California real estate investors have many options when deciding where to put their money. This includes a real estate syndicate, in which investors contribute money to a real estate project under the management of a syndicator or sponsor. Since a real estate syndicate investment often involves buying ownership equity in a business entity, such as a limited partnership or limited liability company, state and federal securities laws may be a factor. In order to avoid inadvertent securities law violations, syndicators and investors alike should be aware of the general requirements and exemptions in laws like the federal Securities Act of 1933.
Securities Law Enforcement
Both federal and state laws define “securities” very broadly. In addition to stocks and bonds, the term also includes a variety of “investment contracts.” An investor in a real estate syndicate often entrusts their money to a syndicator, who will handle the actual operations of the syndicate. This type of investment is likely, in many cases, to be an “investment contract” within the meaning of state and federal laws.
At the state level, the California Department of Corporations (DOC) is responsible for enforcing securities laws. The Securities and Exchange Commission (SEC) handles federal securities enforcement. Anyone seeking to sell a security, possibly including an interest in a real estate syndicate, to the public must register with securities regulators. This can be a time-consuming and expensive process, as demonstrated by the overall rarity of companies “going public” by making an initial public offering (IPO) of stock to the public. State and federal laws provide exemptions to these rules, however.