Rule 10b-5: What Sponsors Can't Say to Investors

Rule 10b-5 is the SEC's general anti-fraud rule. In connection with buying or selling a security, it makes it unlawful to make an untrue statement of a material fact, or to leave out a material fact needed to make what you said not misleading. It applies to private, exempt offerings such as Rule 506 raises, in any channel: a deck, a webinar, an email, a text, a social post or a phone call. Using an exemption from registration does not exempt you from it. If you are the sponsor, DoorRaise fills in offering documents from your deal's terms so the numbers match, but what you say outside the documents is still yours.

This post is part of our guide to real estate syndication. It covers the general anti-fraud rule for sponsors. For rules about promotional content from people with a following, see what sponsors with a following can say about a deal. Rules are as of October 2026.

What does Rule 10b-5 say?

The rule is short. In connection with the purchase or sale of any security, it is unlawful to use any device, scheme or artifice to defraud, to make any untrue statement of a material fact or omit a material fact necessary to make the statements made not misleading, or to engage in any practice that operates as a fraud or deceit. Read the text yourself: 17 CFR 240.10b-5.

Key words:

Any security. Interests in an LLC that owns an apartment building are securities when sold as an investment.
In connection with. It reaches your pitch, your answers to questions and your updates after closing if investors rely on them to buy or sell, for example when you ask them to put in more money.
Material. A fact is generally material if there is a substantial likelihood a reasonable investor would consider it important in deciding what to do.
Omission. What you leave out counts, if it makes what you said misleading.

Anti-fraud rules also appear in Section 17(a) of the Securities Act (15 U.S.C. 77q), and states have their own anti-fraud laws.

What do misstatements and omissions look like?

These are generic illustrations, not accusations about anyone.

Projections without a basis. A deck shows a 10-year return that rests on rent growth the market data does not support, and does not say so. See financial projections.
Hiding or blurring fees. Fees in the operating agreement that are not in the pitch, or called "closing costs" when they are paid to the sponsor.
Track record. Describing a past deal as a success without saying that investors lost money, that the sponsor was only a junior partner, or that the deal was not as large as implied.
Conflicts. Not saying that the property manager, contractor or lender is a sponsor affiliate.
Use of funds. Saying money will go into the property when part will repay the sponsor, or pay for an earlier deal.
Guarantees. Saying or implying that returns, distributions or the return of capital are safe or certain.
Legal status. Telling investors that documents were "approved" by a regulator or that the SEC has reviewed the deal.
Pressure statements. Statements such as "only a few spots left" when that is not true.

Pure opinion and obvious puffery are less likely to be actionable than specific facts, but "we think" or "in our view" is not a shield for a statement you know is wrong or have no basis for.

What role do the PPM, risk factors and updates play?

The memorandum is where you set out the material facts: the property, the plan, the fees, the conflicts, the risks and the terms. See how to read a PPM and private placement memorandum. Risk factors that are specific to the deal help you, because they show what you told investors. Generic boilerplate that ignores a risk you already know about does not.

Everything else you say should agree with the memorandum. Where your deck, your webinar answer and the memorandum differ, the difference is a problem. Updates after closing matter too: when you tell investors how the property is doing, you must not mislead them about it, especially if you are asking them to approve something or put in more money. A purely informational update to people who are not buying or selling is mainly a trust and contract issue, but write it as carefully as if the rule applied. See investor updates.

How should you handle projections?

Projections are forecasts and may be wrong. They are not forbidden. The SEC's own guidance on projections in its filings says a projection should have a reasonable basis and be presented in good faith. See 17 CFR 229.10(b). Even for a private offering, that is a useful standard.

Practical steps:

Write the assumptions next to the number (rent growth, expenses, exit value, interest rate).
Show a downside case, not only a base case.
Keep the workings so you can show the basis later.
Never say "projected" and then describe the result as "expected" or "will."
Say that actual results will differ, and that investors can lose money.

Are you personally liable?

Potentially yes. Rule 10b-5 liability can reach the individual who makes the statement and, depending on the facts and the claim, other people who control the company or take part in the offering. Forming an LLC separates the company's debts from you in many respects, but it does not shield you from your own fraud or misleading statements. See forming an LLC. Investors may also bring claims under state law. For examples of how this has played out for promoters in public, see lessons from public cases of promoter liability.

A pre-send check for decks, webinars, emails and posts

Before you publish or send anything about a deal, ask:

Is every number in it in the offering documents, and does it match?
Can I show the basis for each projection and each claim about my past deals?
Have I disclosed every fee and every affiliate who is paid?
Did I leave out a risk or a bad fact that an investor would want to know?
Have I said or implied any guarantee, or "safe," or "no risk"?
Who am I sending this to, and do I have a relationship with them? (Under 506(b), no general solicitation; see what is general solicitation.)
Has someone who did not write it read it?

What if you find an error?

Correct it promptly and in writing to everyone who got the wrong information. Explain what was wrong and what is right. If the memorandum is wrong, issue a supplement. If investors have already subscribed, they may need a chance to reconsider, so ask your securities attorney how to handle it. Delay and silence make the problem worse. What not to do: tell only the investors who ask, or fix the deck and say nothing about the old version.

How DoorRaise fits in

DoorRaise builds the memorandum, subscription agreement and operating agreement from the terms on your deal page, so the price, fees, split and dates in the documents and on the page agree. Its promotion review checks posts, videos and emails you send in against the posting rules, such as no guarantees and no "risk-free" language. That review is not a check that your claims are true or your projections are sound, and DoorRaise does not give legal advice. DoorRaise is not a law firm, broker-dealer, investment adviser or funding portal.

The fees are $500 to set up (due when you submit the deal, non-refundable), $5,000 at closing (only if the deal closes, including state filing fees) and $3,500 a year.

Raise your apartment deal from the people who already follow you.

DoorRaise is built for apartment buildings with 5 or more units: one link for the deal, escrow until closing and a standard fee card.

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FAQ

Does Rule 10b-5 apply to private offerings?

Yes. It applies to the purchase or sale of any security, whether or not it is registered. Rule 506 exempts you from registration, not from anti-fraud rules.

What is a "material" fact?

Generally, a fact a reasonable investor would likely consider important in deciding whether to invest. Fees, conflicts, the sponsor's track record and the use of money are typical examples.

Is it enough to label a number "projected"?

No. A projection needs a reasonable basis and clear assumptions, and you should not present it as a promise.

Can an LLC protect me from liability for what I say?

Not for your own false or misleading statements. The LLC separates certain business debts, not personal responsibility for fraud.

Can I just rely on the PPM disclaimers?

Disclaimers help, but they do not cure a statement you know is false or a fact you left out that makes your words misleading.

Sources

This article is general information, not legal advice. Talk to a securities attorney about your deal and your communications. DoorRaise is not a law firm, broker-dealer, investment adviser or funding portal.