Mark v. Fsc Securities Corp.

870 F.2d 331 (6th Cir. 1989)

Purchase the Printed Copy at bsmsphd.com

Nature of the Case

To access this section all you need to do is click here and register.

Facts

In 1984, IBC Arabian Investments, Inc., A. T. McColgan, Jr., and Laurence C. Leafer, (IBC) as 'General Partner,' issued for sale limited-partnership interests in Malaga Arabian Limited Partnership. The offering was issued to solicit investors in the then-lucrative Spanish Arabian horse industry. D and its wholly-owned subsidiary, FSC Securities Corp. are the broker-dealers that sold the partnership interest to P. Significantly, P was employed by FSC as a registered representative and made the sale to herself and her husband. The total sale price, including interest, was $66,552.00. Out of the total sale price, D was to receive a 2% due-diligence fee, and the sales representative, P, was to receive a commission of approximately 8%. The Marks allege that cash payments made and the balance due on the promissory notes now total $67,837.00; however, at the time of trial, the Marks had not paid the $16,000.00 installment due June 1, 1986, nor the $18,882.00 installment due June 1, 1987. P filed a class action complaint seeking to rescind their purchase of the Malaga limited-partnership interest pursuant to §12(1) of the Securities Act of 1933, 15 U.S.C. § 77l(1), on the grounds that the transaction violated the registration requirements of 15 U.S.C. § 77e. At trial, Leafer testified as to what was done to ensure that investors were reasonably sophisticated. He described how subscription documents required the investors to sign and acknowledge that they were sophisticated. D entered P’s signed subscription documents as evidence. The documents required the investors to indicate that their income met a certain threshold, and contained a questionnaire that required investors to divulge their educational and investment background. The jury returned a verdict in favor of D on all claims. It determined that D was exempted from the securities-registration requirements by the safe-harbor provision of Securities and Exchange Commission (SEC) Rule 506, 17 C.F.R. § 230.506. Ps' motions for judgment notwithstanding the verdict and for a new trial were subsequently denied. P appealed. On appeal, P claims that the evidence was insufficient to support a verdict that the Malaga offering was exempt from registration.