FSC was a securities brokerage firm that sold limited partnership interests to Mark and 27 other investors. All investors executed a subscription agreement in which each investor revealed his or her income and represented that he or she had the opportunity to review relevant information, including risk factors, and was sufficiently knowledgeable and savvy to understand the implications of the investment. However, FSC managers never actually reviewed the completed subscription agreements, and all who applied to be investors were admitted. When the interests dropped in value, Mark sued to rescind the contract on the basis that the securities were not registered and that he was not a qualified investor. FSC defended that the offering qualified under the ’33 Act safe-harbor provision of Regulation D.

CASE QUESTIONS

1. Should Mark prevail?

2. Is it relevant that FSC never reviewed the subscription agreement