MMM MM L BEFORE the ARIZONA CORPORATION 2 COMMISSIONERS 3 TOM FORESE, Chairman BOB BURNS 4 ANDY TOBIN 5 BOYD W
Total Page：16
File Type：pdf, Size：1020Kb
. | ¥ ." 4 _. 44' f .,; 1 MM M MM M M M MMI M IM \\ M M M MM; MMMM MM l BEFORE THE ARIZONA CORPORATION 2 COMMISSIONERS 3 TOM FORESE, Chairman BOB BURNS 4 ANDY TOBIN 5 BOYD w. DUNN JUSTIN OLSON 6 7 In the matter of: Docket No. S-20932A- l5-0220 8 LOAN GO CORPORATION, a Uta 9 corporation, 10 MMELTMnNG§1;EBy'LhL'NmG3LEMw??§ HEATHE 11 JEFFREY SCOTT PETERSON, an unmarried 12 man, Arizona Corporation Commission JOHN KEITH AYERS and JENNIFER ANN 13 BRINKMAN-AYERS, husband and wife, DOCKETED 14 Respondents. NOV 27 2017 15 DOC BY 16 17 18 19 APPLICATION FOR REHEARINC ON BEHALF OF 20 JUSTIN AND HEATHER BILLINGSLEY ¢.1 . 21 November 27, 2017 A.- c . : 22 3 1 23 . ' ; \ 24 18 c i v 25 w 26 27 TABLE OF CONTENTS l 2 1. The Commission should not "bring down the hammer" on a startup just because it 3 4 11. Heather Billingsley is an innocent out-of-state spouse, and no liability startupshould be assessed against her 5 111. The Commission should not have found registration violations, because 6 the Loaf Go notes were exempt from registration ....8 7 A. The notes are exempt from registration under SEC Regulation D and 8 A.A.C. R14-4-126. 8 9 l. The subscription agreements demonstrate that Regulation D 10 l l 2. Definition of Accredited Investor under Regulation 8 12 3. The Commission's conclusion that the investors were not accredited . 13 is 9 14 4. The Commission erred as a matter of law in disregarding the investor's 15 certifications that they were accredited investors 16 5. Further evidence shows that the investors were accredited 10 17 6. The Commission erred in considering hearsay testimony on accredited 18 investor l l 19 7. The Regulation D, Rule 505 exemption applies 12 20 8. The Regulation D, Rule 506 exemption applies 13 21 22 9. A Form D filing is not required to claim the exemption..................................14 23 B. The notes are exempt firm registration under the private offering 15 24 25 IV. No fraud finding should be made against Justin Billingsley 15 26 A. Mr. Billingsley acted in good faith reliance on legal and 27 professional 15 1 B. The documents show that the note holders knew the notes were l h h k 17 2 c. The Commission should follow the U.S. Supreme Court and adopt the 3 Central Bank of Denver test for omissions violations 19 4 D. Cash out of loans by founders 5 E. Payment 6 7 F. Promissory note for Mr. Jordon - alleged failure to disclose alleged prior defaults 22 8 9 v. The Commission failed to respond to issues raised in exceptions 23 . 10 VI. l l Attachment .- Declaration of Justin C. Billingsley 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 2 1 Justin and Heather Billingsley (the "Billingsleys") submit this Application for 2 Rehearing in accordance with A.R.S. § 44-1974, A.A.C. R14-3-l ll and the penultimate 3 ordering paragraph of Decision No. 76450 (November 7, 2017). This Application is 4 supported by the attached Declaration of Justin Billingsley, submitted in accordance with 5 A.A.C. R14-3-111(F). 6 I. The Commission should not "brim down the hammer" on a starts 'use because it Aile . 7 Loaf Go was based on an intriguing idea-extending mobile and online technology 8 to the payday loan sector. This would eliminate a major cost of the traditional payday 9 lenders (the "brick and mortar" retail loan stores), and would allow much of the process to 10 be automated. Further, computers and mobile devices would enable the company to reach a l l vast potential market. Understandably, Justin Billingsley was excited to be involved in this 12 promising venture. 13 But startups have a high failure rate. As with any startup, the risks were high. The 14 five investors who purchased the Loaf Go promissory notes knew as much. They were 15 wealthy, high net worth individuals. The very word "startup" screams risk. The very high 16 interest rates (18-24%) also clearly showed that this was a risky investment. And the 17 Private Placement Memorandum ("PPM") received by each investor clearly spelled out the 18 risks. Thus, the five investors knew they were getting into a "high risk" investment with a 19 corresponding high potential payoff 20 Like most startups, Loaf Go failed. That is not a reason to bring Loaf Go before this 21 Commission. Justin and Heather Billingsley now face crippling economic sanctions 22 (restitution and penalties) and the devastating finding of "securities fraud." This is 23 unwarranted. The evidence is clear that Justin tried to do everything properly: 24 An experienced securities attorney, Gary Agron, was involved throughout, 25 including in the preparation of the PPM and the Subscription Agreement; 26 27 3 1 Loaf Go worked closely with Gilford Securities, an experienced full-service 2 investment bank based in New York. Gilford completed extensive due 3 diligence about Loaf Go, including review of the PPM and speaking with and 4 qualifying each of the investors. 