You can't do that (Jack Bog's Blog)

The folks who live in that awful condo bunker at NE Broadway and 16th Avenue in Portland are trying to form a limited liability company and start up a community market on the ground floor of their building. The building was built and sold with assurances to the condo buyers and the neighborhood that a Zupan's Market would be located in that space, but Zupan backed out for reasons that remain cloudy at best. I feel for the residents -- like the rest of us, they were sold a bill of goods by one of Portland's hardier species of mustela.

To get the new market company off the ground, the residents are selling shares at $1,000 apiece, and they say they need to get to $600,000 soon in order to comply with the terms of the lease they've signed. Apparently November 15 is the deadline for raising the needed capital.

O.k., a mildly interesting story, and I sincerely wish them well. But imagine my surprise to open my front door yesterday and find this rolled up in the latch handle. They're selling shares door to door!

Now, I'm no securities lawyer, but I seem to recall that under federal and state law, you can't sell "securities" without either registering them or limiting your offerees substantially, such as to sophisticated investors. (A membership in an LLC sure sounds like a "security" to my untrained ear.) A shotgun approach, hitting up grannies on their front porch, seems like an imprudent practice, even if it's legal. Moreover, by law all the material facts relating to the proposed investment must be disclosed. Pushing a short timeline -- we need your money in the next nine days! -- in a one-page porch flyer? Well, it's a lawsuit waiting to happen. Not a good omen on which to start up the venture.

And if I were asking people to risk their hard-earned savings on a wholesome, "sustainable" enterprise, I'm not sure I'd be calling it "CMOB," either.

If the community market fails, the owner of the retail space has been talking about a big-box pet supply store. Based on what I found on my front porch yesterday, I'd say we'll be hearing "woof woof" over there before we smell any Oregon strawberries on the premises. Maybe Sam the Tram's dog will put a stop to the corporate invasion, but unless the people upstairs get a better act together, don't hold your breath waiting for the community market to open.

Comments (8)

ouch. i may still be in school, but i didn't do too bad in my business associations class last year and i definitely remember that this is way, way against the rules. isn't there a lawyer amongst them who can steer them right?

Posted by dawn | November 7, 2006 12:06 PM

Other grocery coops sell share memberships to anyone who walks through the door and without disclaiming anything... Which makes me wonder if they are technically securities. But my ear has even less training than yours.

Posted by Clay Fouts | November 7, 2006 12:12 PM

I've heard rumors that WalMart is considering a new marketing program of trying "mini-WalMarts" and considering the Broadway site. That should get SamTram's attention. Regulate, control everything.

Posted by Lee | November 7, 2006 12:46 PM

"Regulate, control everything."

Yeah, how annoying that you can't just take people's money door-to-door for some real estate venture without having to worry about a bunch of legal rules and regulations. There oughtta be a law.

Posted by Allan L. | November 7, 2006 12:49 PM

The flyer says it's an LLC. Doesn't sound like a co-op to me.

Posted by Jack Bog | November 7, 2006 1:03 PM

This couldn't be a securities scam...they are only going for $600K. For Hardy to get interested, there has to be thousands of suckers losing multi-millions of dollars. It must be legit.

Posted by Harry | November 7, 2006 6:03 PM

they need to get to $600,000 soon in order to comply with the terms of the lease they've signed.

They signed a lease without the money in hand? Hmmm...doesnt sound like a good business decision. I dont think I would be willing to give them money.

Posted by Jon | November 7, 2006 8:57 PM

I went to a meeting that they presented at. They said they've raised 365K as of Wed and if they can hit the 450K by the deadline, then they have some larger investors who will bridge the gap of 150K. Sounds like they could make it...

Posted by brian | November 9, 2006 8:13 AM

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Tuesday, November 7, 2006

You can't do that

Comments (8)

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