Frishman v. Maginn
| Citation | 912 N.E.2d 468,75 Mass. App. Ct. 103 |
| Decision Date | 28 August 2009 |
| Docket Number | No. 08-P-307.,08-P-307. |
| Parties | Alan FRISHMAN & others<SMALL><SUP>1</SUP></SMALL> v. Robert A. MAGINN, Jr. |
| Court | Appeals Court of Massachusetts |
Thomas V. Urmy, Jr. (Michelle H. Blauner, Boston, with him) for the plaintiffs.
Alan D. Rose, Boston (Nicholas J. Rosenberg with him) for the defendant.
Present: GRASSO, KATZMANN, & SIKORA, JJ.
In this case, we consider the applicability of regulation D, 17 C.F.R. §§ 230.501-230.506 (2007), issued pursuant to the Securities Act of 1933, 15 U.S.C. § 77A et seq., which prohibits the sale of unregistered securities in nonpublic offerings to "unaccredited investors." The plaintiffs, Alan Frishman (Frishman), Richard Simon, Joan Frishman (Joan), and Sheila Nassberg filed a two-count complaint against the defendant, Robert A. Maginn, Jr. Count one alleged that the defendant breached a contract in which he purportedly agreed to assign to the plaintiffs certain shares of stock of iBasis, Inc. (iBasis), an Internet-based privately held company. Count two alleged that in breaching the contract, the defendant also committed unfair and deceptive practices in violation of G.L. c. 93A. The defendant filed counterclaims with respect to each count. Ultimately, a Superior Court judge ordered summary judgment dismissing all of the plaintiffs' claims and the defendant's counterclaims. The plaintiffs filed an appeal from the judgment dismissing the breach of contract claim only. The defendant noticed an appeal from the dismissal of his counterclaims. We affirm.
1. Background.2 a. The Jenzabar investment. The defendant and Frishman first came into contact in May or June of 1999. At that time, the defendant, who was a partner at Bain & Company (Bain), was raising capital for a privately held company called Jenzabar, Inc. (Jenzabar).3 Charles Farkas, also a partner at Bain and a common acquaintance of the defendant and Frishman, asked Frishman if he would be interested in making an investment in Jenzabar. Frishman responded that he would be interested in making such an investment. Shortly thereafter, the defendant contacted Frishman to discuss Frishman's possible investment. Frishman confirmed to the defendant that he would like to proceed with the investment.
On May 27, 1999, a limited liability company known as New Media Investors II, LLC (NM II), was formed as a vehicle for investing in unregistered securities of Jenzabar. Participation in NM II was limited to "accredited investors."4 The defendant became the managing partner of NM II.
In or about June of 1999, Frishman informed a number of his friends and family members about the investing opportunity with Jenzabar. Thereafter, he assembled a group of investors that invested a total of $200,000 in Jenzabar via NM II. The group included Frishman himself, Simon, Jack Frishman (Jack), Edward Nassberg (Edward), Kenneth Gross, Yun Peng Wei, Gang Xiao, and Lily E. Deng.
On various dates in June of 1999, Frishman, Simon, Jack, Edward, and Gross made their investments.5 The defendant advised Frishman that neither Deng, nor Wei or Xiao, could invest directly in Jenzabar because none of them was an accredited investor.6 The defendant further informed Frishman that if those individuals wanted to invest in Jenzabar, they would have to do so through Frishman. Accordingly, on June 14, 1999, Frishman sent one of his own checks in the amount of $13,000 to Jenzabar as an investment through NM II on behalf of Deng, Wei, and Xiao.7
b. The iBasis investment. In 1996 or 1997, the defendant and other partners at Bain decided to invest in iBasis, Inc. The investment was done through an entity known as Sunapee Securities, Inc. (Sunapee). Sunapee purchased unregistered shares of series A convertible preferred iBasis stock (iBasis A shares) for $1 per share in December, 1997, and June, 1998. This stock would automatically convert into iBasis common stock upon the closing of an iBasis initial public offering (IPO). The amount of $75,000 was withheld from the defendant's compensation at Bain for purposes of his investment in iBasis through Sunapee.8
In the first or second quarter of 1999, iBasis decided to offer unregistered series C convertible preferred shares (iBasis C shares). In June, 1999, New Media Investors III, LLC (NM III), was created to allow Bain partners with preemptive rights to acquire interests in the iBasis C shares. Like the iBasis A shares, the iBasis C shares automatically converted into iBasis common stock upon the closing of an iBasis public offering and all purchasers had to be accredited investors.
