Historically, the majority of our investment fraud cases have resulted in amicable settlements.  However, a settlement cannot always be achieved.  Over the past couple years, we have brought two securities fraud cases to trial.  On both occasions, we emerged victorious.  Pursuant to both trials, we prevailed on the various allegations of securities fraud that had been advanced on behalf of elderly investors.  We also earned a hard-fought victory on the common law fraud allegation that was asserted in connection with each case.  Both cases involved “bench trials,” wherein the presiding judge served as the “finder of fact.”  In the first case, the Honorable William Sowder, 99th Judicial District Court, Lubbock County, Texas served as the presiding judge.  As for the second case, it was tried before the Honorable Stephen Ellis, 35th Judicial District Court, Brown County, Texas.

Set forth below are excerpts from the appellate brief that was filed by Tefteller Law, PLLC in connection with the “bench trial” over which Judge Sowder presided.  To facilitate comprehension, the text of the statutes addressed herein (i.e., Section 33A(2) of the Texas Securities Act, and Section 33F(2) of the Texas Securities Act) are featured in endnotes marked by asterisks.

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Purpose Of Texas Securities Act

The purpose of the TSA “is to regulate the sale of securities and to protect the public from fraud.”  Shields v. State, 27 S.W.3d 267, 273 (Tex. App.–Austin 2000, no pet.).  “Texas has a strong interest in regulating the sale of securities in and from the state.”  Citizens Ins. Co. of Am. v. Daccah, 217 S.W.3d 430, 440 (Tex. 2007).  Given the remedial nature of the TSA, it is of utmost importance that Texas courts construe, and apply, the TSA so as to protect investors.  See Shields, 27 S.W.3d 267, 273; Texas Capital Securities, Inc. v. Sandefer, 58 S.W.3d 760, 776 (Tex. App.–Houston [1st Dist.] 2001, pet. denied).

While interpreting the definition of the term “security,” Texas courts have frequently looked to federal courts for guidance.  See Caldwell v. State, 95 S.W.3d 563, 566 (Tex. App.–Houston [1st Dist.] 2002, pet. ref’d).  On a federal level, the U.S. Supreme Court has made it clear that “Congress’ purpose in enacting the securities laws was to regulate investments, in whatever form they are made and by whatever name they are called” (emphasis in original).  SEC v. Edwards, 540 U.S. 389, 393 (2004), quoting Reves. v. Ernst & Young, 494 U.S. 56, 61 (1990).  With an eye toward achieving that objective, Congress “enacted a broad definition of ‘security,’ sufficient ‘to encompass virtually any instrument that might be sold as an investment.’”  Id.  It is essential that the securities laws be applied so as to allow for the “economic realities” to take precedence over matters of form.  See United Housing Foundation, Inc. v. Forman, 421 U.S. 837, 848 (1975).

Section 33A(2) *

Section 33 of the TSA “is remedial, and ‘should be given the widest possible scope.’”  Aegis Ins. Holding Co. v. Gaiser, 2007 Tex. App. LEXIS 2364, 13 (Tex. App.–San Antonio 2007).  Those who have been victimized by deceptions may obtain a recovery by “prov[ing] a security was sold by means of (1) an untrue statement of material fact or (2) an omission to state a material fact that is necessary to make the statement not misleading.”  Sandefer, 58 S.W.3d 760, 776.  “An omission or misrepresentation is material if there is a substantial likelihood that a reasonable investor would consider it important in deciding to invest.” Id.

Given the breadth of the net cast by Section 33A(2), neither intent nor reliance need be established.  Aegis, 2007 Tex. App. LEXIS 2364, 30.  Inasmuch as reliance need not be proven in connection with a claim grounded on Section 33A(2) of the TSA, a plaintiff pursuing such a claim “is not required to prove that he would have acted differently ‘but for’ the omission or misrepresentation.” Id., 22.  Likewise, a “loss causation” requirement cannot be forced upon a Section 33A(2) analysis.  See Duperier v. Texas State Bank, 28 S.W.3d 740, 754 (Tex. App.–Corpus Christi 2000, pet. dism’d).

Section 33F(2) **

Section 33F(2) provides for aider liability when scienter has been established.  See Sterling Trust Co. v. Adderly, 168 S.W.3d 835, 842 (Tex. 2005).  The text of Section 33F(2) itself provides for liability in a situation where “[a] person who directly or indirectly with intent to deceive or defraud or with reckless disregard for the truth or the law materially aids a seller . . . .”  Tex. Rev. Civil Stat. art. 581-33F(2).  In accordance with the analysis sketched in Sterling Trust, “an alleged aider can only be held liable if it rendered assistance ‘in the face of a perceived risk’ that its assistance would facilitate untruthful or illegal activity by the primary violator.”  Sterling Trust, 168 S.W.3d 835, 842.  “In order to perceive such a risk, the alleged aider must possess a ‘general awareness that his role was part of an overall activity that is improper.’”  Id.

 

If you believe that a misleading sales presentation induced you to purchase securities, it may be beneficial for you to speak with a securities law attorney.  Chris Bebel is an experienced attorney who has concentrated his practice in the securities fraud area for roughly three decades.  Mr. Bebel, a talented trial lawyer, works with a group of dedicated, conscientious people at Tefteller Law, PLLC.  Bradley Ellison is included among the people with whom Mr. Bebel works.  Mr. Ellison compiled an impressive track record of success during his career with the United States Air Force, where he served as a master sergeant and a paralegal.  Mr. Ellison is currently working toward his third master’s degree.

* Section 33A(2) states as follows, in pertinent part: “A person who offers or sells a security . . . by means of an untrue statement of a material fact or an omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, is liable to the person buying the security from him . . . .”

** Section 33F(2) provides as follows: “A person directly or indirectly with intent to deceive or defraud or with reckless disregard for the truth or the law materially aids a seller, buyer, or issuer of a security is liable . . . jointly and severally with the seller, buyer, or issuer, and to the same extent as if he were the seller, buyer, or issuer.”