Bennett v. Durham

Plaintiffs invested in oil-and-gas exploration companies and lost money when the companies’ wells produced little oil or gas. They sued the companies and their officers, claiming violations of state and federal law in selling unregistered securities and in making other material misrepresentations and omissions. They also sued Durham, the lawyer who represented the companies. Durham drafted the documents, including joint-venture agreements and private placement memoranda that provided details about the investment opportunity, and told prospective investors he was available to answer questions. Plaintiffs allege that Durham knew the documents contained material misrepresentations and omissions and that the securities were neither registered nor exempt from registration. District courts ruled in favor of Durham. The Sixth Circuit affirmed. The Kentucky Securities Act imposes liability on anyone who “offers or sells a security” in violation of its terms and any “agent” of the seller who “materially aids” the sale of securities, defined as someone who “effect[s] or attempt[s] to effect” the sale. Ky. Rev. Stat. 292.480(1),(4); 292.310(1). An attorney who performs ordinary legal work, such as drafting documents, giving advice and answering client questions, is not an “agent” under the Act. View "Bennett v. Durham" on Justia Law