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Real Estate Investments call the Division at (801) 530-6600
  • What type of security is being offered?  Companies raise capital through debt or equity financing. You may be issued an equity interest (e.g. partnership interest, stock, or interest in a limited liability company) for your investment and may receive dividends or a share of profits. Your investment may also be a loan, or debt, to the company (e.g. promissory note, bond) that is to be repaid according to certain terms that may include payments of interest. Debt may also be secured or unsecured.
  • 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 financial status of the company, including outstanding liabilities.
  • It the property in the name of the company soliciting your investment or some other name?  You may choose to visit the physical property as well as check with the county recorders office to see who owns the property, if it is encumbered (tax or other liens). Speaking with property owners adjacent to the property or individuals who have previously engaged in business with the company may also assist in making your investment decision.
  • Do you know the reputation of the company, the promoter, and does he have other companies that have engaged in similar real estate business?  A quick google search will tell you a great deal about a promoter and his company. You can also find great information by doing a registered principal search with the Utah Division of Corporations www.corporations.utah.gov to see if the promoter has had other real estate investment companies. It would be prudent to do a search of civil and bankruptcy court records to see if the promoter or any of his past or present companies have had suits brought against them.
  • 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?
Registration Concerns

Any promoter who seeks investor money for an investment that is defined as a security must:

  1. properly register the security under Utah law;
  2. demonstrate the security is exempt from registration under Utah law; or
  3. if the security is 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 either fail to provide investors with a disclosure document as described above or provide inadequate disclosure in their document. Some promoters even mislead or misrepresent information in their disclosure documents. The information should include a clear description of the business, risks of the business, audited financials, and any commissions to be paid to the person soliciting your investment. The omission or misrepresentation of material information in the offer or sale of a security is considered securities fraud. Sometimes investors trust the person selling the investment and rely on that relationship rather than the written disclosures, which is often a strategy known as affinity fraud. Click here for more information on affinity fraud.

Licensing Concerns

Depending on the structure of the investment, the promoter may or may not need to be licensed as a Broker-Dealer or Investment Adviser. The also may be required to be licensed as a real estate agent or mortgage broker. Licensing provides outside oversight of the activities of the promoter to ensure they are acting in accordance with industry regulations.

Licensing Concerns

A Ponzi scheme is when a new investor’s money is used to pay returns to previous investors, giving the appearance that the investment is earning money. A common red flag to look for is whether there is an actual business that generates revenue through the sale of a product or service. Click here for more information about Ponzi schemes.


When is a Real Estate investment a security?

When a person purchases real estate, a warranty deed is granted to the buyer and it is recorded with the County Recorder; such real estate investments are not securities. These real estate transactions are done without any involvement by the Securities and Exchange Commission (SEC) or Utah Division of Securities.

However, when one person solicits another to purchase a “tenant-in-common” (or TIC) interest, the interest is typically considered a security under federal securities laws and most state securities laws. Utah is the only state where the buying and selling of TIC interests are not considered securities transactions.

That said, investments that are secured by a Trust Deed on real estate may or may not be a security. Investments involving real estate are securities when:

  1. The investment (usually evidenced by a Promissory Note) purports to be secured by a Trust Deed on real estate, but the Trust Deed is not recorded with the County Recorder and/or there is insufficient equity in the real estate to cover the investment.
  2. The investment is pooled with other investors' money to purchase real estate, but the real estate is held in the promoter's name, not the investors. Again, the investment is usually evidenced by a Promissory Note. Click here for more information on Promissory Notes.