May not always be a loophole...I don't pretend to understand this very well but there have been instances (which I went searching for) that said loophole has been used purposely to evade registration restrictions...below is an excerpt of the text concerning the appeal of a person convicted of securities fraud via the mis-use of that loophole....
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UNITED STATES v. OFFILL
UNITED STATES of America, Plaintiff–Appellee, v. Phillip Windom OFFILL, Jr., Defendant–Appellant.
No. 10–4490.
Argued: Sept. 23, 2011. -- December 06, 2011
Before TRAXLER, Chief Judge, and WILKINSON and NIEMEYER, Circuit Judges.
ARGUED:George Kostolampros, Venable, LLP, Washington, D.C., for Appellant. Patrick Friel Stokes, United States Department of Justice, Washington, D.C.
OPINION
A jury convicted Phillip Offill on one count of conspiracy to commit securities registration violations, securities fraud, and wire fraud, in violation of 18 U.S.C. § 371, and nine counts of wire fraud, in violation of 18 U.S.C. § 1343. The indictment alleged that Offill had participated in a “pump and dump” securities scheme, which was designed to evade securities registration requirements, artificially inflate the value of securities, and then realize a gain by selling them at the inflated value to the public. The district court sentenced Offill to 96 months' imprisonment, a downward variance sentence.
On appeal, Offill contends that the district court erred during trial by (1) admitting opinion testimony of two experts and two lay witnesses for the government; (2) denying his request for a multiple conspiracy instruction; and (3) admitting evidence of subsequent acts not charged in the indictment. Offill also challenges the reasonableness of his sentence, arguing, among other things, that the district court impermissibly imputed to him the gain resulting from the entire conspiracy when calculating the applicable offense level under U.S.S.G. § 2B1.1.
For the reasons that follow, we affirm.
I
In March 2004 David Stocker, a securities lawyer in Phoenix, Arizona, retained Phillip Offill, a lawyer and securities specialist who had earlier worked for the Securities and Exchange Commission, to advise him on how to issue free trading (unrestricted) stock without the need of filing a registration statement. Stocker represented “penny-stock” companies for whom the securities registration process was too costly. Offill explained to Stocker that he could use Rule 504 of Regulation D of the Securities Act of 1933 and an analogous Texas state law, Texas Administrative Code (“TAC”) § 139.19, to create free-trading stock and avoid any requirement of registration. More specifically, Offill advised Stocker that Rule 504 and TAC § 139.19 provided an exception to registration requirements when the stock is sold to an “accredited investor” who purchases the stock with “investment intent.” As Offill explained, an “accredited investor” was a person with a net worth of $1 million or a business owned by persons each with a net worth of $1 million, and “investment intent” was generally demonstrated by holding a stock for a period of at least one year.
Under the working arrangement between Stocker and Offill, Offill orchestrated 51 stock issuances with Stocker during the period from April through August 2004, and Offill, through investment entities he controlled, served as the initial “accredited investor” in those transactions. Stocker and Offill produced legal opinion letters and stock subscription agreements for the transactions, asserting that the registration exemptions of Rule 504 and TAC § 139.19 applied to the transactions; that Offill, as an accredited investor, had paid for the stock; that the entity that Offill controlled had purchased the stock with “investment intent”; that Offill had no present intention of selling the stock; and that the transactions were not part of a “scheme or plan to evade registration requirements.” At Offill's suggestion, Stocker included a statement in his opinion letters noting that Stocker was not providing an opinion as to the stock purchasers' status as underwriters. For each transaction, Offill also created documents permitting Stocker to transfer the shares.
Offill received $2,500 as compensation for his work on each of the 51 transactions, for a total of $127,500.
Many of the statements in the legal opinion letters and stock subscription agreements were in fact untrue. With respect to some of the stock issuances, Offill and Stocker devised a “pump and dump” scheme designed to artificially inflate stock prices and then sell the stock to the public for gain. In connection with each of these stock issuances, as well as other stock issuances, despite the representations in the subscription agreements that Offill had purchased the stock with investment intent, Offill in fact never paid for the stock. Moreover, he allowed Stocker to transfer the shares to coconspirators within days of the initial issuance, for public sale thereafter. Under the “pump and dump” scheme, after Offill and Stocker distributed the stock to co-conspirators to create a secondary market, other conspirators, serving as “promoters,” organized marketing campaigns to increase the value of the shares through spam e-mail, press releases, and faxes that contained false information about the issuing companies. The conspirators also manipulated the price of the shares by coordinating their trading activities to limit the supply of available stock. Once the stock reached a sufficiently high price, the conspirators “dumped” their shares by selling them to the public, providing the conspirators with a gain of millions of dollars. Some of the proceeds of these sales were deposited in brokerage accounts associated with Offill.
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