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Thoughts On RealtyShares Closing Its Doors To New Investors

Started by Sam, November 07, 2018, 11:29:29 AM

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groovydude

Fellow investors - I had a couple of very interesting conversations today. One was with a former employee of RS. This person agreed to let me share what he said to the group, I'll summarize:

The employees who were laid off (95% of the staff) had NO idea that this change was coming. They had been told that new financing was a sure thing, and it was full steam ahead.
The employees were told that the transition team would be managing the investments and trying to sell the company's assets
There were about 10 people who remained to be on the transition team, mostly asset management staff
This person's opinion was that most of the equity deals were pretty safe, and that some of these have already exited, and that some of the sponsors of these deals pushed forward or are pushing forward to exit sooner just to get away from the RS mess. The preferred equity and especially debt deals are in worse shape (I concur with this).
This person agrees with me that: RS is a fast dying company and that their assets have little future value, that every time a good deal exits it leaves the asset pool looking much worse, and does not understand why the CEO would be trying to sell the assets at this point.
This person has no idea why the company has been communicating so poorly and why the CEO would ignore our group letter.

The second conversation was with a retired real estate attorney. He told me that we, individually and as a group have a few options:
1. File a complaint with the SEC
2. Hire an attorney as a group to initiate a suit. This could be complicated as each member of the group will be suing regarding different investments, but the cost to each person might not be too much if we can get enough people.
3. Contact the owners of the company and try to have a discussion.

He seemed to think that a class action suit was pointless. I will be looking into filing a complaint in the next few days. I'm going to start talking with attorneys in Seattle. If anyone is in the Bay Area (Sam), perhaps it would be best to originate the action from there.

There's a website with information about the VC firms and lead investors that own RealtyShares:
https://www.crunchbase.com/organization/realtyshares#section-funding-rounds

I suggest we start with a letter to these firms and principles. It can be from us as a group or from an attorney. However, those with equity investments will probably stand more to gain if we have to start paying for service. Either way, IMHO we must demand that they redo all the contracts and release all servicing rights back to the sponsors immediately. I see this as the fastest and cleanest way out of this. (Receivership might be a huge mess. Lawsuits may be needed on a case-by-case basis, but problematic for a group this diverse. PM me if you're on board.) I'll draft something up, but I think the other thread is the more appropriate place to manage the discussion.

tommy4175

Glad I found this forum.
RS has been a disaster investment.
I too have 8 current active investment and only 3 are performing.
3 other investments are with FG.

1.  Long Island West Islip, NY, American Family Care - which the leasee is behind in payments
2.  Dog Haus, Decatur, Illinois - the dog haus closed
3.  Rock Hills, SC Captain D - construction not completed.

Anyone else invested in these?

dolemite

I see some talk about RS releasing all servicing rights back to the sponsors.  Do the sponsors want this?  Wouldn't this mean that the sponsors would then be responsible for issuing K-1 forms to all the individual RS LLC holders (as opposed to just issuing 1 K-1 to the LLC itself)?  I'm not sure if all sponsors would want to deal with the additional paperwork and logistics of that.  I guess they get to keep the servicing fee, but it may not cover the additional expenses that they'll incur.  I don't blame some of these sponsors for just trying to unwind their deal with RS to get away from the sinking ship as quickly as they can.  That's what I would be trying to do if I were a sponsor with a RS deal.

I remember when all the FG deals starting popping up as I have a friend who was involved on the franchisee end of the Dog Haus and Captain D's deals.  I called him at the time, and he had never even heard of FG and was surprised that they were raising money for some of the locations that he was going to be part of.  I just spoke with him recently and he said that whatever they did was a total joke.  They had line items listed in their renovation reports showing inflated numbers and the rents that they were trying to charge were astronomical (and not viable which is why the locations are closing at a high rate and franchisees are behind on lease payments).  He gave me one example where they claimed to have spent $xx for roof repairs, but the roof was still leaking so he was pretty confident that they had not spent what they claimed.

