When you're reading the Uniform Securities Act, it's easy to look at the information as if somebody just made it all up. In the live classes, people sometimes stop me and ask something like, "Whoah, hold on, Bob--a church bond? What the heck is a church bond?" Here goes. Religious organizations frequently raise money by selling debt securities to investors. I have an offering circular on my desk for a $240 million offer of various debt securities by a Lutheran organization that funds various missions. The offering is for the "mission investment fund," and on the front page of the offering circular we see that these securities have not been registered with the SEC in reliance on an exemption under the Securities Act of 1933 . . . but that this does not imply that any regulator has approved (or disapproved) of the securities, and any statement to the contrary is a criminal offense.
What does that mean? It means these debt securities do not have to be registered, period. But to raise $240 million, the organization has to disclose to investors all kinds of financial information. If any of that information is deceptive, this offer of securities is still subject to anti-fraud regulations, meaning the organization could face criminal prosecution and civil lawsuits. If the offering circular overstates the amount of money taken in through collections or bequests, that's a mistatement of a material fact. If the document leaves out some bad news that might have made investors think twice, thats' an ommission of material fact. So the offer of these securities is definitely subject to anti-fraud statues. It's just not subject to registration.