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Law Offices of Eric Norstedt, P.A.
2924 Davie Road, Suite 200
Davie, Florida, 33314
P: (954) 467-6263

F: (954) 467-6159

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Securities Law
FEDERAL SECURITIES LAW
 - Securities Act of 1933
 - Securities Act of 1934
    - Rules Promulgated under
      the Securities Act of 1934

STATE SECURITIES LAW

Alabama Securities Law
Alaska Securities Law
Arizona Securities Law
Arkansas Securities Law
California Securities Law
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Connecticut Securities Law
Delaware Securities Law
Dis. of Columbia Securities Law
Florida Securities Law
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Oregon Securities Law
Pennsylvania Securities Law
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Puerto Rico Seguridades Ley
Rhode Island Securities Law
South Carolina Securities Law
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Selected Sections of the

Arizona Securities Act

 

Sections included on the Arizona Securities Act Page:

Section 44-1801 Definitions.
Section 44-1841 Sale of unregistered securities prohibited: classification.
Section 44-1842 Transactions by unregistered dealers and salesmen prohibited: classification.
Section 44-1949 Duty of dealer to give notice of termination of employment or salesman: automatic suspension of salesman’s registration: notice of employment.
Section 44-1961 Grounds for denial, revocation or suspension of dealer registration: administrative remedies.
Section 44-1962 Grounds for denial, revocation or suspension or registration of salesman: administrative remedies.
Section 44-1991 Fraud in purchase or sale of securities.
Section 44-1992 Filing of misleading information with commission.
Section 44-1993 Misrepresentation of effect of registration of securities.
Section 44-1994 Misrepresentation of effect of registration of dealers or salesmen.
Section 44-1995 Violation: classification.
Section 44-1996 Prohibition of referral fees.
Section 44-1997 False registration statement; liability.
Section 44-1998 Offers and sales: liability.
Section 44-1999 Controlling persons: liability.
Section 44-2000 Contrary stipulations void.
Section 44-2001 Voidable sale or contract for sale of securities: remedy.
Section 44-2002 Remedy for voidable purchases.
Section 44-2003 Joint and several liability: proportionate liability: determination of responsibility: uncollectible share: settlement discharge: limitation on actions: definitions.
Section 44-2004 Limitation of civil actions.
Section 44-2005 Remedy not exclusive.
Section 44-2032 Cease and desist orders: civil penalty: injunctions: civil restitution: prosecutions for violations.
Section 44-2037 Civil penalties.
Section 44-2040 Violation: classification.
Section 44-2081 Private securities class action litigation.
Section 44-2082 Requirements for securities fraud actions involving misleading statements or omissions.
Section 44-2083 Sanctions for abusive litigation.
Section 44-2084 Right to written interrogatories.
Section 44-2085 Limitation on damages: definition.
Section 44-2086 Attorney fees paid from disgorgement monies: prohibition.
Section 44-2087 Application of safe harbor for forward-looking statements: definitions.
Section 44-3151 Licensure required, exclusion, violation: classification.
Section 44-3201 Grounds for denial, revocation or suspension of license: administrative remedies.  

SALES OF SECURITIES

DEFINITIONS

 In this chapter and chapter 13 of this title, unless the context otherwise requires:

1. "Blind pool offering" means an offering in which either:

(a) The offering materials do not describe specific operational plans.

(b) Eighty per cent or more of the net offering proceeds are not specifically allocated for the purchase, construction or development of identified property or products, for the payment of indebtedness or overhead expenses, or for other activities set forth in the issuer's business plan.

2. "Commission" means the Arizona corporation commission.

3. "Commodity" means any agricultural, grain or livestock product or by-product, any metal or mineral including a precious metal, any gem or gemstone whether characterized as precious, semiprecious or otherwise, any fuel whether liquid, gaseous or otherwise, any foreign currency and all other goods, articles, products or items of any kind. Commodity does not include a numismatic coin with a fair market value at least fifteen per cent higher than the value of the metal it contains, real property or any timber, agricultural or livestock product grown or raised on real property and offered or sold by the owner or lessee of such real property, or any work of art offered or sold by art dealers, at public auction or offered or sold through a private sale by the owner.

