This is part six of a seven part
series on compliance with the

SEC and state law rules. Now it
sounds kind of boring maybe. But

this is really what you hire a
syndication attorney for is for

that's that knowledge that you
are in compliance. So that way

you don't fall victim, you're
not going to be somebody who has

the SEC come after them or a
state regular. Think about it,

nothing else could be more scary
than getting a letter from the

SEC saying we've been at you're
under investigation. The whole

point of this is to identify and
go through those main topics,

those five big things that I see
happening right now, too, that

the SEC and the states are
investigating, and they

investigate more and more, these
are my prediction of the five

big things that are going to
really be ratcheted up over the

next few years from even from
where they are today. Now, the

topic of this video is the big
big one that I see as probably

the most important, the one
that's going to be the most

heavily regulated. And that
again, is finders paying people

in order to help you with raise
money for your business, for

your fund for your business. So
this video, we're going to go

through in detail what those
factors are that the SEC uses.

The use of finders when it comes
to raising capital for

syndication of fund business.
This is the big topic that I

think the the SEC and state
regulators are going to be

coming at even more, why do I
think that they're going to come

be coming at it even more,
because I see it actually abused

more and more over time. So I've
been practicing in this field

for quite a while I've done a
number of syndications for

myself, and I know exactly the
temptation that's there, I've

been tempted myself by it. And I
know that you probably are as

well, it'd be swell to just hire
a broker dealer and give the

capital raising over to them.
But there are a lot of times

very expensive. And while they
deserve what they get, and they

certainly the good ones earn
every penny that they're worth,

it's hard to meet the criteria
that it's worth their time in

order to do it, they need to be
raising Oh, a lot of money over

a lot of deal after deal after
deal. And if it's not there for

them, there are other
opportunities that just are more

appealing to them. Totally
understandable. It's a market

driven thing. So we need to
generally rely on raising money

for my for ourselves. And we've
seen in videos how to do just

that. So I have other videos
here that you can see that talk

about raising money without,
without a broker dealer. Talk

about different online and
offline methods, working with

friends and family, things like
that. But let's talk

specifically about that
temptation of the Finder. So

what is a finder? A finder is
somebody who is not licensed. So

they are not a series seven or a
series 22 They don't carry a

securities license that allows
them to sell, who would be

somebody who would be helping
you raise money. Now, is every

single finder in the world an
illegal activity? No, they're

not. But it's very easy to slip
on the SEC is getting ready to

regulate your side. So the
things that we look at, there's

actually 16 different criterias
that are used. But let's use the

first case of where finder was
said, Oh, okay, that's all

right, as sort of like a scale
so you have an idea of where it

started. And then it's easy to
see how it's devolved since

then. So the first time it
happened, it started was comes

from a no action letter from the
SEC in 1991. So a no action

letter is where a very smart
syndicator writes or a fund or

business writes to the SEC, and
they say sec, now if I did this,

are you gonna have a problem
with it? And the SEC looks at it

and they give the general policy
of the of the SEC. So around

1991 the Ottawa Senators hockey
team hired Paul Anka famous for

being in the Rat Pack. He was a
I believe a singer and was very

famous, had a very big Rolodex
of people that he knew. So the

Ottawa Senators were raising
money and they they wanted to,

they engaged Paul Anka. And Paul
said this, he said, Look, I will

give you my rolodex. And I will
go through name by name and

identify those people who I
think would be likely to invest

with you. Their credit would
probably be accredited

investors, they're probably good
prospects for you. And you give

me some percentage of, of who
invest. So the Ottawa Senators

being intelligent, what they, as
they were, and Paul Anka, they

wrote to the SEC, and they said,
Now, sec, if we did this, is

this something that that's going
to run afoul of the rules and

regulations? And the SEC said,
No, the reason that we're not

going to regulate you on this
is, even though we're paying you

a percentage, which we'll get to
in a minute, but even though

we're paying you a percentage,
that the Ottawa Senators are

going to be paying you a Senate.
Basically, what translates to a

performance bonus is that Paul
Akers just providing a Rolodex,

he's not contacting them, he's
not doing anything other than

saying, here is a list of people
I think you should contact. And

that is okay. At least it was at
the time, there has been other

no action letters that have come
out since or other

communications from the SEC that
said, you know, we probably

wouldn't allow this today. But
at that time they did. So if you

this is your entire scheme,
you're probably still need to

get a no action letter just to
make sure that you're still

following on a good side of it.
Now, why is that? So let's go

over the big number one rule. So
there's 16 rules, but we're

going to start off with the
number one rule, yet don't pay

anyone performance based unless
they're a broker dealer. If you

think about what a broker dealer
is, they get paid on

performance, they get paid a
