Third Party Intermediaries and the Distribution of Unregistered Securities under Sections 5(a) and (c).

Third parties or intermediaries not otherwise directly selling securities they own may find themselves the target of the Securities and Exchange Commission for violations of Sections 5(a) and (c) of the Securities Act, namely the distribution of unregistered securities.  This is particularly troublesome because violations thereof are subject to a strict liability standard, that is, intent is not element requisite to the claim.

SEC v. Murphy [1] stood for the proposition that a participant must be "both a 'necessary participant' and 'substantial factor' in the sales transaction." But as a result of a 1988 the case, Pinter v. Dahl [2] the SEC took the position that Murphy’s substantial factor analysis had been overruled by a “but for” or proximate cause analysis.  As a result, in many instances, the SEC applied this “but for” standard to intermediaries or participants in assessing whether or not, for purposes of Section 5, they might be deemed to be “sellers”.

But in 2011, the Ninth Circuit clarified the matter distinguishing Pinter from Murphy.  As a result, an individual’s facing allegations of Section 5 violations are subject to a calculus measuring whether or not they were in fact a substantial factor in the transaction.  This is almost always a question of fact for the fact finder (jury or judge) and is not typically matter disposed of by summary judgment.

The following is a brief summary of the import of SEC v. Bagley in the context of Section 5 and the relevant standards for imposing liability on a third party intermediary or participant.

Setting Aside a Default in Federal Court

Federal Rule of Civil Procedure Rule 55 governs defaults and default judgments.  It provides in pertinent part the following:

(a) Entering a Default. When a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by affidavit or otherwise, the clerk must enter the party's default.

(b) Entering a Default Judgment.

(1) By the Clerk. If the plaintiff's claim is for a sum certain or a sum that can be made certain by computation, the clerk—on the plaintiff's request, with an affidavit showing the amount due—must enter judgment for that amount and costs against a defendant who has been defaulted for not appearing and who is neither a minor nor an incompetent person.

(2) By the Court. In all other cases, the party must apply to the court for a default judgment. A default judgment may be entered against a minor or incompetent person only if represented by a general guardian, conservator, or other like fiduciary who has appeared. If the party against whom a default judgment is sought has appeared personally or by a representative, that party or its representative must be served with written notice of the application at least 7 days before the hearing. The court may conduct hearings or make referrals—preserving any federal statutory right to a jury trial—when, to enter or effectuate judgment, it needs to:

(A) conduct an accounting;

(B) determine the amount of damages;

(C) establish the truth of any allegation by evidence; or

(D) investigate any other matter.

(c) Setting Aside a Default or a Default Judgment. The court may set aside an entry of default for good cause, and it may set aside a default judgment under Rule 60(b).

Vacating an Order as Void Ab Initio Pursuant to NRCP 60(b)

Excerpted from a Brief in Support of a Motion

to Vacate Partial Summary Judgment

Introduction

Three and half years ago, Plaintiff filed a Motion for Partial Summary Judgment seeking findings of fact, conclusions of law and judgment against Defendant Vandelay Industries and Jerry Seinfeld.  This Court and the sitting Judge at the time (Judge Dredd) granted Plaintiff’s motion in its entirety.[1]  Before the proposed order was presented to the judge for review and execution, before it was filed and entered, Vandelay filed for bankruptcy and removed this matter to bankruptcy court.  Plaintiff sought remand and secured from the bankruptcy court an order remanding the case back to this Court on the express condition that any and all claims against Vandelay (now a bankruptcy debtor) be relinquished and dismissed (the “Bankruptcy Order”).  Indeed, the Bankruptcy Order modified the automatic stay for the express and singular purpose of allowing Plaintiff to amend her complaint accordingly.

After a two-year hiatus[2] subsequent to securing remand, Plaintiff revisited this case and in an effort to salvage partial summary judgment as to Seinfeld as rendered by this Court against Vandelay and Seinfeld, fashioned an order that: (1) fails to reflect the motion for judgment that she actually filed and the relief requested therein; (2) mischaracterizes the nature and subject of the proceedings at the hearing on the motion; and (3) fails to reflect the actual decision of the Court resulting from the motion, opposition, affidavits, evidence, exhibits, oral argument, and deliberation on the matter.

Instead, Plaintiff endeavored to whitewash the Order in a futile effort to avoid running afoul of the provisions of §362 and the automatic stay.  Plaintiff did not succeed.  Indeed, the Order as filed and entered, directly violates the mandate of the Bankruptcy Court’s Order for Remand and is void ab initio pursuant to NRCP 60(b)(4).  It is an impermissible continuance of a proceeding against Debtor.

If the Belated order stands in its present form, despite Plaintiff’s superficial efforts to avoid affecting the Debtor and its estate, the net result would be that the Deed of Trust on the Pueblo Property must be revised and rerecorded rescinding Plaintiff’s pro rata interest in same.  As a result the Debtor’s Note in favor of Plaintiff must be reinstated and reflected by the Debtor obliging it to amend Debtor’s bankruptcy schedules to the detriment of Debtor’s estate and Plaintiff would be obliged to return to the Debtor’s estate the $61,033.01 she received as part of the transaction she now claims she rescinded.  Such a result is not consistent with the Bankruptcy Order on Remand which presumed that any and all claims against Debtor were to be dismissed prior to Plaintiff proceeding on remand in state court.[3]

Moreover, Plaintiff’s efforts to re-characterize the nature of her motion for partial summary judgment, the proceedings at the hearing and the Judge’s decision, result in plain misstatements of facts not otherwise in dispute, and as a consequence, must be vacated pursuant to NRCP 60(b)(1).  Plaintiff’s contortion of findings in an effort to superficially comply with the Bankruptcy Court Order does not comport with the facts and constitutes fraud, misrepresentation or other misconduct as contemplated by NRCP 60(b)(3).

