As part of this seven part
series, we've been going through

different hot topics that
regulators such as the SEC, or

state regulators are hot to, and
they are going to be my

prediction, increasingly
vigilant to protect the

investing public about. So this
next topic is definitely way way

not allowed. And it is a very
hot topic. If you are doing it,

then you need to stop it
immediately. And if you're not

doing it, you definitely don't
want to get trapped in finding

that yourself doing it or
thinking that it's okay.

So what is this hot topic that
state and federal regulators are

going to be definitely looking
for? And I think that there will

be a greater scrutiny in the
future. And certainly a desire

to go after people who are doing
this. More and more. The idea is

something kind of simple and
probably on its face, you're

like, oh, yeah, that's no, of
course you can't do that. And

that idea is commingling.
commingling is not allowed.

commingling is not part of any
of the funds. So let's talk

about exactly what commingling
is in this context, where I see

it happen kind of under the
radar, that causes a problem. So

let's put up a whiteboard. So
let's talk about the problem

that is obviously wrong. So the
one that's obviously wrong is

you've got a fun here with money
invested in.

And this is your fund LLC. And
then this is the one that's

wrong is money comes out just
for a short time, because you

want to put together another
your pool, you want to put

together something new, but you
need to pay, say your attorney,

you need to pay him legal fees.
Right. So you want to pay your

syndication attorney in order to
pay him legal fees and draft

documents for you. This is
obviously not allowed. You are

not allowed to commingle your
joint bank and your bank

accounts this way, right? Same
thing, same problem that you

need a place to just temporarily
Park some money, you can't just

put it into the fund LLC. It's
it's not allowed, you're not

allowed to do that. So that's
the obvious case of commingling.

What I see happening a lot of
times is this. And certainly

I've I have had clients ask
about whether or not this is

allowed. And the answer is no,
it's not. And it looks something

like this. You've got sorry,
this is you've got your fund LLC

here. And you've got your
management company here and I'm

drying him his buckets. Because
really, a fun is just it's a

bucket of assets. All right. So
we can let's call this fun one

LLC. This is fun to LLC. And
let's make fun three LLC just

because we can oops. It'll make
the point better. Oops, can't

see this. There you go. Fun.
Three, LLC. All right. So you're

here. You've got these three
funds that are going and they're

working wonderfully. You've
identified a potential

opportunity that you would like
to create over here and this is

say fund four. Let's put it into
context. Let's say these are

real estate deals. was that that
happens a lot. So you've

identified fund for? And you
said supposed to be a question

mark, and it doesn't look
anything like one. So you don't

know how to get it started? You
found this great asset. Right?

So

that you want it to buy? All
right, that's how you want it to

go, but you don't have the cash
to do it. So what some people

think they can do, and you
can't, is this, the thought

comes up of how can I just
borrow money here? Can I borrow

money from fund three to put the
downpayment on or put the

deposit down on this property?
So that when it gets locked up,

it'll get locked up in escrow.
And as soon as this fund has

enough money, will repay that
money back. plus interest? And

the answer is probably not. Now,
it's it's possible that your fun

is allows for loans to be made
to other projects, which is

okay. But at the end of the day,
the analysis goes something like

this, does this guy here? And
this guy here? Who are investors

in this? Are they going to have
a problem with this going on? Is

there any way that they're going
to have a problem? Or were they

told specifically, we may make
bought loans to our investment,

other investment companies in
order to reap to pay them back,

including investment companies
that are managed by the same

manager? If the answer is no,
which most of which will be most

of the time? That will be the
answer, then you can do it. So

that's the commingling problem
that happens, and it's the

commingling problem that
actually, is is very prevalent,

because managers don't see what
they're doing as buckets. Right.

They see them as really a list
of assets and sets of investors

and things like that. But the
truth is that they're buckets,

and they're totally self
contained. If they're going to

do something outside of fun one
or fun two, or fun three, if

those things are going to be
doing something outside of what

those specific vehicles are,
your investors are being wrong,

right. So money is being taken
from them. Maybe it's just an

opportunity cause for an
opportunity that's not even

there, but it's affecting them.
It's their money, and they have

the right to have what they
expect happened with their

money. So that's the problem
that I see happening with

commingling. Now regulators know
this happens, they see it

happen. And if they know this is
gonna happen and see this is

going to happen in one of your
funds, you can bet they're going

to be calling and go, there's
going to be some major

enforcement action to bring
something down. If an investor

got wind of this happening, and
they were to let the SEC or a

state regulator now, I would bet
100 Donuts, that they would be

investigating it as quickly as
possible. And stopping that kind

of action with whatever for
enforcement actions they have,

because it's just plain illegal
to be using funds that way. My

name is Tilden Moschetti. I am a
syndication attorney with the

Moschetti Syndication Law Group.
The whole point of these videos

here is to help you understand
what compliance is and help you

be in compliance with the SEC
and state regulators. I'm a huge

fan of Regulation D and all the
rules that are related to it.

Because it makes raising money.
Very very knowledgeable, very

formulaic, very, very doable for
people. It keeps the cost for

you as a regulator down and lets
you do what you want to do in

order to raise funds and
protects the investor public as

well. So if I can help you stay
in compliance with the SEC in

the state regulators, that's
what I enjoy doing. And I enjoy

working on projects and with
good clients. So feel free to

give us a call if you think you
might be one of these