4. "Commodity exchange act" means the act of Congress known as the commodity exchange act (7 United States Code, chapter 1).

5. "Commodity futures trading commission" means the independent regulatory agency established by Congress to administer the commodity exchange act.

6. "Commodity investment contract" means any account, agreement or contract for the purchase or sale, primarily for speculation or investment purposes and not for use or consumption by the offeree or purchaser, of one or more commodities, whether for immediate or subsequent delivery or whether delivery is intended by the parties, and whether characterized as a cash contract, deferred shipment or deferred delivery contract, forward contract, futures contract, installment or margin contract, leverage contract or otherwise. Any commodity investment contract offered or sold, in the absence of evidence to the contrary, is presumed to be offered or sold for speculation or investment purposes. A commodity investment contract does not include any contract or agreement which requires, and under which the purchaser receives, within twenty-eight calendar days after the payment in good funds of any portion of the purchase price, physical delivery of the total amount of each commodity to be purchased under the contract or agreement.

7. "Commodity option" means any account, agreement or contract giving a party to the account, agreement or contract the right but not the obligation to purchase or sell one or more commodities or one or more commodity investment contracts, whether characterized as an option, privilege, indemnity, bid, offer, put, call, advance guaranty, decline guaranty or otherwise.

8. "CRD system" means the central registration depository system of the national association of securities dealers, incorporated.

9. "Dealer":

(a) Means a person who directly or indirectly engages full-time or part-time in this state as agent, broker or principal in the business of offering, buying, selling or otherwise dealing or trading in securities issued by another person, and who is not a salesman for a registered dealer or is not a bank or savings institution the business of which is supervised and regulated by an agency of this state or the United States.

(b) Means an issuer, other than an investment company, who, directly or through an officer, director, employee or agent who is not registered as a dealer under this chapter, engages in selling securities issued by such issuer.

(c) Does not include a person who sells or offers to sell securities exclusively to dealers registered under this chapter, and who has no place of business within this state.

(d) Does not include a person who buys or sells securities for his own account, either individually or in a fiduciary capacity, but not as part of a regular business.

10. "Director" means the director of the securities division of the commission.

11. "Division" means the securities division of the commission.

12. "Federal covered security" means any security described as a covered security in section 18 of the securities act of 1933.

13. "Issuer" means any person who issues or proposes to issue any security, except:

(a) With respect to certificates of deposit, voting-trust certificates, collateral-trust certificates, certificates of interest or shares in an unincorporated investment trust, whether or not of the fixed, restricted management, or unit type, issuer means the person or persons performing the acts and assuming the duties of depositor or manager pursuant to the provisions of the trust or other agreement or instrument under which such securities are issued.

(b) With respect to equipment-trust certificates or like securities, issuer means the person by whom the equipment or property is or is to be used.

(c) With respect to fractional interests in any oil, gas or other mineral lease, permit, claim or right, issuer means the owner thereof or of any interest therein, whether whole or fractional, fractional interests in which are created for the purpose of a public offering.

14. "Numismatic coin":

(a) Means a coin that has all of the following characteristics:

(i) The coin is of interest primarily to coin collectors rather than to speculators or investors in precious metals.

(ii) The fair market value of the coin is determined primarily by its design, subject matter, limited mintage, rarity and relative condition of preservation from wear rather than by its intrinsic precious metal or bullion content.

(iii) The fair market value of the coin is directly related to an individual inspection and grading of its relative condition according to an established system of numismatic standards promulgated independently of the offerer of the coin.

(iv) With the exception of proof, mint and commemorative coins, the coin is minted or manufactured under authority of the issuing government for the purpose of being used as legal tender.

(b) Does not include a coin that has at least one of the following characteristics:

(i) The coin is minted, manufactured or advertised for sale primarily to persons who seek to invest or speculate in precious metals rather than to coin collectors or for use in commerce as legal tender.

(ii) The coin is advertised or sold with the expectation that it will be purchased or traded for its intrinsic precious metal or bullion content.

