Background
Advent Medical Products, Inc., founded by Randall Fincke to develop and manufacture defibrillators, sold securities to investors without registering them with the New Hampshire Bureau of Securities Regulation. Investors generally purchased a promissory note, a call option, and a put option. Advent experienced delays caused by heightened FDA requirements for automatic external defibrillators, a battery defect, a Massachusetts enforcement proceeding, and the COVID-19 pandemic.
The Bureau alleged that Advent and Fincke sold unregistered securities and misrepresented material facts by failing to disclose prior litigation involving Fincke and by telling certain investors that Advent’s products were close to market. After an administrative hearing, the Bureau’s director imposed a $345,000 fine, ordered rescission of $480,000 in investments, awarded $60,000 in investigative and enforcement costs, and permanently barred the respondents from offering or selling securities in New Hampshire.
The Court’s Holding
The New Hampshire Supreme Court reversed the misrepresentation findings. It held that omitting Fincke’s prior litigation did not make his brief professional biography misleading because the lawsuits fell outside the scope and level of detail of that disclosure; the nondisclosure was a nonactionable pure omission, not a misleading half-truth. The court also held that statements about Advent being close to market were not shown to have been false when made. The evidence concerned Advent’s product line generally, including manual defibrillators that retained FDA clearance, and did not establish that the statements referred only to automatic external defibrillators or that the respondents then anticipated later delays.
On registration, the court held that the director improperly counted later purchasers when applying the isolated-sale exemption’s numerical limits. The sales to F.H. and the first sale to N.S./T.W. met those limits, but the court remanded for findings on the exemption’s remaining requirements. It also vacated the determination that no sales qualified for the existing-security-holder exemption and remanded for findings concerning compensation paid to Gary Fincke. The court reversed liability for the sale to C.C. because the evidence did not show that the out-of-state offer originated in New Hampshire. It otherwise held that each unregistered note, call option, and put option may constitute a separately punishable violation if no exemption applies; affirmed Randall Fincke’s joint and several liability; and affirmed the $60,000 cost award, including attorney fees. Because reversal of the misrepresentation findings materially changed the penalty calculus, the court vacated the fines, rescission order, and permanent injunction for reconsideration on remand.
Key Takeaways
- A disclosure violates New Hampshire’s securities-misrepresentation provisions through omission only when the omitted information is necessary to prevent an existing statement from being misleading; a pure omission is insufficient.
- Predictive statements must be evaluated when made, without using later developments to establish falsity through hindsight.
- The isolated-sale exemption’s purchaser limits are measured through the sale at issue and do not include subsequent purchasers.
- Separate instruments sold in one transaction may each support a registration violation and fine if no exemption applies.
Why It Matters
The decision aligns New Hampshire’s treatment of securities-law half-truths with federal interpretations of SEC Rule 10b-5(b), limiting omission liability to information within the scope of what an issuer actually said. It also supplies important guidance on evaluating forward-looking statements and counting purchasers under the former Act’s isolated-sale exemption.
The ruling does not eliminate all registration liability. Instead, it narrows the violations, requires additional exemption findings, and directs the Bureau to recalculate the violations and choose new penalties based on the conduct that remains actionable.