investment contracts: how to look before you leap

10 COMMANDMENTS OF INVESTMENT CONTRACTS

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1. Order professional due diligence performed on all legally responsible parties involved.

2. Order professional due diligence performed on all applicable securities or other types of collateral involved.

3. Order professional due diligence performed on all legally responsible entities involved (i.e. trusts, banks, brokerage houses, escrow companies, fiduciaries) and confirm these entities are aware of the transaction, know the parties involved, are authorized, qualified, and experienced in these types of transactions, and have sufficient insurance to remedy any malfeasance.

4. Ensure the transaction is legal and logical. Just because a contract contains disclaimers about not being subject to SEC rules does not mean that is the case. Never enter into any transaction without a clear and specific contract, and in which the contract has not been written or reviewed by an attorney qualified to write or review such contract. In other words, do not have a Family Law attorney attempt to write or review a contract that requires perfection of security interest.

5. Ensure that the parties or entities involved are properly licensed, authorized and qualified to perform whatever actions they are offering or obligated to perform.

6. Ensure that the contract contains provisions which, in the event of a default, give the investor immediate damage remedies which exceed the amount invested.

7. Do not enter into any transaction which requires investor’s funds to become obligated without proper collateral or security (see number 2). Never transfer funds prior to receipt and confirmation of the collateral or security. Never transfer funds to a “co-signatory” or offshore account.

8. Legitimate investment contracts contain incremental performance provisions which require the completion of certain steps before subsequent obligations are performed. Do not deviate from approved procedures set forth in the contract under any circumstances without first having your attorney legally document (and mutually execute) the deviance, which should also be subjected to all relevant safeguards described herein.

9. Investment contracts can be securities in and of themselves, and subject to specific SEC rules. Know what you’re getting into.

10. Get everything in writing. Keep notes on oral communications and confirm their content with follow-up e-mails. Keep written records of dates and times of communications, names of those involved and what was discussed.

- Rich Douglas, G2LLC.net

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