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Click here for the full text of this decision FACTS:During the early to mid-1990s, Norman Cornelius formed Avalon Custom Homes and a number of related corporate entities (collectively referred to as “Avalon”) designed to develop and sell luxury homes. At that time, Cornelius worked as an investment advisor and broker for Sunpoint Securities. Cornelius operated Avalon out of his Sunpoint office and encouraged his brokerage clients to invest their money in Avalon. Cornelius also persuaded members of his church and retirees from Mrs. Baird’s Bakery to invest in Avalon, offering investors promissory notes that bore as much as an 18 percent rate of return and allowed conversion to Avalon stock. In 1997, the Securities and Exchange Commission filed suit against Cornelius, alleging that Cornelius misrepresented the risks associated with the investments, misrepresented the uses of investment funds, and misrepresented the commingling and misappropriation of funds. Avalon was forced into receivership, and the Avalon investors collectively lost millions of dollars. A number of elderly investors lost their entire retirement savings. The investors sued Cornelius, Sunpoint Securities, Van Lewis (the owner of Sunpoint), and Sterling Trust. After suit was filed, but before the case was tried, Cornelius died and Sunpoint entered receivership. The claims against Sunpoint were severed from the suit as a result of the receivership, but Sunpoint was still included in the charge as a party to which the jury could apportion responsibility. At trial, the investors put forth several theories of liability. The jury charge asked 1. whether each of the defendants offered or sold securities “by means of an untrue statement of material fact or the omission to state a material fact necessary in order to make the statements made, if any, in light of the circumstances under which they were made not misleading”; 2. whether Sterling Trust Co., a third-party trustee, aided Cornelius in committing securities fraud by “directly or indirectly with intent to deceive or defraud or with reckless disregard for the truth or the law materially aid[ing] a seller of a security”; 3. whether Sterling was “part of a conspiracy that damaged [the investors]“; 4. whether Sterling “fail[ed] to comply with its fiduciary duty” to its account holders; and 5. whether the defendants committed fraud against the investors. The jury returned a verdict against Cornelius on all counts. On the issues pertaining to Sterling, however, the verdict was mixed. The jury found that Sterling was not a “seller” of securities, that Sterling did not conspire to damage the investors, and that Sterling did not commit fraud. The jury found that Sterling aided Cornelius’s securities violation and that Sterling breached its fiduciary duty to its account holders. The investors elected to recover on the aiding-and-abetting finding, and the trial court rendered judgment against Sterling for $6 million in actual damages and $250,000 in exemplary damages. The court of appeals affirmed the trial court’s award of actual damages, but reversed the exemplary damages award. HOLDING:The court reverses the court of appeals’ judgment and remands to the trial court. The Texas Securities Act imposes liability on a person who sells securities “by means of an untrue statement of a material fact or an omission to state a material fact,” and imposes liability on a person who “materially aids a seller, buyer, or issuer of a security” if the person acts “with intent to deceive or defraud or with reckless disregard for the truth or the law.” Texas Revised Civil Statutes Article 581-33F(2). The trial court and court of appeals interpreted the latter provision to allow aider liability even if the aider was unaware of its role in the securities violation. This court concludes that the TSA’s requirement of “reckless disregard for the truth or the law” means that an alleged aider is subject to liability only if it rendered assistance to the seller in the face of a perceived risk that its assistance would facilitate untruthful or illegal activity by the primary violator. This standard does not mean that the aider must know of the exact misrepresentations or omissions made by the seller, but it does mean that the aider must be subjectively aware of the primary violator’s improper activity, the court holds. OPINION:O’Neill, J., delivered the court’s opinion. Johnson, J., did not participate in the decision.

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