Background
In 2016, Paul Conte, through his company GIUL, LLC, invested $64,000 in Shenghuo Medical, LLC, a vehicle formed by Michael Antonoplos and Richard Blumberg to acquire licensing rights from Guided Therapeutics, Inc. (GTI) and distribute the LuViva cervical cancer screening device throughout Asia. Antonoplos solicited Conte’s investment by telephone and followed up with an e-mail that outlined the return terms and, in the subject line, included a link to GTI’s website, telling Conte to “check the website” to see the “integrity” of the device. GTI was at the time publicly traded, and its SEC filings—accessible only through additional navigation from the website—disclosed a working capital deficit of approximately $4 million, serious doubts about the company’s ability to continue as a going concern, and dependence on raising additional capital to remain viable.
Conte did not investigate GTI’s SEC filings before wiring the $64,000 in July 2016. Shenghuo made its $200,000 payment to GTI as planned, but GTI never achieved the $1 million fundraising threshold that would have obligated repayment. By 2019, Shenghuo’s managing members converted GTI’s debt to equity, effectively extinguishing any repayment obligation to GIUL. Conte never recovered his investment. GIUL sued Shenghuo, Antonoplos, Blumberg, managing member Mark Faupel, and company counsel Mark Pearlstein under the Massachusetts Uniform Securities Act (MUSA), G. L. c. 110A, § 410(a), and the Massachusetts Consumer Protection Act, G. L. c. 93A, § 11. After a March 2024 bench trial, the trial judge ruled for all defendants, finding that Antonoplos’s e-mail link to GTI’s website constituted adequate disclosure of GTI’s financial condition because Conte “could have easily accessed” the SEC filings if he had navigated the site.
The Court’s Holding
The Massachusetts Appeals Court (Vuono, Ditkoff & D’Angelo, JJ.) vacated the judgment as to Shenghuo, Antonoplos, and Blumberg on the MUSA and c. 93A claims and remanded for further proceedings, while affirming as to Pearlstein and Faupel. The court held that the trial judge applied an incorrect legal standard on the disclosure question.
Citing Marram v. Kobrick Offshore Fund, Ltd., 442 Mass. 43 (2004), the court reiterated that buyers of securities in Massachusetts have no duty to investigate or verify facts alleged by the seller. A seller who “voluntarily discloses material facts in connection with securities transactions assumes a duty to speak fully and truthfully on those subjects.” Antonoplos’s e-mail directed Conte to GTI’s website to see the “integrity” of the medical device; nothing in the message signaled that navigating further would reveal a going-concern warning. The court held that “[s]imply providing the link to GTI’s website, which required additional navigation via the Internet to locate GTI’s public filings, is not the same as providing a link to the filings themselves.” Because the question of whether GTI’s financial condition was a “material” fact in the context of this speculative investment remained unresolved, the court remanded for the trial judge to decide that element in the first instance. The c. 93A claims were vacated alongside the MUSA claims because, if the omission is found material, it may also amount to an unfair or deceptive practice under that statute.
The court affirmed dismissal of claims against Pearlstein, who served only as Shenghuo’s legal counsel and drafted subscription agreements, finding no evidence that he “offered,” “sold,” or “materially aided” the sale of a security within the meaning of MUSA § 410(a)(2). Claims against Faupel were also affirmed: he had no communications with Conte or GIUL regarding the investment and did not materially aid the transaction, even though he was acting as Shenghuo’s agent on other matters at the time.
Key Takeaways
- Under MUSA, providing a link to a company’s website is not adequate disclosure of material financial information if the buyer must navigate further to find it. Sellers must affirmatively disclose material facts, not merely point toward a path that could lead to them.
- Massachusetts securities buyers have no duty to investigate or verify facts alleged by the seller, even when the buyer is sophisticated and the information is technically accessible online via public SEC filings.
- A seller who voluntarily references a company’s website in a solicitation e-mail frames the website as confirming positive attributes; it does not put the buyer on notice that the same site harbors adverse financial disclosures.
- Company counsel who only drafts subscription agreements in a ministerial capacity is not a “seller” subject to MUSA primary or secondary liability under § 410(a)(2).
- A MUSA omission that survives scrutiny on remand will also generate potential c. 93A exposure, including mandatory attorney fees and the possibility of multiple damages under G. L. c. 93A, § 11.
Why It Matters
The Massachusetts Uniform Securities Act was designed to create a “strong incentive for sellers of securities to disclose fully all material facts about the security.” Marram, 442 Mass. at 51. GIUL v. Shenghuo Medical makes clear that the digital era does not dilute that obligation: hyperlinks and general website references do not substitute for actual disclosure of adverse financial information. For startup founders, private fund sponsors, and anyone in Massachusetts soliciting investment capital, the practical lesson is direct—point investors to the specific documents containing material risks, not to a landing page from which those documents might eventually be found.
The c. 93A overlay amplifies the risk. If the omission is found material on remand and also qualifies as an unfair or deceptive practice, GIUL would be entitled to reasonable attorney fees and potentially multiple damages. Massachusetts in-house counsel and fund managers structuring investment solicitations should treat this decision as a prompt to provide investors with direct access to all material financial disclosures, not a navigational path toward them.