(iii) The price of the coin is directly related to the spot market price of its intrinsic precious metal or bullion content.

(iv) The coin is generally not used as legal tender.

(v) The quantity of mintage or manufacture of the coin is based on market demand.

(vi) The coin is not sought for its design, subject matter, limited mintage, rarity or relative condition of preservation from wear, but instead is sought for the value of its intrinsic precious metal or bullion content.

15. "Offer to sell" or "offer for sale" means an attempt or offer to dispose of, or solicitation of an order or offer to buy, a security or interest in a security for value or any sale or offer for sale of a warrant or right to subscribe to another security of the same issuer or of another issuer. Any sale or offer for sale of a security which gives the holder thereof a present or future right or privilege to convert such security into another security of the same issuer or of another issuer shall be deemed an offer to sell the security to be acquired pursuant to such right or privilege, but the existence thereof shall not be construed as affecting the registration or exemption under this chapter of the security to which it attaches.
16. "Person" means an individual, corporation, partnership, association, joint stock company or trust, limited liability company, government or governmental subdivision or agency or any other unincorporated organization.
17. "Precious metal" means the following in either coin, bullion or other form:
(a) Silver.
(b) Gold.
(c) Platinum.
(d) Palladium.
(e) Copper.
18. "Real property investment contract" means a contract for the sale or purchase of a promissory note secured directly or collaterally by a mortgage, deed of trust or other lien on real property, including a contract as defined by section 33-741, or any agreement, arrangement or understanding in connection with such note, lien or contract in which a person agrees, implies to do or does any of the following, whether or not the investor is aware that any of the following actions are contemplated or taken:
(a) Guarantee the note, lien or contract against loss at any time.
(b) Promise to provide a market for the sale of the note, lien or contract, in connection with a sale or purchase.
(c) Offer to accept or accept funds for investment in notes or contracts secured directly or indirectly by a lien on real property, where the real property is unspecified at the time of investment.
(d) Pay any interest or premium for a period before actual purchase and delivery of the note or contract.
(e) Pay any money to an investor if the note or contract is in arrears.
(f) Guarantee that principal or interest will be paid in conformity with the terms of the note or contract.
(g) Accept, from time to time, partial payment toward the purchase of the note or contract.
(h) Promise to repurchase the note or contract, in connection with sale or purchase.
19. "Registered dealer" means a dealer registered under this chapter.
20. "Registered salesman" means a salesman registered under this chapter.
21. "Sale" or "sell" means a sale or any other disposition of a security or interest in a security for value, and includes a contract to make such sale or disposition. A security given or delivered with, or as a bonus on account of, a purchase of securities or other thing shall be conclusively presumed to constitute a part of the subject of the purchase and to have been sold for value.
22. "Salesman" means an individual, other than a dealer, employed, appointed or authorized by a dealer to sell securities in this state. The partners or executive officers of a registered dealer shall not be deemed salesmen within the meaning of this definition.
23. "SEC" means the United States securities and exchange commission.
24. "Securities act of 1933" means the act of Congress known as the securities act of 1933.
25. "Securities exchange act of 1934" means the act of Congress known as the securities exchange act of 1934.
26. "Security" means any note, stock, treasury stock, bond, commodity investment contract, commodity option, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, viatical or life settlement investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas or other mineral rights, real property investment contract or, in general, any interest or instrument commonly known as a "security", or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.
27. "Self-regulatory organization" or "SRO" means any national securities or commodities exchange, registered association or registered clearing agency.
28. "Underwriter" means a person who has acquired from an issuer with a view to, or sells for an issuer in connection with, the distribution of any securities or participates or has a direct or indirect participation in such undertaking, or participates or has a participation in the direct or indirect underwriting of such undertaking. Underwriter shall not include a person whose interest is limited to a commission from an underwriter or dealer not in excess of the usual and customary distributor's or seller's commission.
29. "Viatical or life settlement investment contract" means an agreement for consideration for the purchase, assignment, transfer, sale, devise or bequest of any portion of the death benefit under or ownership of either an insurance policy or certificate of insurance. A viatical or life settlement investment contract does not include:
(a) Any agreement for the original issuance of an insurance policy or certificate of insurance.
(b) An assignment, transfer, sale, devise or bequest of a death benefit under or ownership of either an insurance policy or certificate of insurance by the original owner or a person who has an insurable interest in the insured pursuant to section 20-1104 to any of the following:
(i) The insured.
(ii) A person who has an insurable interest in the insured pursuant to section 20-1104.
(iii) A dealer.
(iv) A person who is engaged in the business of purchasing the death benefit under or ownership of either insurance policies or certificates of insurance.
(c) An assignment of an insurance policy or certificate of insurance to any bank, savings bank, savings and loan association, credit union or other licensed lending institution as collateral for a loan.
(d) The exercise of accelerated benefits pursuant to the life insurance policy.

