Soliciting Private Money and the SEC

[Evan J.]

There are a few properties coming up for auction next month in my area that I'm interested in acquiring through an LLC. I'd like to raise some capital from private lenders in order to fund the deal.

I've put together a prospectus describing the kind of funding I'm looking for (term, interest rate, etc) as well as some information about the properties I'm looking at.

Can I distribute this without the SEC going after me for securities fraud?  I am specifically looking for loans, not selling equity (loans will be secured with the properties as collateral).  Would this violate SEC regulations?  I'm concerned that this might still be considered selling debt securities or bonds.

I do have family and friends who are willing to help me fund deals.  Would it be alright/any different to solicit loan funds from them?

[Bryan Hancock]

It makes ZERO difference if it is "family money" with regard to the securities laws.  Be careful what advice you receive on internet message boards.  

The Howey Test is the litmus test for a security:

Howey Test

Here are the main elements:

-an investment of money has been made

-in a common enterprise and

-the investor has the expectation of profits, which profits are expected to arise solely, or substantially, from the efforts of the promoter or third party

If you're pooling funds from a number of investors who are or are not family and they're relying solely on your efforts with the expectation of a profit you likely have a security.  

Consult a securities attorney.  Don't try to do this on your own.