Colorado Rejects Williamson “Presumption”
(Originally published December 1, 2015) By Paul L. Vorndran
A panel of the Colorado Court of Appeals issued an opinion giving the Colorado Securities Commissioner a victory in a long standing effort to regulate joint ventures and general partnerships. In Rome v. HEI Resources, Inc. et al, 2014 CA 160, the Court first held that there is no presumption in Colorado that a joint venture or general partnership interest is a security. Second, the Court held that, in considering the circumstances where an interest in a general partnership or joint venture may be a security, the “Williamson Test” required an assessment of whether investors had the requisite knowledge and experience in the particular business of the joint venture or partnership, as opposed to general business knowledge. See, Williamson v. Tucker, 645 F.2d 404 (5th Cir. 1981). The Court of Appeals reversed the trial court because it relied on the presumption that a general partnership interest was not a security and because it failed to assess investor knowledge specific to the operation of oil and gas exploration, drilling and production. On this point, the Court reasoned that a standard that requires investor knowledge of the specific business enterprise is necessary because unsophisticated investors are more likely to rely on promoters to obtain profits.
This decision will make it more difficult for promoters to sell investments, particularly in the area of oil and gas, to unsuspecting investors in Colorado under the radar of securities regulation.
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