A blog was recently posted that provided basic information associated with a trial over which Judge William Sowder, Lubbock County, Texas presided.  The underlying petition reflected a series of claims predicated on the Texas Securities Act (“TSA”); it also encompassed an allegation of common law fraud.  Set forth below are compact segments of the brief that was filed on behalf of the elderly investors in question, who are truly wonderful people.  The appellate brief excerpts featured herein relate to the following: A) Section 7 of the TSA,* which deals with the sale of unregistered securities; B) Section 12A of the TSA,** which requires dealers (brokerage firms) and agents (individuals associated with such firms) to be registered with the state securities commissioner; C) Section 33A(1) of the TSA,*** which provides for liability in situations where Section 7 or Section 12 have been violated; and D) common law fraud, the reach of which extends to the sale of financial instruments that cannot be classified as securities, as well as investment products that constitute securities.  As with the preceding blog, the text of the statutory provisions at issue appears in endnotes marked by asterisks.

Section 7

Assuming the absence of any exemption to Section 7 of the TSA, that provision operates so as to “prohibit[ ] the sale of unregistered securities.”  Sandefer, 58 S.W.3d 760, 777.  Section 33A(1) of the TSA operates in tandem with Section 7 of the TSA.  The text of Section 33A(1) “states that ‘a person who offers or sells a security’ in violation of section 7 of the Act ‘is liable to the person buying the security.’”

Section 12A

Section 12A of the TSA imposes registration requirements upon agents who work on behalf of dealers, as well as dealers which employ such agents.  The registration requirements embodied within Section 12 “indemnify investors victimized by violations of the Texas Securities Act . . . .” Citizens Insurance, 217 S.W.3d 430, 440.

The rationale behind the personal licensing requirements of Section 12 makes sense on a practical level, as well as in theoretical terms.  In that regard, those who have demonstrated an appreciation for, and understanding of, the pertinent regulatory requirements will be in the best position to protect the interests of their customers by identifying, comprehending, and explaining the intricacies of a complex investment product.  By contrast, those who have not been schooled in the ways of the securities markets, and the investment products sold therein, will be less capable of shepherding investors through the confusing maze of considerations that must be taken into account.

Common Law Fraud

A misrepresentation made knowingly or recklessly concerning a material fact, which is communicated with the intention of inducing a party to rely on it, and which is, in fact, relied on by that party to his or her detriment or injury, is fraudulent.  See Stone v. Lawyer’s Title Ins. Corp., 554 S.W.2d 183, 185 (Tex. 1977); Oil Well Division, U.S. Steel Corp. v. Fryer, 493 S.W.2d 487, 491 (Tex. 1973); Custom Leasing v. Texas Bank & Trust Co. of Dallas, 516 S.W.2d 138, 142-143 (Tex. 1974).

Common law fraud encompasses outright falsities, as well as material omissions and half-truths.  “[W]here a person voluntarily discloses information, he must disclose the whole truth.” Newby v. Enron Corp., 540 F. Supp. 759, 771 (S.D. Tex. 2007).  See also Schlumberger Technology Corp. v. Swanson, 959 S.W.2d 171, 181 (Tex. 1997) (observing that a “non-disclosure may be as misleading as a positive misrepresentation of facts”).  “The maker of a false representation need not, in every instance, know it is false for the statement to form the basis for actionable fraud.”  Wright v. Carpenter, 579 S.W.2d 575, 579 (Tex. Civ. App. 1979, writ denied).  With respect to the issue of intent, it goes without saying that the intangible, unquantifiable nature thereof will generally result in a determination that it “is not susceptible to direct proof . . . .”  Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 435 (Tex. 1986).  Inasmuch as factual findings dealing with the issue of intent regularly rest on credibility determinations, Texas deems those findings to be “uniquely within the realm of the trier of fact . . . .”  Id., 434.

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Section 7 states as follows, in pertinent part: “No dealer or agent shall sell or offer for sale any securities issued after September 6, 1955, except those which shall have been registered by Notification . . . or by Coordination . . . and except those which come within the classes enumerated in Section 5 or Section 6 of this Act, until the issuer of such securities or a dealer registered under the provisions of this Act shall have been granted a permit by the Commissioner; and no such permit shall be granted by the Commissioner until the issuer of such securities or a dealer registered under the provisions of this Act” files a sworn statement reflecting specific information.

Section 12A states as follows: “Except as provided in Section 5 of this Act, no person, firm, corporation or dealer shall, directly or through agents, offer for sale, sell or make a sale of any securities in this state without first being registered as in this Act provided.  No agent shall, in behalf of any dealer, sell, offer for sale, or make sale of any securities within the state unless registered as an agent for that particular registered dealer under the provisions of this Act.”

The pertinent provisions of Section 33A(1) state as follows: “A person who offers or sells a security in violation of Section 7 [or] . . . 12 . . . of this Act is liable to the person buying the security from him, who may sue either at law or in equity for rescission or for damages if the buyer no longer owns the security.”

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If you sense that you are a victim of misrepresentations — via outright falsities or materially incomplete statements, you may benefit from a brief conversation with a lawyer who has an extensive background in the securities law field.  Chris Bebel, a former SEC attorney, has geared his practice toward the securities arena for roughly three decades.  To be sure, Mr. Bebel has declined numerous cases over the years; and he may decline to accept your case.  Give Chris a call; tell him about the features and characteristics of your case so that he may provide you with an assessment.  Initial consultations are free of charge.

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Although the case described herein was pursued in Texas, it must be understood that Mr. Bebel has, for many years, represented investors situated throughout the country, including investors residing in the following states: Florida, California, New York, New Jersey, Colorado, Minnesota, Indiana, Iowa, Kansas, Mississippi, Oklahoma, and Arkansas.

Mr. Bebel has provided instructive presentations addressing an array of securities industry topics to lawyers and securities industry professionals in the following cities: New York, NY; Jacksonville, FL; Fort Myers, FL; San Diego, CA; Tucson, AZ; Colorado Springs, CO; San Antonio, TX; Dallas, TX; Houston, TX; and Toronto, Ontario.

Mr. Bebel has been published through the following: Louisiana Law Review, Louisiana State University; West Virginia Law Review, West Virginia University; Texas Tech Law Review; Texas Tech University (voted Best Article of the Year by Texas Tech Law Review editors); Practicing Law Institute, New York, NY; Public Investors Arbitration Bar Association; Oklahoma City, OK; South Texas College of Law, Houston, TX; and the State Bar of Texas, Austin, TX.

Mr. Bebel has served as a visiting lecturer on securities law principles at the following institutions: University of Houston Law Center, Houston, TX; Baylor University School of Law, Waco, TX; Texas Tech University School of Law, Lubbock, TX; Mitchell Hamline School of Law, St. Paul, MN; and the FBI Academy, Quantico, VA.