Court says Massachusetts can go after out-of-state companies trying to sell securities via e-mail

The Supreme Judicial Court today upheld a $25,000 fine against a New Jersey company for offering to sell securities to a Massachusetts resident without first registering with the state.

Bulldog Investors, of Saddle Brook, NJ, sued the Massachusetts Secretary of State's office over the fine, arguing it was not subject to Massachusetts law in the case and that merely sending a Massachusetts resident e-mail with background info on its products was not itself an offer to sell him some securities.

The court rejected the arguments, starting with:

By contacting [the Massachusetts resident], the plaintiffs purposefully availed themselves of the privilege of conducting business activities in Massachusetts and invoked the protection of Massachusetts law. ... At the time of their communication with [the guy], the plaintiffs were on notice that [he] was a resident of Massachusetts. Additionally, the act placed the plaintiffs on notice that directing offers of unregistered securities into Massachusetts is unlawful. ...

Bullldog argued e-mail is not solicitation, because the man could not have bought anything by simply replying to the message. The court, however, disagreed:

The e-mail message sent to [him], and the materials attached to it, contained detailed information regarding the performance of the plaintiffs' hedge funds, the returns the funds had earned, background information on Bulldog's partners, news articles about the funds, and a description of the plaintiffs' investment philosophy and strategy. It is clear that these materials were designed to stimulate interest in Bulldog's funds. Thus, the communication constituted a solicitation of an offer to buy unregistered securities.

Also, the fact the company Web site has a disclaimer is not enough, the justices wrote - especially because:

[T]he e-mail message sent to Hickey and the attachments therein did not contain the disclaimer that was posted on the Web site. For these reasons, the e-mail message sent to Hickey was an offer within the meaning of the act.

Complete ruling.