Unfortunately, I was not lucky enough to avoid investing in the SFR Package II deal.  Total disaster of a deal with possible fraud committed by a now bankrupt Ingersoll Financial, LLC out of Florida.  RS is trying to enforce a personal guarantee by the owner of the company ( Keith Ingersoll ), but I'm pretty confident that he magically will have lost all of his assets.  A terrible sponsor and an incompetent crowdfunding platform is not a good combination.

groovydude

I'm sure some sponsors will balk, but if they're halfway established and reputable then they have other projects and scores of investors and routinely file K-1 forms. It's probably only the sketchy sponsors that will balk. And yes, they'll get to keep an extra 1%. My feeling is that if we don't press for this and fast, then the good investments will get sucked into the muck of FG deals and those of the few other crooked sponsors that RS enlisted (on in SLC seems to be in that group).

We all made investments knowing there was risk for each individual project. I'm willing to eat my lunch if I chose a bad project (at least one of mine seems to be), but I don't want to eat someone else's lunch too.

Nosferatu_FL

I have 3 FG deals!!
I was looking at all the sponsors today and the principals.
for FG anyone  was able to find any info on "For Li" is that a real name?  he is listed as the managing partner for all the deals
another person is "Sheryas Patel" on couple the deals.
Overall this stinks really bad of a scam.  I think the sooner we act the better.

Anyone had any deals with Bridgestone? this was the best western Toldo deal
another shady sponsor  and they listed: "Atit Jariwala, CEO"

I've contacted few lawyers and waiting on responses.. anyone made progress on that?

Beat_The_Fraud

Quote from: Nosferatu_FL on May 09, 2019, 02:07:16 PM
I have 3 FG deals!!
I was looking at all the sponsors today and the principals.
for FG anyone  was able to find any info on "For Li" is that a real name?  he is listed as the managing partner for all the deals
another person is "Sheryas Patel" on couple the deals.
Overall this stinks really bad of a scam.  I think the sooner we act the better.

Anyone had any deals with Bridgestone? this was the best western Toldo deal
another shady sponsor  and they listed: "Atit Jariwala, CEO"

I've contacted few lawyers and waiting on responses.. anyone made progress on that?


Full name is Pun Li, Age 55. His wife's name is Ann Ha, Age 53, resident of Maryland. They live in a Million $$ house which they probably have bought with the investors money. Shreyas Patel have restaurants in NY state. Will disclose all the remaining details once they perform curtains down on our money (which I am dreading to happen soon)

groovydude

I spoke with a lawyer today who seemed knowledgeable (and one who did not), his first point was that he's seen this exact behavior before ("going dark" as he put it), and in all cases the companies were acting behind the charade to get everything in line to file for bankruptcy while they weren't communicating with their customers (FYI, the downloading of services to Assure fits this speculation, IMHO).

In summary, these are the options he sees:

* Reach out to RS OWNERSHIP and air our grievances, and let them know that a lawsuit is on the way if the problems are not addressed to our satisfaction.
* Contact (write) the US Trustee and tell them something is haywire with the company - the reason for doing this is that the US trustee can investigate and force them into bankruptcy.
* Sue
* File a claim if/when bankruptcy is filed (he looked up their region and it hasn't been filed yet)
* Contact the SEC - the result of which, best case, is a fine levied on RS, although it could also possibly trigger a criminal investigation.

He said all of these options will be slow and long. I asked if he could represent us as a group in a suit. He said it's possible but very complicated, and it would only work if the resultant action  would benefit everyone in the group. If, for example, some investors felt that the remedy proposed was was not in their best interest, the lawyer would be required to back out. Investors of really troubled deals might want something different than those of deals that are performing. He said paying him to write the company a nasty letter would be a waste of money.

He could learn more about our situation from reading over our contracts, but he will have to charge for that. I ran out of time before I could ask if contacting a US attorney would be useful to us.

John_PVF on the other thread (Letter to RS) has heard something from Alexis (I'll post what John told me he said if John does not by tomorrow), but in my opinion it's crystal clear that Alexis is stalling.

