Whether the Secretary of the Commonwealth has the power to impose a fine on out-of-state persons who market unregistered securities to a Massachusetts resident.

Bulldog, an out-of-state company, maintained a website offering information on its hedge funds, which were unregistered securities.  An unregistered security is essentially one for which detailed disclosure statements have not been filed with state or Federal agencies.  A Massachusetts resident requested information from Bulldog via a web form, and a Bulldog partner replied via email with further materials, knowing the recipient’s location.  (In an interesting twist, the “Massachusetts resident” was apparently an agent of a rival seeking to lure Bulldog into a violation.)

G.L. c. 110A, § 301, forbids offering of unregistered securities unless the offeror has ensured that the potential investor is sufficiently sophisticated.  The Enforcement Section of the Securities Division of the Secretary of the Commonwealth found in an administrative proceeding that Bulldog’s emailed materials were an “offer,” and issued a $25,000 fine.  Bulldog’s c. 30A appeal was denied by a judge of the Superior Court.  Bulldog also filed a § 1983 action challenging the enforcement on First Amendment grounds, which apparently is still pending.

1. Personal Jurisdiction. Bulldog argues that the Secretary cannot exercise jurisdiction over out-of-state actors who send a single email to Massachusetts, either under the Secretary’s powers in G.L. c. 110A, § 406 et seq., or constitutionally under the due process clause of the Fourteenth Amendment. As to the latter, Bulldog argues that it has not purposefully availed itself of the Massachusetts forum, sufficient to anticipate liability in the state. The Secretary responds that, where Bulldog was on notice that its email was going to a Massachusetts resident and was barred by Massachusetts law, Bulldog has sufficient contacts with the forum with respect to that email.

2. “Offer” definition. Bulldog argues that it did not make an offer to the Massachusetts resident. The Secretary responds that the statutory definition of “offer” includes a “solicitation of an offer to buy,” G.L. c. 110A, § 401(i)(2).

3. First Amendment. Bulldog argues that, whether its information was commercial or noncommercial speech, government regulation of that speech should be strictly evaluated, and that here, banning of the speech at issue was not the least restrictive means to accomplish the government’s goal. The Secretary responds that the issue is better resolved in Bulldog’s § 1983 action, but in any event that courts apply little or no scrutiny to laws requiring disclosure of investor information.

This case presents a test of the state’s ability to regulate marketing communications from out-of-state vendors. While Bulldog’s communication lies at the minimal end of in-state action, involving a single email sent at the instigation of a competitor, the general principal that the state can require disclosures in such communications seems unremarkable.