Chapter 14 - § 14.8 • WHAT CAN GO WRONG — CIVIL LITIGATION AND ENFORCEMENT ISSUES

• Jurisdiction: Colorado

§ 14.8 • WHAT CAN GO WRONG — CIVIL LITIGATION AND ENFORCEMENT ISSUES

§ 14.8.1—General

Civil litigation and enforcement issues under federal law are well discussed in the literature.¹⁶⁶ The SEC has significant power to bring enforcement actions, and Rule 10b-5 provides an often-used tool for civil recourse by defrauded investors. In some cases, civil litigation under blue sky laws — where the plaintiffs are able to obtain jurisdiction in a state court over the defendants — may be better for a plaintiff than litigation under the federal securities laws. The Colorado Securities Act¹⁶⁷ provides for recourse by investors in civil actions as well as enforcement by the Division of Securities. The central tenets of the Colorado Securities Act, as in federal law, are

• That the offer and sale of securities be registered unless exempt from registration; and
• That no security be offered or sold in violation of the anti-fraud prohibitions of the Colorado Securities Act.

§ 14.8.2—Registration Requirements Are Separate and Distinct from Anti-Fraud Provisions

It is important to emphasize that the registration requirements are separate and distinct from the anti-fraud prohibitions. Thus, securities can be sold in violation of the registration requirements even though there is no attendant material misstatement or omission; conversely, securities can be sold in compliance with the registration requirements or pursuant to an exemption, but if there are attendant misstatements or omissions, liability will result. It is not necessary that the defendant knew that he or she was offering or selling a security; even for a criminal conviction it is sufficient that the defendant was offering or selling an instrument that is proved to be a security.¹⁶⁸ Instead, the prosecution must prove that the instruments being offered and sold were securities; the defendant's knowledge is not relevant.

As noted in Lowery v. Ford Hill Investment Co.,¹⁶⁹ "[t]he claim of misrepresentation under the Colorado Securities Act does not depend upon the exempt or non-exempt status of the security [sold]. The misrepresentation may occur in the context of the registration statement for a non-exempt security, or in the promotion or negotiations for sale of an exempt or non-exempt security."¹⁷⁰ Section 11-51-604(4) of the Colorado Securities Act is the Colorado analogue of the federal securities law statute, a combination of § 12(a)(2) of the 1933 Act and Rule 10b-5 under the 1934 Act:

Any person who sells

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