brokerage fee, or a commission

based on the amount of units
that they sell, which is based

on the purchase price, right? So
they may get 56789 10% of the

amount that they sell to a
syndication of fund or a

business, they may we're gonna
get that in terms of fees, those

are fees are paid back to them,
and they get to keep them. That

is part and parcel that is like
the big test of how a brokerage

fee, a brokerage gets paid.
Right. And we're talking broker

dealers, we're talking about the
people who are licensed with the

series seven or series 22, with
the sale of these alternative

investments. That is the big
number one. So performance fee,

is there a performance fee being
paid? Number two, is are they

assisting in any way with the
transaction? Are they helping

facilitate it in some way, Paul
Anka just gave a list. So that

was barely assisting. But he
didn't call them. He didn't say,

Well, let me help set up a
meeting or anything, he just

gave them a list. So it fell way
below that assisting in the

transaction, our broker dealer,
they're doing a huge amount of

the assisting in the
transaction, right, they're

playing a very large role in
making it all come together in

part minutes so that they get
their feet. So they're not only

talking about it and facility,
they're they're actively

facilitating that transfer of
money from the investor to the

whatever they're raising capital
for. Number three is

participating in the discussions
between the company and the

potential investors. If the if
the meeting between Paul Anka

was like well, investor, let's
get them on the phone right now.

And and have them tell you what
their what it was going on. And

they they put them on the phone
and everybody's staying there on

a conference call? That would be
like participating in the whole

discussion, or if they're part
of the email chain going back

and forth. That's part of the
discussion. So that's number

three. Number four is engaging
in a pre screening of potential

investors. Now, Paul, Anka
didn't really pre screen he just

went through his Rolodex list
and said, these are the people I

think that are there. He didn't
do anything with those investors

to pre screen them. He didn't
call them and say, Is this

something that you would be
likely to invest into? Or Are

you an accredited investor? Pre
selling the engaging in that pre

selling activity, contacting
investors and say if this were

to come in the market, is it
something that you'd be invested

interested in? Number six is
conducting or assisting without

that sale. All right, so
actually conducting that sale

itself, either in some manner or
they assisting in doing that,

that's certainly a broker dealer
activity. Number seven is

providing advice related to the
value of the securities. Right,

Paul Anka didn't pick up the
phone and say, Well, you know,

this would make your investment,
you know, X number of dollars,

which would represent 10% of, of
the Ottawa Senators hockey team,

or, you know, which is a good
value for the, for where it is

in the market, or it wasn't, you
know, if it was a real estate

transaction, it wasn't? Well, I
think that those that a building

like that would be worth X
number of dollars, so I can see

how they can hit their target
that's providing that assistance

on what the value of that would
be. Number eight is locating

issuers of securities on behalf
of investors. This is a

dangerous ground. This goes all
the way back to our discussion

of putting together funds, Vons
start look, if you're if you're

locating the issuers of
securities, like representing a

fund to funds, which is fine,
taking those investors and

looking for opportunities, in
order for them to invest into it

start starting to smell like as
a being a broker dealer. That's

why this is a critical one for
you.

Number nine, is handling
customer funds and securities.

So if the if the syndicate as
the Finder is giving the money,

and then giving that money over
to the fund itself, that's a

problem. Now, where I see this
as a problem a lot of times is

this question. So Tilden, I've
got a bunch of people who run

LLCs that are collecting money,
and they want to get paid some

sort of fee. This is why this
doesn't work. So is this

particular field part right
here, they're handling the

funds, so the funds are coming
into them. They're not only as

the is that person who wants to
get paid a fee getting paid a

performance fee, but they're
also handling the funds directly

as the runner of this LLC,
they're kind of putting together

a fake fund of funds with really
is to invest in the single fund.

That is something that is a
broker dealer activity, it is

not an activity for a finder,
that would be outside of

regulation. Number 10 is
soliciting securities

transactions. So this is the the
situation where that finder is

putting ads up on their own. So
not only are you doing it, but

also your finder is out there
putting up ads as well. They're

not the sponsor, they cannot do
this. Now I've seen this happen

with with not clients I've
represented but on the internet,

you'll find people who are
advertising. And that in itself

is okay, maybe if it's somebody
just putting together a sales

funnel or something like that,
it's probably okay. It's as soon

as they start charging that
performance fee. Ah, we're way

inside the realm of broker
dealer. Number 11 is

disseminating quotes for
securities or other pricing

information. So this is, well
the units cost $1,000 A unit and

they're raising up to this
amount. But maybe you can get a

new minimum amount or whatever
that communication is the

communication of sales price. So
if you think about real estate

brokerage, for example, this is
another example. This is just an

example. That isn't the same
thing, but it's very related.

