Finally, a criminal case those who raise money should consider. Hays v. State informs us of several basic rules to follow when selling oil and gas interests to strangers. They are simple but important:
Rule 1: If you tell your targets that you are raising the money to drill a well, you should go ahead and actually drill the well. Otherwise, you will go to jail.
Rule 2: If you sell unregistered securities but don’t know it is against the law to sell unregistered securities, you will go to jail.
Defendant Chad Hays asserted that the State was required to prove that he knew the securities he was selling were required to be registered. According to the court, the Texas Securities Act does not require a culpable mental state as to the circumstances of the offense charged. In other words, the sale of unregistered securities is a nature-of-conduct offense, akin to gambling or indecency with a child. The nature of the conduct itself is criminal because the goal is to protect the public. This is contrasted with crimes in which is achieving a certain result is the crime.
The State was not required to prove that Chad knew of the illegality of selling unregistered securities. The only thing the State had to prove was that Chad knew he was selling venture interests in an oil well prospect, not that he had knowledge that the statute defined those interests as securities, or that he was required to register them.
Chad’s most ambitious defense was that the State hadn’t proved that Chad was the person who made the calls. Four victims testified that they talked on the phone with “Chad”, or someone representing themselves to be Chad; they all invested in the prospect; Chad was an officer of the company that promoted the prospect; the defendant was identified in open court as Chad; documentary evidence showed that a person name Chad was soliciting investments for the venture. That defense did not work with this jury.
There may be cynical humor in Chad’s misfortune, but there is a warning here for anyone raising money from strangers. Be sure you are not selling an unregistered security. Even if, unlike Chad, you drill the well you promised, there is exposure if it isn’t the best well they ever invested in.
Today’s musical interlude is dedicated to Chad’s mother: