Taylor v. Perdition Minerals Group, Ltd.

766 P.2d 805 (1988)

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Nature of the Case

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Facts

P discussed an oil and gas exploration investment, Perdition Minerals Group, Ltd., (D) with his neighbor, Donald Schrag. P spoke with Fondren, a securities broker, who told him: (1) The stock was worth $ 1.34 a share and would be worth more soon; (2) the company had a lot of oil and gas in Montana; (3) the company was going to do an audit, and (4) the company was preparing to go public. P and Schrag expressed an interest in buying $200,000 worth of stock at $.50 a share. P eventually was placed in contact with Henry Mulvihill, who was D's chief executive officer. P was supplied with a financial statement and Mulvihill's personal resume. Mulvihill also described the production and value of the acreage held by D in Montana. P did not ask to see any drilling reports or geographical information. Mulvihill told P that several hundred thousand dollars were needed to meet current drilling and lease expenses. Mulvihill gave P a list of references, several of whom P knew, including defendant Charles Harris. P did not contact any of the references. P told Mulvihill that he would purchase 400,000 shares of D for $200,000. After a shareholder meeting of D, Mulvihill reassured P that the stock was worth more than $1.34 a share and that he was going to do an audit. P purchased the shares. But when no audit was forthcoming, P became concerned about his investment. Mulvihill assured Taylor that the audit was being done. After a quick investigation, P discovered that the SEC had been investigating the Montana properties, and D's current financial statements did not reflect P's $200,000 investment. P also discovered that the 400,000 shares of stock that were sold to P had never registered in accordance with K.S.A. 17-1256, -1257, or -1258. Ps sued Ds to rescind the purchase and recover the purchase price based upon violations of registration and misrepresentations under the Kansas Securities Act. The trial court entered summary judgment in favor of four of the director defendants in that an innocent director must be shown to have materially aided in the sale of securities to be liable. Mulvihill had not been dismissed from the suit. The trial court further found that the facts of the case did not establish that the four dismissed directors materially aided in the sale to Ps. Ps appealed.