Will this case put an end to people who raise money for syndications?

[Greg Scott]

There are dozens of podcasts out there catering to up-and-coming syndicators.  I have noticed a trend over the pasts 10 years where more and more of the people have zero involvement in the day-to-day operations of the property and are only raising money.   (I posted about one of them recently on BiggerPockets.)  

Last week I heard another podcast that interviewed two guys who raised $900K for a deal. They didn't find the deal.  They were not managing the deal.  Someone else found the deal and was going to be the primary operator, and he needed several million dollars to buy the property, and was having trouble raising money.  They closed on the deal about 6 months prior to the interview, so its too early to tell whether or not the deal was good or bad, and it was clear they knew very little about the property itself.  Still, the interviewer congratulated them on their success.

As a syndicator / operator, I've always felt this was a dangerous arrangement for the investor. If the deal starts going sideways, who does the investor talk to?  The money raiser has no idea what is going on.  The actual operator has a 2nd degree connection to the investor.  Would you rather own a stock or a mutual fund that only invests in that same stock?

In this video Gene Trowbridge shows why this practice may come to an end. "You can't be paid for raising money if you are not a licensed broker."

[Mike Dymski]

most capital raisers get ownership interest in the GP (or are broker/dealers)