not the

manager, and then but I'll
really be the manager, fake JV,

going down, then we've got the
issue of compensation. This is

an inherent problem that's so
easy to prevent, oh my gosh,

just Tez glows and make it super
apparent that it's abroad that

it exists. And then it becomes
so much less of a problem. A

state regulator isn't going to
be spending every nickel and

dime that he has in his budget
to go after somebody who

disclosed everything about
what's going on. It's just not

going to happen. Even if it's
coming close to a gray line. My

guess is I have Well, Mike, it's
not even a guess. The fact is

state regulators are way over
work. They are doing a

monumental task against people
who are committing massive

frauds, like the people running
Jake fake jayvees and funds of

funds. They're working hard to
prevent those. They're not going

to be spending time almost
certainly going after the guy

who does compensation who didn't
disclose a compensation model.

Right? Or who I'm sorry, who did
disclose a compensation model.

And then we've got the issue of
the funds of funds. I mean, come

on. If you want to be a broker,
dealer, go be a broker dealer,

go get a securities license,
hang that license under somebody

and be as broker dealer. It's a
great job. It's very unpleasant.

And if you love securities, and
you love financial instruments,

it's fantastic. I know broker
dealers, I know. They love their

job, they totally are obsessed
with it and love it. They call

them Masters of the Universe for
a reason. Because they feel like

Masters of the Universe. They
love it. So if you want that

world, just go do it. Right? And
then you're not going to be in

trouble. Because you're going to
be fine with all those

compliance rules. Absolutely. I
mean, there's like so stack of

those, but be compliant. So
again, I'm gonna reiterate one

thing, just because this is a
video on the internet. And this

specific one is giving kind of
closer to more what some people

may consider legal advice. This
is not legal advice. This is

what I'm giving to you as
education about what I see going

on in the securities world and
urging you to not fall victim

and to be can stay compliant.
Just follow the rules. You need

help with those if talked to a
securities attorney who can help

you navigate it. You know,
that's what we're there for.

Yes, we get paid. But isn't it
much better to pay a securities

attorney than to go to jail? I
think so. And isn't it much

better to pay a securities
attorney than to lose all your

investors money? Absolutely.
That's even worse than jail in

some way. So, and if you are
somebody who fell victim to one

of these types of problems, what
are these inherent structural

problems? Look, I'm not saying
you don't have a real issue

here. But I'm just not the
attorney for you. I work with

the guys setting these things
up, the ones who do it in

compliance and doing it right.
That's the people I help. So if

you need it, you definitely need
help. If you have questions, it

definitely should get the
answers. Talk to your state

regulators. If you if that's
helpful. Talk to the SEC, if

that's helpful, they're very,
they're actually very good at

helping people. Right, they're
actually very good and very

approachable and will help with
what your issue is. And if

you've got a legitimate
litigation type issue, or you've

got something that happened that
went wrong, then talk to an

attorney who can help you. So
it's just not my firm. So I

don't have referrals for people
who do that. I represent the

other guys, and I make sure that
they don't vote that they're

not. I make sure that they're
always in compliance anyway. So

I never run across the people
who are suing the people because

my guys never never have this
issue. So, again, my name is

Tilden Moschetti. I am a
securities attorney, syndication

attorney with the Moschetti
Syndication Law Group. Now if we

can help you stay in compliance,
I would like to talk with you

feel free to give us a call or
visit our website. Let's set up

a meeting to talk