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Waterfall Distributions and Preferred Returns #1 - Rav Ike Sultan
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Mekorot and slides: https://www.yutorah.org/lectures/1136669 Weekly chaburah in the RIETS @Kollel-LHoraah by Rav Ike Sultan, kollel l'hora'ah fellow, founder of Halachipedia, and BMP Rebbe at RIETS.
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Rabbi Rabbi Rabbi Willie Rabbi
Blus we're going to try to discuss the
topics of waterfall distribution
preferred returns preferred equity some
of those concepts and what does the say
about them first I'm going to describe
briefly what they are a little bit then
I'm going to get into the suga as as
fast as I can into about iska and
chutfus
And then finally bring a few loan
documents and go through them a little
bit in light of what we learned to
decide whether it's us or mut and how it
could be fixed or tampered with to make
it that would be
kasher. Okay. So in the aotted time
we're going to try to move quickly. I'm
going to share my screen just to show
basically what these concepts
are. And they've become, I think,
popular amongst Jews. Hold on, that's
not what I want. Um, because people are
looking for different ways of investing
their money in ways that are on the on
the spectrum, safer,
but still give them back a return more
than what you'll get in the savings
deposit or CD or something like that.
So, these are the types of things I'm
going to talk about. Waterfall
distribution doesn't it's not its own
type of investment. It's just a way of
dividing money. They first divide money
in an order where they first give to
investors and then they're going to give
as a waterfall. The mushell the
waterfall is first they're filling up
one bucket until it's full and then
they're filling up another bucket. After
they deal with the capital or some sort
of payment they're making to the
investor. Then they're going to give
them their profit, their preferred
return or internal internal rate of of
return like basically interest. And then
they're going to give the manager his
cut and so on so forth. That's waterful
distribution. What the word means.
Common stock is just maybe it's
ownership, maybe it's not ownership, but
it means someone usually gets dividends
based on revenue. Voting rights,
preferred stock is higher, so to speak,
in the totem pole and getting paid out
if they liquidate. preferred stocks.
Someone who owns those gets paid before
the common stock, but they don't get any
voting rights. And usually they get a
fixed dividend as opposed to common
stock, which doesn't get and preferred
equity is more in like the private
sector as opposed to a big publicly
traded company. But it's similar in that
no voting rights, but also gets a fixed
determined dividend and that much much
more problematic in Rubis. Even if we'll
figure out ways to material some of the
um other things waterfall distribution
and preferred stack preferred equity is
going to be much more even in the uh
finance world they consider it a hybrid
between debt and equity not just
ownership but actual debt why because
it's a fixed return fixed return for
your money you put in money and they pro
they say they're going to give you a
preferred return on your equity that you
have even in case where there's no
revenue because that will be a major
split between
some of the other things without without
a yes. No and and that may be there may
be there may be sometimes in places
where preferred equity may be mutter but
it needs to be dealt with appropriately.
Okay. Okay. I'm assum I'm sort of to
speak giving the without using
heteriscas would be able to solve and
maybe solve more simply than regular
loan
agreements. Okay. Okay. So this is just
in a capital stack just when you have a
big traded company whether it's private
public you can have something that's
debt that pays the least amount but it's
very fixed is very specific and until
they're bankrupt they have to pay every
dollar that that's paid first that's the
top of the stack it could be paid the
least the least percentage that's debt
preferred equity is what we were talking
about before is that they're going to
get perhaps a revenue a fixed
distribution
And then come but they don't get voting
rights and so on so so forth. Common
equity it's like stock or some other
ownership and then general partner
ownership has to do with general partner
means the manager the sponsor the person
who's running it. Okay this is what a
waterfall distribution is in words and
we'll give a chart basically it means
there's different tiers. These are just
examples but first step is they want to
return their investor capital on what
they made. Make sure that they pay them
back for what they invested.
That's the first step. Now, there are a
lot of different ways of cutting up a
waterfill distribution. There's a
million different types, but generally
speaking, it's runs something like this.
The first tier is to make sure that all
the money that they're bringing in is
going to go 100% of their revenue. Will
make sure to cover their capital. Then
it will make sure to cover their
preferred return. Let's say would be 7%,
sometimes 8, 9%, somewhere in that
range. And afterwards, then they're
going to give the revenue to the
sponsor, to the manager, the person
who's doing the work. as part of his
incentive is if he does a good job, he's
going to be able to cover the basis of
paying everybody's capital plus he'll be
able to pay their preferred return and
then he'll make some money on it. That's
what he's looking for. Um carried
interest is again it comes out the
sponsor, this manager is going to end up
getting a percentage of the company and
equity into the company. That's carried
interest. The word interest there does
not mean um ribbis it means stake uh
percentage own. Okay, this is just
diagrams of the same thing of sometimes
we return the capital then preferred
returns that's the interest back to the
investors then catch up is we you know
switch turns and we give back the
manager we give him a chance to catch up
to get paid for what his job was and
then the remaining distributions
liquidation is the last step. Um this
picture on the bottom right is just as
time goes on sometimes capital is being
paid back or even if it's not being paid
back the distribution of the
distribution of capital events changes
over time. The manager is let's say the
yellow is the let's say the blue in this
picture is making more money over time.
The first he's making 5% a very small
and 5.95 but after some time after they
bump it up to step two tier two he's
going to be making more on the higher
revenues making 15% from 5% to 15% to
25% to 35%. Okay that's as time goes on
he's hoping to make more money. Okay,
just the way to think of this as a
muscle. Somebody if they're trying to
collect $50 million of of
investments. So, what they're saying is
the manager might put up his own $2
million and he gets 25 other 24 other
people to put up $2 million or something
more or less. And then as they're making
money, they're going to pay off
everybody their capital. And then
they're going to pay them off their
preferred return. If they were able to
do pass both of those hurdles, then
they're going to move on to paying off
the manager another piece uh whether
it's the catchup or get another piece of
the company. And then they split up the
uh rest of the revenue after that based
on whatever tier they're up to. If they
get 5%, if it's 15% or the like given to
the manager. Okay.
This is from Google's summary of what
preferred what water distribution is. I
don't think it's particularly accurate
and I think it may make a tremendous
difference in I'm not gonna base any the
I'm not saying anything you ask your
rabbi your post your lawyers to figure
out the mitsas and then after you ask
the lawyers then you ask the rabbi but I
one thing in the this phrase and there
are many phrases like this when there
are articles I've written on blogs or
whatever about waterfall distribution
prefer return is that there's guaranteed
return a lot of times that term
guaranteed in our ears of learning
is a red flag. This is for sure. But a
lot of times their guarantees are not
really guaranteed.
So that that may make a difference in if
their guarantee is really not backed up.
