## Facts

- Perdition Minerals Group, Ltd., a mining venture, solicited investment from W.W. Taylor and related family entities.
- Perdition’s CEO/director provided background and financial materials to induce investment.
- Taylor agreed to buy 400,000 shares for $200,000.
- Before a shareholders’ meeting, the CEO represented the stock’s value and stated no audit would be performed.
- At the meeting, a director moved that the company hire an auditor, prompting Taylor to investigate.
- Taylor learned there was no impending audit, his investment was not reflected in financial materials, the SEC was investigating certain company properties, and the shares sold to him were unregistered under Kansas law.
- The Taylors sought rescission and return of the purchase price under the Kansas Securities Act provision imposing liability for sale of unregistered securities.

## Issues

1. Under K.S.A. 1987 Supp. 17-1268(b), must purchasers prove corporate directors “materially aided” in the sale to impose liability for an illegal sale of unregistered securities?
2. If “material aid” is not required for directors, what standard governs director liability and what burden applies to the statutory defense that the director lacked knowledge and could not have known with reasonable care?
3. Was summary judgment for the director defendants proper under the correct statutory construction?

## Decision

- The Kansas Supreme Court reversed the summary judgment entered for the director defendants and remanded.
- The court held K.S.A. 17-1268(b) does not require proof that directors “materially aided” in the sale as a condition of liability.
- Directors (and other enumerated control persons) are jointly and severally liable for the issuer’s illegal sale of unregistered securities unless they prove the statute’s lack-of-knowledge/reasonable-care defense.
- Because the district court granted summary judgment by imposing an incorrect “material aid” requirement, it applied the wrong legal standard.

## Legal Principles

- For liability under K.S.A. 17-1268(b), the phrase “who materially aids in the sale” modifies only the category to which it is attached (e.g., employees), not directors expressly listed without that qualifier.
- Corporate directors, officers, and partners of a liable seller may be held jointly and severally liable for unlawful sales of unregistered securities without proof of their participation in the sale.
- The statute provides an affirmative defense: the defendant must prove lack of knowledge of the facts creating liability and that, through reasonable care, the defendant could not have known those facts.
- The Kansas Securities Act is remedial and is construed to protect investors; interpretations that dilute control-person accountability are disfavored.

## Conclusion

The court construed K.S.A. 17-1268(b) to impose presumptive joint and several liability on corporate directors for illegal sales of unregistered securities without requiring proof that they materially assisted the sale, while preserving an affirmative defense requiring directors to prove they lacked knowledge and could not have discovered the relevant facts with reasonable care.


Taylor v. Perdition Minerals Group, Ltd., 766 P.2d 805 (Kan. 1988)