Syndication Fallout: What Happens When Losses Happen?

Syndication Law & The Private Placement Memorandum Attorney

As a sponsor of a syndication or fund, it is essential to consider the consequences if the investment does not generate profits or incurs significant losses. While it's a worst-case scenario, it is possible that despite raising funds and gaining the trust of investors, the business or real estate deal may not perform as expected. Investments carry inherent risks, and it's crucial to convey these risks properly to investors and establish a fair structure. It goes without saying that committing fraud is absolutely unacceptable and would lead to severe problems. Assuming fraud is not involved, the consequences of a loss depend on the deal's structure and the transparency of the risks conveyed to investors. In some cases, investors may contact me after losing money, but if they seek legal action, it's not part of my practice to represent them as a plaintiff's attorney. Nonetheless, I try to understand the situation and offer guidance where possible. Often, the reasons behind a deal falling apart are foreseeable and not the result of misconduct. For example, in the current market, the risk of mortgage interest rate fluctuations can significantly impact a deal's viability. If all these risks were properly disclosed to investors, it is unlikely that they can hold the syndicator or fund sponsor responsible. However, if the risks were not adequately discussed in the private placement memorandum or the operating agreement, there may be a possibility for injured investors to seek recourse. The key takeaway is that as a sponsor, the risk to oneself is minimal as long as all risks and consequences are transparently communicated to investors through a well-crafted private placement memorandum. The goal is to ensure that investors fully understand the risks they are undertaking, and if that is achieved, the sponsor's protection is increased.

Read more about Private Placement Memorandums - What Is a PPM (Private Placement Memorandum)?: https://www.moschettilaw.com/what-is-a-ppm/

Read more about Private Placement Memorandums - Do I need a Private Placement Memorandum (PPM) lawyer?: https://www.moschettilaw.com/ppm-attorney/

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Moschetti Syndication Law Group is a boutique syndication law firm, serving small and growth-bound syndicators, and well as private equity firms. We keep our firm ‘boutique’ size so we can tailor the services to each client’s unique needs without turning the firm into a faceless factory or passing unnecessary overhead expenses onto our clients. (As our client, you’ll only pay a fixed fee, so no surprises.) As for the client experience, we give real-time answers without making you book an official appointment. And we’ll work with your ambitions and overall vision to help you close the current deal and fill-in that ‘missing’ piece - whatever you need - to keep adding more syndications to your portfolio. We keep syndicators syndicating (TM).

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