Legal Question in Investment Law in California

Re: Developer/Investment Liability

This is an area where I believe it is absolutely essential for the promoter of a venture to have competent and face-to-face representation by an attorney who has some training and experience in the area of securities law.

For example, it may be perfectly legal and free from any possibility of private suit or prosecution for a deal promoter to sit down with one or two of his colleagues, lay out all the deal parameters, and discuss the possibilities for a financial collaboration, including profit and loss possibilities. Unless you blatantly fibbed about the potentials, it's 99% likely such a free-wheeling discussion among equals would not violate any securities laws.

On the other hand, if you advertised an investment seminar at the local hotel's conference room and talked it up to a bunch of strangers, that's more than 99% likely a violation of some securities law.

As a general rule, I would advise my clients to have a lawyer-approved financing plan in mind, including knowing how much needs to be raised, how it will be spent, whether the investment vehicle is an LLP or general patnership or whatever, what triggers an obligation to make distributions to investors, and, most important of all, what exemption from registration will be relied upon.

Accepting investment money from strangers is a highly regulated activity, with civil and criminal penalties lurking for the unwary, even for unintentiional and well-meaning violations.

Finally, you should discuss your appropriate insurance needs with a professional business-insurance agent or broker, but keep in mind that activites related to promoting investments and offering securities are likely not going to be covered by any insurance you can afford, or at least not very well covered.