SEC Violators on Facebook?

by | Jan 25, 2015 | real estate

A very interesting conversation came up in my Facebook Group about the issue regarding SEC (Security and Exchange Commission) violations and what a lot of people do on Facebook for getting their real estate deals funded, or even to promote real estate opportunities.  It was so full of great information, I thought I would share it here.

I may do more of this in the future because there are so many interesting discussions in this group: https://www.facebook.com/groups/JeanNortonREContacts/

Copied from Facebook Group:

Jean Norton

SEC experts, if someone announces an interest or profit sharing deal in this group, is it considered an SEC violation? The reason I asked is Carlene Saelg mentioned she thought that since this was a closed group that it was OK. I know Mark Pantak had some recent training on this. I see people post deals all through Facebook. Does anyone actually get into trouble, or is it like driving at 5 miles over the speed limit? How serious is this and can anyone show examples of prosecuted SEC violators regarding communications on Facebook?

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  • Mark Pantak It is very easy to violate SEC rules and not even know it. And yes, people do violate the rules on FB and other places all of the time, (and it is not a problem for them until they get caught) I know of two people who are being grilled by the State level of the SEC, and are now on their radar, even if they just get a slap on the hand, and a small fine of $5,000 to $10,000. (can be much, much more) ANY public solicitation for money “could be” a violation, AND any time you pool money you have created a security, (no matter how much you try to rationalize it) Either do it with people you know, below the radar, one person per one deal, or get an SEC attorney and DO IT RIGHT! There! you have my 2 cents! or buck and a quarter!
    23 hrs · Edited · Like · 6
  • Lamar Cannon I am not a lawyer but do have training on this. In my opinion: we are building our own crowdfunding portal and have crowdfunded 1 property with a few more in the pipeline. We’ve been working on this for past couple years. In doing this we’ve seen that SEC laws are fierce. The only time SEC laws really matter are when things go wrong. Once that happens and an investor complains to SEC m, they will then see what exemption you used for your raise (hopefully one was used) and then begin to analyze every relationship with investors who invested and the communication used to bring those investors in. There a certain words that can never be used (guarantee, promise, low risk, safe, etc) and also certain types of communication that can not be used. The only current exemption that allows “general solicitation” is 506(c). This allows you to post on fb, do email blasts, TV commercials and billboards etc. this type of marketing brings in investors that the promoter may not have a preexisting relationship with. If 506(c) is used it is ok. If not, deal goes south and and investor files a complaint SEC will analyze the communication and see if there were any violations. It will be hard to prove that a substantial relationship existed developed if Facebook group is the only why the promoter and investor “know” each other. They are plenty of other rules to consider but this is my opinion on soliciting money on fb groups. Do what you want but if an investor complains to SEC about your deal hopefully you followed the rules. You never know what and investor will complain about, maybe you return 19% and they thought it would be 20% or maybe you didn’t answer on of their calls. Once complaint is filed, whatever the reason, SEC will be breathing down your neck. It’s better to just develop the right habits from the start. The penalties are very serious and this is not something where you want to take shortcuts. And as an investor do you want to invest with someone who is not following SEC rules?
    23 hrs · Unlike · 9
  • Lamar Cannon Mark Pantak right on point!
    23 hrs · Like · 3
  • Jean Norton Well, this is a closed group. Is it considered a public platform?
    23 hrs · Like · 3
  • Lamar Cannon The question is more of: if you post a deal in this group, do you know everyone well enough that if anyone invests in your deal you can prove to SEC that you had a preexisting relationship with that person? The answer is different for each member of the group. If the answer is no (maybe’s count as no’s), then is the deal you are posing about a 506(c) raise (this exemption allows general solicitation)?
    23 hrs · Like · 3
  • Robyn Roberts This is a great post!
    23 hrs · Unlike · 3
  • Mark Pantak Lamar Cannon is right on point!
    23 hrs · Like · 1
  • Jean Norton So the issue is, if you pool money with investors, post deals to raise money, you have to be sure they get their money back and more or they will report you to the SEC?
    23 hrs · Like · 3
  • Matt Reed Word of the day….all is fine until a problem comes up……..disclose disclose disclose whether you’re dealing with investors tenants or sellers