SALE OF SECURITIES

SALE OF UNREGISTERED SECURITIES PROHIBITED; CLASSIFICATION.

A. It is unlawful to sell or offer for sale within or from this state any securities unless the securities have been registered pursuant to article 6 or 7 of this chapter or are federal covered securities if the securities comply with section 44-1843.02 or chapter 13, article 12 of this title.

B. A person violating this section is guilty of a class 4 felony.

TRANSACTIONS BY UNREGISTERED DEALERS AND SALESMEN PROHIBITED; CLASSIFICATION.

A. It is unlawful for any dealer to sell or purchase or offer to sell or buy any securities, or for any salesman to sell or offer for sale any securities within or from this state unless the dealer or salesman is registered as such pursuant to the provisions of article 9 of this chapter.
B. A person violating this section is guilty of a class 4 felony.

REGISTRATION OF DEALERS AND SALESMEN
DUTY OF DEALER TO GIVE NOTICE OF TERMINATION OF EMPLOYMENT OF SALESMAN: AUTOMATIC SUSPENSION OF SALESMAN’S REGISTRATION: NOTICE OF EMPLOYMENT OF SALESMAN.

Each registered dealer shall promptly notify the director of the termination of the employment of a registered salesman. The registration of the salesman shall automatically be suspended from the time of termination of the employment until the salesman is again employed by a registered dealer and the director is notified by the dealer in writing or by the CRD system, and the registered dealer is notified of approval of the registration by the director or the CRD system or the salesman has complied with all requirements in accordance with a temporary agent transfer program utilized by the CRD system and the commission.

DENIAL, REVOCATION OR SUSPENSION OF REGISTRATION AS DEALER OR SALESMAN GROUNDS FOR DENIAL, REVOCATION OR SUSPENSION OF DEALER REGISTRATION: ADMINISTRATIVE REMEDIES.

