Tilden Moschetti: My name is
Tilden Moschetti. I'm a

securities attorney with
Moschetti syndication Law Group.

We specialize in helping
syndicators and funds put

together offerings for
Regulation D Rule 506b and 506c

offerings. Today we're going to
talk about probably the greatest

myth of all time when it comes
to syndications. It's something

I hear at least once a week,
most of the time two or three times.

A week the myth goes something
like this, I get the phone call,

I answer it. And there they are.
They answer and they say hi,

well, I've done some syndication
in the past, well, it actually

wasn't syndication, because what
I did was, I just got some

friends and family together,
took some money. And we bought a

couple different things, we
bought some buildings, or we

invested in some businesses, but
they were all friends and

family, and it was under $1
million. It was $900,000 that we

raised. And so it didn't fall
under the rules where we needed

to do a sin of filing with the
SEC. That's the story that I

oftentimes get. The reason
they're calling me is because

now they're ready to go. What
they consider is into the big

leagues where they do need to
make such a filing. The myth

here is that they didn't need to
make the filing. There's a

general idea out there, and I
have no idea where it came from,

because I'm trying to find it on
the Internet somewhere. And

somewhere it must exist where
people got into their minds that

they can do a securities
offering, if it's just friends

and family, or just family, or
if it's under some certain

dollar amount. But that's just
not the case, there is no rule,

what that relates to dollar
amounts or two friends and

family oftentimes will refer to
Regulation D Rule 506b, as a

friends and family offering,
because you need to have a

relationship with your
investors. But you're still not

considered a private security
until you've registered the form

d with the SEC, you're not in
that safe harbor of Regulation

D. In fact, you're probably
considered a public security,

which means you need
registration, but you don't fall

under that any sort of
protection whatsoever. So what

could happen is if one of your
investors got mad, and where

else do investors get mad, but
as if they're family of yours,

right? So if one of them get
mad, and they do they call their

their friend who is a
plaintiff's attorney, and they

tell them about their woes and
how you've lost money on them.

And they say, Well, okay, why
don't you send me your private

placement memorandum? And they
say, Well, I never got a private

placement memorandum. And then
suddenly, the, the plaintiff's

attorney knows he has a good
case. The reason is, is because

it didn't go under that safe
harbor, to be a security. So

anything is a security that
meets the that meets this simple

test. It's called the Howey
Test. It really is the standard.

Now there's a lot of other
interpretation that's related to

the Howey Test, to reinterpret
things that are much more

complicated than a typical
syndication or fun. But the

Howey tests stands on its own as
the standard that would have to

be met, no matter what anyway.
And so there the Howey Test

looks at four elements. So
basically, it's looking for an

investment comes in to invest in
a common purpose purpose. So

they invest for this common
purpose, which might be to

invest in a business or it's to
invest in a real estate

building, or something like
that. So there's been an

investment in a common purpose
where they've given money,

right? So they've given money to
you. And they are, they give

that money to you, and they are
expecting to receive a profit

back. And that profit back is
based on this is the big one,

the reliance on a third party,
that's you, that's the

syndicator that's the sponsor,
that's the person who they're

relying on. So that person is
the sponsor. That fourth step is

almost always present in all
these cases that I've talked

about. My next question when I
asked somebody who's telling me

that this part of how they did
the syndication, without,

without filing a Form D, my next
question is, okay. So was this a

joint venture? Did they have
decision making power? And it

almost invariably is no, I had
all the power and I had all the

control, which means it's a
security by pure definition. Now

have they had said, No, see what
happened is my three brothers

and I all came in, we all put in
$250,000 into the bank, we

bought an apartment building.
And then my brother Joe, he did

the property management of it. I
did the asset management, the

long term planning of it and
made sure that all was was good

there. My brother Sam, he did
all the construction work on it.

And my brother Lou, well, he's
an accountant. And so he did all

the tax preparation for us and
made sure it was all legit. And

we'd come together every
quarter, and we'd discuss the

building, we'd look over
everything. And we'd all

together make the decisions.
Well, that that point, that is

definitely a joint venture, that
is a partnership, that is not a

security. But that's an all
whatever happens, what always

happens in the stories that I
hear is, we all participate, you

know, they all put their money
in, but I'm the one that made

all the decisions. I'm the one
that had the control. So at that

point, it's automatically a
security. So what do you do is

sort of the next question I
oftentimes get. And it's sort of

a question of, well, it's up to
you. Because you have put

together this thing that is a
security. And you can file a

Form D late, and you can file a
notice to the states late, but

maybe you're going to decide not
to many of the people who I

talked to decide not to because
it's too small. These things

really come up when there's that
lawsuit when that plaintiff's

attorney gets filed, if the
issue is already done, it's

already done. There's no really
going back, you're not going to

file a foreign deal when all the
investors have already gotten

all their money back. And the
deal is done. But it will, it

could come up if the deal is
still alive. And in that case,

it might make sense to go back
and put together as best you can

that form that PPM and to file
Form D and to notify the states

that this happened. In
retrospect. Now there will be a

penalty probably from the States
for such a late filing. There

won't be a penalty from the SEC.
But the SEC does say that, well,

if things are filed late,
there's a possibility that we'll

decide we're not going to let
you do for file Form deeds in

the future. But I can't see that
happening. The SEC really wants

people to notify it when there's
a security being offered. That's

what it really wants. And they
don't want to punish people for

doing what they want them to be
doing in the first place. So I

think it's unlikely the SEC
would ultimately decide to

punish somebody for a late
filing of a Form D. So if I can

help you with your syndication
and being compliant with the SEC

and the states and all the rules
that there are ail and you're

putting together a syndication
are fun, you just need to give

me a call. I focus exclusively
on Regulation D Rule 506b and

506c offerings, and I'd love to
talk to you