Not just that they don't end up they
change their mind, but they're not
contractually obligated to follow it in
many cases. So then that that guarantee
uh is not so significant. So just this
phrase, what is preferred return?
guaranteed rate of return for the
limited partner that's the investor
before the general partner can receive
their share of profits. I put a bunch of
other concepts but the guaranteed rate
over here the only reason I it's not
really a misnomer the guarantee it's the
guarantee of this before that but it may
not but neither of them might actually
happen okay this is just some phrase of
some company that there are many people
that sell or want people to invest in
their preferred equity or in some of
these distributions so they get a real
estate deal whatever it is so they tell
they write if the investor knows that
they'll receive a set return regardless
of the performance of the asset provide
a level of comfort that that'll lead to
an increased investment activity. I
don't think that's particularly accurate
either. I don't think this is a set
return regardless of how it's performed.
Um, my ignorance, but sounds
like Bailey is suckable every minute.
Yes. So, if you're ever going to invest
in these, don't take the catchphrases
that people say about them. It may uh
maybe deeper than that. Contractually
agree guarantees payment priority. I
think if you if you highlight the word
priority, I think it's accurate. If you
don't, then it's inaccurate.
Anyway, this is just an example of where
things where there's where the guarantee
to speak breaks down is let's say there
was
$500,000 now where is invested and then
they sell the building, the house,
whatever it is. I don't get for 500,000
anymore, but then they sell for 400,000.
So, they would pay the preferred return.
In this particular case, they were
drawing out before returned which was
20,000 first and then whatever's
whatever's left of the um not returned
capital which was in this case they owe
500,000 but they can't pay 500,000 but
they'll pay 380,000. So the person ends
up losing he invested 500,000 he ends up
getting 400,000. That's very easy
possibility if the investment was a poor
bad investment doesn't have to make any
money. Now this is not the same thing as
bankruptcy in my understanding. This is
this is contractual. This is part of
their agreement. This this legally
enforceable. Yes. Very legally
enforceable. Nothing everything to do
with the loan document. Not just having
to do with bankruptcy laws. The loan
documents do not refer to banking laws.
They don't need to in this. That's a
different para. Okay. Now we're getting
to the and we're going to then come back
to the loan documents. Open them up and
we'll think about them. This is whereas
begins. One of the sources. There's
another copy of this if anybody wants
the macoros or I sent them
out tells
us two people invest even though they
invested different amounts they split
the
profit makes a lot of sense but
surely if it was necessary for both
people to contribute in order for the
animal to plow otherwise you can't have
an animal that you own a leg you own an
arm it doesn't plow very well you have
to own a animal has to be alive. It
can't be cut in half in order to plow
and therefore we should split the
profit.
But but if you're going to cut the cow
in half, we're going to slaughter the
cow. So then
perhaps I should get whatever I put in.
I put in
um whatever a third of the money for
this cow. So I should get a third of the
of the of the limbs of the cow. I should
get the money to money. A third of the
money that we able to sell this
cowgre we always split it down the
middle irrelevant of the amount of money
they put in irrelevant of the purpose of
the buying of the cow. Rashi doesn't
comment on but he's commenting on Rabba
and I think he gives a hint. I'm going
to base on what he said go a step
further than what Rashi is saying but
Rashi does say what was in
the what he was trying what he's trying
to tell us basically
is we went into the deal thinking we're
going to split it
evenly and that's what in Rabba's
understanding when I went into this I
was planning on doing and then we
switched and we going to make it when I
went in I knew I was going to split it
evenly because you need two people to
party to make an animal plow. However,
when I switched to making, now it's
dividable. Now it's funible. Now you
could take the profit from it. Still, I
continue with the same assumptions I
came in from. I walked into this using
the
assumption. I'm going to be I'm going to
come in using the assumption I'm going
to switch. I'm going to split it evenly
based on Rashi. It's not directly in
Rashi. But I think it's much more
enfor that that what drives this
sug with a certain understanding that
you're going to split things and even
ramuna is also working with
that. Now there could be a lot of
motivations and reasons why this might
be true but therefore it it's not
surprising let's say the Rambam is going
to write all these things are if you'll
make it tonight otherwise explicitly I
don't want to split it evenly so we're
not going to split it evenly whatever
your TA is it's
all now there is a few I put a little
chart on the board whatever with what
the Gumar is clear about is when I buy
something it's I guess the bottom right
is a little bit hidden but if when I
and it comes out that is very clear
there three thank you sorry for bother
there's three there are three cases in
the garra or the garra stars and
obviously they're investing in something
doesn't clarify what the case is but
that's great that's the next two cases
are what raun argue about whether is
talk about what if it was bought and we
end up doing we knew from the beginning
to the very end it's not explicit in the
garra so the says maybe the ramban
seemingly says this ra the gra is very
specific ificant actually only talked
about those two cases because if it
would be and ends up then automatically
I assume I'm getting back the money I
invested I invested a third I'm going to
get back a third however um the both
disagree with this they think no Rashi
basically is trying that type of opinion
saying the reason gave us that case was
he show us and Rabb was commenting on
the case of but does he fundamentally
disagree he fundamentally disagrees in
all cases even starts we knew we could
split it up from the beginning to the
and we could split it up and still we
ignore that and we always go we still do
that's how the raan hold okay now I
don't think it fundamentally changes how
we look at chus but that's just a
beginning aspect of this there's
another and the riff in terms of what
happened when the gar says we're going
to do what does that mean we did while
we own it for our own barbecue or it
means we sold it so the riff says it
means we sold it but if we're going to
do a barbecue then we should actually
split it even according to rabba And the
R says, "No, it doesn't make a
difference. We always meant to split.
Even we're going to make a barbecue. We
also meant to split it down the middle."
Okay, that's goes with the rift. That's
another But again, I don't think it
fundamentally changes the calculation.
Now, what's the behind this? I put this
in the rashi. I was building
on the Rambam.
I'll say the the ritzvah's language
is this is not on the sources but the
the rit says a person sometimes is
willing to give in I should really and
it doesn't it doesn't make sense that
we're dividing this evenly I divi I paid
twothirds of the I sponsored twothirds
of the project why am I only getting
paid half that's not fair so says the
rich no it makes sense
because sometimes you don't even if you
have some some amount of you can't
finance the entire deal. So you still
required somebody to deal to be involved
in the project and therefore you were it
was okay with you. You wanted to make a
partner as long as you agreed to the
partner. So you understood that you're
going to split up
evenly. That's the Ramban and Ritva. I
wrote Rambam but I really meant Ramb and
they both speak that according to your
shami in that vein. The RID says a
different along the similar
lines. Sometimes certain people are
better at business than others and
they're smarter and they know how to do
certain things better than others. And
so I might be interested in getting
involved into a is even though I might
make less money on my dollar, I'll put
in 200 even though other guys put in 100
because I know he's really smart in
business, it's a good idea to trade with
him. Okay. Or he says another reason I
put this on the on the sheet
She of I had a great relationship with
him. I I didn't really care on the exact
amount of money I was going to get back
because I've alas I gave it to him as
part of a evenly divided deal. Bottom
line what it sounds like all the were
describing is divided because that's
what people assume when they came in.
