Billingsley v. Ariz. Corp. Commission
Posted on Categories Court Decisions, Securities/Commodities Regulation

By Ben Suter

In a community property state, the “innocent” spouse is subject to sanctions, too.

Billingsley vs. Ariz. Corp. Commission, No. 1 CA-CV 18-0630, Ariz. App. Unpub. LEXIS 1256 (Ariz. App., 11/19/19).

The Court affirms the decision of the Arizona Corporation Commission (“ACC”), finding the Plaintiff-Appellant violated the Arizona Securities Act and ordering him to pay restitution and administrative penalties.

Plaintiff-Appellant Justin C. Billingsley (“Billingsley”) was the co-founder of a now-defunct start-up named LoanGo Corporation (“LoanGo”), conceived as an online payday lending company. In September 2011, Billingsley and his co-founders approved a resolution that authorized raising $3,000,000 in capital for the company. Billingsley, an insurance provider who was not registered with the ACC as a securities salesman or dealer, went on to sell LoanGo promissory notes to five individuals between September 2011 and April 2012. Each note had a one-year term and was to earn 18% interest, with monthly interest payments to begin 60 days after execution. LoanGo never made any payments on the notes, either interest or principal.

In mid-2015, the ACC filed a notice with proposed order alleging that LoanGo, Billingsley and his co-founders had violated Arizona securities law in connection with the sale of the notes. The notice alleged registration violations (sale of unregistered securities by unregistered dealers or salesmen), as well as fraud in connection with the sale. The administrative proceedings led to a three-day hearing before an administrative law judge (“ALJ”). The ACC adopted an opinion and order, based on the ALJ’s recommendation, finding Billingsley to have violated the Arizona Securities Act in connection with the sale of the LoanGo notes. Billingsley then sought judicial review in the superior court, and that court affirmed. This appeal followed.

The Court first addresses Billingsley’s contention that, contrary to the ACC’s decision, the LoanGo notes were exempt from registration. The Court disagrees, finding that substantial evidence supported the ACC’s findings that (1) none of the investors was accredited, and (2) Billingsley did not provide any documents (including the required audited balance sheet) to the investors before purchase. Accordingly, Billingsley failed to establish an exemption under the SEC’s Regulation D or Arizona’s analogous provisions.

The Court then turns to Billingsley’s contention that the securities fraud findings lacked sufficient factual and legal support. The Court agrees with the ACC’s conclusion that Billingsley affirmatively misrepresented the degree of risk involved in the LoanGo notes and by omitting material facts, including how the funds would be used. With regard to Billingsley’s contention that the ACC lacked authority to assess liability against his marital community, the Court finds that the ACC did not err because Billingsley was an Arizona resident from at least June 2011 to February 2012. Finally, addressing Billingsley’s claim that the ACC’s decision failed to adequately address his exceptions to the ALJ’s recommended opinion, the Court rules that the ACC provided sufficiently comprehensive and explicit findings and reasoning to support its decision and permit review. Accordingly, the Court affirms the ACC’s decision on all counts.

(B. Suter)

(SOLA Ref. No. 2019-48-06)

NOTICE: The court decision synopsis published above represents an abbreviated description of the actual decision and is re-printed here for its educational value. The author's effort is to report concisely the substance of the decision or a selected portion of the decision; commentary or analysis is generally reserved for the italicized section at the bottom of the summary. Subscribers to SAC's Online Litigation Alert (SOLA), from which this synopsis is excerpted, have immediate access to the full decision, in addition to the synopsis. 

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