Legal Question in Investment Law in California

Re: investment

Your facts aren't sufficiently complete to give you a detailed answer; for example, you don't mention whether the business was a corporation, LLC, or some other entity, but in general, the following issues might arise:

(1) If you were involved in soliciting or promoting this investment, did you make adequate disclosures to the investor?

(2) Did the issuing company comply with securities laws? In particular, assuming it did not register the investment or the securities, did it operate within the parameters of a lawful exemption from registration?

It is often said that there are three kinds of securities issuances - registered, exempt and illegal.

(3) Are you protected from claims and suits by an applicable statute of limitations?

(4) At the time of the bankruptcy, or just before or just after, did any insider (officer, director, major shareholder) get any money, salary, dividend, or property from the company?

(5) Did the company operate with due observance of corporate formalities, including holding shareholder meetings, keeping separate bank accounts from its owners', etc.?

(6) Running the investor money through your personal account was a mistake, to be sure; it should have gone either to an escrow account or perhaps directly to the company's account. You could be in trouble for that alone, I suppose. Nevertheless, what will be more important to your chances for escaping suit or even criminal charges is how you handled the investment thereafter, including whether all the money went into the company, whether the company was operated in a "heads up" fashion or was a personal piggybank for the founders, whether full disclosures were made to the investor, whether the overall investment plan was exempt from registration and conformed to the rules, and perhaps most important whether the promoters acted with proper motives at all times.

People invest and businesses fail. It's part of the economic system we call capitalism. Eighty to ninety percent of the failed deals are clean enough to escape civil or criminal scrutiny or suit. Is yours? Maybe.