Okay. Now that doesn't involve ribbus
yet. Now in terms of what defines a
let's get into the sources. Okay. So the
riff, I'm going to stop sharing this,
but the riff and the rama have a major
makus. For the riff, it all depends on
who put in the money. And this is one of
his two proofs in the gar. And for the
ramen, it has everything to do with
who's working on it. They need to both
be working on it to be afas. Okay, we're
going to come back to this soon. I'm
going to stop sharing this and we're
going to come back to this at some
point. Okay.
Now in the sources the Rambam he quotes
the Gmorra the details of some people
make a so he says if you make it doesn't
matter you can even make it a very
uneven deal where the distribution of is
not equal to the distribution of the
say if you make it to that one party the
guy who invested less he's going to get
three of
the time reveal the other guys are going
to get one quarter
And then if there's losses of the
rabb the person who was getting
threequarters of the profit the 100
person $100 person he's only taking a
quarter of the three quarters of one
quarter of the other party of course got
the raw end of the the short end of the
stick. You can do whatever you want when
it comes to mama. That's the
There he starts telling you a little
more details
about two people both involved in it.
They're both doing
something even if one person invested
but both are
working and
then if there's only one person
working then even though the money
belongs to both of them that's called a
that's called an iska of the gam and
then we have to deal with the rules of
car make sure it cannot be
carar now where did the rama get this
idea from the raam's The riff has two
proofs. One of them is this that is when
both people put in money and the other
one is and there in the story it sounded
like one person's working is and the
didn't say anything about two people
working. So where did the Ram have this
idea that is two people working? It
could be has many other sources. I don't
really know but I'll tell you he was
probably trying to distinguish between
well it could be one. We'll come back to
that. He may have a proof for his but
put that
aside. He was trying to distinguish
between and the riff noted that the
doesn't mention you have to pay is of
course you can't make you can't make
someone to work in your store unless you
pay him.
Okay. You have to make sure to pay for
anytime you have an you have to pay fair
price for his work. Okay. And you could
pay as we do even sometimes in the
beginning. Wonderful. The Rama says it
doesn't say you have to pay
anything. They both invested. It works
out very nice. You didn't have to pay
anything. What's the difference? The
rift says the difference is this is
called what defines they both put in
money. The Rambam thought maybe that
wasn't established. Just because they
both put in money shouldn't
fundamentally change it from an iska.
Still it could be if one person's
working, one person's not working. is
working for free. Why is he working for
me? Now, I think is going to have
answers when we have an answer. But he
might not. The rabbi may have thought me
safari. It's very difficult to explain
why it's different than this. Why should
be any different? He's working for free
on my portion. I should have to pay him.
It must be that we're both working. Now,
there's great when we're both working in
a says sometimes people don't make the
same salary. You're pay you're getting
one salary, I'm getting a different
salary. So, that doesn't bother the ra
there's no the is both have sweat
equity. They're both involved because
they're both putting in work. Great. So
that could be what drove the rah. It
could be some other bottom line that is
the ra has to be both
working. The riff says no it has to be
that they it doesn't have to be they're
both
working. Um he only have to have that
they both put in money. Okay. And his
proof
is which I'll explain hopefully soon.
But that's a the riff in the chuva or in
the only actually mentions in terms of
you don't have to pay that's very clear
as
long he doesn't actually say you could
distribute the have you want he doesn't
say anything about that
the grandson the rift is not actually
the riff even though the baso quotes it
as the riff he says something that's
much closer to this concept he says
there are two types of shas And he
mentions one of them
is when people join forces with money
that's called
af person working one person sponsoring
with money that's called is but in terms
of you follow your
stipulations. Now this line didn't make
it into the that's in the shares. It
wasn't quoted many I'm sure had the
shares. Most people didn't quote this.
They quote rather what the quotes from
the from the which doesn't have this
line. I'll just quote the smog for a
moment. It's on the source going to the
next page there. The smog actually
says anybody put money into
it one
person. They can split up however they
want.
wonderful. This is going to be the pen
and this is going to solve all our
problems. Many of the things we were
talking about before could be
afold like the smag and the riff not
everything but maybe we're going to be
able to solve all our problems and then
we can m many of the things we talked
about. However, inside it doesn't
exactly
say you could you can make
a rather he writes you can make it and
anything that you make it tonight it
works
but you can't make anything where it's
doesn't
work you can't make a that would include
ribb now okay of course the quoted the
first doesn't actually say he quoted the
shishuas he just writes language which
the which the footnotes on the smack
says it's similar to the shares. So it
could be he's adding on his own or it
could be this is what he thought made
sense in the in the shares or it doesn't
really matter whether he's saying on his
own or he's saying in the name of the
the bottom line the smag hold your make
we're not ribb at all and the shareim
doesn't make it as clear as far as you
can go he says you can't make that would
be ribb so it seems like on the ribbus
is not off the horizon it's sh to have
and still come to ribbis according to
the sh Okay. The doesn't actually
describe doesn't tell you on this. He
leaves it out.
The writes he
says that's when we talk about every
when one person put in
money. If they both put in money then
they uh then it's called af. they are he
doesn't he doesn't explain in terms of
how they're dividing it but the Rama
just writes there's no need for this
giml it's talking about you don't have
to pay dinar from the beginning that's
the mafur can I divide it however I like
the doesn't quite say but the fills us
in based on what it says in
the over there says one
second you can divide however you want
Now the sh is being very loyal to us as
what it says. Same words before word it
says in the smug.
Okay first of all before we get further
and deeper into the sh do we hold the
sha what did he what what does the sha
mean not mean do we hold of the riff? So
of course the says the riff but let's
talk about for a moment the sardom
accept the riff. So the writes look the
ram has not disagrees with the riff and
the
gelanti was in the 1500s uh in your he
also held like the rama mar the marikash
a few of them held like the ra on this
particular which follow the ra which
follow the okay there's the
inb that the
rais we always follow the raom Except
when we don't but
the possibility is we should follow the
rama the says
these first he writes that holds the
that's how is like as is the regular
post we're all passing like
the but there's not it's not such a
simple cleancut question because first
of all you have the but there are
further proofs that We should follow the
ram invad. Yeah.
Okay. No, no, no. Okay. So, if you have
if it's you have both working, then I'm
back to the same coolers. The rama Well,
it could be even bigger cooler and
exactly it may even be a bigger cooler.
So, holding the rama may not be trouble,
but it may still be a problem. It just
depends on the case we're talking about.
If it's only one person working, one
person not working, which a lot of these
cases are open to both be working and
you still have Yes, that I'm very open
to and in fact I think there's great
that's correct that'll be correct
but I meant the following that if only
one person's working one person's not
working that for the called and if you
say the way the and the all learn
that so the would not hold of that when
only one person's working doesn't call
that he calls that not a and would
follow the regular the rules of all
the
so there
quotes like
the it's pretty there that he holds like
the note that another is that the makes
that
the he gives you a
If you have an a sharecropper working
for you, don't need to pay him at all.