A. After a hearing or notice and opportunity for a hearing as provided in article 11 of this chapter, the commission may enter an order suspending for a period of not to exceed one year, denying or revoking the registration of a dealer if the commission finds that:
1. The application for registration of the dealer, any financial statement, document or other exhibit filed with the application or any supplement or amendment to the application is incomplete, inaccurate or misleading.
2. The dealer is insolvent or is in an unsound financial condition.
3. The dealer has violated this chapter or any rule or order of the commission under this chapter.
4. The dealer purchases or sells securities at such variations from current market prices as, in the light of all the circumstances, are unconscionable.
5. The dealer has failed to file with the commission any record, report, financial statement or other information required under this chapter or any rule or order of the commission under this chapter, or has refused to permit an examination into the dealer's affairs.
6. The dealer is lacking in integrity, is not of good business reputation or is not qualified by training or experience.
7. The dealer has knowingly retained a salesman after notice that the salesman has committed an offense under this chapter.
8. The dealer has been convicted within ten years preceding the date of filing the application for registration as a dealer, or at anytime thereafter, of a felony or misdemeanor involving a transaction in securities, of which fraud is an essential element or arising out of the conduct of any business in securities.
9. The dealer is permanently or temporarily enjoined by order, judgment or decree of an administrative tribunal or a court of competent jurisdiction from engaging in or continuing any conduct or practice in connection with the sale or purchase of securities.
10. The dealer is subject to an order of an administrative tribunal, an SRO or the SEC denying, suspending or revoking membership or registration as a broker or dealer in securities or an investment adviser or investment adviser representative for at least six months.
11. The dealer has been guilty of any fraudulent act or practice in connection with the purchase or sale of securities.
12. The dealer has failed to reasonably supervise its salesmen.
13. The dealer has engaged in dishonest or unethical practices in the securities industry.
14. The dealer has engaged in dishonest or unethical practices in business or financial matters.
B. In addition to denying, revoking or suspending the registration, if the commission finds that a dealer has engaged in an act, practice or transaction described in subsection A, paragraph 4, 12 or 13, the commission may do one or more of the following:
1. Assess administrative penalties.
2. Order the dealer to cease and desist from engaging in the act, practice or transaction or doing any other act in furtherance of the act, practice or transaction.
3. Take appropriate affirmative action, as prescribed by the commission, to correct the conditions resulting from the act, practice or transaction, including a requirement to provide restitution.
C. It is sufficient cause for denial, revocation or suspension of registration of a dealer as provided in this section, if the dealer is a partnership, corporation, unincorporated association or trust, that a member of the partnership, an officer or director of the corporation or unincorporated association, a trustee or other fiduciary of such trust or a person controlling, controlled by or under common control with the dealer has been guilty of any act or omission which would be a sufficient ground for denying or revoking the registration of an individual dealer.
D. If the registration of a dealer is revoked or denied, that dealer may not file with the commission an application for registration under this chapter or for licensure under chapter 13 of this title for at least one year after the date of the revocation or denial.

GROUNDS FOR DENIAL, REVOCATION OR SUSPENSION OF REGISTRATION OF SALESMAN: ADMINISTRATIVE REMEDIES.

 A. After a hearing or notice and opportunity for a hearing as provided by article 11 of this chapter, the commission may enter an order suspending for a period of not to exceed one year, denying or revoking the registration of a salesman if the commission finds that:
1. The application for registration of the salesman, any statement, document or other exhibit filed with the application or any supplement or amendment to the application is incomplete, inaccurate or misleading.
2. The salesman has violated this chapter or any rule or order of the commission under this chapter.
3. The salesman has failed to file with the commission any record, report or other information required under this chapter or any rule or order of the commission under this chapter or has refused to permit an examination into the salesman's affairs.
4. The salesman is lacking in integrity, is not of good business reputation or is not qualified by training or experience.
5. The salesman is not employed by a registered dealer.
6. The salesman has been convicted within ten years preceding the date of filing the application for registration as a salesman, or at anytime thereafter, of a felony or misdemeanor involving a transaction in securities, of which fraud is an essential element or arising out of the conduct of any business in securities.
7. The salesman is permanently or temporarily enjoined by order, judgment or decree of an administrative tribunal or a court of competent jurisdiction from engaging in or continuing any conduct or practice in connection with the sale or purchase of securities.
8. The salesman is subject to an order of an administrative tribunal, an SRO or the SEC denying, suspending or revoking membership or registration as a broker or dealer in securities or an investment adviser or investment adviser representative for at least six months.
9. The salesman has been guilty of any fraudulent act or practice in connection with the purchase or sale of securities.
10. The salesman has engaged in dishonest or unethical practices in the securities industry.
11. The salesman has failed to reasonably supervise salesmen under the salesman's supervisory control.
12. The salesman has engaged in dishonest or unethical practices in business or financial matters.
B. In addition to denying, revoking or suspending the registration, if the commission finds that a salesman has engaged in an act, practice or transaction described in subsection A, paragraph 10 or 11, the commission may do one or more of the following:
1. Assess administrative penalties.
2. Order the salesman to cease and desist from engaging in the act, practice or transaction or doing any other act in furtherance of the act, practice or transaction.
3. Take appropriate affirmative action, as prescribed by the commission, to correct the conditions resulting from the act, practice or transaction, including a requirement to provide restitution.
C. If the registration of a salesman is revoked or denied, that salesman may not file with the commission an application for registration under this chapter or for licensure under chapter 13 of this title for at least one year after the date of the revocation or denial.

