The growing force of cross border equity investment, whether with respect to EB-5 immigration projects or other emerging businesses, have created alarming and ample opportunities for companies and individuals to violate Securities law.
Just recently, I am handling several investment disputes, when the company misrepresented material information that the investor relied on when making the decision. In all these cases, individuals working as the investment agents facilitating the investment and getting commission are not registered with the State government.
In Massachusetts, an individual who is getting paid by engaging in selling, effecting and soliciting securities or offers investment advice shall pass professional exams and register with Massachusetts Securities Division. Different rules apply to person who works for a Financial Industry Regulatory Authority (FINRA) registered company and those who are not FINRA registered company. Almost all financial service or broker dealers are FINRA companies. Narrow exception applies.
“Security” could be a lot of things. The most common ones are stock, equity ownership in any business and EB-5 investment. They may also be partnership interest in LLC, LP or LLP. Promissory notes, investment in real estate or derivative may also be counted. A lot of people become investment advisors by accident, most times, not even knowing their activities shall be governed by State securities agency. It is irrelevant what your title is on the business card, it is your actual activities that define whether you are investment agent or advisor. Failure to register may cause government to stop your activity and/or impose penalties. Federal Securities regulations have separate requirements.
Investment broker or advisor cannot intentionally or negligently misrepresent the investment opportunity. Meaning, they shall not lie about any material aspect of the company that investor rely on in making investment decisions. Neither can they lie about a known fact nor can they omit material information. Penalties could be administrative injunction, repay the investors capital they invested, or even criminal liabilities.
Thursday, January 17, 2013
Saturday, January 5, 2013
Myth of Trade Secrets
Every business likes to claim that it has some sort of proprietary information that qualifies as trade secret and warrants special protection. Employees in sales and technical positions are more likely to be prevented from misappropriating information involving customers or highly specialized business knowledge.
All proprietary information is not trade secrets. A trade secret could be in different forms. It may be a formula, device, business process, software, or information that gives the employer competitive advantage and is being used in the continuous operation of the business. A trade secret does not need to be a registered patent.
Simply sticking a label on whatever an employer claims to be trade secret will not cut it. There are steps an employer shall take to increase the likelihood that the information is to be defined as trade secret. Mass courts consider several factors: the value of such information to the employer, measures taken by employer to guard the secrecy, amount of capital and effort expended by employer to develop that information, degree of difficulty the information could be duplicated by others.
In terms of reasonable measures to protect the secrecy, an employer shall at minimum restrict outside visitors from the business areas where the trade secret is used, limit access to the secret to those with business needs, maintain the secret in a secure location; and communicate to those who have access to the secret that it is confidential.
Unauthorized access or misappropriating trade secret is not only a tort based on the theory that an employee breaches her or his duty to safeguard this information, but also a civil and criminal liability.
All proprietary information is not trade secrets. A trade secret could be in different forms. It may be a formula, device, business process, software, or information that gives the employer competitive advantage and is being used in the continuous operation of the business. A trade secret does not need to be a registered patent.
Simply sticking a label on whatever an employer claims to be trade secret will not cut it. There are steps an employer shall take to increase the likelihood that the information is to be defined as trade secret. Mass courts consider several factors: the value of such information to the employer, measures taken by employer to guard the secrecy, amount of capital and effort expended by employer to develop that information, degree of difficulty the information could be duplicated by others.
In terms of reasonable measures to protect the secrecy, an employer shall at minimum restrict outside visitors from the business areas where the trade secret is used, limit access to the secret to those with business needs, maintain the secret in a secure location; and communicate to those who have access to the secret that it is confidential.
Unauthorized access or misappropriating trade secret is not only a tort based on the theory that an employee breaches her or his duty to safeguard this information, but also a civil and criminal liability.
Thursday, January 3, 2013
Covenant Not-to-Compete in Massachusetts
Massachusetts court has long limited an employer’s right to restrict a former employee from competing against the employer. Court only enforces such a restriction if employer can show “legitimate business interest” to protect itself from unfair competition by the former employee. Employer’s legitimate business interest has to be balanced against employee’s right and freedom to obtain employment in order to make a living.
An employer’s “legitimate business interest” falls into three general categories: (1) trade secrets; (2) confidential business information; and (3) goodwill. It shall be noted that free from ordinary business competition in the industry is not itself a legitimate business interest. I see the covenant more often with high level staff or senior executives rather than regular or lower level employees.
In addition to protect reasonable and legitimate business purpose, the not-to-compete term also needs to be reasonable in scope, time and geographic scope. The reasonableness is defined by case law. A lot of factors are used to assess the situation, such as, nature and financial position of the employer, employee’s job description, employee’s ability and need to make a livelihood.
Employer shall also enter into such a covenant with the employee at the outset of their relationship. It could become problematic when employer rushes to strike such a deal with the employee at the time of employee’s departure.
An employer’s “legitimate business interest” falls into three general categories: (1) trade secrets; (2) confidential business information; and (3) goodwill. It shall be noted that free from ordinary business competition in the industry is not itself a legitimate business interest. I see the covenant more often with high level staff or senior executives rather than regular or lower level employees.
In addition to protect reasonable and legitimate business purpose, the not-to-compete term also needs to be reasonable in scope, time and geographic scope. The reasonableness is defined by case law. A lot of factors are used to assess the situation, such as, nature and financial position of the employer, employee’s job description, employee’s ability and need to make a livelihood.
Employer shall also enter into such a covenant with the employee at the outset of their relationship. It could become problematic when employer rushes to strike such a deal with the employee at the time of employee’s departure.
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