Original post here: https://x.com/NuclearHerbs/status/1797303298820891035
Easy #PulseChainLawSchool class today, just to get one of the SEC’s more ridiculous arguments out of the way. Let’s discuss “alter ego,” since the SEC alleges that #HEX, #PLS, and #PLSX are Richard’s “alter egos.” I’ll just refer to all 3 as “software” to make things easy. Alleging claims against software is, as you will see, dumb. So why did they allege it?
In a 2nd Cir case called SEC v Montle, the Court held that “[I]f personal jurisdiction exists over an individual, personal jurisdiction exists also over his or her corporate alter ego.”
Ah, so that’s the reason. It’s related to jurisdiction. If they can get jurisdiction over Richard, they think that they can get the software as well. But it’s still software, so this is a frivolous argument and I can’t imagine any court buying it.
Then again, there are a lot of things happening in American courtrooms lately that make me wonder why I didn’t go to medical school and install boobs for a living instead of wasting decades practicing law. I mean, have you seen these? https://youtube.com/watch?v=iGUxeNnA87A…
I guess if a chick wants to give you the green light now, she can literally give you the green light. How cool is that? Dating is going to be a lot easier in the future. Green shining through her shirt? Go for it. Red? No means no! So what’s next? ‘Back-up lights’ you can install in your booty?
Anyway, I feel like I’m slightly off track here, so let’s get back to it. And tbh, if I still have your attention after glow-in-the-dark titties, I feel like I should put some effort into the rest of this, so here goes.
What is an “alter ego” in law? It’d be nice if there was a simple OSFA answer to this, but there’s not. Each state has mostly-the-same-but-slightly-different ways of answering this question. Federal courts basically defer to the states here, as this judge states: “Because Wire to Wire is incorporated in Nevada, Nevada law controls the alter ego analysis.” U.S. S.E.C. v. Levine, 671 F.Supp.2d 14 (D. D.C. 2009). Why? Because corporations and LLCs are formed under state law, not federal law. Note that this case was in D.C. Federal District Court but applied NV law for this reason.
The one consistent theme of “alter ego” law is that there has to be some “legal entity” involved to do what we in the biz call “pierce the corporate veil.” You already know that you can limit your liability in many cases by creating a corporation or LLC and following the appropriate formalities. This concept has been around a long, long time. In order to bust through the “corporate veil” and go after the individual behind the company, there has to be a damn good reason. It doesn’t happen often, and usually the facts are pretty egregious when it does.
Because you’ve been faithfully attending class, you should be immediately asking yourself, “OK, smarty pants, what’s the definition of a ‘legal entity’?” Good for you. Here’s a rational, reasonable answer from a Federal Court: “It is elemental that in order to confer jurisdiction on the court the plaintiff must have an actual legal existence, that is he or it must be a person in law or a legal entity with legal capacity to sue.” Jordan v. Metro-North Commuter R.R., Civil No. 3:13cv749 (D. Conn. Sep 28, 2015)
Bottom line: If you ain’t a real live person or an entity formed and recognized under the laws of some jurisdiction, you can’t sue or be sued. Even if you’re involved in a lawsuit and die during it, someone has to be appointed as your executor or personal representative to continue it on your behalf. You’re no longer a “legal entity.” Why? Because you’re dead. The only thing you’re allowed to do after you’re dead is vote Democrat.
This is the entire premise behind the “you can’t sue the sidewalk” line in the recent amicus brief filed in Richard’s case. The sidewalk is not a separate legal entity that has the capacity to sue or be sued, so it can’t be named as a party in a lawsuit. Software programs, like HEX, PLS, and PLSX, are no different legally.
As I mentioned earlier, there are slight variances in alter ego doctrine across the country, but there are factors that are generally considered pretty much everywhere, like these:
1. Whether a person was commingling their personal funds with the corporation’s or LLC’s funds (usually without formal documentation – like you should have if you made a loan to the company, which would then be fine in most situations),
2. Whether the corporation or LLC was underfunded (usually intentionally),
3. Whether the person treated those corporate or LLC funds as their own (i.e. spending company funds on personal items and not business-related things), and/or
4. Whether legal formalities were followed (i.e. proper accounting and tax records, corporate filings, minutes of required meetings, etc.).
Instead of having to meet every factor like you would in many cases (remember the negligence case we talked about in one of our first classes?), courts kind of lump all of the evidence of these factors together and decide whether all of it adds up to enough to bust through the corporate form and go after the individual behind the curtain. There’s no black and white line here, unfortunately.
Let’s try an example: Bob creates an LLC to sell t-shirts. Bob is the sole member and manager of that LLC. He goes to the bank and gets a loan for $100k to buy t-shirt making equipment and deposits it in the company bank account. But instead, he goes to Vegas and blows his stack on cocaine, hookers, and triple-zero roulette (horrible odds – never play this!). When he defaults on the loan, the bank gets annoyed and sues Bob and the LLC, alleging that the LLC is simply an ‘alter ego’ of Bob because of the factors I listed above. Almost certainly, the LLC form will be disregarded, and the bank will be able to go after Bob personally for the funds.
Finally, let’s all remember that at the motion to dismiss stage, which is where we are, it’s all about the Complaint and what the Plaintiff put in it or failed to put in it. So let’s analyze that:
What specific facts did the SEC allege in its Complaint that show the software defendants are “legal entities” that can be sued?
None. We’re done here. Have a good rest of your day.
Again, nothing I say is legal advice. Or gambling advice, although IMO triple-zero roulette should be legally classified as robbery.
I even added boobs this time, because there’s been too much negativity around here lately, and it’s really difficult to be mad when you see boobs.