If he's working for you and he has an
usually is a different job. He's working
my I'm paying him to work for my job. I
had to pay him a dinner or over here. I
don't have to pay him as I don't have
pay anything. If he's doing where did
that come from? Says the well this is
the way the ra the
rabbia of goes as follows that the of
rebel was working for him as part of an
Iska. So in the beginning they split the
they split ravim 50/50 except the header
gave the worker the sharehopper the
whole head and his wife heard about this
and said wow there's a great deal you
know you should become a with he pays
you well so he made a sh with him in the
next cow and then when they were
splitting it up they split the tail and
said okay let's split the head I said
wait a minute last time you gave me the
whole head how come you're not you're
not giving me as much I got last time So
said last time I had to pay you was
because that was an is and if I didn't
pay you it would be pay for your but
over here now that
I don't need to pay you for then the
says but now you're working for free and
the
says to
the
is so what it sounds like is let's say
Rashi sounds like he's learning the
garra oh We'll talk about other in one
moment. But the way that the rabb
learned the gar is we're talking about
and there's a special ka cut out for
which is usually have to pay somebody
even if he has another job along with
what alongside what he's working. But if
he's an artist, he has tangential
benefits based on what he's doing. I'm
sorry to interrupt. The sound doesn't
seem to be working for any of us online.
Oh, one sec. I could just I can do the
sound from Oh, no. I
can't. How about
now? Can you hear us now?
Do Can you hear us now? Yes. How about
now? Yes, now we hear you. That's
better. Thank you.
Okay, I was just explaining the locus
and how to learn
the story is in where the originally was
paid the head of the cow because he
wasn't that was for working for and then
when he became a he didn't pay him at
all. He paid him splitting the prophets
but he didn't actually pay him on top of
the splitting of the prophets and for
the way the understood that's well it's
explicit in the in the riff that is one
of the proofs of the rift whenever you
have a you don't need to pay because
they have both have a stake in the
matter so you don't have to pay him he's
working for himself and that's justified
it's not the same as
villa where it's he has other cows on
the side of the cow that he's working
for here ming the same exact animal is
working and it's a sh they split the
money equally invested you don't have to
pay any that's how the riff learned the
garra the smog learned the garra the
raam learned the garra differently he
learned the garra saying that you should
have to pay for the once he's
av once he's aut that's why he didn't
have to give him the whole head but he
still said why aren't you paying me for
the t that was the next question said oh
because the mashub to the the balaka
once he's masha balak he's getting
benefits being part of the field that
is so the rabbam learns the suga comes
out even an in theory would need to be
paid except since as part of the deal
it's understood that the is getting
benefits he doesn't need to get any
other pay so basically for the rabbis is
a specific ka in but for the rift this
is a gigantic ka in all you don't need a
The bas asked the question where did the
riff see this in the garbraar his
opinion that whenever you have you don't
need to pay because the gumar seems to
ask that that's the very next question
in the garra am I not paying him for his
and the gar gives some answer similar
like the rabbis have understood the
beginning of the gumar was talking about
ribbis once if there's no more ribb and
the's next question answer was all about
gazel maybe he's working for me for free
and I had a worker and I didn't pay my
worker that's o no says the no no he's
mishuba to work for the balikaro so
therefore I don't have to pay for the
artist bottom line according to The gr
the gr notes very carefully there's no
source in the gum for the kula
of according to the rama the riff's ka
was learned from the same gumar that the
ram learned a different kula from so
it's very shy that they won't agree with
each other for the ra the gimmel says on
end of he says oh the the is from
and that's what the Rama says. The GR
doesn't tie the bow and say the Rama
writes this and the doesn't but it very
much very strongly hints at this which
is the Rambam's ka makes it so that
there's no source for what the Rama's
about. Now is it possible? It's possible
in he could have held a bit but there's
no reason to have to say it. That's
another proof. other places in I put
this in the source that and another one
is a great deal when the is
talking and it tells you you can't be
mitarif the car and the
rabbis
also why would I not be able to the car
and the ribbis together well because
maybe he'll
die maybe there'll be ribbis says the
maharal sins the moral sin says what do
you mean there is no ribbis on he asked
so he says oh bish for the ra this is
the goes like the ram so there could be
now the problem is I'm not so excited
even in that answer
because the ram has this exact language
according it has both cases
and as I think is also going to be
correct the ra by also
doesn't have
ribbis just like if it'll
be both people are working for the ra
that's defined that'll have the same
kulos
of that the riff has from when he has a
defined if I'm correct in that and I'm
going to prove that soon if that's
correct then what are the
it's so I'm still up a creek so that's
why I'm going to give the rest of this
year there are Another place where I
think there are ribbis by I don't think
it's exempt from
ribbis the uh the last answer
was ribbis I'm not exactly sure what he
means but maybe it's similar to ribbis
or it's like I don't know exactly what
he means but maybe I'm going to say
something similar to what his other
answer is based on those four proofs or
mosha levi he writes that the thatard
should pass in the not like the rama
based on the was
says, "However, Rabbi Maz in the Borum
in the back over here, they they argue
otherwise." No, we always follow the
riff because follow the riff who said
like the riff, the smog, the smog and
the rift together. Okay. And uh they
quoted a chuber of Shiron who who says
something similar. I looked it up and
that he brings from the very last.
either had different gears or a totally
different reading that he says aut
doesn't have to pay as it says in Aris
is mashuba to the balika it's amazing
but I don't know exactly how he read the
garra but certainly not the bas reading
in the garra for the for the sharim
anyway says roish hold like this we
should follow like this okay back and
forth I put on the source of the banish
in the next source benai really did
think there was some reason to make men
and baghdad that they were make on this
is awesome moving on so spartim are not
necessarily out of the chase for this
question Okay. Are there any caveats
where so to speak breaks down where it's
not really where he or he could so to
speak pierce the veil? So I have the
marb who has a case someone who invested
fiveos of istas. I have no idea what
that is with his friend and he gave it
two and a half of them as like an isco
and two and a half of them as a loan and
sorry two and a half of them and he sold
to his friend and he didn't make him pay
sold him on credit.
So the mis mis the mabel has fiveos two
of them he bought he didn't pay for them
yet and two of them are in is so then
they they dealt with the whole case and
the question ribbis and do you say it's
aus if there's aus here well then it'll
be no problem in ribbis says wait a
minute there's one person who put up all
the money it's true that technically
half of the let's call them apples half
two and a half of the pounds of apples
here belong to the mscel because he
bought them and two of them are the iska
but since all the money originated with
the investor he just sold to him and he
sold to him on credit this way he'll buy
it become av but that doesn't you know
overnight in one second turn everything
into so it's still called an isk why
because he's still
being is still like an isko that he
didn't put any money into this so it's
not going to be a fundamentally someone
else putting all the money for the time
being and someone else is working for
him to make him a rabbi even though he
can make money on his own but he's
making money on and if he's making money
on and he's being for someone else's for
free because he has well then that's
okay that's but that's an issue that's
basically saying not everything we think
is aus has to be aus they didn't
actually put in any money just because
they engineered it with two different
deals so it should look like
a um now the bigger topic Okay, we could
spend an hour on the rabbi, but I won't.
