When raising money means selling securities
Taking money from investors in exchange for a share of profits, a promised return, or an ownership stake usually means selling securities. Securities offerings generally have to be registered or fit an exemption, and the exemptions come with limits on who can invest and how the offering can be advertised. Promising fixed returns, paying earlier investors with money from new ones, and misstating how funds will be used are patterns that frequently draw enforcement. In New York, the Attorney General has broad authority under the Martin Act, which does not require proof of intent to defraud for civil enforcement. Federal regulators and prosecutors may also be involved, depending on the size and reach of the offering.
Charitable and community fundraising
Soliciting donations in New York generally requires the organization to register with the Attorney General's Charities Bureau, with exemptions for some groups such as religious organizations. Personal crowdfunding for a family emergency is treated differently from soliciting for a charity, but misrepresenting where the money goes can still lead to civil or criminal liability. Informal savings circles and rotating credit arrangements raise their own questions when someone collects the money and does not pay it out. Keep records of every contribution, every payment out, and every promise made about how the money would be used.
If you raised the money, or gave it
Founders and organizers who realize an offering may have been irregular should speak with counsel before contacting investors or issuing refunds, because how the problem is corrected affects both civil and criminal exposure. Investors who believe money was misused should gather the offering documents, bank records, and communications, and avoid confronting the organizer in ways that could prompt assets to move or records to disappear. In a first conversation, we look at what was promised, to whom, and where the money went, and whether regulators are already involved. If a subpoena or regulator inquiry has arrived, raise it at the start.
