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In re Kunz

Securities and Exchange Commission
Exchange Act Release No. 45290 (Jan. 16, 2002)


Facts

VesCor Capital Corporation (VesCor) sold securities in Nevada that were not registered under securities laws. This practice continued until 1994, when Nevada and VesCor entered into a settlement agreement requiring VesCor to make rescission offers to purchasers. VesCor gave prior purchasers the option to reinvest in accrual notes, monthly notes, or third-party mortgages. VesCor sent out memoranda with each rescission offer, explaining how VesCor would use the proceeds from the purchases. The memoranda indicated that VesCor would use the proceeds to fund VesCor’s expansion and that the source of the proceeds would be from the sale of the accrual notes, monthly notes, and third-party mortgages. Kevin D. Kunz (defendant) spoke to investors about the memoranda but did not verify the number of unaccredited investors. The National Association of Securities Dealers, Inc. (NASD), found that the memoranda had misrepresented information and entirely omitted facts about VesCor’s financial situation. The NASD imposed sanctions on Kunz for violating Regulation D. Kunz appealed to the Securities and Exchange Commission (SEC), arguing that the offerings were entitled to an SEC Regulation D exemption.

Rule of Law

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Issue

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Holding and Reasoning

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  • A "yes" or "no" answer to the question framed in the issue section;
  • A summary of the majority or plurality opinion, using the CREAC method; and
  • The procedural disposition (e.g. reversed and remanded, affirmed, etc.).

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