West Case Update

Nevada Securities Law Does Not Require Scienter and Reliance for Proof of Securities Fraud

Description Nevada high court held that Nevada Securities law does not require the state securities authorities to show scienter and reliance on false or misleading information for there to be securities fraud under state law. This standard is different than the standard under the federal securities law.

Topic Securities Law

Key Words State Securities Law; Fraud; Scienter; Reliance

C A S E S U M M A R Y

Facts RFCA is a Nevada company that helps with financial plans for retirement. It made a public offering of $1 million, registered with the Nevada Small Corporate Offering Registration program. Two years later, the Securities Division of the Nevada Secretary of State filed a complaint against RFCA. After a hearing, the Securities Division determined that the prospectus filed at the time of the offering was "false, incomplete, and misleading in material respects." It also found that funds raised were not used for the purposes proposed in the prospectus and were spent improperly. The Division ordered RFCA to stop such violations, revoked the company's broker-dealer license, and barred the head of the company from working as an investment adviser. The finding was appealed.

Decision
Affirmed. The record established at the hearing supported the finding that the head of the company and the company committed numerous securities violations. The company and its head clearly violated Nevada's securities law in numerous respects. Contrary to the position taken by RFCA, "reliance and scienter are not required elements of securities fraud in state enforcement actions." Nevada securities law "should not be interpreted consistently with Rule 10b-5 because the federal statute deals with private party civil actions, not state enforcement actions. The underlying policy of the Nevada Uniform Securities Act is to prevent unnecessary loss to investors. ... The Division must be able to enjoin suspected securities fraud before an investor relies on the fraud to his or her detriment."

Citation Secretary of State v. Tretiak, 22 P.3d 1134 (Sup. Ct., Nev., 2001)

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Nevada Securities Law Does Not Require Scienter and Reliance for Proof of Securities Fraud
Description	Nevada high court held that Nevada Securities law does not require the state securities authorities to show scienter and reliance on false or misleading information for there to be securities fraud under state law. This standard is different than the standard under the federal securities law.
Topic	Securities Law
Key Words	State Securities Law; Fraud; Scienter; Reliance
C A S E S U M M A R Y
Facts	RFCA is a Nevada company that helps with financial plans for retirement. It made a public offering of $1 million, registered with the Nevada Small Corporate Offering Registration program. Two years later, the Securities Division of the Nevada Secretary of State filed a complaint against RFCA. After a hearing, the Securities Division determined that the prospectus filed at the time of the offering was "false, incomplete, and misleading in material respects." It also found that funds raised were not used for the purposes proposed in the prospectus and were spent improperly. The Division ordered RFCA to stop such violations, revoked the company's broker-dealer license, and barred the head of the company from working as an investment adviser. The finding was appealed.
Decision	Affirmed. The record established at the hearing supported the finding that the head of the company and the company committed numerous securities violations. The company and its head clearly violated Nevada's securities law in numerous respects. Contrary to the position taken by RFCA, "reliance and scienter are not required elements of securities fraud in state enforcement actions." Nevada securities law "should not be interpreted consistently with Rule 10b-5 because the federal statute deals with private party civil actions, not state enforcement actions. The underlying policy of the Nevada Uniform Securities Act is to prevent unnecessary loss to investors. ... The Division must be able to enjoin suspected securities fraud before an investor relies on the fraud to his or her detriment."
Citation	Secretary of State v. Tretiak, 22 P.3d 1134 (Sup. Ct., Nev., 2001)