This is my opinion: RS is preparing for bankruptcy in order to protect the owners from lawsuits. They may actually have tried to sell their assets as a whole for a month or three, but I don't think there's any chance of that now. I believe that FG and the SLC sponsor are the big problem. If there were shenanigans with either or both (seems very likely to me) and RS was involved the owners could be exposed to big suits. They're biding time and doing what they can to get the ownership protected, then they'll file for bankruptcy.

What I want to see happen is that the projects I invested in follow through to fruition as projected by the sponsors, and I get back what I hoped for from investing well executed real estate deals. If there's a bankruptcy filing, in my opinion, that's not very likely to happen, even if the deals themselves perform to projections. Therefore, I'm going to write up a letter to send to the owners of RS (I have a list of the major investors). I'll post the letter on the other thread (or maybe a new one). I'll spell out my demand there, but it will essentially be to return control of the investments to the sponsors and dissolve the company. The threat will be to invoke the other actions on the list. If you like this idea, check the thread, read the letter I write, and send me a PM to add your name (and send me your contact info and email).

ramesh

Most debt deals will probably wind up in less than a year from now, but several equity deals will run for several years here on.   I understand that, in each equity deal,  the equity ownership is held by the SPV/LLC of which the investors in the deal are partners. 

Consider a scenario where enough deals on the platform sour leaving RS with inadequate cashflow from servicing.   In such an event, RS may cease to be an operating concern. What  might one expect to happen to the healthy and ticking LLCs?   I'd imagine distributions will continue to flow into these, but in the absence of an administrative organization how will these get routed to investors?  Who will manage these entities?

DECA

Beat_the_Fraud, kudos for finding Pun Li (aka For Li), head of the FG scam.  Upon searching again with this info, I found a "Pun For Li" living in Coral Gables, FL. (see link: https://www.whitepages.com/phone/1-301-251-0206).  Other names that come up with FG are "The FG Group of Companies" with Bruce Arinaga as Chairman (listed on Linked In as being in Coral Gables) and "outside General Counsel" Jose Torres (also in Coral Gables). FL Bar records show Torres' address as the same one used for Islip NY LLC, which owns the property where the Long Island AFC franchise is located.  It is also the same address as Manta lists for Franchise Growth LLC.  Torres went to Thomas M. Cooley Law School -- yes, the same law school that Michael Cohen attended and Fortune referred to as the worst law school in America (http://fortune.com/2018/05/05/michael-cohen-cooley-worst-law-school-in-america/).  In sum, FG appears to be a few guys in Coral Gables with no discernable qualifications. Only a lawsuit will reveal whether they also had fraudulent intent.

FG, appears to partner with American Development Partners, which is a assumed name for Redstone LLC (formed under TN law), which appears to be controlled by Jamie D. Butera. Redstone filed for a trademark for American Development Partners on 2/28/17, which was granted in August 2017. So again, not a well established business (if it is a real business at all).

The more information about FG that comes out, the more disturbing it is. Why didn't RS know or disclose any of this to investors? They had quite a few deals with FG. One would think they would have investigated them even just a little bit.

I have some questions about the strategy of RS bowing out and putting sponsors in direct contact with investors.  I'll post a second post on that, just to keep responses to that separate from those responding to investigating FG.

DECA

On the suggested strategy of having RS step out as middleman and putting sponsors in direct contact with investors, I don't understand how that would work with debt deals with RS Lending, Inc. as the issuer of nonrecourse promissory notes to the investors.  RS Lending issued notes tied to particular deals (such as Long Island AFC and Shelbyville Captain D's (Louisville)).  THese were supposed to be senior debt secured by the property tied to a particular set of RS Lending notes.  If RS were to somehow transfer these notes to the sponsor (e.g., in the cases noted above - Franchise Growth), the security interest would become meaningless since it would be in the hands of the sponsor/grantor of the security interest.

