Opinion ID: 2452400
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Heading Rank: 1

Heading: did the securities qualify for an exemption from regitration pursuant to the akansas securities act?

Text: Section 7 of the Arkansas Securities Act, Ark.Stat.Ann. § 67-1241 (Repl.1966) provides that it is unlawful for any person to offer or sell any security in this state unless (1) it is registered under the Act, or (2) the security or transaction is exempted pursuant to Section 14 of the Act, Ark.Stat.Ann. § 67-1248 (Supp.1975). It is admitted by all concerned that the Stuttgart 221 joint venture investment program was not registered under the Act, and it is likewise admitted that the Appellees did not file for an exemption from registration as required by Section 14(f), Ark.Stat.Ann. § 67-1248(f) (Supp.1976). The Appellees contend that the transactions involving the Stuttgart 221 units were exempt from registration requirements as being one involving a private offering. Ark.Stat.Ann. § 67-1248(b)(9) describes this exemption as follows: (9) any transaction pursuant to an offer directed by the offeror to not more than twenty-five (25) persons (other than those designated in paragraph (8) of this State during any period of twelve (12) consecutive months, whether or not the offeror or any of the offerees is then present in this State, if (A) the seller reasonably believes that all the buyers in this State are purchasing for investment, and (B) no commission or other remuneration is paid or given directly or indirectly for soliciting any prospective buyer in this State; ... Ark.Stat.Ann. § 67-1248(f) provides: (f) Before any transaction sr all be executed as an exempted transaction under Section 14(b)(9), (10) or (11) a proof of exemption must be filed with the Commissioner. The proof of exemption shall contain a statement of the grounds upon which the exemption is claimed and a declaration of which subsection of Section 14 [this section] the exemption is claimed under. For every such proof of exemption filed with the Commissioner there shall be paid to the Commissioner a filing fee of ten dollars ($10.00). As heretofore stated, no proof of exemption was filed by Rector-Phillips-Morse, and therefore, the Appellees rely upon Rule 8(f)(3) of the Securities Commissioner of the State of Arkansas, effective September 1, 1972, which provides: The filing requirements of Section 14(f) [§ 67-1248(f)] are not applicable where five persons or less form a corporation or limited partnership, or enter into a trust agreement and receive the securities which are issued pursuant to the incorporation, where the requirements of Section 14(b)(9) are otherwise complied with. If this Rule is to apply here, the Appellees must first prove that they did not receive any commission or other remuneration for soliciting prospective buyers of the joint venture units which we have determined to be securities. Admittedly, Rector-Phillips-Morse put together the package which comprised the Stuttgart 221 project. It then contacted individuals by means of the confidential information and solicited the purchase by those individuals of units in this project. In the confidential information it was stated that Rector-Phillips-Morse intended to receive a profit of approximately $48,000.00. Because of cost overruns, it appears that the actual amount received was approximately $28,000.00. This includes a fee in the sum of $20,306.00 for consulting services received from the proceeds of the joint venture units sold to the investors. In addition, provisions were made for an additional payment of $100.00 per year for consulting relationship. It was admitted that $20,000.00 of the consulting fee was paid when liquid assets in the form of payment for these units first became available. Upon the showing of a sale of a security, the burden of proof shifts to the seller to show that the security was either registered, or was not required to be registered under the terms of the Arkansas Securities Act. A necessary ingredient in this showing is that no commission was paid, either directly or indirectly, for the solicitation for the sale of the security. We find from the evidence that the Appellees have not met this burden. Indeed, the record is silent as to whether or not any employees of Rector-Phillips-Morse actually received commissions based solely upon the sale of these joint venture units, but the record is clear that Rector-Phillips-Morse itself did receive over $20,000.00 in cash for consulting fees. When all of the evidence is viewed even in a light most favorable to the Appellees, we cannot escape the conclusion that Rector-Phillips-Morse did, in fact, receive remuneration, both direct and indirect, for the solicitation and sale of the joint venture units. Therefore, the Appellees' contention that the securities were exempt from registration pursuant to Rule 8(f)(3) of the Arkansas Securities Commissioner must fail. Because of the finding that such remuneration was paid, the question of whether or not more than five persons received securities becomes moot. Moreover, in this connection we would note that Rule 8(f)(3) is designed to permit the formation of small numbers of investors into their own designed business venture, such as a family store, without the filing of other documents to perfect an exemption under the Arkansas Securities Act. Rule 8(f)(3) was not designed for use by a promoter to create a venture in which the promoter was to receive direct or indirect commissions, fees, or other remunerations in connection with the organization, development and operation of the enterprise.