People v. Black

Black called Knarr to suggest a real estate investment. Knarr gave Black $124,456, documented by a May 2006 promissory note. Knarr testified that he would not have invested without a promised 10 percent return if sale or development of the property failed. The parties modified the note in May 2007 to reflect Knarr’s additional investment of $155,474 and extended the maturity date of the note several times, through mid-January 2012. Knarr obtained information inconsistent with what Black had told him and asked Black for his money. Receiving no response, Knarr initiated an investigation. In 2013, Black was charged with five counts (there were other investors) of using false statements in the offer or sale of a security (Corp. Code, 25401, 25540(b)). The trial court set aside two counts, finding that the note was not a security. The court of appeals affirmed, holding that the promissory notes offered for Knarr’s investment in the real estate development scheme were not securities within the meaning of the Corporate Securities Law. The evidence of other investors was insufficient to meet the public offering prong of the risk-capital test and there was insufficient evidence that Knarr was “led to expect profits solely from the efforts of the promoter.” View "People v. Black" on Justia Law