If RS is going to file for bankruptcy, there would be a trustee appointed, whose fiduciary duty is to protect assets for the benefit of creditors. I think that assets (e.g., loans to sponsors like FG) tied to particular properties and also tied to particular debts of RS Lending would be handled as the trustee determines to be best (e.g., foreclose or continue to collect rents, etc.). This seems better than handing things over to sponsors of questionable competence and integrity.  What do others think?

It would be nice if RS had some assets that could be tapped in a lawsuit for their reckless or intentional behavior in promoting deals without adequate due diligence, but they seem to have protected themselves personally and left no assets. So our best recourse will probably be to get whatever we can get through foreclosure actions. That said, I don't know offhand whether a fraud action would enable us to pierce the corporate veil and go after the RS execs and VC-shareholders personally.  That may be worth looking into.

(Alternatively, we could band together, buy up RS's loans for pennies on the dollar, and then deal with sponsors with our new joint entity. Unfortunately, this would be logistically difficult to set up. Legal fees would probably eat up anything that might eventually be recouped.)

groovydude

Deca - you make a very good point about the loans. It may be that we can and should only try and persuade RS to divest themselves of the equity and preferred equity deals. I'll think this over and try and get some further advice.

Nosferatu_FL

I called around all the sponsors yesterday and finally got one of the defaulting deals to talk.
It sounds like that particular deal was poorly vetted and RS did not ask them many Qs.. no surprise to anyone at this point.
He did give me his contact at RS and I called them.

The RS contact who talked to me on condition of anonymity told me they were doing everything they can to collect $$ from Sponsors and that they were short staffed and behind in updating the website.  They said that they had an issue with direct debits for Feb and March as the bank cancelled their auto debit, but now the sponsors mails directly to them.  It sounded like they will be "pursuing legal action and have the funds to do so on sponsors that are not taking them seriously"

According to them, the CEO has been communicating with investors, I told them that was not true and we are not getting responses to any of our Qs.  They made it sound like the CEO has investments in the platform and wants to see it through.
They also said RS was making an announcement soon (next week?)! that would be positive but will not tell me what it is.  My guess they're offloading the loans or selling to another Co?

They told me that they will have the CEO call me, but I'm not putting much faith in that at this point.  I hope they were truthful and not trying to buy time with this.  They did sound genuine, but again I'm not sure they have all the info that the higher-ups may have.

I asked specifically about the FG deals and they said that doesn't look good but did not have much info on it, they hinted that there maybe legal action they are taking against them.  I am supposed to get a call from someone who handles those deals.

I will try to get more information in the next couple days if I don't hear back.

I also have a conference call with a law firm who said they might take this on contingency basis and will post what I find out.



Nosferatu_FL

Quote from: Hindsight2020 on May 10, 2019, 04:41:37 AM
Based on the most recent updates, they put FG on 30 days notice around 4/22, so that situation will come to a head in the next 10 days or so.

Good deals (dutiful sponsors, meaningful capital behind the RS tranche) will continue to perform, and capital will be returned in due course. (I just had an early paydown of a great preferred equity deal.) Bad deals are bad deals. At this point my primary focus is maximizing recoveries on bad deals. If taking action against RS because of FG causes a bankruptcy of RS, the administrative costs of such a proceeding will absolutely crush recoveries. It will also likely eliminate access to cash flow from performing assets to fund workouts. Each equity deal has a separate LLC, a deliberate design to isolate each deal's risk/reward. I assume that structure would survive bankruptcy. If I'm right, the cash flow from those deals could accrue to the parent and be ringfenced to service claims at that entity, instead of being used on workouts of bad deals.

If the FG situation completely implodes I'm all for seeking criminal and legal remedies against that entity. I just don't think taking RS down with it would create the best outcome for us.

Agree that giving this more time might be our best option, I also think we should have a good plan B in place incase things go completely south.  If we get partial losses or worst case scenario complete losses, then I would definitely want to pursue RS and FG in due time. 

Nosferatu_FL

Quote from: Hindsight2020 on May 10, 2019, 05:06:10 AM
Quote from: Nosferatu_FL on May 10, 2019, 04:59:23 AM
Quote from: Hindsight2020 on May 10, 2019, 04:41:37 AM
Based on the most recent updates, they put FG on 30 days notice around 4/22, so that situation will come to a head in the next 10 days or so.

