Tbh i can't see you running into tax problems until way down the line, and if that's a risk you want to take then it up to you (also moving somewhere tax free).

I think a more pressing problem is that when high numbers of transfers are running through node accounts, they are going to be flagged by the stars/tilt. Having large sums in an account alone may not be enough to catch their attention, but i can imagine the regular transfers coupled with the fact that there will be zero playing frequency on your account (you stated earlier you will not be playing on these accounts) will raise some security/money laundering fears at their end.
I personally had my accounts frozen for this reason while running a money transfer operation. After some explination my accounts were reopened, but it basicly shut down me down, the whole operation being far less than 50k and didn't rely on regular payments.

Obviously introducing an external payment system helps, but causes more logistical headaches.

Really good post, with NEW information brought to the table... This is great stuff...

PS

Have no clue what Lego's post meant TBH

This was discussed and I will most likely need to put some volume in on my stars account. I would not be using the funds money to play with and would make sure this was shown with the audits being preformed by the board. From what other managers that are moving lots of money around have told me is that the amount of vpp's required for stars to leave you alone is minimal. FTP seems to not care at all.

Yeah, thanks. I am not an expert on this I only pretend to be in this thread. With that said, I do have a degree in Finance and have taken multiple classes on everything related to this sort of stuff. I really believe that given the Howie test this would be classified as a security (that was my initial hunch, but this only serves to reaffirm this).

It's very close to meeting the howie test IMO. There’s a few items where I think very good arguments can be made against it. However, I believe if I understand this correctly, that this is attempting to classify the fund as a security while my post was pointing out that an organization is only breaking the law if it is trading securities and unregistered with the sec. So weather the fund is a security or not does not have any baring on the legality of it. It's basically saying that a unregistered investment fund couldn’t purchase shares (if there was shares) in my fund because it is tech classified as a security.

hope that made sense

I'm not sure what you mean.


But if it is a security there are a whole host of security laws that would be applicable. If this investment opportunity were determined to be a security the next interesting step may be to determine whether or not this is a public offering.

Edit: it seems like this is the best test to determine (directly from the sec website):

http://www.sec.gov/investor/pubs/invclub.htm
Since the Securities Act requires the registration of the offer and sale of most securities, the investment club must first decide if its membership interests are "securities." Generally, a membership interest is a security if it is an "investment contract."

Generally, a membership interest is an investment contract if members invest and expect to make a profit from the entrepreneurial and managerial efforts of others.

If every member in an investment club actively participates in deciding what investments to make, the membership interests in the club would probably not be considered securities. If the club has any passive members, it may be issuing securities.

Sometimes offers and sales of securities do not have to be registered because they are exempt under the law. For example, a non-public offering is exempt.

This is pretty much exactly what I was getting at. I posted the Howey test for determining if something is an investment contract and therefore a security.

And that last part is why I said that if this thing were a security the next thing to determine would be whether this is a public offering. And here you go ..... another part of my outline from my Securities and Market Regulation class last year (the formatting is awful and doesn't make any sense):


F. Section 4(2) Offerings: Exempts from Section 5 transactions by an issuer not involving any public offering.
_______O. What is a public offering?
_____________8. Tends to turn on what the purposes of the securities laws are and whether the costs of registering an offering are outweighed by its benefits. Do the offerees need the Act’s protection?
_____________9. 1935 SEC issued factors relevant to determine whether an offering is public:
_________________a. Number of offerees
_________________b. Relationship of offerees to each other and issuer
_________________c. Number of units offered
_________________d. Manner of offering
____________10. SEC v. Ralston Purina
_________________a. Facts: RP distributes $2M treasury stock to 500 of 7K employees called “key employees” which company defined as any employee who took initiative to ask about stock. IS THIS A PUBLIC OFFERING? RULES:
________________________i. no numerical test regarding a certain number of offerees making it a public offering
________________________ii. an offering to all employees would be public
________________________iii. Applicability of Section 4(2) should turn on whether the particular class of persons affected need the protection of the Act. Offer to those who are shown to be able to fend for themselves is a transaction not involving a public offering:
____________________________DD. Depends on the knowledge of the offerees: Eg. Offers to executive Officers with access to the kind of info that registration would disclose would not be public offers. But offers to other employees who do not have that kind of info are public offers.
____________________________EE. motive of offeror does not matter
____________11. Doran v. Petroleum Management Corp.: To qualify for exemption there must be sufficient basis of accurate information (provided to offerees) upon which the sophisticated investor may exercise his skills (not independently sufficient; weigh with other factors such as sophistication).
_________________a. FACTS: PMC contacted 4 people to participate in a partnership. 3 declined. Doran was sent drilling logs, maps, etc. He contributed money. Company underproduced. No Reg. statement filed.
________________________i. Investor is sophisticated – has engineering degree, is worth > $1M. 850K in O&G.
________________________ii. Other offerees also sophisticated.
_________________b. RULING: Exemption question turns on the knowledge of the offerees.
________________________i. Sophistication of the offerees helps the defendants (but not dispositive); But:
________________________ii. All offerees Must also have access to the information the registration statement would disclose.
____________________________DD. When info actually disclosed access is met.
____________________________EE. EFFECTIVE ACCESS = not furnished info directly, but in a position relative to issuer to obtain registration info (employment, family, economic bargaining power to enable effective obtainment of info)
__________________________________1.) Factors to Consider: position of offeree (relationship based on family, employment, etc.), economic bargaining power, knowledge of what questions to ask. Did issuer promise to open files and records to offeree, and answer questions?
__________________________________2.) MUST SHOW: offeree can realistically be expected to take advantage of access to ascertain relevant info. Relationship to issuer important + sophistication (to show that he had ability to ask the right questions)