FRAUDULENT PRACTICES
FRAUD IN PURCHASE OR SALE OF SECURITIES

A. It is a fraudulent practice and unlawful for a person, in connection with a transaction or transactions within or from this state involving an offer to sell or buy securities, or a sale or purchase of securities, including securities exempted under section 44-1843 or 44-1843.01 and including transactions exempted under section 44-1844, 44-1845 or 44-1850, directly or indirectly to do any of the following:
1. Employ any device, scheme or artifice to defraud.
2. Make any untrue statement of material fact, or omit to state any material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.
3. Engage in any transaction, practice or course of business which operates or would operate as a fraud or deceit.
B. In a private action brought pursuant to subsection A, paragraph 2 of this section or section 44-1992, if the person who offered or sold the security proves that any portion or all of the amount    recoverable under subsection A, paragraph 2 of this section or section 44-1992 represents an amount other than the depreciation in value of the subject security resulting from the part of the prospectus or oral communication, with respect to which the liability of the person is asserted, not being true or omitting to state a material fact required to be stated or necessary to make the statement not misleading, then the amount shall not be recoverable. This subsection does not apply to any actions based on allegations of activities constituting dishonest or unethical practices in the securities industry.

FILING OF MISLEADING INFORMATION WITH COMMISSION

It is a fraudulent practice and unlawful:
1. For a person to subscribe to or make or cause to be made an untrue statement of a material fact in an application, registration statement, prospectus, financial statement or document required to be filed under any provision of this chapter or any rule, regulation or order of the commission thereunder.
2. To omit or cause to be omitted from any such application, registration statement, prospectus, financial statement, or other statement or document, a material fact or statement necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading.

MISREPRESENTATION OF EFFECT OF REGISTRATION OF SECURITIES

Neither the fact that securities are registered by description under article 6 of this chapter or by qualification under article 7 of this chapter, nor the fact that registration of the securities has not been denied, suspended or revoked shall be deemed a finding by the commission or by the director that the registration statement, application for registration, prospectus, or any financial statement, or other document or exhibit filed therewith is true or accurate, or does not contain untrue statements of material facts, or omit material facts, or to mean that the commission or the director has passed upon the merits of or otherwise approved the securities so registered. It is a fraudulent practice and unlawful for a person to make or cause to be made to a prospective purchaser of the securities a statement or other representation contrary to this section.

MISREPRESENTATION OF EFFECT OF REGISTRATION OF DEALERS OR SALESMEN

Neither the fact that a dealer or salesman is registered under article 9 of this chapter, nor the fact that the registration of the dealer or salesman has not been denied, suspended or revoked shall be deemed a finding by the commission or by the director that the dealer or salesman is of good business reputation, or is not lacking in integrity, or is not insolvent, or that the application for registration of the dealer or salesman, or any financial statement, document or exhibit filed therewith is true or accurate, or does not contain untrue statements of material facts or omit material facts. It is a fraudulent practice and unlawful for a dealer or salesman in connection with any transaction involving the purchase or sale of securities to make a statement or other representation contrary to this section.

VIOLATION: CLASSIFCIATION

A person violating a provision of this article is guilty of a class 4 felony.

PROHIBITION OF REFERRAL FEES

A dealer, salesman, agent or person associated with a dealer, salesman or agent shall not directly or indirectly solicit or accept remuneration for assisting an attorney in obtaining the representation of any person in any private action arising under this chapter, the securities act of 1933 (15 United States Code sections 77a through 77bbbb) or the securities exchange act of 1934 (15 United States Code sections 78a through 78ll).

