All Forum Posts by: Morgan Gutierrez

@Guy Idan  The basic problem I see for a person starting out in syndication deals, you often have a  $25K, $50K  minimum investment. If you are investing in the stock market would you rather put 50K in one stock or invest in 10 stocks at $5K each. We believe the future of real estate investing is customizable funds which is more like a buffet which allows you to invest in slices of syndication deals that you pick. Note that this very different from a blind pool fund where you invest in all deals in the fund. Avestor offers several customizable funds. Please message me or connect if you would like to know more. 

If this is a securities offering (with passive investors contributing funds), then the "issuer" of the securities has an obligation to inform prospective investors of all material facts necessary to make informed consent prior to making their investment decision. An omission of a material fact known to the issuer that wasn't disclosed to investors could be considered fraud or misrepresentation, which is illegal in a securities offering.

After the raise, if the issuer has sold passive interests in a company such as a limited liability company, the LLC Act of the state where the entity is formed may have additional laws regarding fiduciary obligations, fraud, misrepresentation, good faith and fair dealing, that may also be applicable if management knowingly conceals material facts from the members. As others have stated, a well-drafted LLC operating agreement should have language that would prevent management from withholding material facts and/or removal provisions for a manager who doesn't comply. Bottom line, the specific facts pertaining to the transaction would have to be examined to know when or whether an illegal act has occurred, and what remedies are available to investors who were harmed as a result.

It's always best practice to keep investors informed of all relevant information related to their investment (good or bad), both before they invest and during the period of ownership of the investment.

@Morgan Gutierrez

I would reach out to a syndication attorney. We use @Kim Lisa Taylor. If it was my deal, and I found out about something, whether legal or not, I would think that my investors have a right to know, and it would be my duty.

I can see your values did not align with this individual and good on you for breaking apart.

Gino

Quote from @Morgan Gutierrez:

Is there a legal timeline to update current investors about a significant change in the investment?

What are the legal requirements for updating the investment information/pitch deck for new investors?

I am no longer working with this person, but am curious what the legal obligations are and if they were followed. It is certainly immoral to raise funds without updating the information on a deal, but is it illegal?

Besides certain reporting requirements being spelled out in the Operating Agreement, a lot will depend on the type of offering that was made when investors were given the opportunity to invest.  Assuming that the offering was a securities offering, as opposed to a joint venture, we’d need to know first if the offering was a registered offering or was claiming an exemption from registration.  In the much more common exemption from registration, was it an intrastate exemption, a Reg D filing, or did the offering rely on the general exemption for private placements?  
Your question does bring up a very good point.  Few investors realize the differences in the types of the offering.  More sophisticated and experienced investors, and those employing knowledge attorneys will understand that while not an absolute, a REG D offering offers some amount of comfort in that the sponsor has placed his offering on a more “sophisticated” level than an intrastate or general exemption offering.  Many larger investors won’t consider any non registered offering unless the sponsor has file and follow the rules for the “safe harbor” Reg D offering. 

@Morgan Gutierrez

It depends. As others mentioned ton definitely need a lot more data

End of day what does the agreement state?

If it says they don’t have to provide anything then that’s the agreement

Typically agreements require at a minimum annual updates

The good ones do monthly or quarterly depending on offering type