Um, the rabbin says to be quoted even by
an iska
is and it's a big question when you
actually have you thought about how does
the apply to like you mentioned the
limited partnership, right? Where I'm
going to get to that. The limited
partners don't really have any power.
They just it's really just a money
receiving enterprise. It's the general
partner that makes 100% of the
decisions.
Okay. Excellent. Great. So I think a
shift or I think that's absolutely still
a shift in the riff's understanding. It
doesn't matter that he has contractually
has no way not a vote. He has no right.
He can't even sign documents. He can't
make loans for that company. Can't do
anything for the company. The limited
partner. But they both put in money for
the riff. I think it's a mammon. They
both put in money. So I think that would
be called a shas for the riff even
though one person's working. You're
saying if the the manager makes all
decisions didn't put in any money then
oh okay yes then if the general partner
didn't put in any money then then we're
back to what I would think is an iska b
for rama bin for that's an iska and for
iska as long as it's structured so to
speak in favor of the investor which
many of these are preferred return I
think almost by definition is that way
then it's in his
benefit even if it exactly 50/50 it
would be unless you make it M you have
to make it so it's not carvear you have
to pay him there's a way that has to be
correct that has to be fixed with let's
say with the heter but that needs to be
fixed and not simple just by paying by
itself if it's still carvear that'll be
a problem unless you have a hetera okay
so very very important yes that will be
a big breakdown whether or not the
general partner put in money or it
didn't put in any money and it depends
um I think for legal purposes for taxes
it makes a difference also if he has
skin in the game if the general partner
put in money that's um more likely
considered a partnership for tax
purposes than not. But I'm really not an
accountant or a lawyer. But that's what
I've heard is more often the case, but
it doesn't have to be that the general
partner put in money. But it doesn't
matter. If he doesn't put in money, it
will the will depend if he puts in
money. If he doesn't put in any money,
it'll be if the general partner does put
in money, then we're in sh
world. Okay, I'm going to go straight
through. There's a question. What did
Raishia really meant? mean I'm being
with an isk that I'm going to give you
6% whatever I want to give you whether
or not there's or only when there
is okay I originally wanted to read the
meaning only when there's and I'm
selling
the to the beginning of the not the end
but the beginning the basic premise of
the is that the msel the mabel over here
is buying the revenue the possible masle
of the of the no the investor he's
buying and saying I'm going to give you
a fixed amount irrelevant of what this
actually makes and I'll keep all the
profit depending if I make a little or I
make a lot I'm going to pay you a fixed
amount every year to buy the revenue
from you so just like I could sell this
to somebody else so why would it be a
problem for me to sell it to the mabel
himself the the manager himself that's
says a side point asks this is you can't
how can I
that didn't yet happen. So
that
in he notes that you can make just there
is such a thing as mo you can indebt
have a shib on on investment that
whatever I have I'll be sold to you
later he has his ri by by
mo he has a few rias in the garra but
I'll put that
aside but assuming that the rid and the
t say you could sell your portion of the
rev the still says It's
meas bottom line though I eventually the
way my read the as does and I think in
the end of the it's more convincing this
way that the the is really only
answering directly when I'm to give him
whatever it is 6%
some whether is or isn't any the reason
I think that's whatever more convincing
is his comparison
to and whatever to uh and to not to
but the
says so it seems that fundamentally if
there would be rebutt but the problem is
we're safe to give him whether is or
isn't okay that's the for sure whether
or not I'm right in the pis the and both
learn that the rid is talking about him
I'm gonna give him a fixed amount I'm
gonna give a very fixed amount
The priest rebi is going to discuss this
tomorrow. So tune in on it what the
right reading is in is but
it's
the also may have an opinion on this. He
also quotes in it's
inv how to read the sh but his own
opinion when they're he says some people
want to tell he says the iskas in
nowadays that people give money and then
they say I'm k to give you a certain
amount every year and I'll believe you
if you don't make that much money. says
some people want to tell me it's it's
part of the siren I and some people tell
and I think it's
okay the so to speak summarizes these
three opinions in he says there's three
opinions about your k by an
iska he says the one option is I tell
you no matter what on your iska
investment I'm going to give you six% a
year whether I make any money or make no
money that's
asser that's user for the taz that's
based
on is it ribba? No, it's still not ribba
because it's really pic. Okay, there may
be other explanations but fundamentally
it's not ava that's problem number one.
What happens when I tell you out of the
rev out of the revenue I'm going to give
you a double cut. You'll make 6%. If I
made 6%. But if I didn't make 6% I won't
give it to you. And if I made more than
than 6% I'm only going to give you 6%.
that the T says MT and that the thinks
the M is like that and that's what the T
says and that's what um this was the
invo
had that included this type
of that was no problem though writes
some would argue this is a problem and
he's quoting the probably quoting the
okay they think this is one even when I
even though It's only coming from the
revenue stream, the 6%. If I made 6% or
more, I'm going to give you 6%. If I
don't make that, I'm not going to give
it to you. Still, it's user because it
looks like a it looks like ribbus. Not
really ribbus, but looks like ribbus.