11 USC § 541 in the Context of Alter Ego Claims

Excerpted from a Brief in Support of Defendant’s

Opposition to a Motion for Leave to File a Second Amended Complaint

Introduction

Section 541(a) sets forth what constitutes property of a bankruptcy estate.  Any claims which the debtor could make that might inure to the benefit of the estate and therefore its creditors are claims belonging to the trustee.  In the present case, Plaintiff claims that the Debtor and the Non/Debtor co-defendants engaged in certain contractual breaches and tortious conduct including but not limited to fraud, resulting in financial loss and injury to her.  She filed her claims pre-petition.  Ordinarily, the provisions of §362 might apply so as prevent or preclude her from pursuing her claims at least against the debtor absent a lifting of the stay.  But in this case, one or more of the Non/Debtor co-defendants removed this action to the bankruptcy court affording plaintiff free reign to pursue her claims there, without hindrance.  The nature of the claims is not such that a trustee would or could bring on behalf of the estate or on behalf of its creditors as they are claims against the Debtor.  A Debtor does not sue itself.  Alter-ego lawsuits may be pursued against the debtor in bankruptcy court, without lifting the automatic stay. Despite the apparent silence of the Code on this point, the Code implicitly permits the filing of suit in the bankruptcy court against a debtor without violating the automatic stay.  The action as removed to bankruptcy court was nothing more or less than any other adversary claim.  Instead of hanging their hats on what, if any, protection the provisions of the automatic stay might have afforded them, the Defendants in this case removed the action.  They opened the door and laid out the red carpet for the Plaintiff to pursue her claims.  Instead of doing so, she waited five months, and filed for remand and in so doing looked the proverbial gift horse in the mouth and kicked it.  Then, after waiting around for two years, she now seeks the benefit of a tolling period so as to avoid the mandate of NRCP 41(e).  No such tolling period is warranted.

Filing a Lis Pendens in Nevada.

A lis pendens, in Latin, means "pending lawsuit." In modern usage, it means a notice of a pending lawsuit that is recorded in county real estate records.  It is a public recording against subject real property giving notice to any purchasers of a pending court dispute potentially effecting title. It requires no decision or action by the court to file and merely entails filing the document with the court and recording it against the real property at the County Recorder’s Office.  In Nevada, a lis pendens can be filed against real property only certain circumstances.[1]

The action must involve some legal interest in the challenged real property, such as title disputes or lien foreclosures.  NRS 14.010 (a party to a civil action “for the foreclosure of a mortgage upon real property or affecting title or possession of real property” may record a lis pendens); In re Bradshaw, 315 B.R. 875 (Bkrtcy.D.Nev.2004).

SEC targets Bitcoin -Denominated Ponzi Scheme

The Securities and Exchange Commission announced late last week that it has filed an action involving what it claims is a Bitcoin investment scam. The case involves the alleged fraudulent offers and sales of securities in a Bitcoin-denominated alleged Ponzi scheme founded and operated by a 30-year old Trendon T. Shavers from Texas.

The complaint alleges Shavers was the founder and operator of BTCST (formerly known as First Pirate Savings & Trust) an unincorporated entity with physical “brick and mortar” operating presence or location.  On or about November 3, 2011, Shavers, under the Internet name pirateat40, posted a general solicitation for BTCST, entitled “Looking for Lenders,” on the Bitcoin Forum[1] an online forum dedicated to BTC where, among other things, numerous BTC-denominated investment opportunities were posted. Shavers continued to post what the SEC alleges was martially false or misleading statements as to the purported investment opportunity.

A Lender’s Duty To Produce Sufficient Documentation In Forcelosure Mediation Proceedings: Nevada Foreclosure Mediation Rules (FMR)

The Deed of Trust

A deed of trust is an instrument that "secure[s] the performance of an obligation or the payment of any debt." NRS 107.020. The Nevada Supreme Court has previously held that a deed of trust "constitutes a conveyance of land as defined by NRS 111.010."[1]  Ray v. Hawkins, 76 Nev. 164, 166, 350 P.2d 998, 999 (1960). The statute of frauds governs when a conveyance creates or assigns an interest in land: No estate or interest in lands, . . . nor any trust or power over or concerning lands, or in any manner relating thereto, shall be created, granted, assigned, surrendered or declared . . . , unless ... by deed or conveyance, in writing, subscribed by the party creating, granting, assigning, surrendering or declaring the same, or by the party's lawful agent thereunto authorized in writing. NRS 111.205(1) (emphases added). Thus, to prove that WAMU properly assigned its interest in land via the deed of trust to Wells Fargo, Wells Fargo needs to provide a duly signed writing from WAMU demonstrating that transfer of interest (and each subsequent transfer). If no such assignment(s), duly executed, is/are provided at the mediation, Wells Fargo lacks would lack standing to pursue foreclosure proceedings against ________.

SEC Lifts Rule 506 Solicitation and Advertising Ban pursuant to JOBS Act

The Securities and Exchange Commission (SEC) adopted a new rules today implementing Title II of the JOBS Act.  In essence, these new rules lift the ban on general solicitation or general advertising for certain private securities offerings for business startups, while also adopting rules to discourage fraudsters from touting the investments and to add new protections for investors.

The new rules become effective 60 days after publication in the Federal Register. During this 60 day period the rules will be subject to public comment.

Ordinarily, the offer and sale of securities require registration with the SEC.  A number of exemptions from registration exist but most of these exemptions prohibited general solicitation advertising.  Rule 506 of Regulation D for example allowed a company (issuer) to raise an unlimited amount of capital from an unlimited number of “accredited investors” and up to 35 non-accredited investors. [1]