Jarozewski v. Gamble
Allegations that defendants made a material misrepresentation to induce an investment, and that the defendants offered or sold a "security," can be sufficient to allege a violation of the Connecticut Uniform Securities Act. The defendants sought a passive investor and solicited the plaintiff. The plaintiff allegedly invested $130,000 to provide liquidity for technology and computer equipment and obtained a 15 percent interest in the company. The defendants proceeded to permit the plaintiff to participate actively in company business. The plaintiff sued the defendants and alleged negligent misrepresentation, intentional misrepresentation and a violation of CUSA, the Connecticut Uniform Securities Act. The defendants objected that they were not offering or selling a "security," as that term is used in Connecticut General Statutes §36b-3(19). The court agreed with the defendants that not all sales of interests in limited liability companies qualify as sales of "securities." The subject transaction included the offer and the sale of a security. The plaintiff investor provided value to the defendants. The plaintiff's initial investment was subject to the risks of the business and was induced by the defendants' representations that a valuable benefit would result. The transaction constituted the sale of a "security," because the defendants' representations led the plaintiff to believe the defendants knew about the markets in which the business would receive a return on investment. The plaintiff proved that the defendants made a material misrepresentation to induce the plaintiff's investment, in violation of CUSA, and that the plaintiff sustained damages. The court granted judgment to the plaintiff and affirmed its decision after the defendants moved to re-argue.