Um, a different issue, a side issue was
the inf tells you you're never any
quoted anything because it looks like
it's ribbum that the says we're not
that's not a problem. We don't actually
hold like that. uh is is worried about
that but if we hold like
that would be a problem many of ouras
would be a problem so that's a separate
issue if we hold like that t it would
definitely put into problem many many of
our heteras just because we're just on
the outside even if according to the
because it's a continual amount that
continues every year we're going to pay
a certain amount okay
Um streamlining this. We have
a says even though the
says you
can you can be the but am I allowed to
make
more have the the manager have a lot
more than the possible is going to get
or not know that would be because once
you give a lot of to the manager what
you're doing is making that part a a mil
means that's why he's taking on this. If
he takes full aras on that section of
money, whatever section of money you're
giving him
uh that section of money became a part
and now you're going to you're making
him work for free for the part and not
even on that that is again to the same
problems that we always had in is of car
you're making work for free or forget I
make him work for free. So again here
even by is a problem basically uneven
distribution between the and the for the
is a problem even by however his
grandson the
um disagrees he says that doesn't make
sense he says my my grandfather
the theos my grandfather couldn't have
said that it would be against the smog
and he wouldn't have said that against
the smog So obviously what he meant is
if he makes the following we have more
time we
explain why is whatever I'll expl I'll
I'll do this slide after summary he says
fundamentally it's only you're paying me
kiso from your own pocket but if you're
paying from the
should there's no problem in even giving
a lot of to the to the there's no
problem with that because fundamentally
an
isk has never has any problem of rib
this it doesn't matter how you divide it
like the sm said okay more time the
likes this
the nephew of the not from he also he
also passes like this the there are many
who go like this the we're talking about
banks and credit unions where they do
one loan for a different loan if I lend
money to them then they're going to lend
me money later
so he brings in oh but we accepted the
and if it's not paying So it's only Beso
and if it be a he says maybe whenever
you whatever lend money to this bank I
it's more similar to credit union but
whatever to a bank you're like
a so he wants to rely on that opinion
the really does like the argument
of however the really doesn't he goes
more with the right rise goes with I put
some of them I can give you any of the
cards basically it's a
Um the bris Torres sorry the Torres
ribbus quotes different opinions on this
it's a it's not a simple simple question
the
men also quotes
that not like the way the understood him
okay there's a lot more and chu like on
this topic let me just bring out one
more point then we'll get to the loan
documents I wish I had time for the
other 10 pages over
here says why don't we look at every
person who put money in savings deposit
as a for the bank and then you're
allowed to get ribbons from a ribb. So
the fact that the savings account gives
me 0.01% 01% whatever it is it gives me
is because maybe I'm aut I gave money in
the safety deposit I gave money to the
bank in my savings account now I'm
afra whenever they feel like like the
said and he doesn't bring in the but he
seemingly negates or not excited about
he says of course you can have what we'd
call preferred returns he says of course
if you make two people make a and
Rubin's worried about getting money back
and is not so worried so he says in the
first year we're going to give all
to Ruven second year I'll take all the
he says of course you could do that what
we'd call preferred returns said that's
definitely not a problem of a problem in
ribb is byim so he says maybe by bank
that's what's going on but then he runs
into trouble he says no because there
are other things we're going to get new
later on and we're going to have to then
okay so doesn't get down that road but
yes okay so so he says it for a
different reason two reasons why he
doesn't think it's because we
continually add more and okay but many
of the contracts we have we we we dilute
revenue and capital a lot of times often
but okay the other thing he brings in is
what happens when we don't make rav what
Rabbi brought and so he said fine we're
just getting rabb earlier when we'll
make ravak then it'll be fair right now
I'm just g I'm giving return that
eventually everybody will get their
portion I'm just giving preferred
returns I'm giving it earlier Ruben will
get this year will get next You're
right. We didn't make any this year, but
I'm giving out money. But the problem is
he says the problem with this is he says
what happens if they don't make until
the person wants to take out all their
money. He says they should have a claw
back and say these five years of your
part of our bank, your should in the
bank, we lost money. We should take back
money. And many of these um uh these
preferred terms absolutely do have
clawbacks to taking a lot of money back.
And we'll get to that. that might make
things better, but the banks don't have
any of that. And so obviously if you can
really call
[Music]
this he's not saying he thought it was a
he thought that was a but basically like
this what I wanted to raise is that
there's many
cases there basically many cases where
it's impossible to say that just because
we're using the term shus we can m all
sort of ribbus in the world for example
what's obvious if you give them all
the the manager on every penny of it.
Obviously, it's not avas anymore that
everybody agrees to the
quoting. No, no. I was quoting
um
1700s the pre he writes that if you
would give preferred returns whatever it
is on the first year 100% to one party
he said that would be a problem even by
at some point certain postkim are not
excited by calling something autist and
giving somebody all the returns for
example the time would go through it
more carefully he brought saying autis
cuts
I give I give back revenue no matter
what happens. make losses I give you
back reb that already is he says it
should be an
issuances in each cases I wish I had
time to describe fundamentally he says
that's also an he says it's like eight
times it's obvious and it's da there's
no question so at some point based let's
say the marabach case I started with
where all the money was provided by one
side even though part of it was on
credit and part of it was from an iska
but like at some point it's not called a
shufas anymore
because just because we use the term
shufus and it happens to look like two
people are putting in money
fundamentally it's not a shtus. Now what
it really draws to the question is why
is it that ribbus is exempt why is shas
exempt from risk like that a magic uh
you know wand we call it he puts in one
dollar you don't need any terrorist
because all of a sudden you can do all
the ribbas in the world obviously that's
not true so what's this so if you're not
even a problem because for a is just
aart because he's working for
himself so if he's working for himself I
don't have to pay for his for his
working it's in the same animal not fine
But in terms of you can't get more and
take more by than any other that's very
easy to justify why there's no ribbus
because you're not really doing anything
more exciting than it is an iska there's
something else maybe it's not going to
be direct because it's whatever the
status of an isk is however what if you
disagree with you're more like
the in his he has he talks a lot about
ribbas he has some cases that are
similar to this. It does sound like he
is disagreeing. He's not he doesn't
quote the but seems like he does not
accept the there are many who seem not
to go with
the seems not to go
with Pas thought there's grounds lenient
against what's the for that so I have
three why could it be how could you
argue like how could you justify why
there's no
ribbus so this might be
says basically I'm paying it's in the
sources I'm not going to read inside I'm
paying for one person's skills or one
person for person's connections it's
beneficially part of the even if we
don't split up evenly it's not there's
no on the in the on the on the table the
reason I'm giving you extra dividends
even though I'm the manager I'm taking a
lot of I can take a lot of and give you
a lot of why says because when you're
part of a you're entitled to make money
on your money and sometimes it's worth
it for you to pay even sometimes of some
sort so that to be in connection with
this guy. Everybody likes to do business
with him. So, it's worth it. So, it's
unlike an iska when one person put in
money and the other person's working.
So, why are they working? He's working
for you for free. By they're both
working because one person's working
because they both have money in this
skin in the game. And the fact I'm even
giving him an advantage in terms
of is explainable because of connections
that he has or he does business better
than me. That's so I'm paying him for
that. the shalom he says it's it's
a whole different but it's somewhat
do and he say because there's
no okay the uh I made these all the this
chart which is going to be
the we'll see the documents is what
happens if I compound
my that's from autis is that I say um
I'm going to give you on
your so if you're saying it's hard to
justify because at some point it really
looks like it's just a loan um and I'm
giving you back interest and I'm giving
you interest on your interest but if
it's a payment if it's a payment for
your benefits that you gave me why
should I be giving you benefits for on
top of other benefits the first benefits
they give me bigger benefits
um the shalom maybe yes maybe no if it
was created with a loan that was the
marab case the when there's a rev is
mutter or according to many poster and
then there's no should probably accord
maybe the might allow such a
thing will was talking about something
over here we'll finish we'll now look at
the I want to look at a few loan
documents and just think about
this okay I'm going to share can you see
yeah you could see this is the last page
of the packet um this is just two pagas
of uh investment these are from private
private placement memorandums, people
that want people to invest in their real
estate or private equity investments and
they tell them all the things they're
going to promise to give them in
distribution. So these are 69 pages. I
picked out one p two paragraphs in this
loan. Now two I printed two loan
documents for but we'll go over those
after more in depth that I have Rabbi
Reese's on these two these two I have in
the packet are public ones. I don't have
Rab Rabbi Reese's on this one where I'll
read some of them. Okay, this is the
Rockstep home one, hometown one. This is
in the document page 19. Any net cash of
a company whether generated by or by
ordinary operations of the company or
sales exchange or other investments of
assets basically however much money
they're making after paying expenses of
funding reserves will be distributed as
if and when determined by the manager as
files. Basically, there have a lot of
other clauses that doesn't always get
paid. But what how is it paid when it's
paid? first to the members pro rata
according to the perspective unpaid
preferred return until each member
receives an amount equivalent to 8% of
your class A B C whatever this is
preferred return okay I is preferred
return okay and does this accumulate the
answer is yes the way that you say is
acrewing on a cumulative non-compounding
basis so they don't include compounding
if this year we don't make 8% or 9%
we're not going to give it to you we'll
give it to you next year but did you
lose all your money is it gone forever.
