Background
GrowCo and related entities sought to develop and lease marijuana greenhouses to licensed growers. Wayne Harding served in senior executive roles, including CFO and CEO of Two Rivers Water and Farming Company and CEO or executive management positions within GrowCo. The business built one greenhouse but experienced substantial construction overruns, tenant failures, licensing problems, and minimal rental income.
GrowCo raised nearly $20 million through eight debt and equity securities offerings. The trial court found that the offerings omitted or misstated material information, including commingling of investor funds, use of funds for overhead and salaries, construction and tenant problems, inability to pay investor interest, and other facts. Later investor money was used to pay earlier investors’ interest, and investors recovered about $2.6 million.
The Colorado Securities Commissioner sued under the Colorado Securities Act. After a bench trial, the district court found Harding and others liable for securities fraud, use of unlicensed sales representatives, and registration-notice violations. It entered a joint-and-several damages judgment of $16,578,690.33 and barred Harding from private securities transactions in Colorado for twenty years.
The Court’s Holding
The Colorado Court of Appeals affirmed. It held that the evidence supported holding Harding jointly and severally liable as a control person under section 11-51-604(5)(a). Harding did not challenge the underlying violations by Two Rivers and GrowCo, and he had stipulated that he was a control person of those entities. The statute did not require separate proof that Harding directly committed each underlying violation.
The court also held that Harding bore the burden of proving the statutory defense that he did not know, and could not reasonably have known, the facts creating liability. He introduced no evidence meeting that burden, and the record supported the damages award.
The court declined to consider Harding’s challenges to the twenty-year injunction, the statute of limitations, and hearing accommodations because he had not preserved those arguments in the trial court.
Key Takeaways
- Colorado’s Securities Act imposes joint-and-several liability on a person who controls an entity that commits primary securities-law violations.
- A control person must prove the statutory lack-of-knowledge defense; the Commissioner need not prove individualized participation in every violation.
- Self-represented parties must preserve civil arguments, including limitations and due-process objections, for appellate review.
Why It Matters
The decision confirms the breadth of Colorado control-person liability in securities enforcement actions. Senior officers who control issuer entities may be liable for their entities’ securities violations even without proof that they personally carried out each fraudulent act.
It also underscores the procedural stakes in civil appeals: objections to remedies, affirmative defenses, and trial accommodations generally must be raised in the district court before an appellate court will review them.