On August 23, 2018, the U.S. Securities andExchange Commission (“SEC”) filed a complaint for injunctive and other relief against 1 Global Capital, LLC (“1st Global Capital”) in the U.S. District Court for the Southern District of Florida alleging, among other things, that 1st Global Capital “fraudulently raised more than $287 million from more than 3,400 investors.” And as 1st Global Capital filed for Chapter 11 bankruptcy protection, it’s unlikely the victims of this fraud will recover more than a fraction of their money from 1st Global Finance. But all may not be lost if you are such a victim of this fraud and if you purchased your investment in Missouri. Another avenue of recovery may be against the sales agents that brokered these investments to you in Missouri on behalf of 1st Global Capital.
1st Global Capital sourced its capital through a “network of barred brokers, registered and unregistered investment advisers, and other sales agents – to whom they paid millions in commissions – to offer and sell unregistered securities to investors in no fewer than 25 states” according the complaint filed by the SEC. Missouri was one of those states. And, these brokers, investment advisers and sales agents who brokered these sales in Missouri may be liable to these investors in Missouri for the following reasons:
First, these investments in the forms of a “9-month Promissory Note,” “Memorandum of Indebtedness” or “Loan Agreement” from 1st Global Capital constitute “securities” within the meaning of Section 2(a)(1) of the Securities Act of 1933 [15 U.S.C. § 77b(a)(1)] (the “Securities Act”). As such, they were required to be registered with the SEC pursuant to the Securities Act or exempted from registration therefrom. No such registration statement was filed and no exemption from registration existed for the 1st Global Capital securities. So, under federal and state law, including the Securities Act, you may be able to bring a private right of action against the sellers of these securities for the recovery of your investment.
Second, because the brokers, investment advisers and sales agents who brokered these securities in Missouri are governed by the rulings of the Eighth U.S. Circuit Court of Appeals, the definition of what constitutes a “seller” of securities under the Securities Act is not limited to the person who actually passes title of the securities to the purchaser. This definition has been broadened to include the intermediary who facilitated the sale of the security to the purchaser, if that intermediary was made aware of questionable circumstances surrounding the transaction and “was uniquely positioned to ask relevant questions, acquire additional information, or disclose his findings” to the purchaser. Wasson v. SEC, 558 F.2d 879, 886 (8th Cir. 1977). Moreover, a different panel of the Eighth U.S. Circuit Court of Appeals adopted the “substantial factor” test, in which a person “whose participation in the buy-sell transaction [was] a ‘substantial factor’ in causing the transaction to take place” was held to be a seller under the Securities Act. Stokes v. Lokken, 644 F. 2d 779, 785 (8th Cir. 1981).
If you purchased 1st Global Capital securities in Missouri, then there are laws that could provide you with the right to recover from the broker, investment adviser or sales agent who brokered that investment to you, including the Securities Act, the Missouri Uniform Securities Act, §§409.1.1, et seq., RSMo. (2016), and the Missouri common law. These laws could entitle you to recover the money paid for the securities, with interests and costs, and in some cases your reasonable attorneys’ fees and punitive damages.
Author: Brian St. James