“Never Trust a Classmate Who Drank PBR in College”

The B. Hardin Company (Hardin) owned large tracts of citrus acreage in Lake County, Florida. For several years, it planted about 500 acres annually, keeping half of the groves itself and offering the other half to the public to help finance additional development. Hardin-in-the-Hills Service, Inc., was a service company engaged in cultivating and developing the groves, including the harvesting and marketing of the crops.

Our clients, Lewis and Ortiz, were approached by Hardin’s promoter nine months ago. The promoter was a classmate of Lewis back in college. After lengthy discussions with the promoter, Lewis and Ortiz believed the Hardin citrus business would make for a lucrative and safe investment. Lewis and Ortiz, among many others, were offered both a land sales contract and a service contract, after being told that it was not feasible to invest in a grove unless service arrangements were made. As such, 85% of the acreage sold by Hardin was sold with a service contract with Hardin-in-the-Hills Service.

Hardin did not register with the Securities and Exchange Commission (SEC) or meet the other administrative requirements that issuers of securities must fulfill. Moreover, some investors have discerned that the financial statements accompanying Hardin’s contract offers contained material overstatements of Hardin’s cash flows, both actual and projected. Lewis and Ortiz are freaking out because they used some of the cash they intended to put into their biotech enterprise to purchases the land sales and service contracts offered by Hardin.

Lewis and Ortiz seek our firm’s advice regarding the consequences of this situation for Hardin, its investors (including, of course, themselves), and Hardin’s independent accountants, Dumb and Dumber, who audited the financial statements that were given to the investors before they agreed to purchase the contracts with Hardin. As part of your analysis, include not only the relevant issues and rules, but also discuss any possible recourse action the SEC and investors may take against the actions of Hardin.

Answer rating: 100% (QA)

The SEC would most likely bring an enforcement action against Hardin for offering an unregistered se... View the full answer