Tilden Moschetti: Not a week goes by where I don't have a
consultation with a potential new client, where I don't hear
something along the lines of I didn't do a private placement
memorandum in my last three syndications happened last week,
and I'm sure it'll happen this next week as well. Let's talk
about it. Do you really need to use a private placement
memorandum? What do I answer these clients? And what do I
tell them? We're going to go over that
my name is Tilden Moschetti. I am a syndication attorney for
the Moschetti syndication Law Group. So do you really need a
private placement memorandum? Now granted, I'm biased in this
I prepare private placement memorandums for a living. So
let's go over what exactly a private placement memorandum
does first. So the private placement memorandum or ppm, so
we're probably going to call it PPM from now on is a document,
which is a set of details in details out the investment
itself that's being made. It details out all the risks that
are associated with that investment, or everyone everyone
that we can reasonably think of, we have no way for example of
predicting that Martians could land on the planet and take
over. That's not one of the risks that we would identify in
a private placement memorandum more likely than not. But we do
identify risks such as we don't know what the economy's going to
do in the next year, we don't know what lending rates are
going to be and how that will affect our business is such and
such, if they go up substantially. We don't we
identify? Well, this is a risk because these types of
investments are illiquid by nature, we're not supposed to be
freely trading private securities under Regulation D.
So those are the kinds of risks that we generally talk about, we
also talk about conflicts of interest, like the manager of
this fun, may have something to gain from it, they're going to
be receiving management fees. And perhaps it's a situation
where they will make more money by having the investment go on
and on rather than end it when it would make most sense for the
investors when we talk about those sorts of conflicts of
interest that are inherent. But we also talk about what the use
of the funds is. So we talked about how the money is getting
used. So all these things go get taken place in a private place
in memory in that ppm. So you can think about a PPM also in
this context, and I like to describe it this way. Because a
PPM isn't a marketing piece, it's not a piece of marketing
material that you use, as you know, as a to hold up and show
the world. It's it doesn't serve that purpose. That's more
placement for your marketing materials. The BPM is something
else. I like to think of it as when you go to the bank, and you
open up a new checking account, and they give you that big thick
booklet that you never look at, you put it back in the folder
that they gave you. And you never look at it again. Because
it's you know, who would read that thing anyway, that in a lot
of senses is what the private placement memorandum is. A lot
of people don't read private placement memorandum they're not
read. So I have to live with the fact that a lot of my work never
gets seen by anybody other than my client, and they give it out
to people, but they probably don't read it, maybe maybe 80%
of people don't look at them. That's just my rough guess. So
why do we still need it? Well, here's why you need to know
first off, you absolutely must have a private placement
memorandum. If you are doing a Regulation D rule 506 B
offering, the chance of a non accredited investor entering
into your investment is very high. And a non accredited
investors must get the information that's within a
private placement. It's critical that they see it that they have
that information. accredited investors, interestingly enough,
aren't required to see that kind of information. Now, you may
think to yourself, Well, I'm doing a 506b offering, but I'm
only taking in accredited investors. They've all told me
that well, that bar isn't really quite right. Well, it's
interesting when we see litigation coming a involving a
Regulation D offering, we oftentimes say see this, this
this item in the case itself where there was this many number
of investors this many assumed to be non accredited investors
and then there's always there's some larger number more of who
people will actually are non accredited. So there's always
more non accredited investors in a 506b than you think. Now we
don't have that in a Rule 506c because everybody has to have
verification from a third party. So most of the time, like 99% of
the time, you won't have any non accredited investors. But they
still should see this information. Why? Because it
answers that question. When the investor calls you up and says,
Well, you never told me that the that the economy was directly
tied to the performance of this investment. You can show them
the PPM and say, This is where we told you exactly that. Or
when they come to you and say you are have been paying a
preferred return of 7%. But I thought all along that it was
9%. Why didn't you tell me that it was that? We're distributions
are happening annually, and they're not quarterly? Like I
thought they were? Why didn't you tell me that? If you don't
do a private placement memorandum, I guarantee you're
going to get those questions, at least, that's a concern for the
accredited investors. For the non accredited, we're talking
big problem here, you must give them a private place of memory.
So it answers all those questions. And so it goes over
all those details. It's also your backstop at the end of the
day, if you ever will come under an investigation with the SEC,
you can present the PPM, you can say this is what we told them.
And this is why it's there. This is what happened. So not only is
it just a plain good idea, even if you don't have to use one, it
is a really good idea because it's insurance for you. Your
investors are probably the ones paying for it. Most of the time,
my legal fees are reimbursed to my sponsors to the syndicators
by their investors. So essentially, the investors are
paying for your insurance policy. So it's kind of a no
brainer to do it. Now, yes, it does take a period of time. And
yes, it does cost money. But it doesn't make sense to risk
everything on something that basically you could get for
free. Not only that, but it does make a case that you are a
professional, I can guarantee you that Goldman Sachs, when
they go and they're doing a private offering for one of
their clients, or one of their subsidiaries is doing a private
offering, I can guarantee you that they do not do a deal
without a private placement memorandum. They don't they it's
a free guarantee for them, their legal department would never let
them go out there. So you showing up with your own ppm is
a mark that you're a professional, that you know what
you're doing, that the investors money is in safe hands because
you know enough to protect yourself and you can probably
protect their money too. So that's why even if you don't
have to use a private placement memorandum, you're really really
sure. So here's the key takeaways, private placement
memorandums, they provide that detailed information about your
business, about the financial health associated risks, all
those things which are crucial for those potential investors to
invest with you. A PPM also helps you comply with the
securities laws. It mitigates any legal risks, and it enhances
investor protection, because it promotes that clarity, that
understanding so they know what they're getting into. They
understand what those investment terms and conditions are. While
the ppm is require a lot do require time and financial
investment up front. They offer such advantages that it's a
clear case that you need to do this. It is a clear way to
communicate exactly what your what your offering does. And it
gives the strategy and it also attracts those potential
investors because you show up like a professional. My name is
Tilden Moschetti. I am a syndication attorney with the
Moschetti syndication Law Group. Obviously I do a lot of private
placement memorandums and I would be happy to talk with you
about your private placement memorandum for your next offering.