“Creative tension” is what happens when a client who is offering securities gets the first draft of its private placement memorandum and starts to read the Risk Factors section.
“Holy crap. How am I supposed to sell the company’s stock when you tell investors about how they’re gonna lose all their money?”
But for one (and probably more) companies, sometimes that language pays off.
Take the case of Cardone Capital that promised a possible 15% annual return in its PPM. When Covid-19 hit, the real estate crowdfunding investment firm stopped distributing cash, prompting an angry investor to sue, claiming that he was mislead by the promises in the PPM.
But the court reviewed the offering documents and found that, per The Real Deal, they “clearly disclosed that “the timing and amount of distributions are the sole discretion of our manager” and that “the investors would be jointly responsible for the debt,” among other things.
Moral of the story: full and fair disclosure is good insurance in case things don’t always go as planned.
Crowd Funding News 