Susan Tompor, Detroit Free Press
Some significant changes to the Michigan securities law include:
- The definition of a “security” is more expansive, listing several new items.
For example, the definition of a “security” under Michigan’s securities law would now include viaticals or life settlements, as well as a financial derivative that represents a contract sold by one party to another party. The contract offers the buyer the right, but not the obligation, to buy (a call) or sell (a put) a security or other financial asset at an agreed-upon price during a certain period of time or on a specific date.
- Michigan sellers specifically would be allowed to take action in minority shareholder buyouts.
Under the new act, a purchaser — say a company — can be liable to a seller of a security for antifraud violations. Under the old law, only sellers could have civil liabilities, according to a report by the Michigan Bar Journal.
“This change may allow a state law securities fraud action in minority shareholder buyouts,” according to a detailed analysis in the Michigan Bar Journal.
How would that work?
Shane Hansen, a partner at Warner Norcross & Judd in Grand Rapids, notes that a majority owner in a company might try to mislead smaller or minority shareholders by omitting or withholding information before a buyback of securities or stock.
Let’s say a company offers to buy back a stock from you, but is not exactly being upfront.
Maybe the executives make the buyback offer but do not disclose that the company down the road will make a lot of money selling some real estate or landing a major contract or getting approval on a patent.
The new Michigan statute provides such relief for sellers who have been misled in such cases, according to Laurence Schultz, an attorney at Driggers, Schultz & Herbst in Troy.
- Michigan will require the registration of “investment adviser representatives” just like almost all other states.
Cena noted that individual investment advisers — which includes more than 8,000 people in Michigan — who are covered by the new Michigan law would have until July 1, 2010, to complete the Series 65 exam. This securities exam is required by most states for individuals who act as investment advisers.
Under the old law, there was no such exam. Some advisers may not have to take a new exam under some circumstances, such as if they already have taken an exam in other states within the last two years.
So if investment advisers give fraudulent advice, they would be liable under the new Michigan securities law.
Peter Rageas, a Detroit attorney who files claims against stockbrokers for investors, said investors would be able to get more information and see whether an individual adviser is registered. Only the firm must be registered in Michigan now, not the individual adviser rep who is pitching a product.
Another reason it’s important that investment advisers are now covered under the Michigan securities act is that now investors would be able to get attorney fees included in a judgment, Schultz said. Those fees wouldn’t be covered under other claims.
- Michigan investors also will have some more time to take action against a bad adviser.
Investors would be able to file suit within the earlier of two years after discovering fraud involving misstatements or omissions in connection with investment advice or five years after the violation occurred.
The old rule had a limit of up to four years after the violation occurred.
Contact SUSAN TOMPOR: 313-222-8876 or [email protected]