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Equity Milling call the Division at (801) 530-6600
Key Questions Before Investing
  • Do I understand the investment being offered?  Complex investment transaction where reliance on a promoter is required greatly increased the risk to the investor. Moreover, are all risks understood and evaluated. In almost all instances, it is not a prudent investment if you run the risk of loosing your home to make the investment.
  • Is that security properly registered with the Utah Division of Securities or federal government?  If the security is properly registered, you should be able to find the security in the Division’s online database or the S.E.C.'s Edgar database. If the promoters say it is exempt, they should be able to provide you with a legal citation of the law they are relying upon for exemption. If they cannot, the security is likely illegitimate and you should not invest.
  • Have you been offered some disclosure document?  To help you perform the proper due diligence before investing, you should be provided a private placement memorandum, private offering memorandum, or some other document that fully details information about the investment, including: its management personnel, its financials, its track record, its business model, and the risks associated with that model. The disclosure document should be substantial in length (typically 30 to 60 pages).
  • Have you been offered audited financials from the company?  Generally, audited financials are reviewed to assess the viability of the company. You will want to pay close attention to any outstanding liabilities.
  • What would be the impact if you lost your entire investment?  If you lost your entire investment, what changes would you need to make in your lifestyle to accommodate the loss? How long will those changes last? How would the loss of your principal affect your credit rating? Would a change in credit rating further impact your lifestyle?

What is Equity Milling?

Equity Milling generally describes a means of generating cash to make an investment by borrowing against real property.

Typically, a promoter will locate undervalued properties for investors to purchase. Once purchased, the property is appraised at a higher value (sometimes fraudulently), allowing the investor to secure a new loan thereby capitalizing on the increased value of the property. In some instances, the highly-valued property may then be sold to a new buyer (possibly located by the promoter). Whether sold or kept by the investor, the difference between the lower purchase price and the higher appraisal value (or sale price) represents equity, which the investor can pull—or “mill”—from the property. The promoter may present equity milling to investors as an investment program in itself or as a means to finance some other investment.

Equity Milling may also refer to the milling of equity from anything with value. For example, an investor might borrow against their home to buy a car, but borrow an amount more than the cost of the car so they can invest the difference.

In each case of equity milling, the promoter offers a rate of return higher than the interest rate on the loan. Investors are sold on the idea that they can earn enough to repay the loan and have some profit leftover. Equity milling is a risky game. By borrowing against something of value (i.e. your home), you endanger that asset if the returns are insufficient to repay the loan. Often investors are left responsible for large liabilities.

Concerns with Investments that Use Equity Milling

Registration Concerns

A promoter who seeks investor money for Equity Milling will typically require the investment to:

  1. be properly register under Utah’s Securities law;
  2. be exempt from registration under Utah law; or
  3. be a federal covered security, notice file in Utah.

In many cases, promoters fail to properly follow securities laws and offer unregistered securities to Utah investors, which is a violation of the law.

Fraud Concerns

Many promoters fail to provide investors with adequate disclosure documents. Some will mislead or misrepresent the information and risks in their disclosure documents. The omission or misrepresentation of material information in the offer or sale of a security is considered securities fraud. Utah is so concerned with abuses in this area that in 2001 the Utah Legislature increased penalties for violators who knowingly accept money representing equity in a person’s home.

Licensing Concerns

A promoter may or may not need to be securities licensed as a Broker-Dealer or Investment Adviser. Licensing is required anytime a sales agent or promoter sells a security and receives compensation or renders advice regarding a security for consideration.

A promoter may also be required to license with the Utah Division of Real Estate as a broker or real estate agent.