This is the first of a series of posts outlining the various civil claims made available under Section 509 of the Michigan Uniform Securities Act. We start with Subsection 509(2).

Subsection 509(2) – Sale of Unregistered Non-Exempt Securities

Under subsection 509(2), “[a] person is liable to the purchaser if the person sells a security in violation of section 301 [of the Act,]” which prohibits the offer or sale of a security in the State of Michigan unless (a) the security is a “federal covered security”; (b) the security, transaction, or offer is exempted from registration under the Act; or (c) the security is registered under the Act. MCL 451.2301.MCL 451.2509(2).

At least one court applying the Michigan Uniform Securities Act has held that civil liability under the Act extends not only to “direct sellers”, but also to “solicitor sellers” who “urge[] a prospective purchaser to buy.” In re Trade Partners, Inc. Investors Litigation, 2008 WL 3875396 (WD Mich 2008). Courts applying other states’ codifications of the Uniform Securities Act have reached the same conclusion. See, e.g., Maybank v BB & T Corp, Branch Banking and Trust Co, 2012 WL 3157006 (DSC 2012)(holding that “statutory seller status” extends to persons “who urge[] the buyer to purchase.”); Massachusetts Mut. Life Ins. Co v Residential Funding Co, LLC, 843 F Supp 2d 191 (D Mass 2012)(“definition [of “seller” under Uniform Securities Act] includes those who actually transfer title of the securities as well as brokers and other agents of the direct seller.”).

A plaintiff who prevails on a claim brought under subsection 509(2) may recover either actual damages (in event disposition of the security has already occurred),[1] or the amount of the consideration paid for the security, less the amount of any income received on the security, together with costs, reasonable attorney fees, and interest at 6% per year from the date of the purchase. and. MCL 451.2509(2).

A person is barred from bringing an action under subsection 509(2) for the sale of a non-registered, non-exempt security if the action is not commenced within 1 year after the violation occurred. MCL 451.2509(10).

Subsection 509(2) – Fraudulent Sale of Securities

Subsection 509(2) provides that “[a] person is liable to the purchaser if the person sells a security . . . by means of an untrue statement of a material fact or an omission to state a material fact necessary in order to make the statement made, in light of the circumstances under which it is made, not misleading, the purchaser not knowing the untruth or omission, and the seller not sustaining the burden of proof that the seller did not know and, in the exercise of reasonable care, could not have known of the untruth or omission.” MCL 451.2509(2).

Statements that are promissory in nature are not actionable under the Michigan Uniform Securities Act. Levy v Ann Arbor Machine Co, 2012 WL 6633996, *5 (Mich App 2012); see also, Forge v Smith, 458 Mich 198, 212, 580 NW2d 876 (1998)(future promises, and not statements of existing facts, are ordinarily not actionable in fraud). However, Michigan recognizes the tort of fraud in the inducement “where a party materially misrepresents future conduct under circumstances in which the assertions may reasonably be expected to be relied upon and are relied upon.” Samuel D Begola Servs, Inc v Wild Bros, 210 Mich App 636, 639–640, 534 NW2d 217 (1995); see also, Levy, supra at *5.

A plaintiff who is successful on a fraud claim brought under Section 509(2) may recover either actual damages (in event disposition of the security has already occurred), or the amount of the consideration paid for the security, less the amount of any income received on the security, together with , costs, and reasonable attorney fees, and interest at 6% per year from the date of the purchase. MCL 451.2509(2).

A person is barred from bringing a fraud claim under Section 509(2) unless the claim is brought “within the earlier of 2 years after discovery of the facts constituting the violation or 5 years after the violation occurred.” MCL 451.2509(10).

[1] Actual damages “are the amount that would be recoverable upon a tender less the value of the security when the purchaser disposed of it and interest at 6% from the date of purchase, costs, and reasonable attorney fees determined by the court.” MCL 2509(2).