iBasis issued its C shares to NM III on July 12, 1999, at a price of $4.37 per share. The defendant contributed $340,062 to the capital of NM III for the purchase of iBasis C shares thereby acquiring an interest in 77,817 iBasis C shares through NM III.9 In issuing these unregistered shares, iBasis relied upon the exemption from the registration requirements of the Securities Act of 1933 set forth in regulation D (17 C.F.R. §§ 230.501-230.506). As part of their purchase of iBasis C shares, all purchasers were required to represent and warrant that they were "accredited investors."
c. Plaintiffs' participation in the iBasis investment. On August 10, 1999, the defendant suggested to Frishman that he might be able to offer him some unregistered shares in iBasis. In the subsequent telephone conversation, the defendant told Frishman that he hoped to provide Frishman with $40,000 worth of unregistered pre-IPO shares of iBasis in gratitude for the $200,000 that Frishman raised for Jenzabar. The defendant also told Frishman that iBasis was planning an IPO in late 1999 and that the iBasis shares which he would be assigning to Frishman would be "locked up" for a period of six months following the IPO. Later on August 11, 1999, Frishman sent an electronic mail message (e-mail) to the defendant, setting forth his understanding of the proposed assignment from the defendant's NM III position, which read, in relevant part:
Further, Frishman asked the defendant to let him know when the check got deposited, so that Frishman could ask his co-investors for reimbursement
On August 12, 1999, Frishman sent an e-mail to Simon, Edward, Gross, Xiao, and Deng informing them of the proposed assignment from the defendant's NM III position. Frishman indicated in the e-mail that the proposed assignment was not certain yet. He also advised that, "[a]s an insider, however, we will have to hold the stock before we can sell it for 6 months from the IPO date."
The defendant replied to Frishman's August 11, 1999, e-mail on August 12, 1999, stating, in part:
On August 12, 1999, Frishman mailed a check to the defendant for $40,000; the check was deposited on August 30, 1999. In October of 1999, Frishman received reimbursements from Simon ($10,000), Nassberg ($5,000), Jack ($5,000), Xiao ($600) Wei ($1,000), and Deng ($1,000). Frishman's co-investors Xiao, Wei, and Deng remained unaccredited investors. Gross never sent Frishman any money for the proposed assignment; thus, his share was picked up by Frishman.
At the time he sent his $40,000 check to the defendant, Frishman expected to receive a document confirming the defendant's assignment of the iBasis shares to him and his co-investors. As of October 7, 1999, Frishman advised Edward that the iBasis opportunity "is not yet fully resolved." What Frishman meant was that he had not yet received the necessary paperwork from the defendant. At the time, Frishman was concerned; he testified that "[i]f it turned out to be a huge successful deal and [the defendant] decided it's too good a deal and changed his mind, [that he, Frishman] could have a problem."
iBasis had its IPO on November 10, 1999. On November 11, 1999, Frishman sent the defendant an e-mail in which he stated, "When you get a chance, can you please get us the [iBasis] paperwork." On November 13, 1999, the defendant responded to Frishman, stating, in part:
d. Frishman's involvement with Jenzabar. In November, 1999, Frishman had a series of meetings with the defendant and Chai, which resulted in their offering him a position at Jenzabar as its senior vice president for operations. On January 31,...
To continue reading
Request your trial
- Baudanza v. Comcast of Massachusetts I
- Soc'y Of The Holy Transfiguration Monastery v. Archbishop Gregory Of Denver
-
Barfield v. Sho-Me Power Elec. Coop.
...they proceed with great caution when determining whether the contract must be voided due to public policy issues.” Frishman v. Maginn, 75 Mass.App.Ct. 103, 912 N.E.2d 468, 478 (2009). The Supreme Court of Indiana lists five factors to be considered in determining whether a contract not proh......
-
Barfield v. Cooperative
...they proceed with great caution when determining whether the contract must be voided due to public policy issues.” Frishman v. Maginn, 75 Mass.App.Ct. 103, 912 N.E.2d 468, 478 (2009). The Supreme Court of Indiana lists five factors to be considered in determining whether a contract not proh......