No, it's not gone forever. It's
cumulative. It'll acrew for next year.
We'll pay it to you next year. But are
we compounding it? No, we're not going
to compound it. So this agreement and
then they have other people they give to
the promote holder is the is the
manager. Okay, they that's his incentive
to make money and then afterwards they
split it according to equity and that
changes okay according to the tier
basically based on what I was learning
until now. If this is a shas where both
people the man the general partner and
the limited partner put in something
then this is like
a from
which it could be would not like this
but many would allow in terms of in
terms of the
other the
quotas and there's many other opinions
in between the was
was but they only answered
have
been but it was only only I'll give you
when there
is according
to so even though it could be some the
thinks even then I think more accurately
reads the marsh as saying he would
matter in that case so thought there is
reason to matter this type of agreement
now noted and and there are other
whatever there are other problems you
have to deal withar very carefully
sometimes it says if we take a loan out
of the bank everybody else in the in the
company as a guarantor for the paying
off the loan and if if one person pays
it off on somebody else that'll be a
loan to everybody else in the company
with interest well then that's rubisuta
that type of line needs to be removed or
needs had to risk up that is included
just being a guaranter to begin with but
anyway kufine for being of kablan
separate topic um those type of issues
can be dealt with could be removed could
be fixed but this type of distribution
fundamentally could be mut according
referring to not all postkin but some
postkin in my understanding. The second
one I had over here was preferred return
the wararchchester one first from any
distributable cash members will receive
a preferred return from their
contributed but unreturned capital on
their quarterly basis according to their
respective positive capital account
balances. The ver return is not
guaranteed meaning that the preferred
return will not be paid and particular
quarter loan does not have significant
sufficient cash available to pay it as
by the manager and sold discretion. This
is the part that I really needed. If
anybody is trying to be m on these you
could pick these to invest in the
preferred return is also non cumulative
cumulative. This one says if we make we
give it to you and if you don't we won't
even give it to you next time either.
According to this one I think even the
would be excited to invest in such a
thing. you might not make as much money,
but um they're not they're telling you
we're capping your if you'll make we'll
make 28% this year. We're only going to
give you six or seven or eight whatever
we're going to give you a certain
amount. But if we don't make any money
or make less than that, we will not give
it to you. So that I think is um
according now I have two other things I
want to show you to more carefully
investigate. These are the ones that Ray
Reese looked at just to show one that an
extreme just so they're not all
identical. This is preferred equity not
the prefer last two documents I was
talking about is preferred returns and
waterfall. This is preferred equity.
Preferred equity is is much closer to
then here's just an example of why here
in their distribution the way they say
it is I think this is going to be also
according to Kulyama but let's see if
it's true. distributions until the
repayment in full available cash was
distributed to the members as such. Da
da da. First to preferred
investors and then the special
investment return. Second preferred
investors. We give them all fees and
expenses. Third to preferred investors.
Preferred investors have received all
all and acrude all acred and unpaid
preferred investment return. Basically,
we're paying making sure we pay our
investors capital preferred returns and
any other expenses that they have. And
let's say we can't make it next
paragraph preferred return investment
return to the extent that's insufficient
available cash on any distribution date
any monthly payment of the acred. So
first of all it cruise it continues till
next time. So it's not non-cumulative it
is cumulative but further then it's
going to be paid with such da da da and
then it continues common member shall as
commencing of the next distribution make
a contribution to the company. they can
ask any other common member of their
company to have to make a capital call
to pay the company to pay off the
preferred returns of the of these uh
preferred equity investors. So they are
guaranteeing that they're making even if
there's no rev ever not from the
beginning to the end they're going to
then call up some of our members and say
please give us money so then we can pay
off plonial money so he can get his
investment return certainly for he what
certainly there's heaps and certainly
for he so on this one I don't think
there's mckum I think this is a problem
oh it didn't come on the screen all
right one second let me show you what I
was reading but um this is the documents
this is The document I was just reading
from over here is the preferred equity
one. Um those I would generally think is
going to be user for a Jew and Jew
getting involved with depending on the
particular case but this case I thought
it was for sure user without a question.
These are two other cases waterfall one
and three I have over here I was oh it
doesn't yeah it shows them. These are
the ones that are Reese read
um and and uh he made a collect between
the two of them. These are both
operating agreements of real estate
investments both with waterfall
distributions and if I had time I go
through like 10 different things and
they have in them but let's just go to
the main thing
um in ter in terms
of they often do include some sort of
management fee. This one's 4% of revenue
is going to be given to him. That's
before anything else. So the manager
often does make money. If they made any
money the manager gets some fee that's
for A um in terms of distribution
available cash um Liam Mezer who helped
me go through a lot of these things he
called this one more hamish just the way
this was structured and set up but uh it
says over here how we going to
distribute it first to members of unpaid
preferred returns pro rat in proportion
to their unpaid preferred returns until
their unpaid preferred returns are
reduced to zero so basically we're going
to pay them for the preferred return
second to members of unreturned capital
they reverse the order of some of the
things that we've seen before but
doesn't really make a paying the uh
paying the return then the capital it's
all the same for this part and then
thereafter 25% 75%.
Okay, let me just look carefully where
they define preferred return in the
second page over
here. Preferred return to any member
whatever 6% per annual not so aggressive
cumulative but not compounded. Okay. So
that is
um in Rabbi Reese's understanding there
was reason to matter this without any
risk because there was given to the po
to the worker but you didn't even need
that because it really is a both people
invested and it was given from and it's
not it is cumulative not if it was
non-compounded wonderful this is this is
not sorry this is not compounded this is
cumulative so it's not
in the but there is the because given
from we give you promise give you 6%
this year we make no ra we're not going
to give it this year we're going to give
you next year 12% six year from this
year and six from last year so this it's
only ever paid from rava and it comes
out all 10 years or whatever of the
investment it makes
no then then they won't have to pay it
okay you go to the
Right. Okay. So that Okay, good. So
there was there is something to say for
this case. However, the other one is a
little more aggressive investment.
