Skip to content-main content


Avoid the regulatory land mines with new investments


Avoid the regulatory land mines with new investments

By: Steve Sadler, CEO, Allegiancy

July 17, 2015

Who do you know that has $1 million to spend on legal fees over a period of eighteen months before they can get their product to market? I bet it’s a pretty small, if not non-existent, pool of people.

If it sounds crazy, let me assure you that it’s a real scenario in today’s financial industry thanks to overzealous regulatory agencies. I heard the million-dollar story while speaking on a panel at the Alternative & Direct Investment Securities Association (ADISA) 2015 Due Diligence Forum held on July 14-15 at the Eden Roc Hotel in Miami Beach, Fla.

It was a superb conference well attended by more than 200 financial services professionals and due diligence officers. The conference had a focus on regulation and new initiatives in that arena among various regulatory agencies.

The panel I was on was looking specifically at FINRA Regulatory Notice 15-02, which is pretty much considered a game-changer in our industry because it means that by April 11, 2016, Direct Participation Programs (DPPs) and public, non-traded Real Estate Investment Trusts (REITs) securities will have to provide estimated per share valuations on customer account statements.

This new rule effectively changes the way asset values are reported on public non-traded REITs and publicly DPPs. Say you pay $10 per share and the fee for offering expenses and commissions is 15 percent. This new rule requires the investment statement to reflect the reduced value of the investment immediately.

So if you put in $100,000, then technically the first day the value of the investment as reflected on a statement would be $85,000. Do you think this is going to affect sales of these types of investments? My answer is, “Yes!” In fact, it’s going to be a very big deal.

And I’m not alone in how I think investors will react. Many of us in the industry think it’s going to have a dramatic effect on investors — I don’t know too many people who want to invest $100,000 and the next day see it marked down to $85,000 on their statement— and drive them to different products.

It’s the unintended consequences of the various regulatory issuances. It’s like playing Regulator Roulette — except the regulators always win.

As I said on the panel, this new regulation is nothing more than a tax on investors. The sponsor of the offering who spent $1 million to check all the regulatory boxes has to recoup that cost. So over time that’s going to come out of investors’ pockets. That’s a tax. The regulatory construct is always a tax. The unasked and unanswered question is, “What is the real benefit?”

An equalizer in all of this is the new Reg A that I’m so excited about and that we at Allegiancy intend to use to raise $30 million in capital to grow our company. There’s no similar 15-02 requirement for the new Reg A, so investors won’t suffer a rather arbitrary devaluation of their investment.

From our perspective at Allegiancy, the transparency as far as Reg A pricing is a big positive. Over the past year, our shares have never dipped below the offering price when we came to market in April of 2014.

With Allegiancy’s Reg A, if an investor needs to liquidate unexpectedly, even though we sold the shares as a five-year product, investors have been able to get out with their money and then some. For example, in 2014 we issued 500,000 shares at $10 a share that pays a 6 percent dividend and there is secondary market liquidity. Our last trade was at $11 a share. That’s a 16 percent return at a time when the two-year Treasury yield is 2.4 percent.

On the other hand, if you’re investing under these new regulations next year, the $10 a share you invested in a non-traded REIT or Direct Private Placement would have gone down to $8.50 on the first statement. That’s a recipe for unhappy clients if I ever saw one.

I think this is an opportunity for investors to benefit from the Reg A offerings. Which is exactly what I told the folks gathered in Miami. And it is why I encourage financial professionals and investors alike to arm yourself with as much information as you can. The landscape is changing and there will be winners and losers. There always are.



The foregoing does not constitute an offer to sell or a solicitation of an offer to buy securities, and no money or other consideration is being solicited hereby, nor will be accepted. An offer to purchase or a solicitation of an offer to buy the securities can only be made or received and accepted once an offering statement is qualified by the Securities and Exchange Commission as exempt from the registration requirements of the Securities Act of 1933 (the “Act”), as amended, pursuant to Section 3(b)(2) of the Act.   Any such offer to purchase securities may be withdrawn or revoked, without obligation or commitment of any kind, at any time before notice of its acceptance given after the qualification date of the offering related thereto, and any indication of interest to purchase securities involves no obligation or commitment of any kind.

This blog post contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. These forward-looking statements are based upon the Allegiancy, LLC’s (the “Company”) present expectations, but these statements are not guaranteed to occur. Furthermore, the Company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes. Investors should not place undue reliance upon forward-looking statements. For further discussion of the factors that could affect outcomes, please refer to the “Risk Factors” section of the offering circular dated January 14, 2014, and filed by the Company with the U.S. Securities and Exchange Commission on January 15, 2014.  The offering circular, and any supplements or updates thereto, is available on the EDGAR system located on


Recent Blog Posts:


iGlobal Forum to Host 4th Real Estate Crowdfunding Summit

iGlobal Forum is pleased to present the 4th Real Estate Crowdfunding Summit, taking place in Los Angeles on Thursday, June 23. Allegiancy CEO Steve Sadler is among the speakers, featured on a



Why George Washington and Henry Ford would have loved crowdfunding

George Washington is known as America’s `First Entrepreneur’ and I am fully confident he would have been a huge proponent of crowdfunding and the new Reg A+ rules — also