And I think I may be pretty much done cause I really don't actually want to hijack the thread.



And of course I don't guarantee the accuracy of anything I post in this thread. It is possible that something is incorrect and/or something used to be correct but the statute, regulation, rule, etc. has since been changed and so the something is now incorrect.

I am not performing any legal services for anybody. I also am not a lawyer (I'm a law student).

I pm'd Chris this same information but I figured I would post it here as well to see if other members agree with me or dont believe this information to be accurate:

After researching a bit more it seems like this would fall under a regulation D offering. You do not have to officially register the "securities" but you do need to fill out a form D. The only other thing holding this back from being textbook legal is that the thread may be considered general solicitation or advertising a security offering.

http://www.sec.gov/answers/regd.htm

http://www.sec.gov/about/forms/formd.pdf

edit: and I will stick to pm's chris if you would rather discuss this privately and feel that the thread is getting too derailed.

There are 3 different Regulation D offerings that are exempt from registration. Rule 504, Rule 505, and Rule 506.


But as you said this thread may be considered general solicitation, which is banned in all three Regulation D offerings, and doing so results in the loss of the exemption.


Again formatting is awful:

11. General Solicitation Ban: Neither the issuer nor any person acting on its behalf shall offer or sell securities by any form of general solicitation or general advertising; Rule 502(c)
_______a. Soliciting all redheads or some other restricted group still general solicitation: Did not create any meaningful restriction based on sophistication or ability to fend for themselves.
____________iii.) Soliciting all executive officers in Fortune 500 is a tougher case
_______b. In the Matter of Kenman Corp: A preexisting relationship between issuer and those solicited is an important factor … and having a certain degree of sophistication is not always enough.
_______c. SEC No Action Letter, page 587:
____________ii.) Preexisting relationship with offeree can be important factor.
_________________b.) A Relationship that would enable issuer to be aware of the financial circumstances or sophistication of the persons with whom the relationship exists or that otherwise are of some substance and duration.

NOTE: In order to build these pre-existing relationships brokerage firms may actively solicit investors with a general interest in investing in private placements. This solicitation may not mention any particular private placement and must take place a sufficient amount of time prior to any contemplated offering to enable brokerage firm to assess the sophistication of the investors. On-line offeree questionnaires followed by screening on part of brokerage firms are acceptable.



The rule 504 exemption has this exception to the general solicitation ban (although I doubt it would be helpful):

Exempt from ban if sell exclusively in a state that under state law provides for registration of securities and requires public filing and delivery to investors of a substantive disclosure document prior to sale. Rule 504(b)(1)

Hopefully you can consult with an attorney or someone more knowledgeable to see how to setup a questionnaire or other sort of "device" to prove a pre-existing relationship with the potential investors. This seems like the only way to get around the general solicitation deal breaker... (the creation of this thread may have already voided any potential solution)

Update Nov 11th:


Things continue to come together, already received over 15 apps in the first few days of actively looking for horses and have begun weeding them out and pre screening them for further review. There was some laughable ones for sure, but defiantly already a few solid looking apps received.

