Moses v. Carnahan
| Decision Date | 28 March 2006 |
| Docket Number | No. WD 65172.,WD 65172. |
| Citation | 186 S.W.3d 889 |
| Parties | John R. MOSES a/k/a Bob Moses, Appellant, Kent William Marsh, Plaintiff, v. Robin CARNAHAN, Secretary of State and David Cosgrove, Commissioner of Securities, Respondents. |
| Court | Missouri Court of Appeals |
Joseph R. Soraghan, St. Louis, MO, for appellant.
Trevor Bossert, Assistant Attorney General, Jefferson City, MO, for respondents.
Before HAROLD L. LOWENSTEIN, Presiding Judge, JOSEPH M. ELLIS, Judge and THOMAS H. NEWTON, Judge.
John Robert Moses (a/k/a Bob Moses) and Kent William Marsh (collectively referred to as "Appellants") appeal a "Final Order and Judgment" of the Circuit Court of Cole County upholding an August 10, 2004 "Final Order" issued by the Missouri Commissioner of Securities ("Commissioner") finding that, on February 5, 2003 Appellants illegally offered unregistered securities for sale in violation of section 409.301 of the Missouri Uniform Securities Act ("Act"), §§ 409.101-409.418.1 The circuit court also upheld a related portion of the Commissioner's Final Order placing certain temporary restrictions on any future efforts by Appellants to raise capital in Missouri. We affirm.
As found by the Commissioner, the facts of this case are undisputed. Indeed, in their opening brief, Appellants state that "[f]or the purpose of this appeal, Appellants accept the Commissioner's findings of fact . . . as correct." Those undisputed facts are as follows. Moses organized a Missouri corporation called Rock Island Tie & Timber, Inc. ("Rock Island"), which had invented and was selling a wood treatment product called Herculean. Moses served as President and Chief Executive Officer of Rock Island from November 2002 through at least March 2003.
Marsh was a field pesticide applicator and tester for Rock Island. However, he was not compensated by Rock Island for this work. Sometime in early 2003, Marsh spoke to an acquaintance named Jason Bax about the Herculean product. Bax worked in the deck restoration field, doing business under the name Deckare. As a licensed commercial pesticide applicator, Marsh was previously acquainted with Bax and had known him for at least seven years. During their conversations, Marsh asked Bax whether some of Bax's wealthier customers would be interested in investing in Rock Island. These individuals did not express any interest, so Bax asked Marsh if it was permissible to contact people whom he believed had smaller amounts of money available to invest, and Marsh approved this approach.
Bax invited Mark Williams, an employee at Riley Chevrolet in Jefferson City, Missouri, to a dinner meeting with Marsh and Bax at Domenico's, a restaurant also in Jefferson City. Bax introduced Marsh and Williams, and advised Williams that Rock Island was looking for investors. Rock Island and its product were discussed at the dinner meeting, as was the possibility of investing in the company. Marsh asked Williams if he wanted to get a group of people together who would be interested in investing, because Rock Island representatives would be happy to attend and make a presentation. Williams agreed, and scheduled a meeting at Riley Chevrolet, inviting various co-workers from the car dealership. Bax also invited James Chouinard, an individual who worked with Bax in the deck restoration business.
On the afternoon of February 5, 2003, Marsh went to Rock Island's office to discuss the upcoming meeting at Riley Chevrolet, which was scheduled to be held that evening. Joseph Kaiser, a strategic consultant to Rock Island with experience as a registered securities agent, advised Marsh that he could not and would not go to the meeting as a representative of Rock Island. Marsh then advised Moses that he needed somebody affiliated with Rock Island to attend the meeting, after which Moses told Marsh that someone would be available to attend the meeting. That "someone" turned out to be Moses himself.
The meeting, which took place in Riley Chevrolet's showroom after the business had closed for the day, was held as scheduled. The attendees believed that the purpose of the meeting was to learn about Rock Island to assist them in deciding whether to invest money. Either Bax or Williams told the individuals who had been invited that investing was the reason for the meeting, and that Marsh had approved the type of people being contacted and this communication.