5 Loaf Go co-founder Jeffrey Peterson was an experienced securities broker and 6 was the founder and CEO of a Quepasa Corporation, a successful internet 7 startup that raised more than $100 million in its IPO. 8 All of the usual paperwork involved in a "Regulation D" exempt offering was 9 prepared, including a PPM and Subscription Agreements. 10 Each of the investors submitted an investor questionnaire warranting in l 1 writing that they were "accredited investors" under Regulation D. 12 Thus, the Commission should have treated the Loaf Go notes for what they were-exempt 13 securities under SEC Regulation D and its Arizona counterpart. This Application explains 14 in detail why the Loaf Go notes were exempt securities. But even if they are not-if 15 Loaf Go in good faith made some technical mistake-why impose such a harsh order? 16 It is well known that Arizona has little start up activity. That is not an accident. A 17 key factor is the draconian policies of this Commission in securities cases. Indeed, the 18 advice to startups is often to go anywhere but Arizona. Governor Ducey often touts 19 Arizona's favorable regulatory climate, especially as compared to California. But for 20 startups, the roles are reversed-it is Arizona where businesses must fear to tread, at least if 21 they are startups looking to raise money. This case presents the Commission with an 22 opportunity to change that message-to show that a failed business is no reason to be 23 hauled before regulators-and that a business that tries to do everything properly, with 24 securities lawyers and an investment bank involved, has nothing to fear. 25 The Commission should therefore grant rehearing on the following issues: 26 1) Liability of innocent, out-of-state spouse. Heather Billingsley had no 27 involvement in this case, but she has been named for community property purposes. But 4 1 the Billingsleys moved to Connecticut in September 201 l, before any of the promissory 2 notes were sold (between 2011 and 2012) and long before this case was filed (2015). 3 Connecticut is not a community property state, so there is simply no marital community to 4 be bound here. Thus, Heather Billingsley should not be found liable by the ACC. 5 2) Regulation D exemptions. LoanGo's notes were intended as a private 6 placement offering exempt under SEC Regulation D and its Arizona equivalents. For 7 example, there was a private placement memorandum, as well as signed subscription 8 agreements, and investor questionnaires documenting the "accredited investor" status of the 9 note holders. Thus, the notes are exempt under Regulation D and its Arizona equivalents. 10 The Commission's decision to the contrary was based on a finding that the five investors l l were not accredited. This finding was erroneous because: 12 • Each of the investors signed an investor questionnaire expressly stating- 13 indeed, warranting-that they were an accredited investor. The Commission 14 is required, as a matter of law, to credit these signed certifications. 15 • Each of the investors was vetted by Noah Apron of Gilford Securities, who 16 confined that they were accredited investors. 17 • The notes were only offered in one of the most exclusive RV parks in the 18 nation, the home of $300,000+ luxury motor coaches. Each of the note 19 holders was part of this high-end community, and they typically had invested 20 substantially more in safe, secure annuities before they took a flyer on the 21 Loaf Go notes. 22 • Three of the investors did not testify; for them the only evidence that they 23 were not accredited investors was hearsay testimony. Here, it was not 24 reasonable to rely on hearsay when each of the investors signed a certification 25 that they were accredited investors. And even if evidence beyond the 26 certifications is considered, more reliable evidence existed that was not 27 considered. 5 l 3) Private Offering exemption. Further, only five promissory notes were issued, 2 so the statutory "private offering" exemption should apply, especially because the investors 3 are clearly wealthy, sophisticated investors. 4 4) No fraud. The Commission should not have made a fraud finding against 5 Justin Billingsley. The main issue is whether the investors should have known the notes 6 were risky. The investors were well aware that the Loaf Go notes were a high-risk 7 investment, because: 8 • Loaf Go was a startup, and startups are inherently risky, 9 • The interest rates of 18-24% showed that this was a high-risk investment, and 10 • The PPM contained numerous clear statements of risk, including that the l l investor should not invest if they cannot lose their entire investment 12 5) Failure to respond to issues.