Neb. Supreme Court considers who should be liable for company’s unregistered securities

By Josh Funk, AP
Thursday, March 4, 2010

Neb. high court weighs investment fraud liability

OMAHA, Neb. — The Nebraska Supreme Court heard arguments Thursday about how much the owners of Freedom Financial Group knew about the improper way investments in the company were being sold.

Westley, Carolyn and Patrick Pierce are appealing an earlier ruling ordering them to repay investors nearly $119,000 in restitution and attorney fees.

In 2002, two representatives of Freedom Financial persuaded Donald and Marilyn Hooper to invest in Capital Equity Fund, a separate company, with promises of little risk and annual returns of 11 percent. The Capital Equity Fund stock, though, was not registered with regulators.

The Pierces’ attorney, Jerry Katskee, said his clients weren’t directly involved in the securities sales and didn’t know what was said during the sales pitch. Katskee said the Pierces were misled by Capital Equity, and shouldn’t be held liable for the Hoopers’ losses.

“They got duped. That was their role,” Katskee said.

But the Hoopers’ attorney, Clifford Lee, said that shouldn’t matter. Lee said even if the Pierces didn’t know what the salesmen were saying about the securities, they knew they were unregistered. Lee argues that alone should make them liable because the Pierces were officers and directors of Freedom Financial.

“It’s a slam dunk they knew the stock was unregistered,” Lee said.

The Hoopers should not have even qualified to invest in the privately placed securities because they weren’t experienced investors and didn’t have more than $1 million in assets. The school administrator and housewife had about $400,000 in assets at the time.

Lee said the whole reason the Hoopers invested in the venture was because they wanted a safe, conservative option for their retirement money.

The Hoopers may have recovered as much as $72,000 of what they lost through the Capital Equity Fund’s bankruptcy and through an arbitration complaint against the two representatives who sold them the investment. It wasn’t immediately clear how much of that the Hoopers had actually received as a result of the court and arbitration orders.

Katskee said if the Pierces are held responsible for the losses, the previous payments the Hoopers may have received should be factored into the damages.

Lee argues that a formula in state law dictates how much the Hoopers should receive in damages, based on their original investment.

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