People v. Investco Management & Development LLC

Investco and its promoters sold LLC memberships to the public. The Department of Business Oversight (DBO) believed those interests constituted “securities” but were sold without Department of Corporations qualification. Prospective investors were told that specific property would be purchased at a favorable price. The 443 investors ($22,725,000) were not told that other LLCs had purchased that property weeks earlier for a substantially lower price for sale to the Investco LLC, profiting Investco and the promoters. DBO filed a civil action. Under a confidential settlement agreement, a special master was appointed to oversee the sale of the properties. DBO sent notices to investors, including Respondents. Respondents filed civil actions; defendants moved to amend the interlocutory judgment to stay actions against them arising out of the settlement's subject matter. DBO joined the defendants’ objections, arguing that the suits would cause “bargain” sales to the detriment of other investors. Respondents filed a “special appearance,” opposing the motion to modify, arguing that they were involuntarily bound by the settlement. The court stayed Respondents’ actions as to the LLCs, but allowed suits against Investco and the promoters, and expanded the duties of the special master. The court of appeal affirmed an award of attorney fees against Investco and DBO. Respondents were successful parties; enforced an important right affecting the public and fraud victims; and provided necessary, non-duplicative, significant benefits, while incurring litigation expenses out of proportion to their personal interests. View "People v. Investco Management & Development LLC" on Justia Law