    23 hrs · Like · 5
  • Lamar Cannon The issue is that people can file a complaint for any reason. If you followed the rules and SEC investigates, you will be in the clear, if you didn’t, fines and possible jail time will follow. Not following the rules is betting more money than any of us have and possible jail time that no one will complain to SEC. Personally, I decided that for me it will be easier to learn the rules and follow them. Just like Mark said, most people break the rules unknowingly. Knowing what you can and can’t do along with a having a good securities attorney are highly recommended.
    22 hrs · Edited · Like · 5
  • Sam Ally Advertising rate of return puts you on their radar. Bottom line here is no matter how “bullet proof” or compliant you believe your offering to be, PPM or other syndication formats..if you lose money a good attorney will blow holes in your documentation & you now have the SEC possibly on your backside or aware of you & your reputation has been tarnished …a whiff of any trouble affects your future negatively. You can mention deals all day it is when you are soliciting that issues arise.
    21 hrs · Like
  • Sam Ally P.S. when we speak to following the “rules” honestly not even sure the SEC reps are aware of all of them. Similar to the Tax code ya know…
    21 hrs · Like
  • Sam Ally Here ya go: there are an abundance of mistakes made here is one of the biggest…  
    If you are contemplating investing in Real Estate thru a syndication or private placement be aware of the many issues that could jeopardize your investment. Specifically this killer that occurs in over 80% of all syndication deals especially with new syndicators;
    Some promoters make preferred payments as soon as they can. But understand that a preferred payment is a distribution of profit from the deal, paid first to the investors. If they don’t have enough profit, then the preferred payment they are making is probably a “Return OF Capital” and not a “Return ON Capital”. Calling a return of capital a form of profit is a form of a Ponzi Scheme which of course is a big no-no. Though it falls into the category of an Inadvertent Ponzi Scheme, it could be the beginning of trouble. Regulators and plaintiff attorneys look for these situations to make their case.
    The right way to determine a preferred return is to subtract all expenses from revenue. The amount left over, the net profit is available for distribution. If they pass out more, trouble could be on their doorstep.
    21 hrs · Like · 2
  • Linda Pasaak Grilho VanOrsdol Good content, thanks to every one for sharing your knowledge.
    21 hrs · Like · 2
  • Robyn Roberts Really good content! Jean Norton you should pin this post somewhere.
    20 hrs · Unlike · 1
  • Jean Norton But I like my currently pinned post ‘cuz it says something nice about me 
    20 hrs · Like · 3
  • Terry Royce Is sending mail to existing private lenders that are recorded in land records a violation?
    20 hrs · Like
  • Robyn Roberts Jean Norton is awesome! There, this one says something nice too.
    20 hrs · Unlike · 1
  • Jean Norton What if I copy really interesting stuff like this on my blog?
    19 hrs · Like · 2
  • Matt Reed I’ve been told by counsel….no problem with education and general info
    19 hrs · Unlike · 1
  • Jillian Ivey Sidoti There is a lot of misinformation on this thread. Let me clear some things up: general solicitation is generally prohibited. It does not matter if “things go wrong” – if the SEC or state just plain doesn’t like something they see or hear, they can subpoena, fine and send you a “cease and desist.” I have had clients who merely mentioned they might consider investors on their website, not have one single investor, and have a full blown investigation opened up on them. It’s no joke. DO NOT BE POSTING YOUR INVESTMENT OPPORTUNITIES ON HERE UNLESS YOU HAVE A REGISTERED SECURITY. Also, crowdfunding, in its purest sense, is not legal yet. In the next comment, I will post an article on crowdfunding explaining how some portals are operating legally, while others are disregarding that the rulemaking is not completed yet and will not be until later this year.
    17 hrs · Like · 3
  • Jillian Ivey Sidoti http://www.syndicationlawyers.com/crowdfunding-part-1/

    Crowdfunding – Part 1 | TROWBRIDGE TAYLOR SIDOTI LLP
    Question: Will “Crowdfunding” become a viable method…
    SYNDICATIONLAWYERS.COM
    17 hrs · Like · 1 · Remove Preview
  • Jillian Ivey Sidoti http://www.syndicationlawyers.com/crowdfunding-part-2/

    Crowdfunding – Part 2 | TROWBRIDGE TAYLOR SIDOTI LLP
    Limitations in Crowdfunding An interpretation by Gene…
    SYNDICATIONLAWYERS.COM
    17 hrs · Like · 1 · Remove Preview
  • Jennifer Cohen Topscher Consult with an SEC lawyer about what you want to do. If they say it’s fine, then go for it. More than likely you will need to follow specific rules in order to keep it from violating or you may have to register with the SEC. It is well worth the money to know that you have done everything legally and that nothing will come back to bite you.
    5 hrs · Like