Glenn v. Legacy Energy, AAA ID No. 01-20-0014-5763 (Jan. 7, 2022)
An AAA Arbitrator rescinds an unregistered investment.
Most securities are required to be purchased through the services of FINRA member firms and their brokers or investment advisory firms and their agents. Thus, when a company sells securities to the investing public without going through them, it can result in rescission of the trade, as this AAA Award proves. The Award, Glenn v. Legacy Energy, AAA ID No. 01-20-0014-5763 (Jan. 7, 2022), was issued in an arbitration brought by disabled widow Darian Primrose Glenn against: 1) Legacy Energy, LLC (“Legacy”), from which she had purchased two promissory notes for a total of $346,000, purportedly used to finance oil and gas exploration; 2) Advantage Capital Holdings-1, LLC (“Advantage”), from which she purchased one promissory note for $100,000, purportedly used to finance commercial real estate operations; 3) two related companies that “played integral roles in the offer and sale of the promissory notes, Resolute Capital Partners, LLC (“Resolute”) and Petro Rock Mineral Holdings, LLC (“Petro”); and 4) Gregory Minear (“Minear”), who “referred” Glenn to the companies.
The Arbitrator’s Findings of Fact
Since the four respondent companies (collectively known as “the Entity Defendants” in the Award) did not present any witnesses, the sole Arbitrator relied on the testimony of Glenn, her son, and Minear, various exhibits introduced by the parties, and the pleadings and briefs of the parties. He found that: Minear: “was, in every meaningful, functional sense, a commissioned salesmen for the Entity Defendants, although he was unlicensed to sell securities” and “received no or virtually no training or supervision” in that role. Using a PowerPoint presentation provided by the Entity Defendants, Minear convinced Glenn to invest the bulk of her liquid assets in the promissory notes in 2018. Minear filled out the application for Glenn, falsely representing that she was an accredited investor. She subsequently received a large packet of papers on the investments, which she never opened but handed over to a certified financial planner she consulted toward the end of the year. After that, Glenn demanded a refund of her investments, which the Entity Defendants refused.
The Arbitrator’s Rulings on Liability
The Arbitrator finds that all of the promissory notes sold by Glenn: “were unlawful, unregistered securities under the Texas Securities Act, entitling Claimant to rescission, attorneys’ fees and prejudgment interest…. [I]n addition to Legacy’s liability for the first two notes and Advantage’s liability under the third note, Resolute and Petro are jointly and several liable for all three notes as control persons, sellers, aider and abettors, co-conspirators and/or persons providing material assistance to the sales of securities.” Finally, Minear: “undertook a duty to Claimant that he failed to faithfully fulfill. His false completion of her documents, specifically the investor questionnaires, placed Claimant into investments that were completely inappropriate for her circumstances. As a result of his breach of duty to Claimant, Minear was unjustly enriched in the amount of the commissions paid to him in connection with the sale of the three notes at issue herein.” The Arbitrator also rejects the Entity Defendants’ claim that Glenn’s exclusive remedy under the note agreements is against Minear, because that limitation only applies to class actions and doesn’t affect the statutory remedy under the Texas Securities Act; and because the agreements don’t bind Glenn because she wasn’t provided with them until after she made the investments. The Arbitrator declined to find the respondents liable for negligent and fraudulent misrepresentation or Minear liable for violation of the Texas Securities Act.
What Are the Damages?
In calculating the rescission damages for which the Entity Defendants are liable, the Arbitrator subtracts the income Glenn received from her investments, plus prejudgment interest. As a result, the Arbitrator apportions the rescission damages to each Entity Defendant as follows: Legacy, $314,702; Advantage, $90,262; and Resolute and Petro, all $404,964. They are each liable for attorney fees equal to 30% of their share of rescission damages, and all four are liable for $10,995 in costs. Minear is separately liable for $32,915 in disgorgement damages. Glenn is entitled to recover $570,363 in all, plus $15,430 for reimbursement of forum costs incurred by Glenn.
(*A SAA h/t to David Liebrader, Esq., The Law Offices of David Liebrader, Las Vegas, NV, who was Glenn’s attorney, for alerting us to this Award. ** This Squib was prepared by Harry A. Jacobowitz, President of HAJ Research and Writing LLC. Mr. Jacobowitz, a member of the Pennsylvania bar, and his firm perform legal research and writing for attorneys and handle substantive searches of SAC’s Award database. He can be contacted at harryjacobowitz@optimum.net.)
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