Request By:
Mr. Lewis Kelly
Administrative Supervisor
Division of Securities
Department of Banking and Securities
911 Leawood Drive
Frankfort, Kentucky 40601
Opinion
Opinion By: Robert F. Stephens, Attorney General; By: Ruth H. Baxter, Assistant Attorney General
This opinion is in response to your recent letter requesting an interpretative opinion as to whether or not the Continental Financial Corporation should register with the Department of Banking and Securities as a "business opportunity" pursuant to the Business Opportunity Act, KRS 367.801 et seq. Based upon the exhibits and related materials furnished to your Department by Continental Financial Corporation (hereinafter "Corporation") for our review, it is our opinion that the Corporation should not be required to register under our interpretation of the Act.
The Business Opportunity Act requires persons 1 offering within the Commonwealth ". . . an opportunity to offer, sell or distribute through a distribution device goods or services supplied in whole or in part by the offeror when:
(a) The offeror obtains an initial required consideration of not less than five hundred dollars ($500) from the purchase or lease of the business opportunity or inventory associated therewith; and
(b) The offeror has represented that the consumer/ investor will earn, can earn or is likely to earn a gross or net profit in excess of the initial required investment paid by the consumer/ investor for the business opportunity; and
(c) The offeror has represented that he has knowledge of the relevant market and that the market demand will enable the consumer/ investor to earn a profit from the business opportunity; or the offeror has represented that locations will be provided or assistance will be given to the consumer/ investor in finding locations for the use or operation of the business opportunity; or the offeror has represented that there is a guaranteed market or that the offeror will buy back or is likely to buy back any product made, manufactured, produced, fabricated, grown or bred by the consumer/ investor using, in whole or in part, the products, supplies, equipment or services which were initially sold or offered for sale to the consumer/ investor by the offeror. " KRS 367.801(5)
It is not necessary for the purposes of this opinion to examine whether the Corporation in question has in fact required consideration of not less than five hundred dollars ($500) or made the cited representattions. The key element in determining whether or not this offeror must register is governed by the method in which the consumer/ investor sells or distributes the goods or services supplied to him by the offeror, or the offeror's "distribution device" as it is termed in the statute.
KRS 367.801(6) defines what is a "distribution device" within the meaning of the statute. In the enumerated methods listed as examples of such devices, we find provision "h" to be the sole category under which the Corporation's services could be classified. After a thorough review of the Corporation's documentation explaining its purposes, goals and functions, we are of the opinion that it is not using a "distribution device" within the meaning of the statute, and, thus, should not be required to register with the Department.
It is our understanding that the Corporation is engaged in the business of assisting corporate management by providing, analyzing and interpreting social, economic and demographic data, population statistics and similar forms of information to be utilized by corporate management in its daily planning and operational decisions. The Corporation accumulates proprietary information about its client and then combines that information with other pertinent outside data obtained through various sources. A visual information chart of this data is provided to the client in the form of an "Informational Map." From this map, the client is then left to utilize the data to enhance its business operations or any aspect thereof. Some consultation services are provided by the Corporation as an incidential by-product of its information gathering process.
Market projection formats for the purpose of selling retailers plans or arrangements which are represented to increase the retailer's market share are included within the definition of "distribution devices" under KRS 367.801(6)(h). The Corporation in question does not appear to be providing such a plan or arrangement, but instead furnishes data from which a client or retailer can establish his own such plan. The Corporation's main function, it thus appears, is to condense computer generated data to this "Information Map" and therefore enable its client to visually digest the requested data without resorting to the actual reading of the background material. This type of management service is not contemplated within the meaning of KRS 367.801(6)(h).
As a final note, however, we would advise the Department to monitor the services of the Corporation as actually demonstrated and utilized in the Commonwealth. If, for example, the Corporation assumes the role of a consultant to its client and proposes for augmentation a market projection format as envisioned by the statute, then it could cross over the fine line of simply providing data and come within the purview of the Business Opportunity Act.
Footnotes
Footnotes
1 "Persons" are defined in the Act as "natural persons, corporations, trusts, partnerships, incorporated or unincorporated associations or any other legal entity." KRS 367.801(2).