In re the Registration of DiVall Insured Income Properties 2 Ltd. Partnership

Summary

The Minnesota Court of Appeals upheld the Minnesota Commissioner of Commerce’s denial of effectiveness of a securities registration statement for DiVall Insured Income Properties 2 Limited Partnership. The court held that the offering’s title, particularly the phrase “Insured Income,” could mislead investors into believing that their investment or returns were insured, and that supplemental disclosures did not cure the misleading title. The court concluded that the agency decision was supported by substantial evidence, was not affected by legal error, and was not arbitrary or capricious.

Holdings

1. The title's reference to "insured income" was misleading as to a material fact because it could imply to prospective investors that the investment or its return was insured, even though only limited portions of some rental income were covered by rent guaranty insurance.
2. Additional disclosures that disclaim, explain, or qualify an initially misleading statement do not necessarily bring a securities prospectus into compliance with Minn. Stat. § 80A.13 when the title itself remains misleading.
3. The Commissioner's denial of effectiveness was not affected by legal error, unsupported by substantial evidence, or arbitrary or capricious.

Questions Presented

1. Whether the Commissioner of Commerce properly determined that the offering title "DiVall Insured Income Properties 2 Limited Partnership" was misleading as to a material fact under Minn. Stat. § 80A.13, subd. 1(b)(1).
2. Whether the Commissioner's denial of effectiveness was reversible under Minn. Stat. § 14.69 as affected by legal error, unsupported by substantial evidence, or arbitrary or capricious.

Disposition

affirmed