You can't have somebody an
unlicensed person, go into a

house show a house and say the
price they're asking is $1

million for this house, that
immediately become something

that is requires a license in
order to do it. Same thing here.

You need a license in order to
provide that sort of sales

information. Number 12 actively
rather than passively finding

investors now Paul Anka
completely passively, right?

These were just people that he
knew that were in his Rolodex,

he was not actively going out
and finding investors. Now I

have people who will active hire
people who will actively go out

and find investors. The only way
you can do this is to play a

very pay a flat fee, or pay
something that is so removed

from performance that just
doesn't look like a broker

dealer activity at all. It's,
hey, this person was interested

in that kind of investment is
very different than that. Hey,

this person is very interested
in your investment and wants to

buy seven units. Number 13,
sending a private placement

memo, subscription agreement,
any kind of due diligence,

anything like that is engaging
in the assisting of the the

sponsor in order to raise the
money, so the issuer. So they're

raising, they're putting
together info into the hands of

the investor through themselves
rather than having the sponsor

do it. No, number 14 is
assisting on portfolio

allocations in order to
accommodate investment. So this

would be the well I think we
need to use, I know that you che

you, your portfolio is, you
know, 6040 60% stocks, 40%

bonds, but in today's market,
you really should be 4040 20. So

sell off these stocks, and put
these 20 in alternative

investments like this one, that
would be the engaging in

something, certainly something a
broker dealer could do should

do. But they're they would be
getting rightfully compensated

here they cannot. Number 15,
providing an analysis. So this

would be go taking, getting the
documents or getting whatever it

is, and providing what their
opinion is on whether or not

they that an investment should
should be invested into. Now,

can you do? Can you have
somebody who does that for them?

Sure. Should they be related to
you? Definitely not? Should you

pay them? Absolutely not. So if
they go to their uncle, who's an

accountant, not licensed with
the SEC, and says, Hey, can you

look at this document for me?
And they look it over? And they

say, Yeah, looks good. I've done
the underwriting alongside with

you, that's totally okay. You're
not paying them any money. So

it's okay, it's outside of being
a broker activity. And then

number 16, providing potential
investors with confidential

information, identifying other
information, other investors,

and their and their capital
commitments. So this is a this

certainly happens at a much
bigger scale doesn't really

happen much at the smaller
scale. Mostly, it'd be something

like, Hey, these a family
office, these other family

offices, I found out have
invested this amount of money.

So you should invest that amount
of money, too. So those are the

16 big things when it comes to,
to find finders that will get

you into trouble, any of that
kind of activity. I mean,

really, the main question that
you should ask yourself is how

are they getting paid? Because
if you answer that question that

they're getting paid based on
their performance, or based on

how much it gets full, it's
probably not allowed. Now, who

can get that paid? Well,
certainly the people who are

putting the sponsorship
together, the sponsors

themselves, the officers of that
sponsorship company, really are

kind of getting paid based on
that performance. And that is,

okay, they are allowed to do
that. But outside of that it's

not. Now the gray area that
oftentimes occurs is bringing

people in to the officers of the
sponsor, in order to get them

in. Now, you got to do a gut
check on yourself, the more they

look like they're a proper part
of your organization, the safer

you're gonna be from negative
regulation. So regulation that

is looking at you in a dis
favorable light. If they're

really just brought in just to
raise money, it's not going to

fly and it will be sniffed out
very, very quickly. My name is

Tilden Moschetti. I am a
syndication attorney with the

Moschetti syndication Law Group.
Now if we can help you navigate

these areas, be in compliance
with the SEC, that is what we're

here for. We're helping to make
you successful as a syndicator,

fund manager business, trying to
raise capital, whatever that is,

and be in compliance with the
SEC in the states so that you

can do what you do best, which
is putting together the

syndication, putting together
the fun doing your business in

order to make investors money.
That's the end goal. Regulators

want you to be able to do that.
They want you to be able to

raise that money so that you can
do it. They just need to make

sure you're doing it properly
and within the rules. That's

their job. So again Tilden
Moschetti Moschetti syndication

Law Group if you need help with
your Regulation D rule 506 B or

506 C offering don't hesitate to
give us a call.