In addition to Moses, Marsh, Bax, and Williams, approximately six or seven persons attended the meeting at Riley Chevrolet, nearly all of whom were unacquainted with Moses or Marsh. Marsh began the presentation by describing the Herculean product and the various field tests he had conducted demonstrating its effectiveness. Moses then took over, and after talking about Rock Island's products and corporate history, began making a presentation about investing in Rock Island. During this presentation, Moses told the attendees that Rock Island was building or expanding its facility for the manufacture of its products and was considering seeking financing in the form of convertible promissory notes, or "warrants." He said the notes would be sold, and that he wanted to take the company public for what he hoped would be a price of $20 per share. Moses made projections of what the warrants would be worth in the future, and discussed an investor's right to exercise the warrants at any time. He also distributed and caused others to distribute a draft of the proposed Convertible Promissory Note ("Note") itself, as well as copies of Rock Island's business plan, to the attendees. Marsh also willfully participated in this distribution and reasonably anticipated that it would occur when he encouraged Bax and Williams to invite interested individuals to the meeting.
The Note which was distributed to the attendees included the following provisions:
1. The term of the investment was for a period not to exceed two years.
2. The investor would receive a Class A Warrant equal to 1.2 shares of common stock of Rock Island for each $5 invested.
3. Repayment would be monthly, based on monthly paid production of Rock Island's product.
4. A portion of the paid production would be placed in an escrow account by Rock Island for distribution to investors.
5. Investors would be able to choose between the options of a) having the note repaid and receiving 1.2 shares of Rock Island common stock for each $5 invested, or b) converting the note to "paid in capital" and receiving 2.2 shares of Rock Island common stock.
Moses told the attendees that there was risk to the investment, and that he was required by law to inform them that any money invested in Rock Island could be lost. He also told them that individuals who wanted to invest would need to come to Rock Island's offices by no later than the coming Memorial Day (May 26, 2003). No securities were actually purchased as a result of the Riley Chevrolet meeting, either during the meeting or afterwards.
Bax subsequently arranged another meeting at Spectators Sports Billiards, a sports bar in Jefferson City. Bax invited people to the meeting by telephoning certain individuals, who in turn invited others. Chouinard, who had also been invited to the presentation at Riley Chevrolet, invited his partner, Paul Clark, of Columbia, Missouri. On February 12, 2003, a meeting was held in a small back office at Spectators belonging to Scott Drinkard, who was a part owner of Spectators and one of the people attending the meeting. The sports bar was open and music was playing.
Moses did not attend the Spectators meeting. Rather, Marsh was joined by the Vice President of Rock Island, Edward Martin McLaughlin. In addition to Marsh, McLaughlin, and Bax, there were eight people in attendance, nearly all of whom did not previously know either Moses or Marsh.
The meeting was not as organized as the presentation at Riley Chevrolet, and people were coming and going throughout the presentation. Marsh discussed Rock Island's Herculean product and distributed or caused to be distributed Rock Island's business plan. McLaughlin told the attendees that he was not there to discuss anything about stocks or securities. He said that if anybody wanted to learn more about investing, they needed to set up a one-on-one meeting with Rock Island. No promissory note was distributed at the Spectators meeting. As with the Riley Chevrolet meeting, no securities were actually purchased as a result of the meeting at Spectators.
The Missouri Securities Commission ("Commission") received an anonymous complaint about the meeting which was scheduled to take place at Riley Chevrolet on February 5, 2003. Thereafter, the Commission commenced an inquiry into the matter, during which it was determined that Appellants conducted the meeting on the evening of February 5, 2003, and had discussed investments involving certain unregistered securities. This led the Commission to issue a "target letter" to Moses on February 21, 2003, the filing (by counsel for the Enforcement Section of the Securities Division) of a Petition for Order to Cease and Desist on September 18, 2003, and the Commissioner's Order to Show Cause on September 19, 2003. After briefing and further discussion between Appellants and the Commission, the Commissioner issued his "Order Fixing a Condition on Sale" on December 3, 2003, which placed certain requirements on future endeavors by Appellants to raise capital in Missouri.
Appellants then requested a contested evidentiary hearing before the Commissioner, which was held on March 24 and May 28, 2004. Following the hearing, and after post-hearing briefs were filed and considered, the Commissioner issued his Findings of Fact, Conclusions of Law and Final Order ("Final Order") on August 10, 2004. In his detailed 23-page Final Order, the Commissioner...
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