Busch v. Carpenter

827 F.2d 653 (10th Cir. 1987)

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Nature of the Case

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Facts

Sonic was incorporated in Utah on October 2, 1980. Ds were officers and directors of Sonic at its inception. During October and November of 1980, Sonic publicly offered and sold shares of Sonic stock to Utah residents through Olsen & Company, Inc. Sonic complied with Utah state registration requirements. Sonic did not file a registration statement under federal securities law, relying on the exemption from registration provided for intrastate offerings. Sonic had no prior operating history at the time of this offering, was incorporated in Utah, and purportedly organized to acquire, extract, and market natural resources such as oil, gas, and coal. Sonic maintained its corporate office, books, and records in Utah at the time of the initial offering. The offering of 25,000,000 shares of Sonic was sold for $500,000 entirely to Utah residents. In late March or early April of 1981, Sonic was contacted by William Mason, an Illinois oil and gas promoter, about a merger Sonic and Mason reached an agreement. Sonic issued Mason a controlling block of stock and acquired an Illinois drilling corporation privately owned by Mason. The new company, which was renamed Mason Oil Co., Inc. Burnett resigned his positions with Sonic at the shareholders meeting on the proposed merger, and he took no part in the operation of Mason Oil. Shortly after Mason Oil was formed, William Mason drew $ 351,126 from the remainder of the $435,000 net proceeds of the original Sonic offering and deposited it in Illinois. This money was not used in Utah. In May 1981, Mason and Carpenter set up Norbil Investments, a brokerage account in Utah, so that Mason and his friends could buy shares of the company's stock. Ps, who are California residents, bought their stock through Norbil. Ps presented evidence of purchases through Norbil of stock by other non-residents between May and August 1981. Ps brought this action under 15 U.S.C. § 77l (1982) against Ds, Craig Carpenter, George Jensen, and Ronald Burnett, to recover the purchase price of shares of stock in Sonic Petroleum, Inc. Ps alleged the stock was required to be registered as it did not qualify under 15 U.S.C. § 77c(a)(11)(1982). The court granted judgment for Ds and Ps appealed.