Due to a few things that I am waiting on, the official start date and beginning to the first period will be pushed back till The 20th of November. This gives me more time to get more initial horse work completed and will allow me to further develop the role of the board of trustees and process of checks and balances for the fund. I feel this is a very important element and is not something I want to rush with. I’m working with a few of my largest committed investors and will post all the details when they become available. The date I plan to start receiving funds will now be nov 15th. If you are someone that has reserved a piece of the fund, I will be contacting you in the next few days.

I appreciate all of the feedback I have received both positive and negative. Ultimately the legality of this project is open to interpretation. Much like already existing funds or even playing poker online, this is in a very grey area of the law. All of the posts the last few days have been very interesting to say the least. I again thank everyone for taking the time to attempt to interpret the sec regulations and discussing this issue. However, I have been advised and reassured by my own personal legal council that this project is fine from a legal standpoint. I have also been assured that regardless of interpretation, investors within the United States are not at any legal risk what so ever. I have been actively speaking with my own accounting and legal council and will continue to make decisions based on their recommendations. Currently this project is still a go and I ask that if anyone has more questions regarding legal matters to please contact me privately as I feel the thread has gone way off topic.

Thanks again to everyone that has shown interest in this project, as always please feel free to let me know if you have any questions.

Sorry this might have been a better question to PM you but just wondering do you contact all applicants or only the ones who were accepted? Also how long roughly does it take before you make a decision? Thanks

Hey everyone,

Sorry for my absence the last several days. During that time I have been speaking with several key investors as well as taking care of some personal things that have come up. After questions regarding the legality of my proposed project came to light last week, several committed investors decided at this time it was in their own best interest to remain on the sidelines. I fully understand and respect these decisions, however with the drop in investment dollars (down to 16k) I feel at this time it was best for everyone including myself to officially scrap this project and not continue with my fund. I would like to personally thank everyone that believed in my idea and was willing, or at least interested in helping my project get off the ground including the people who raised some very tough questions regarding the real world application of it. The several fund managers on 2+2 who reached out to me with support and advice even tho I would have technically been a competitor was amazing, I learned a ton from you guys. I also would like to apologize for the loss of anyone's time that was put into this. I still believe that my idea can work and maybe at some point in the future, in one way or another, It can become a reality.


a few things to close:

I received a bunch of apps, some I feel are very decent from prospective horses. If any of the 2+2 backers would like my list of applications please send me a pm and I will forward them to you.

I posted a thread to sell action for an upcoming hpt event this weekend that I was hoping to play, If anyone is interested in throwing a few bucks for a share that would be awesome. I won’t put the link in this thread but you can find it in the lives shares forum.

Thanks again to everyone, Mods please close this thread.

Chris

You can't run a stable with 16k?

I'd like any of the 3-6$ mttsng horses if you don't mind. Would also work with 1 or 2 investors to get this going maybe we can work together.

Pretty disappointing, was looking forward to tracking the progress of this. Also disappointing that your not willing to take the money on offer in a attempt to prove yourself to potential investors, $16k is easily enough to startup

+1, would have been interesting to follow

proving success with the $16k likely would bring more investment $ into the fund

gl in the future op

I agree with your sentiment cball. I think a large scale fund like this can absolutely work, just not right now. Attempting to jump through the legalities of starting a company in a sector which is pretty much one big grey area would be a nightmare.

You still have the option of putting your own money in this fund and running it as a partnership if you want to avoid any of the legal problems.

However most people just stick to running their own stable because if they are going to put in the work anyways (running their own or running it with partners) the only benefit in pooling capital is investing in higher stakes players or investing in more horses to hedge against variance.

If you end up setting up a legal partnership, I (and I assume many others) would be interested in investing and becoming a partner. Whether it be as a silent partner or active.

Yes I could have started this up with 16k but It would require me to deviate from my overall strategy and leave the fund vulnerable to variance at even the lowest levels of staking. Also, even with my intent to grow and develop into a larger fund, the expected returns for myself would just not be worth it with all the work that would be required. If it was my own money it would be fine, but at this time I just didn’t think it was the best move for me. The biggest lesson i've learned with everything has been that anytime you have alot of hands in the pot as with this proposed model, things become very difficult. I think this would have been the hardest part to overcome.

Not really sure what I'm going to do moving forward... might grind small stakes myself or look for my own backing.

Surely someone at Goldman would desire exposure to a derivative such as this..

any updates cball86?

Any updates on the Project.....???