We recently had a speaker in Oklahoma City who came to talk about how to borrow money from private lenders. That speaker shall remain nameless in this article.
He presented some excellent information on how to get private money from friends, family, and associates. And he told us how he had gotten his first private lenders by doing some limited advertising to bring together a group in which he did a presentation.
The presenter left us with the impression that we, too, could use do limited advertising within our own State to attract local private lenders as long as we let our State Security Exchange Commission know what type of advertising we intended on doing.
I was curious about these disclosures, so I contacted our Oklahoma Security Exchange Commission. The regulator I spoke to was very helpful. I described the type of mortgaged backed note that I wanted to offer. I asked him about what I needed to do in order to stay in compliance with Oklahoma Securities laws.
He referred me to Section 202 of the Oklahoma Uniform Securities Act of 2004. It states that “[a] transaction in a note, bond, debenture, or other evidence of indebtedness secured by a mortgage [is exempt from registration] if…a general solicitation or general advertisement of the transaction is not made.”
Section 202 therefore seems to indicate that if you plan to advertise in an attempt to attract private lenders in the state of Oklahoma, you must register the security with the Oklahoma SEC.
Registration is a big deal because of the cost and effort involved. In discussing this with a few securities attorneys, it appears that it would cost $20,000 to $25,000 in legal fees.
When I asked the SEC regulator about what can happen to someone who attempts to advertise an unregistered security, it didn’t sound pleasant. He suggested it would cost must more in legal fees for that person to defend themselves for such a transgression.
He said it almost always bankrupts a business when this occurs.
Clearly, one would be ill advised to pursue the advertising suggested by the presenter. Friends, family, and associates are still in play.
February 28th, 2010 at 11:36 pm
You can ask everyone EVERYONE that you come into contact with via:
in person, telephone, email (directly to a person ) included in every
piece of mail you send out. Stay away from: newspapers and other
public media.
February 28th, 2010 at 11:55 pm
MJ – I would agree with you to the extent that you have a pre-existing relationship with that person you are calling, sending an email to, or sending mail to…I’m not sure that you could order a mailing list, send a solicitation, and not possibly get called to the carpet on this.
March 1st, 2010 at 12:14 am
I actually thought the speaker was quite clear on this matter. …even offered a second, separate course devoted entirely to branching out and advertising outside of family & friends (which included all SEC compliance regulations even broken down by state). Perhaps he wasn’t clear enough if some listeners just heard what they wanted, but I thought he was very careful to warn that one needed to know what they were doing if going beyond family/friends/associates.
March 1st, 2010 at 11:04 am
He was clear— He just failed to mention that it would cost a small fortune to do what he was teaching. Had I known this I would not have purchased both of his courses.
March 1st, 2010 at 12:32 pm
True, and good point. However, of course one has to look at the potential involved in what’s being taught. Even if one has to pay $25k (or even $50k) to get all registered, one could then build a web site and advertise to the world. …that’s pretty powerful and could easily offset the cost.
I’ve gone through one of the two courses and, although it was redundant at many times (and honestly, very poorly written in others), I found it to be quite helpful and full of good information. …stuff that one would need to know for managing private investors.
Just my $.02.
March 1st, 2010 at 1:47 pm
Dan & Dave:
My intention here is not to bash the presenter. He presented some outstanding information.
But you have two things in play. As you point out, Dave, we have a natural inclination to hear only what we want to hear. It’s sometimes difficult to remain objective.
The second thing is that the presenter is trying to sell his “stuff”. He has a natural inclination to focus on the positive stuff and downplay the negative.
In my opinion, the presenter could improve his product by being more clear on the actual in the trenches, what to expect when it comes to registering a security with the state.
Also, I wanted to bring this to the attention of my friends and colleagues who might be advertising right now for private money, or be considering such a move in the future. I wouldn’t wish any type of enforcement action by the SEC…my 2 cents.
March 12th, 2010 at 4:40 pm
Hi Scott,
Would this work? What if someone, you for example, wrote a post or article about your great success with private investors, how happy they are to work with you, how they continue giving you the money for house after house, what percent you pay, what the terms often are, etc.
But no where in the ad do you solicit lenders. However, you do include good contact info in the article.
And then do one or both of these:
1. The article “accidentally” got indexed well by Google for keywords that investors could be looking for.
2. You actually advertise the article in conventional ways, BUT you target the ad towards those wanting info for finding and using private money. (The ad could/would also catch the attention of private lenders “accidentally”) But the add would in no way be targeted toward the lenders.
…just a thought.
March 17th, 2010 at 6:53 pm
Steve- excellent point. It would definitely be a way to fly below the radar on this issue. Also, I can’t see how the regulator would have a problem with that.
March 20th, 2010 at 11:44 pm
I have borrowed over 30 million dollars in private money. You do not want to advertise. First, it rarely works. Alot of these gurus have not done it on any significant scale in the real world. Its all about having and implementing a system to meet those with money in person. You then make a professional presentation. Second, if you advertise one of two things will happen. The SEC will call you and may hit you with a “Cease Order” Also people see your add, call the SEC, and are advised against it. I hope I have helped.
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March 31st, 2010 at 10:52 pm
Chuck – I like your theory on marketing for private money…not necessary to get private lenders. Yes, the SEC will potentially be all over you.
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