Okay.
I'm sure someone has thought I'm sure
someone has thought of it.
the market prefer preferred equity in in
the Jewish world is
there's a lot of people a lot of Jews in
this business preferred stock there
um so this was the other um
agreement that Rabbi Ree looked
over and here it said one second it's H
yeah distributions first are given to
each member as a loan a member loan
that's a separate point and this really
was a problem was if someone made a loan
to the company then they give them 9% on
their loan that's a separate thing um
just I'll make the point over here which
is a lot of almost everything we've been
discussing is even says when there's or
not and he says it's um he says about
six times says eight times the lady
thinks they just mean it's still only it
looks like it's reb because
fundamentally it's still like an iska
they can't use it for anything
else and
uh there other reasons might be there's
no to make it so it's not now if you
hold like the Moshe that when it's LLC
it could be it would match some of these
cases the Moshe who holds many of these
cases we're talking about LLC is someone
with limited liability general partner
the the word general means has to be
unlimited liability for tax purposes
limited partner means is limited
liability. The general partner has
unlimited. But what they do as a cover
up is the general partner is often
himself LLC. So it ends up one person
nobody's taking any she go. Yeah. Yeah.
They do that. They do it because it's
cheaper for tax purposes to make it a
partnership than making it just one big
LLC. Um, but our purpose if you hold
basically if you held it purely a
remotion that you're allowed to take
interest when the borrower's LLC a lot
of these cases the partners are LLC that
could be moed but if you if we're I'm
assuming not like him not like Raot so
then some of these are an issue. So one
more time in this last one I had over
here third to limited members who
invested cash in the amount equals 7%
return on their capital. Basically there
should be a comma over here but it means
anybody has has invested cash we're
going to give them 7% on their capital
contribution compounded each year means
if we didn't make we didn't make money
I'm going to give you uh 7% this year
even though we didn't make any money now
I can't give it to you this year I'll
give it to you next year but I look at
as your capital as though has increased
7% and next year I'm going to give you
7% on a not $100 but $107 so I'm going
to give you
compounded that The only okay so Rabbi
Ree thought he wanted to make a between
hold on oh unpaid amount shall acrew so
the first Rabbi Ree thought it should be
user based on the word acrew if
something acrews it means we owe it
we're saying we owe money whether or not
we made any money over here cumulative
just means we decide how we're
on fine that's cumulative I decided
arbitrarily 6% this year next year 12%
because I didn't give you the six%
But when I say compound when I say acred
it means I really owe you. How can I say
I really owe you? That's the marish. He
thought it was user. Then after a long
discussion um with a few several a lot
of people looking at these documents I
thought that even acred fundamentally
comes out similar to cumulative in terms
of dollars and cents.
It means the same thing but and many
documents use the exact used in the same
sentence. But one one thing was not
willing to go back on was compound.
Meaning if it would have been
compounded, some of them don't have on
the ACR compounded on the crude. That he
thought is problematic. Meaning if it
wouldn't be compounded, some of them are
just cumulative acred but not
compounded he thought once it's
compounded sounds like it's a problem. I
can imagine someone someone had told me
um that that the certain was
mater what certain types of these
distributions I could imagine based on I
could imagine
certain how you could mater because
fundamentally a lot of this is still
it's not like preferred equity we're
going to call people up to have to pay
back fundamentally it's only coming me
it's coming from the generalist
correct fundamentally it's somewhere and
it's only coming from and when we
liquidate and we don't have any we won't
have to pay it even if it was compounded
that could have been even by compounded
uh we try to try to learn these
different topics and it's not simple but
one thing for sure to take away is you
can't possibly passen on these without
having seen the exact language because
it's me very very delicately carefully
between each and every case
okay
insurance coupling. They don't they're
not worth the people selling the
preferred are trying to get everybody in
the world to buy their thing, but but
they don't they don't they don't make as
much as they sound like they're making.
They tell
the reason I think a simple reason they
want to do it is they're just not going
to make any they're going to make very
little money. If you're looking to
structure this
and do it,
but even if it's enforceable, they're
going to they don't want to lose from
their making if they're really
if they're only making 6% and then
they're going to start losing another
That's what they did.
If you're looking, you don't need an
insurance
for most of these things. The way they
look at is the bottom last dollar is
$135 million. $135 million until I'll
lose my revenue. So, like they're pretty
confident. You don't need insurance
companies. Built into the system is a
lot of guarantees.
I'm calling on you to provide more. No,
that one that one sounds that doesn't
that sounds risky.
[Music]
I what I've heard is that's a very
Jewish business. The preferred equity.
It's a very small business in the world
because an insurance
compan Yeah. They actually limit. They
don't let anybody buy these things. You
have to be an accredited uh investor to
buy these things because they think
someone who's a fool is going to buy
them then get upset. That's why I said
they have to go back to Barb suckers
born every minute looking for suckers.
I don't know if it's a bad idea. You
have to ask financial advisor if it's
good.
security and that's it.
Okay.
Thank you. All right. We didn't get to
everything. We started the conversation.
I didn't read every
If it's not written properly, I'll show
you. I wasn't asking the law. I was
asking
to the heart of what this really is
giving you interest. They call it
except this is no more
than a
real if you really understand.
Oh, I'm not I unless I missed something
without reading it, but I'm never going
to have to
take
a negligence.
We will not charge any interest on
anything. by
we won't charge as long as long as they
call something
I didn't
read but they understood it as
supposed to do. No, they also have to
pay
from your capital. I'm losing my capital
because
likes
justific and then it's clear there's no
there's no she would other than whatever
I put into the
school reason.
There's
no
reason it's easy to do everything. And
why did anybody before the
mar simplest thing in the
world and by the way I haven't read but
there's a whole series in there's
has
a magazine
there are lots of things but that it's
basically it's very interesting you know
whatever the business problem was lots
now in addition they're having for a
couple of weeks already a different
column doesn't have organ name on it
doesn't have Cohen's name on it and it's
ribbons and
mortgages just telling you it's
there's I read things I didn't
understand things I don't even remember
them anymore I don't I hope they got
them in Casus right they got them in Cus
right they will be
done how the mortgages are structured
how they're not structured
oh no everyone else No, the mortgage is
more just you and I for business. But
most also some of them have like a you
have to start by 100,000 like they don't
even take investors. They're not going
to take you. It's not for us. But lots
of people you and us, we have mortgages
on the house, right? I don't own a
house. I don't own one either, but
that's not it's very common. Yeah. I
mean, I think the people that do this
are people who are investing in
This professional.
You're not. You and I don't think so.
These are professional investors.
They're really Bali ribbons.
They're looking for they
do ribs for for a living.
They make
no way too much.
No, but maybe
that maybe is the issue though. Yeah,
I'll sell it. mostly
like whatever you