Why Your Capital Raising Strategy Might Be Illegal (and How to Fix It) with Mauricio Rauld

Why Your Capital Raising Strategy Might Be Illegal (and How to Fix It)

On Accredited Investors Only, host Peter Neill sits down with Mauricio Rauld to unpack the legal mechanics every real estate syndicator must understand before bringing on investors. The conversation focuses on real-world mistakes, practical frameworks, and concrete fixes so sponsors can raise capital without exposing themselves or their investors to unnecessary legal risk.

Why securities law matters for syndicators

Syndication is securities law, not real estate law. If you are taking money from passive investors and your work creates the returns, the SEC will treat that arrangement as a security, no matter what label you use. Calling something a “joint venture” or a “note” does not change that reality. The legal test looks at substance, not form.

“Register, exemption, or it’s illegal.”

That simple triage—register the offering, find an exemption, or do not do it—should be the first stop for any sponsor contemplating an outside raise.

Start with the critical checkpoint: is this a security?

Ask this before you do anything: will the investor’s return depend primarily on my efforts? If the answer is yes, you are almost certainly dealing with a security issue. From there, you have two realistic paths:

  1. Register the offering — impractical for typical real estate deals because it is costly and slow.
  2. Use a valid exemption — the common path for syndications (most often 506(b) or 506(c)).

REI framework

Think “REI”: Register, Exemption, or it’s Illegal. If you cannot satisfy a registration exemption, you cannot legally accept investor funds.

506(b) vs 506(c): pick the right tool

Two private placement safe harbors dominate syndication work:

  • 506(b) — Allows unlimited raise amount and can include up to 35 non-accredited investors, but strict prohibition on general solicitation or advertising. The offering is meant for pre-existing relationships and private outreach.
  • 506(c) — Permits general solicitation and advertising, but only accredited investors may participate, and you must take reasonable steps to verify accredited status (income, net worth documents, CPA letters, etc.).

Pick based on two pivots: do you want to take non-accredited investors (choose 506(b)) or do you want to advertise broadly (choose 506(c))? Trying to do both usually points toward other, slower exemptions such as Regulation A, which requires SEC filing and months of preparation.

Common compliance landmines and how to avoid them

Here are the biggest traps sponsors fall into and practical ways to avoid them.

1. The syndicator’s blind spot

Many sponsors do not hire a securities attorney until after commitments are made. During that gap, they post on social media, send underwriting spreadsheets, gather soft commitments, and create a paper trail that can destroy an exemption. Solution: get legal guidance early—before outreach begins—so all pre-offer communications are compliant.

2. Social media and general solicitation

Posting deal teasers, spreadsheets, or “join our opportunity” ads can inadvertently cross into prohibited general solicitation under a 506(b). If you intend to advertise, structure the deal under 506(c) and verify accredited status. If you want to keep a private raise, treat outreach as private—phone calls, lunch meetings, and webinars to pre-existing contacts.

3. Soft commitments and offers

Offers are regulated just like sales. Texts, emails, DMs, and spreadsheets promising “calls for funding” can be evidence of an offering that violates your chosen exemption. Keep pre-offer materials informational and consult counsel about appropriate disclaimers and content.

4. Promissory notes

“A note” is one of the forms listed in the legal definition of a security. A single, secured, market-rate private loan to one lender (principal and interest with first position lien) often looks like a loan rather than an investment. But fractionalized notes, payment tied to property profits, or kicks tied to upside resemble securities. When in doubt, get a securities analysis.

5. Misused “joint venture” label

Calling a structure a joint venture does not make it one. A true joint venture requires active, shared participation by partners. If one person runs the project, makes decisions, and investors are passive, the SEC will view that as a securities offering. Structure partnerships to show shared control and active involvement if you intend to rely on a non-security argument.

6. Feeder funds, fund-of-funds, and capital raisers

Raising a pool of capital that then invests in other sponsors may trigger additional rules beyond the private offering exemptions. Buying interests in other funds is itself a securities transaction and can activate investment adviser regulations and state-level adviser exemptions. Verify whether you must register as an investment adviser or whether a state-specific exemption applies. Also, if your compensation is tied primarily to the amount you raise, you could cross into broker-dealer territory and need licensing.

7. Co-GP vs broker-dealer risks

Designating someone a co-GP to avoid registration does not cure problems if their role is primarily raising capital. Compensation tied to capital raised is classic transaction-based compensation and can invite broker-dealer scrutiny. If you bring others in as co-GPs, ensure they add real operational or due diligence value and document it.

Consequences of noncompliance

Penalties are real and severe:

  • Rescission: investors may have the right to demand return of capital plus interest and penalties.
  • Civil penalties and fines from the SEC.
  • Criminal exposure if fraudulent conduct is shown, especially with commingled funds or misappropriation.
  • Bankruptcy and reputational damage that can end a sponsor’s career.
  • Bans on raising capital for a set period or for life, depending on severity and enforcement outcomes.

Ignorance is rarely an effective defense. Good-faith mistakes still risk rescission and costly remediation.

How to build a legally sound capital raising strategy

Practical steps to protect your deal and your business.

  1. Make the security determination first. Before you write a term sheet, ask whether the proposal creates a security. If it does, move to confirm an exemption or plan to register.
  2. Engage a securities attorney early. Don’t wait until documents are needed. Early counsel prevents the syndicator’s blind spot and helps shape compliant communications from day one.
  3. Decide on your marketing strategy and choose the exemption accordingly. Want broad advertising? Use 506(c) and verify accredited investor status. Want to include nonaccrediteds? Stick to private outreach under 506(b).
  4. Document everything and control communications. Discourage off-the-record spreadsheets and informal promises. Keep pre-offer material informational and subject to counsel review.
  5. Structure compensation appropriately. Avoid transaction-based fees for capital raising unless you are licensed to act as a broker-dealer. Compensate partners and co-GPs for real operational value and due diligence, not simply introductions.
  6. Perform real due diligence if you run a fund-of-funds. Add measurable value: negotiate better economics, secure board or advisory seats, or perform site-level underwriting and on-site reviews so your investors benefit from your role.
  7. Watch state rules. Investment adviser exemptions and requirements vary by state. Confirm state-level compliance before launching a feeder fund or advisory service.

Due diligence and reporting: treat it like your reputation depends on it

When your investors lose money, they will dig into your underwriting and oversight. Institutional-style diligence is not optional for fund managers who expect to be defended if things go wrong. Document site visits, vendor checks, interview notes, valuation assumptions, and financial stress tests.

Final thoughts

Raising private capital can scale your business quickly, but legal risk is the price of entry if you skip the fundamentals. Start with the right question—are you offering a security?—then choose the correct exemption and keep a securities specialist involved from the earliest outreach to final closing.

Useful resources to explore include introductory guides aimed at syndicators and targeted chapters on complex topics such as promissory notes, joint ventures, and fund-of-funds compliance. Seek out a securities attorney who speaks plainly about the rules and will help you implement them without slowing your business to a standstill.

“If you call yourself a capital raiser and you do not have a license, you are asking for problems.”

Protect your investors, protect your business, and build a capital raising strategy that works legally and commercially.