FALSE REGISTRATION STATEMENT: LIABILITY

A. If any part of the registration statement filed under any federal or Arizona securities laws relating to securities offered or sold within or from this state contained, at the time the part became effective, an untrue statement of a material fact or omitted to state a material fact required to be stated or necessary to make the statement not misleading, any person acquiring the securities may commence in any court or administrative forum of competent jurisdiction an action against any of the following persons unless it is proved that at the time of the acquisition the purchaser knew of the untruth or omission:
1. Every person who signed the registration statement.
2. Every person who was a director or person performing similar functions of the issuer or partner in the issuer at the time of the filing of the part of the registration statement.
3. Every person who consents to be and is named in the registration statement as being or about to become a director, person performing similar functions or partner.
4. Every accountant, engineer or appraiser or any person whose profession gives authority to a statement made by the person who with the person's consent has been named as having prepared or certified any part of the registration statement or as having prepared or certified any report or valuation that is used in connection with the registration statement, with respect to the statement in the registration statement, report or valuation, that purports to have been prepared or certified by the person.
5. Every underwriter with respect to the security.
B. If a person acquires the security after the issuer has made generally available to its security holders an earnings statement covering a period of at least twelve months beginning after the effective date of the registration statement, the right of recovery under subsection A is conditioned on proof that the person acquired the security relying on the untrue statement in the registration statement or relying on the registration statement and not knowing of the omission. Reliance may be established without proof that the person read the registration statement.
C. No person other than the issuer is liable under subsections A and B who proves any of the following:
1. Before the effective date of the part of the registration statement for which liability is asserted the person both:
(a) Had resigned from or had taken steps permitted by law to resign from, or had ceased or refused to act in every office, capacity or relationship in which the person was described in the registration statement as acting or agreeing to act.
(b) Had advised the issuer and either the commission or the SEC in writing that the person had taken the action and that the person would not be responsible for that part of the registration statement.
2. If that part of the registration statement became effective without the person's knowledge, on becoming aware of that fact the person promptly acted and advised either the commission or the SEC, in accordance with paragraph 1 of this subsection and gave reasonable public notice that the part of the registration statement had become effective without the person's knowledge.
3. Regarding any part of the registration statement:
(a) Not purporting to be made on the authority of an expert and not purporting to be a copy of or extract from a report or valuation of an expert, and not purporting to be made on the authority of a public official document or statement, the person after reasonable investigation had reasonable grounds to believe and did believe at the time that part of the registration statement became effective, that the statements in that part of the registration statement were true and that there was no omission to state a material fact required to be stated or necessary to make the statements not misleading.
(b) Purporting to be made on the person's authority as an expert or purporting to be a copy of or extract from a report or valuation of the person as an expert either of the following:
(i) The person had after reasonable investigation reasonable grounds to believe and did believe at the time that part of the registration statement became effective that the statements contained in that part of the registration statement were true and that there was no omission to state a material fact required to be stated or necessary to make the statements not misleading.
(ii) That part of the registration statement did not fairly represent the person's statement as an expert or was not a fair copy of or extract from the person's report or valuation as an expert.
(c) Purporting to be made on the authority of another expert or purporting to be a copy of or extract from a report or valuation of another expert, the person had no reasonable grounds to believe and did not believe at the time that part of the registration statement became effective that the statements in that part of the registration statement were untrue or that there was an omission to state a material fact required to be stated or necessary to make the statements not misleading, or that part of the registration statement did not fairly represent the statement of the expert or was not a fair copy of or extract from the report or valuation of the expert.
(d) Purporting to be a statement made by an official or purporting to be a copy of or extract from a public official document, the person had no reasonable grounds to believe and did not believe at the time that part of the registration statement became effective that the statements were untrue or that there was an omission to state a material fact required to be stated or necessary to make the statements not misleading, or that part of the registration statement did not fairly represent the statement made by the official or was not a fair copy of or extract from the public official document.
D. In determining for the purposes of subsection C, paragraph 3 what constitutes reasonable investigation and reasonable grounds for belief, the standard of reasonableness is the standard required of a prudent person in the management of the person's own property.
E. If any person becomes an underwriter of the security after the part of the registration statement with respect to which the person's liability is asserted becomes effective, for the purposes of subsection C, paragraph 3 that part of the registration statement shall be considered effective with respect to the person as of the date the person became an underwriter.
F. If the defendant proves that any portion or all of the damages represents an amount other than the depreciation in value of the security resulting from the statement described in subsection A, the portion or all of the damages are not recoverable. The action authorized under subsection A or B may be to recover the damages represented by the difference between the amount paid for the security, not to exceed the price at which the security was offered to the public, and any of the following:
1. The value of the security as of the time the action was brought.
2. The price at which the security was disposed of in the market before the action was brought.
3. The price at which the security was disposed of after the action but before judgment if the damages are less than they would be if determined under paragraph 1 of this subsection.
G. Unless the underwriter has knowingly received directly or indirectly from the issuer for acting as an underwriter some benefit in which all other underwriters similarly situated did not share in proportion to their respective interests in the underwriting, the underwriter is not liable in any action or as a consequence of an action brought under subsection A for damages greater than the total price at which the securities underwritten by the underwriter and distributed to the public were offered to the public.
H. In any action under this section the court may require an undertaking for the payment of the costs of the action, including reasonable attorney fees. If judgment is rendered against a party on the motion of the other party, the costs may be assessed in favor of the party whether or not the undertaking has been required if the court believes the action or the defense to have been without merit, in an amount sufficient to reimburse the party for the reasonable expenses incurred by the party in connection with the action. The costs awarded are taxable in the manner usually provided for taxing of costs in the court in which the action was heard.
I. Any or all of the persons specified in subsection A shall be jointly and severally liable. Every person who becomes liable for any payment under this section may recover contribution from any person who, if sued separately, would have been liable for the same payment, unless the person who has become liable also is guilty of fraudulent misrepresentation under federal securities laws and the other person is not.
J. The amount recoverable under this section shall not exceed the price at which the security was offered to the public.

