September 24, 2021

Rule 144 Opinions: SEC Alleges Lawyer Violated Section 5 of the Securities Act

Cooley’s Cydney Posner recently blogged about an SEC enforcement action targeting a lawyer who allegedly facilitated violations of Section 5 of the Securities Act by rendering legal opinions to transfer agents. Here’s the intro:

Attorneys who may think they can give short shrift to those pesky legal opinions to transfer agents might think twice after reading this complaint, SEC v. Frederick Bauman, filed on September 8, 2021, in the federal district court in Nevada. As described in the SEC’s litigation release, the SEC charged Bauman “with playing a critical role as an attorney who facilitated the unregistered sale of millions of shares of securities by two groups engaged in securities fraud.” According to the SEC’s complaint, between 2016 and August 2019, Bauman issued at least a dozen legal opinions to transfer agents advising that certain shares of four public companies were unrestricted and freely tradeable and that the holders of the shares were not affiliates of the public company issuers. However, the SEC alleged, the shareholders were actually part of groups that controlled those issuers, which made them affiliates under the securities laws.

The SEC alleged that the lawyer lacked a reasonable basis for representing that the shareholders weren’t affiliates, and alleged that their unregistered sales violated Section 5 of the Act, and that in rendering these opinions, the lawyer violated Sections 5(a) and 5(c) of the Securities Act.

The SEC has brought a number of these actions against lawyers over the years, and they’ve also attracted attention from the DOJ.  For example, the SDNY indicted two lawyers last year for their role in cranking out allegedly fraudulent Rule 144 opinions for OTC companies.

John Jenkins