Quote:
Originally Posted by Peter_Spaeth
So an investor in a particular item is stuck until Collectables deems it appropriate to sell the item?
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This is actually commonplace in real estate investments and independent movie production investments. The operating agreement leaves the 'investor' virtually no recourse, except as the organizing state laws may limit. Cali, for example, does not allow the management of an LLC to completely insulate itself from all fiduciary duties; that would be a license to steal. Even if there is something stinky in the potpourri, however, filing a civil case is expensive and in an ironic twist, the sued manager often can tender the defense of the case to the LLC and use its assets to pay his lawyers. What worries me about the combination of a valuable underlying asset that is controlled by management with only a small ownership stake and extraordinarily wide discretion, is exploitation, even if not illegal. It is too tempting for management to legally destroy the other investors' equity simply by continuing to operate by lending the entity the money needed: the longer the entity goes on, the more it owes to the manager for floating its operations, until the entity is either restructured to dilute the other investors' equity to nothing in order to prevent a creditor action, or the assets are sold to pay the debts. Not in any way saying that is what is happening here--I have no inside information--just that when my clients bring me deals to review that have this sort of structure I warn then not to do it because of the potential for loss of their investment.