The SEC and the US DoJ have both charged another lawyer, Jan D. Atlas from Florida, in connection with issuing closing opinions that allegedly contained false information in connection with the raising of more than US$322 million from 3,600 investors in a company called 1 Global Capital LLC.
In May 2016 and in August 2016, as external securities counsel, Atlas wrote two closing opinions for 1 Global Capital in which he opined, allegedly based on false information, that the securities issued by 1 Global Capital did not qualify as securities. In addition to acting as external counsel, the SEC alleges that Atlas was paid commission for the sale of the securities and earned US$627,000 from the financings.
The SEC alleges that 1 Global Capital raised funds in violation of securities legislation, of which US$32 million was allegedly used by its founder to fund his luxurious lifestyle, and that by issuing false closing opinions, Atlas assisted in investor fraud. Despite raising US$322 million, 1 Global Capital ran out of money in two years and filed for bankruptcy.
Closing opinions by lawyers in securities law serve a gate-keeping function to protect the integrity of the capital markets because brokers, regulators and investors rely solely on closing opinions to close a financing.
You can read here for a more lengthy summary of the gate-keeping function of closing opinions written by law firms.
This appears to be the fourth case in as many months where the SEC goes after securities lawyers for false closing opinions – thus far, they have charged two Canadian lawyers and two US lawyers in respect of closing opinions that contributed to securities law fraud which harmed the public.
This prosecution is slightly different than the others in that while the opinion by the lawyer was a closing opinion and not a legal opinion, it contained opinions in respect of whether the issuance of securities was the issuance of securities, which may be relevant for the initial coin offering space where numerous lawyers in the US issued similar opinions as to whether the issuance of digital currencies were securities and triggered securities legislation.