Good deals (dutiful sponsors, meaningful capital behind the RS tranche) will continue to perform, and capital will be returned in due course. (I just had an early paydown of a great preferred equity deal.) Bad deals are bad deals. At this point my primary focus is maximizing recoveries on bad deals. If taking action against RS because of FG causes a bankruptcy of RS, the administrative costs of such a proceeding will absolutely crush recoveries. It will also likely eliminate access to cash flow from performing assets to fund workouts. Each equity deal has a separate LLC, a deliberate design to isolate each deal's risk/reward. I assume that structure would survive bankruptcy. If I'm right, the cash flow from those deals could accrue to the parent and be ringfenced to service claims at that entity, instead of being used on workouts of bad deals.

If the FG situation completely implodes I'm all for seeking criminal and legal remedies against that entity. I just don't think taking RS down with it would create the best outcome for us.

Agree that giving this more time might be our best option, I also think we should have a good plan B in place incase things go completely south.  If we get partial losses or worst case scenario complete losses, then I would definitely want to pursue RS and FG in due time.

If FG misses the window provided by RS in the next two weeks, I would leave it to RS to pursue recoveries on the properties but would also contact the FL attorney general along with the attorneys general in each state where FG claimed they were going to build a restaurant.

Does RS have any incentive to pursue FG? if all they get is their 1% management fee why would they spend all this extra time and $$ to go after them?

Nosferatu_FL

The other Thought I had if we can pursue the sponsor directly as investors without risking RS bankruptcy or any other sponsor that
may have been fraud or pure negligence?

ramesh

Quote from: Hindsight2020 on May 10, 2019, 04:41:37 AM
Based on the most recent updates, they put FG on 30 days notice around 4/22, so that situation will come to a head in the next 10 days or so.

Good deals (dutiful sponsors, meaningful capital behind the RS tranche) will continue to perform, and capital will be returned in due course. (I just had an early paydown of a great preferred equity deal.) Bad deals are bad deals. At this point my primary focus is maximizing recoveries on bad deals. If taking action against RS because of FG causes a bankruptcy of RS, the administrative costs of such a proceeding will absolutely crush recoveries. It will also likely eliminate access to cash flow from performing assets to fund workouts. Each equity deal has a separate LLC, a deliberate design to isolate each deal's risk/reward. I assume that structure would survive bankruptcy. If I'm right, the cash flow from those deals could accrue to the parent and be ringfenced to service claims at that entity, instead of being used on workouts of bad deals.

]If the FG situation completely implodes I'm all for seeking criminal and legal remedies against that entity, or any entity that is outright fraud. I just don't think taking RS down with it would create the best outcome for us. I have 10 deals left on RS. I consider 7 to be solid at the moment and 3 are contaminated/possibly fraud (including 2 FG deals). 6 of the 7 solid deals mature within 16 months. Yes, as they mature there will be less cashflow for RS to use to workout bad deals, but at least there's optionality and a runway. I don't see a need to destroy that.

I agree. 

8 out  of my 10 deals seem to be on track, the 9th is a bit shaky, and the 10th one is a benighted FG deal.  I am resigned to significant capital loss on the two dud deals.  My goal is to not jeopardize the performing ones.  I know the assets of the individual LLCs are ringfenced, but my fear is that a bankrupted RS will impact the functioning of the LLCs, destroy any semblance of investment management,  and, if nothing else, significantly delay cash flows to investors.  So, any action without clear tangible benefit, that may push RS towards bankruptcy, is detrimental to portfolios with mostly performing deals.

As for the suggestion to have the sponsors take over the equity deals from RS, it is an interesting idea.  It will be interesting to hear if sponsors will bite.  I did run this idea by a contact at one of the sponsors a while ago, and the response was that they were not equipped to handle 200 investors with $5-10k investments on a $1-2M investment.  I also think that access to a 1% servicing fee, and an investor contact list comprised of $10k-a-pop investors, is not enough incentive for a one-time administrative headache.


groovydude

Wow, great work people!

First, based on Nosferatu's conversation and John_PVF's 's contact with the CEO I agree that a week of patience is in order. I also agree we should be formulating a plan B. I've been advocating pushing RS to return the servicing rights of the investments to the sponsors. After further consideration and careful reading of our contracts (thanks DECA), I think this only makes sense and may only even be possible for the preferred equity and equity deals. The debt deals will have to remain as is, as the loans we made were given almost directly to RS (specifically RS Lending). The PE & equity deals were structured such that we invested in separate LLC's for each deal, much easier to divest. Also, recall that the former RS employee I spoke with thinks the debt deals are the most problematic.

One problem with this is that I believe the revenue from the PE & equity deals is likely paying significantly for the legal costs being accrued to service the bad debt deals, so they might feel it's not in their customers' best interest to split up the company. Personally, I say so be it. I'm willing to take a loss on my debt deal, and I strongly believe that this is where things will go if/when RS eventually files for bankruptcy, which I believe to be inevitable. I'd like to get the good deals out of their hands as quickly as possible so those sponsors don't do anything rash like just bail out of the project (sell at a loss) because RS is such a mess and they fear being dragged in to litigation, and just to assure that these deals don't get sucked into the FG mess. I realize others may have different feelings about this. The contracts we signed give RS the authority to transfer management to a 3rd party. It might as well be the sponsor, or an agent that the sponsor can find (should be pretty easy for each of the deals are relatively small and there's a servicing fee).

If we don't get a some positive news, I'm going to post (on the other thread) a strongly worded letter to be sent to the ownership and propose that they separate the PE & E deals. Hopefully, they agree. Then I'm willing to let the cards fall where they may. Perhaps RS can pry a few bucks out of the bad sponsors, but if you read our contracts RS Lending gets to collect legal expenses, late fees, etc, before we get a dime, so I think we can kiss our loans good bye.

Personally, it sounds to me like there has been significant fraud perpetrated by at least one of the sponsors (FG), perhaps several. As for RS failing to live up to it's promise to vet the sponsors, and thus we customers may be due some reparations, good luck with that. The company is or will be worthless shortly, and I'm sure the owners are shielded. Whether or not RS had any hand in the fraud is another matter (and pure speculation) and for law enforcement to figure out, but that ain't going to happen soon. If it does, it will take years for the system to decide if the owner's had any fiduciary responsibility as well, but you can bet that they're not going to just give up and pay everyone back without an expensive fight.

Hindsight2020

#597
Quote from: groovydude on May 10, 2019, 09:47:17 AM
Wow, great work people!

First, based on Nosferatu's conversation and John_PVF's 's contact with the CEO I agree that a week of patience is in order. I also agree we should be formulating a plan B. I've been advocating pushing RS to return the servicing rights of the investments to the sponsors. After further consideration and careful reading of our contracts (thanks DECA), I think this only makes sense and may only even be possible for the preferred equity and equity deals. The debt deals will have to remain as is, as the loans we made were given almost directly to RS (specifically RS Lending). The PE & equity deals were structured such that we invested in separate LLC's for each deal, much easier to divest. Also, recall that the former RS employee I spoke with thinks the debt deals are the most problematic.

One problem with this is that I believe the revenue from the PE & equity deals is likely paying significantly for the legal costs being accrued to service the bad debt deals, so they might feel it's not in their customers' best interest to split up the company. Personally, I say so be it. I'm willing to take a loss on my debt deal, and I strongly believe that this is where things will go if/when RS eventually files for bankruptcy, which I believe to be inevitable. I'd like to get the good deals out of their hands as quickly as possible so those sponsors don't do anything rash like just bail out of the project (sell at a loss) because RS is such a mess and they fear being dragged in to litigation, and just to assure that these deals don't get sucked into the FG mess. I realize others may have different feelings about this. The contracts we signed give RS the authority to transfer management to a 3rd party. It might as well be the sponsor, or an agent that the sponsor can find (should be pretty easy for each of the deals are relatively small and there's a servicing fee).

