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As part of this seven part
series, we've been going through

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different hot topics that
regulators such as the SEC, or

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state regulators are hot to, and
they are going to be my

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prediction, increasingly
vigilant to protect the

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investing public about. So this
next topic is definitely way way

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not allowed. And it is a very
hot topic. If you are doing it,

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then you need to stop it
immediately. And if you're not

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doing it, you definitely don't
want to get trapped in finding

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that yourself doing it or
thinking that it's okay.

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So what is this hot topic that
state and federal regulators are

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going to be definitely looking
for? And I think that there will

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be a greater scrutiny in the
future. And certainly a desire

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to go after people who are doing
this. More and more. The idea is

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something kind of simple and
probably on its face, you're

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like, oh, yeah, that's no, of
course you can't do that. And

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that idea is commingling.
commingling is not allowed.

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commingling is not part of any
of the funds. So let's talk

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about exactly what commingling
is in this context, where I see

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it happen kind of under the
radar, that causes a problem. So

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let's put up a whiteboard. So
let's talk about the problem

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that is obviously wrong. So the
one that's obviously wrong is

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you've got a fun here with money
invested in.

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And this is your fund LLC. And
then this is the one that's

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wrong is money comes out just
for a short time, because you

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want to put together another
your pool, you want to put

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together something new, but you
need to pay, say your attorney,

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you need to pay him legal fees.
Right. So you want to pay your

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syndication attorney in order to
pay him legal fees and draft

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documents for you. This is
obviously not allowed. You are

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not allowed to commingle your
joint bank and your bank

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accounts this way, right? Same
thing, same problem that you

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need a place to just temporarily
Park some money, you can't just

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put it into the fund LLC. It's
it's not allowed, you're not

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allowed to do that. So that's
the obvious case of commingling.

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What I see happening a lot of
times is this. And certainly

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I've I have had clients ask
about whether or not this is

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allowed. And the answer is no,
it's not. And it looks something

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like this. You've got sorry,
this is you've got your fund LLC

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here. And you've got your
management company here and I'm

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drying him his buckets. Because
really, a fun is just it's a

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bucket of assets. All right. So
we can let's call this fun one

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LLC. This is fun to LLC. And
let's make fun three LLC just

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because we can oops. It'll make
the point better. Oops, can't

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see this. There you go. Fun.
Three, LLC. All right. So you're

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here. You've got these three
funds that are going and they're

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working wonderfully. You've
identified a potential

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opportunity that you would like
to create over here and this is

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say fund four. Let's put it into
context. Let's say these are

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real estate deals. was that that
happens a lot. So you've

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identified fund for? And you
said supposed to be a question

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mark, and it doesn't look
anything like one. So you don't

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know how to get it started? You
found this great asset. Right?

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So

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that you want it to buy? All
right, that's how you want it to

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go, but you don't have the cash
to do it. So what some people

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think they can do, and you
can't, is this, the thought

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comes up of how can I just
borrow money here? Can I borrow

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money from fund three to put the
downpayment on or put the

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deposit down on this property?
So that when it gets locked up,

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it'll get locked up in escrow.
And as soon as this fund has

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enough money, will repay that
money back. plus interest? And

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the answer is probably not. Now,
it's it's possible that your fun

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is allows for loans to be made
to other projects, which is

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okay. But at the end of the day,
the analysis goes something like

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this, does this guy here? And
this guy here? Who are investors

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in this? Are they going to have
a problem with this going on? Is

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there any way that they're going
to have a problem? Or were they

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told specifically, we may make
bought loans to our investment,

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other investment companies in
order to reap to pay them back,

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including investment companies
that are managed by the same

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manager? If the answer is no,
which most of which will be most

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of the time? That will be the
answer, then you can do it. So

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that's the commingling problem
that happens, and it's the

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commingling problem that
actually, is is very prevalent,

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because managers don't see what
they're doing as buckets. Right.

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They see them as really a list
of assets and sets of investors

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and things like that. But the
truth is that they're buckets,

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and they're totally self
contained. If they're going to

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do something outside of fun one
or fun two, or fun three, if

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those things are going to be
doing something outside of what

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those specific vehicles are,
your investors are being wrong,

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right. So money is being taken
from them. Maybe it's just an

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opportunity cause for an
opportunity that's not even

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there, but it's affecting them.
It's their money, and they have

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the right to have what they
expect happened with their

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money. So that's the problem
that I see happening with

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commingling. Now regulators know
this happens, they see it

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happen. And if they know this is
gonna happen and see this is

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going to happen in one of your
funds, you can bet they're going

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to be calling and go, there's
going to be some major

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enforcement action to bring
something down. If an investor

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got wind of this happening, and
they were to let the SEC or a

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state regulator now, I would bet
100 Donuts, that they would be

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investigating it as quickly as
possible. And stopping that kind

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of action with whatever for
enforcement actions they have,

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because it's just plain illegal
to be using funds that way. My

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name is Tilden Moschetti. I am a
syndication attorney with the

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Moschetti Syndication Law Group.
The whole point of these videos

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here is to help you understand
what compliance is and help you

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be in compliance with the SEC
and state regulators. I'm a huge

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fan of Regulation D and all the
rules that are related to it.

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Because it makes raising money.
Very very knowledgeable, very

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formulaic, very, very doable for
people. It keeps the cost for

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you as a regulator down and lets
you do what you want to do in

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order to raise funds and
protects the investor public as

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well. So if I can help you stay
in compliance with the SEC in

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the state regulators, that's
what I enjoy doing. And I enjoy

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working on projects and with
good clients. So feel free to

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give us a call if you think you
might be one of these