## Facts

- Investors purchased interests in oil-and-gas ventures marketed by Heartland Resources, Inc. and Mammoth Resource Partners, which produced little oil or gas, leading to losses.
- Investors alleged the companies sold unregistered securities and made material misrepresentations and omissions in offering materials.
- Hunter Durham and his firm served as counsel to the issuers for the offerings, including drafting joint-venture agreements and private placement memoranda and indicating he was available to answer investor questions.
- Investors claimed Durham knew the documents contained misrepresentations and omissions and that the securities were not registered and not exempt.
- Investors sued Durham under the Kentucky Securities Act (KSA), asserting he was liable as a seller or as an “agent” who materially aided unlawful sales.

## Issues

1. Under the KSA, does an attorney who provides traditional legal services related to securities offerings qualify as an “agent” who “effect[s] or attempt[s] to effect” the sale and thus may be liable for materially aiding the sale?
2. Do allegations (or proof) that counsel drafted offering documents and was available to answer investor questions, even with alleged knowledge of misstatements, satisfy the KSA’s “agent” threshold?

## Decision

- The Sixth Circuit consolidated the appeals and affirmed judgment for Durham in both cases.
- In the Bennett case, the court affirmed dismissal under Rule 12(b)(6).
- In the Clayton case, the court affirmed summary judgment for Durham.
- The court held the KSA does not impose civil liability on an attorney who performs only traditional legal services for an issuer in connection with selling securities.

## Legal Principles

- KSA civil liability for those who “offer or sell” a security does not automatically extend to professionals who assist the issuer without participating in selling.
- Under Ky. Rev. Stat. § 292.480(4), liability requires that the defendant first be an “agent,” defined by Ky. Rev. Stat. § 292.310(1) as one who “effect[s] or attempt[s] to effect” the sale.
- “Materially aids” operates only after the “agent” requirement is met; it is not an independent basis to impose liability on any person who assisted the transaction.
- Drafting offering documents, advising the issuer, or being available to answer investor questions, without direct selling activity (such as soliciting, negotiating, or acting as a sales intermediary), does not constitute “effecting” or attempting to effect a sale under the KSA.

## Conclusion

The Sixth Circuit ruled that, for KSA purposes, an attorney providing routine legal services to an issuer in a securities offering is not an “agent” who effects or attempts to effect sales, so the attorney cannot be held civilly liable under the Act’s seller/agent provisions on that basis alone.


Bennett v. Durham, 683 F.3d 734 (6th Cir. 2012)