Remember our investor looking for private funds on my previous blog post?
According to Brad Ferber in the Securities Division of the WA State Department of Financial Institutions, it is questionable whether s/he should be making a public announcement at a general meeting of real estate investors, as this would be considered to be general solicitation or advertising of securities. This goes for advertising over the association message board or list-serve. Advertising of securities is not allowed, except under regulated circumstances.
Investors looking for equity partners or private funds may be considered to be selling a security, or serving in a role as an investment adviser. These activities are all regulated by the Securities and Exchange Commission.
There is however an exemption for "one-on-one transactions," where an investor approaches an individual, with whom he has a business or personal relationship, for funds or equity shares in an investment property. There must be some kind of pre-existing relationship - which may be as simple as the exchange of business cards.
However, the law becomes murky when the investor approaches more than one partner, as now the offering becomes a "pool." Unfortunately, there are no clear guidelines on these private, "non-public" offerings. Generally an investor offering a non-public offering is exempted from the SEC registration requirements, on the assumption that the prospective partner knows the individual investor, has the potential to become adequately informed, and has access to information needed to make an informed decision. The partner hence does not need the required protection of securities registration.
The Federal exemption for non-public offerings is referred to as 4(2), and is self-executing (does not require filing). Washington State law covers this exemption in RCW21.20.320(1).
Be advised that the state employees at the Department of Financial Institutions are not authorized to provide legal advice! Best to consult a securities attorney, if you as an investor plan to be asking people for money to purchase real estate!