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The blue skies of Bainbridge
There are those, we suspect, who have little sympathy for the thousands who invested in Bainbridge-based Health Maintenance Centers, on the basis that anyone who wants to be a fool should be entitled to do so.
While the allegations that the federal Securities and Exchange Commission has levelled against Kevin Lawrence, HMC and its sister company Znetix have yet to be proved in a court of law, it appears clear, at a minimum, that HMC sold millions of dollars worth of stock without registering with proper state and federal officials.
The fact that the stock was not registered is demonstrable neither the SEC nor the state has any registration on file. And last year, the principals never disputed the states allegations that unregistered sales occurred.
Registration is not mere technicality. What stock registration consists of is a rather detailed, written statement of a companys position and prospects, including how it intends to use the money raised from stock offerings. That information has to be made available to potential investors in the form of a prospectus.
Before registration is approved, the state or federal government examines the information to make sure it is complete. And the issuer is then held to that information should it prove inaccurate, a stock buyer may be able to base a legal claim on the inaccuracies.
Registration does not guarantee the soundness of an investment, only that a certain quantum of information is available to buyers. Even then, there is no guarantee that the buyer will read it, or cut through the often bewildering array of statements, qualifications and disclaimers to understand it.
The point of registration laws is illustrated by their popular name blue sky laws. The name acknowledges the fact that a good yarn will find many willing listeners and investors even if its no more than a dream.
The laws force at least a modicum of information. An investor may still lose it all, but in theory at least, the seller must tell the investor in advance that the deal is foolish (or provide information by which that can be determined).
We pause at this juncture to observe the obvious a buyer who doesnt receive a prospectus is plainly aware of that fact. And if buyers are willing to invest money without getting a prospectus, why should the government try to stop them?
Blue sky laws are another in the class of laws designed to protect folks against their own improvidence. And as we remember from last years debate about bicycle helmets on Bainbridge, many folks dont feel the need to be protected.
Weve seen that same I can take care of myself attitude among some HMC investors. Each of the news stories we have published since last April has generated emails from investors who say theyre happy with the investment, confident in the companys ability to keep its promises and critical of us and presumably the state for stirring up discontent.
We acknowledge that personal responsibility is a vital value, and that in general, adults should be free to make their own choices, even bad ones.
But sometimes its nice to get a second chance. And thats why we have blue sky laws, and regulators to back them up.