Criminal Profiteering

Criminal Profiteering: Washington State’s “Baby” RICO Act The Criminal Profiteering Act of 1985 is Washington State’s version of the federal RICO law.1State v. Thomas, 103 Wash. App. 800, 14 P.3d 854 (2000); Bowcutt v. Delta North Star Corp., 95 Wash. App. 311, 976 P.2d 643 (1999) (trial court erred in failing to provide full scope of equitable remedies authorized by Washington statute). It provides civil penalties and remedies for a variety of criminal activities. “Criminal profiteering” is defined to include the commission, or attempted commission, for financial gain, of any one of a number of crimes listed in the statute.2These include many violent felonies, as well as felonies relating to gambling, drugs, pornography, prostitution, extortion, and securities fraud. The act provides that a “pattern of criminal profiteering activity” means engaging in at least three acts of criminal profiteering within a five-year period. To constitute a “pattern,” the three acts must have the same or similar intent, results, accomplices, principals, victims or methods of commission, or be otherwise interrelated by distinguishing characteristics including a nexus to the same enterprise, and must not be isolated events. A “pattern” of profiteering is usually required before any of the special civil remedies apply.3Winchester v. Stein, 135 Wash. 2d 835, 852, 959 P.2d 1077, 1083 (1998). See 16A WAPRAC § 26.51. There are many similarities between the Washington statute and the federal statute, and as a result, Washington courts look to the case law interpreting the federal statute as a guide to interpretation of the Washington statute.4Id. However, the Washington statute has been characterized as being somewhat narrower. For example, whereas the federal statute...

Washington State Securities Law Exemptions

Exemptions Used by Small Business Issuers Businesses that raise money are called “issuers” because they issue securities to their investors. Regardless of the entity form (e.g. partnership or corporation), all capital raising is by “issuers.” Like federal law, Washington State requires that the securities being “issued” be either “registered” or “exempt.” Since registration is expensive and time-consuming, issuers first look to see if there is an applicable statutory exemption from registration. What follows is a general description of exemptions which are potentially available to issuers in Washington State. Experienced legal advice is necessary to determine if one of these exemptions fits your facts and circumstances. Isolated Transactions – Issuer Exemption for up to 3 sales of an outstanding security during the prior 24 months by or on behalf of the issuer. There is no filing requirement. The issuer is not required to register as a broker-dealer. Commissions may be paid to licensed salespersons or broker-dealers.  Registration as a salesperson or broker-dealer is not required if no commission is paid. Washington informally allows finders fees if the investor is accredited.  RCW 21.20.320(1);  WAC 460-44A-050(1)(d); Interpretive Statement 9 Non-public Offering Exemption – Permits sales not involving a public offering consistent with Section 4(2) of the federal Securities Act of 1933. There is no filing requirement. The offering must qualify for exemption from federal registration pursuant to Section 4(2) of the federal Securities Act of 1933 and Securities and Exchange Commission Securities Act Release No. 4552 The issuer is not required to register as a broker-dealer. Commissions may be paid to salespersons or broker-dealers.  Registration as a salesperson or broker-dealer is not required...

Accredited Investor Defined

Accredited Investor Defined by Regulation D The federal securities laws define the term accredited investor in Rule 501 of Regulation D as: Any bank as defined in section 3(a)(2) of the Act, or any savings and loan association or other institution as defined in section 3(a)(5)(A) of the Act whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to section 15 of the Securities Exchange Act of 1934; any insurance company as defined in section 2(a)(13) of the Act; any investment company registered under the Investment Company Act of 1940 or a business development company as defined in section 2(a)(48) of that Act; any Small Business Investment Company licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000; any employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary, as defined in section 3(21) of such act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors; ; Any private business development company as defined in section 202(a)(22) of the Investment Advisers Act of 1940; Any organization...

Liability of Stock Brokers

Liability of Stock Brokers and their Supervisors Stock brokers are usually held liable for investor losses under five legal theories: Misrepresentation in connection with the purchase or sale of a security; Selling an unregistered security; Churning the investor’s account; Advising the investor to buy stocks that are not suitable for the investor; and Breaching the fiduciary duty owed to the investor. Since stock brokers often do not have the resources to reimburse the investor, it is usually important to find the broker’s employer or supervisor also liable to the investor.  This is called “secondary liability” and is predicated primarily on the failure of the broker-dealer to supervise the stock broker. Misrepresentation Liability for misrepresentation is premised under rule Securities Exchange Act of 1934 10-b (5) and the federal court cases implying a private remedy.  This theory of liability is usually not applicable to brokers unless they sell a security without the approval of the broker-dealer with which they are licensed (selling away).  This usually happens with an investment which its promoters claim is “not a security.”  Under federal law, most passive investments whether described as a loan, equity investment, business investment, business opportunity, or some contract which costs money and offers a profit, are “securities.” Oregon and Washington have state securities laws that often make misrepresentation easier to prove than the federal statute. Unregistered Security Generally, all securities must be registered by filing full disclosure documents with the Securities and Exchange Commission (SEC).  There are narrow exceptions allowing sales where there is little reason to require the issuer to undergo the expense of registration.  These generally deal with small...

Liability of Clearing Broker-Dealer

Comment on the Uniform Securities Act Changing the Liability of Clearing Broker-Dealer   Letter from Bob Banks December 2, 2002 Richard B. Smith Chair, Drafting Committee To Revise Uniform Securities Act 450 Lexington Avenue New York, New York 10017 Professor Joel Seligman Official Reporter, Committee to Revise Uniform Securities Act Washington University School of Law Campus Box 1120 One Brookings Drive St. Louis, Missouri 63130 Professor William Henning Executive Director National Conference of Commissioners of Uniform State Laws University of Missouri, Columbia School of Law 313 Hulston Hall Columbia, Missouri 65211 W. Reece Bader ABA Section Advisor 1020 Marsh Road Menlo Park, California 94025 Re: Official Comment 11 To Section 509(g)(4) of the Uniform Securities Act of 2002 Gentlemen: On October 15, 2002, the National Conference of Commissioners on Uniform State Laws published the final version the 2002 Uniform Securities Act (“USA”). In so doing, it adopted an Official Comment at the request of the Securities Industry Association that is extremely misleading and has no place in the USA. Regrettably, I only learned of the Official Comment recently, and was not able to comment while you were considering its inclusion in the USA. However, I do want to bring it to your attention because I strongly believe that, had you understood the background and the law, you would not have included it. Because I feel strongly that the Official Comment should not be in the USA, I do intend to do what I can to ensure that the states considering adoption of the USA specifically exclude the Official Comment at issue. Official Comment 11 to Section 509(g)(4) I refer specifically...