RealtyMogul Sponsor Screening Process


A Checklist Regarding Due Diligence of the RealtyMogul Platform’s Sponsors

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At RealtyMogul, our affiliate RM Securities uses formalized processes and checklists to evaluate a Sponsor’s track record and resources before they are qualified to use the RealtyMogul platform.

Our affiliate RM Securities has a formalized process to evaluate deals listed on the platform, which includes background checks, criminal checks, bad actor checks, and reference checks on sponsors. In addition to screening for any criminal background, we may also turn down Sponsors due to poor reference checks even if background and criminal checks are satisfactory.

Our team evaluates a Sponsor’s credentials and reputation, including their historical and ongoing portfolio, to confirm alignment with the required criteria for the Platform. All these steps aim to ensure transparency and mitigate risks for investors engaging in commercial real estate opportunities.

The RealtyMogul due diligence process does not mitigate all risk factors and investors should recognize that all deals on the RealtyMogul Platform are speculative and involve substantial risk.

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Sponsor Operations and Financial Health

People, People, People

The well-known slogan “location, location, location” rings true in real estate and will continue to ring true. However, in real estate syndications, your partner is paramount. We continue to look for partners that have a solid track record. When evaluating a potential sponsor, we look at the following:

  • Background & Experience of Principals
  • Depth and Breadth of Team
    • Does the real estate company have the infrastructure to support this investment and those currently in their portfolio?
  • Investment Track Record
    • Does their track record support the investment that they are sponsoring?
  • Organizational Chart (including information regarding ownership -/20%+ and manager)
  • Sponsor Financials
  • Schedule of Real Estate (current)
  • OA/LP Agreement for downstream entities and “control” entities
  • Litigation Summary (if applicable)
  • Quarterly Reporting Review

Background Checks

Through the Thomson Reuters CLEAR system, we run a KYC (“Know Your Customer”) and background check on all principals of the opportunity, which is good for six months.

Thomson Reuters® CLEAR is powered by public and proprietary records and leverages cutting-edge public records technology to bring all key content together in a customizable dashboard. The system locates hard-to-find information and quickly identifies potential concerns associated with people and businesses to determine if further analysis is needed. The Platform allows us to search across thousands of data sets.

We determine which individuals need a background check based on the following:

  • Sponsor principals who have controls over the deal.
  • Any person with >20% equity interest in the issuer.
  • Any person with >20% equity interest or controls over downstream entities.

Key components of the review include:

  • Bankruptcy
  • Pre-foreclosure records
  • Liens/Judgements
  • Criminal Records
  • Lawsuit Records
  • SEC Filings
  • Uniform Commercial Code (UCC) Filings
  • Professional Licenses
  • Dockets
  • Business Verification
  • Global Sanctions
  • Court Filings
  • Adverse Media Search

Public Record Searches

We also run internet and LinkedIn searches to confirm that the individuals and titles associated with the Sponsor are accurate. We also search for any information related to lawsuits, bankruptcy, foreclosure, fraud, or scandals, with any concerning results raised with the Sponsor for more details.

In addition to our formalized background check process, we require unaffiliated sponsors to undergo a background check and bad actor check from a third-party escrow agent.

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Third-Party Bad Actor Checks

They begin by identifying all “covered persons” as defined by the SEC:

  • The issuer, including its predecessors and affiliated issuers. (Entity Level)
  • Individuals who manage or control a legal entity, such as a Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Managing Member, General Partner, President, Vice President, or Treasurer.

    • Members of the Board of Directors for corporations
    • General partners for partnerships
    • Managing members for LLCs
  • Executive officers of the issuer and other officers of the issuers that participate in the offering
    • VP of any business unit (Sales, Administration, Finance)
    • Other officers (If they are involved in the offering)
    • 20% beneficial owners of the issuer calculated based on total voting power.
    • Indirect vs Direct
  • Promoters connected to the issuer
    • The SEC definition of a promoter includes a founder of the company who is still with the company or holds at least 10% of any class of its securities.
  • For pooled investment fund issuers, the fund’s investment managers and its principals

Third-Party Background Checks

The third-party escrow agent checks the following sources when running their independent bad actor and background checks:

  • LexisNexis Smartlinx person or business reports
  • Verify identities through IDology
  • Run names through government watchlists*
  • Check federal dockets via Justia.com
  • SEC.gov name search
  • FINRA’s BrokerCheck search
  • IARD search
  • If applicable, search other self-regulatory organizations such as the NFA or FCA
  • National Sex Offender Public Website search
  • Local courthouse record searches (they determine where the principals live and where they have lived and see if they can find court records specific to the states and counties)
  • Negative news and other online searches (e.g., googling subject’s name and “lawsuit” or “fraud”)

Covered Watchlists

  • OFAC – Specially Designated Nationals
  • OFAC – Palestinian Legislative Council
  • OFAC – Foreign Sanctions Evaders
  • Politically Exposed Persons (PEP)
  • Bank of England Sanctions (BOL)
  • Commodity Futures Trading Commission List of Regulatory and Self-Regulatory Authorities
  • Defense Trade Controls (DTC) Debarred Parties
  • FBI Fugitives 10 Most Wanted, Most Wanted Terrorists, and Monthly Most Wanted Lists
  • Financial Crimes Enforcement Network
  • Foreign Agent Registrations
  • International Police Most Wanted
  • OFAC – Enhanced Sanctioned Countries

  • Office of Controller of Currency of Unauthorized Banks
  • Office of the Superintendent of Financial Institutions (OSFI) – Canada
  • Palestinian Legislative Council
  • State Department Terrorist Exclusions
  • Terrorists Inside of European Union
  • Terrorists Outside of European Union
  • United Nations Named Terrorists
  • US Bureau of Industry and Security – Unverified Entity List
  • US Bureau of Industry and Security – Denied Entity List
  • US Bureau of Industry and Security – Denied Person List
  • World Bank Ineligible Firms

Industry Reference Check

We obtain references from at least two contacts who have invested with or worked alongside the Sponsor.

In Summary

While our formalized due diligence process is meticulous and thorough, it does not guarantee deal performance, and we encourage all prospective investors to define their risk profile , read all disclosures, and not invest unless they can sustain the risk of loss of capital.

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