If we don't get a some positive news, I'm going to post (on the other thread) a strongly worded letter to be sent to the ownership and propose that they separate the PE & E deals. Hopefully, they agree. Then I'm willing to let the cards fall where they may. Perhaps RS can pry a few bucks out of the bad sponsors, but if you read our contracts RS Lending gets to collect legal expenses, late fees, etc, before we get a dime, so I think we can kiss our loans good bye.

Personally, it sounds to me like there has been significant fraud perpetrated by at least one of the sponsors (FG), perhaps several. As for RS failing to live up to it's promise to vet the sponsors, and thus we customers may be due some reparations, good luck with that. The company is or will be worthless shortly, and I'm sure the owners are shielded. Whether or not RS had any hand in the fraud is another matter (and pure speculation) and for law enforcement to figure out, but that ain't going to happen soon. If it does, it will take years for the system to decide if the owner's had any fiduciary responsibility as well, but you can bet that they're not going to just give up and pay everyone back without an expensive fight.

RS can't transfer the equity or preferred deals to sponsors unless they receive fair market value for the servicing rights. So this idea is entirely contingent on each sponsor deciding to take on a role they might not be equipped for, and paying fair value for the right to do it. This has been going on for 6 months. There's a reason it hasn't happened.

Servicing rights and investor lists have value, and any transaction to "give them" to sponsors without fair compensation would render RS insolvent practically immediately, forcing a bankruptcy filing. A judge would then probably unwind those transfers. You can't go into court and tell a judge we filed today because we gave away our remaining assets for free or below market value. By trying to force their hand on this, you could very well wind up in the situation you fear much faster than you would have otherwise.

I believe the intent behind the structure for these individual LLCs for each equity and preferred deal was valid and prudent, and I don't know why a bankruptcy judge would collapse them in bankruptcy proceedings. That's the question that should be answered by a good bankruptcy lawyer. (Does anybody know one?) If it's confirmed each LLC would remain intact in bankruptcy, why force the matter now? It would destroy optionality for debt recoveries from workouts that are currently being funded by the cash flow from good investments.

groovydude

Hindsight2020 - You may be correct about the isolation of the LLCs in the event of a bankruptcy. However, the former RS employee I spoke with suggested that some sponsors are already bailing out of their investments to get away from RS. I would much rather the sponsor took over the management of the LLC than sell the investment prematurely. And, I hear what you're saying about fair market value, but do you really think there's value to 1% of a dying, limited-lifespan revenue stream, with lots of potential headache managing the deal if the sponsor hits a snag. Are you willing to buy any of these LLCs? And IMHO, the lists are valueless, especially LLC by LLC. Everyone of us is already on the radar of the other crowdfunding sites, and each list is too small to be of any value to a sponsor. RS made their money on the commission when the deals closed, I believe the 1% fee barely pays for maintenance. And with the horrible debt deals the sold, it won't.

Let's hope I'm wrong and this "big announcement" is that of a sale to a reputable manager!

groovydude

I have no direct knowledge of this, but it was implied by the ex employee of RS I spoke with. I don't know where this person got this information, but it makes sense that some sponsors might do this if they're freaked enough. Look at what happens to the stock market when the wrong person sneezes.

If there's a buyer for the LLCs, then they have value, otherwise they're worthless. I'm a limited partner in many real estate investments outside of crowdfunding deals, and even with rights to 100% of the distributions to these shares I would have a very hard time finding a buyer for my investments, and probably would have to take a loss if I were in a position where I had to sell. Similarly, the RS LLCs are limited partners in RE investments, but RS only has rights to 1% of the proceeds. What's that worth? I agree that as a package there may be some value to the right buyer, but they tell us they've been trying to sell for 6 months and nothing has happened, that we know of.

My fingers are crossed for this big announcement! Stable, professional ownership of these servicing rights, with a clear and well articulated business plan, will make me sleep a lot better.

And, congrats on your early exit!