551.501 General fraud. It is unlawful for a person, in connection with the offer, sale, or purchase of a security, directly or indirectly, to do any of the following:

(1) To employ a device, scheme, or artifice to defraud.

(2) To make an untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading.

(3) To engage in an act, practice, or course of business that operates or would operate as a fraud or deceit upon another person.

History: 2007 a. 196.

Intent to defraud is not a necessary element under s. 551.41 (2). State v. Temby, 108 Wis. 2d 521, 322 N.W.2d 522 (Ct. App. 1982).

Lack of reliance is a defense to all claims based on a misrepresentation theory. The application of s. 551.59 (1) (b) does not restrict the defense to claims under s. 551.41 (2). Carney v. Mantuano, 204 Wis. 2d 527, 554 N.W.2d 854 (Ct. App. 1996), 95-2529.

Whether a representation is material under s. 551.41 (2) is determined based on the objective standard of whether the omitted or misrepresented fact would have made a difference to a reasonable investor's decision to invest. State v. Johnson, 2002 WI App 224, 257 Wis. 2d 736, 652 N.W.2d 642, 01-1092.

An investment contract is any investment in a common enterprise with the expectation of profit to be derived through the essential managerial efforts of someone other than the investor. An investor may have a role in the managerial efforts of an investment contract, so long as the investor does not provide the essential managerial efforts for the investment contract. State v. LaCount, 2008 WI 59, 310 Wis. 2d 85, 750 N.W.2d 780, 06-0672.

The plaintiff in an omissions case was not required to prove reliance as an element of a s. 551.41 (2) claim, as reliance may be presumed in an omissions case. Indeed, positive proof of reliance in such a case is unnecessary. Cuene v. Hilliard, 2008 WI App 85, 312 Wis. 2d 506, 754 N.W.2d 509, 07-0124.

In a classic misrepresentation case, a plaintiff must be able to show the requisite causal connection between a defendant's misrepresentation and a plaintiff's injury. In Wisconsin the causal connection is defined by statute: a person who offers or sells a security in violation of s. 551.41 is liable to the purchaser. The causal connection is established when a statutory violation is established. Cuene v. Hilliard, 2008 WI App 85, 312 Wis. 2d 506, 754 N.W.2d 509, 07-0124.

The legislature clearly envisioned that some facts, even material and relevant ones, would not always need to be disclosed. Materiality is measured by an objective standard; a fact finder assesses whether the omitted fact would have made a difference to a reasonable investor's decision to invest. If the established omissions are so obviously important to an investor that reasonable minds cannot differ on the question of materiality, materiality may be resolved on summary judgment as a matter of law. Cuene v. Hilliard, 2008 WI App 85, 312 Wis. 2d 506, 754 N.W.2d 509, 07-0124.

Section 551.41 does not create a private right of action. Section 551.59 (1) contains a civil remedy for a violation of s. 551.41 (2), and the limitation period in s. 551.59 (5) applies. Colonial Bank & Trust Co. v. American Bankshares, 478 F. Supp. 1186 (1979).

Proof that the defendant entered into investment contracts with a purpose or intent to defraud investors is not required for a violation of s. 551.41 (3). The state need only prove that the accused willfully engaged in conduct that operates or would operate as a fraud or deceit upon a person. The nature of the act is dispositive, not the actor's state of mind. Van Duyse v. Israel, 486 F. Supp. 1382 (1980).

NOTE: The above annotations refer to ch. 551 as it existed prior to its repeal and recreation by 2007 Wis. Act 196.