OFFERS AND SALES: LIABILITY

A. In any case relating to securities offered or sold within or from this state, any person who offers or sells a security by means of a prospectus or oral communication that includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements, in light of the circumstances under which they were made, not misleading is liable to the purchaser of the security from that person, as long as the purchaser did not know of the untruth or omission, as provided by this section. The purchaser may bring an action in any court or administrative forum of competent jurisdiction to recover the consideration paid for the security with interest, minus the amount of any income received from the security, on the tender of the security, or for damages if the purchaser no longer owns the security. The person has the burden of proof that the person did not know and in the exercise of reasonable care could not have known of the untruth or omission. If the person meets the burden of proof, the person is not liable. This subsection applies notwithstanding any exemption under section 77c of the securities act of 1933 (15 United States Code sections 77a through 77bbbb), except for an exemption under subsection A, paragraph 2 of that section, and notwithstanding any exemption under article 4 or 7 of this chapter, except for section 44-1843, subsection A, paragraph 1.
B. In an action under subsection A of this section, if the person who offered or sold the security proves that any portion or all of the amount recoverable under subsection A of this section represents an amount other than the depreciation in value of the subject security resulting from the asserted untruth or omission the portion or amount is not recoverable.

CONTROLLING PERSONS: LIABILITY

A. Every person who, by or through stock ownership, agency or otherwise or who pursuant to or in connection with an agreement or understanding with one or more other persons by or through stock ownership, agency or otherwise controls any person liable under this article, other than section 44-1991 or 44-1992, is liable jointly and severally with and to the same extent as the controlled person to any person to whom the controlled person is liable, unless the controlling person had no knowledge of or reasonable grounds to believe in the existence of the facts by reason of which the liability of the controlled person is alleged to exist.
B. Every person who, directly or indirectly, controls any person liable for a violation of section 44-1991 or 44-1992 is liable jointly and severally with and to the same extent as the controlled person to any person to whom the controlled person is liable unless the controlling person acted in good faith and did not directly or indirectly induce the act underlying the action.

CONTRARY STIPULATIONS VOID

Any condition, stipulation or provision binding any person acquiring any security to waive compliance with this chapter or chapter 13 of this title or of the rules of the commission is void.

CIVIL REMEDIES AND LIABILITIES
VOIDABLE SALE OR CONTRACT FOR SALE OF SECURITIES: REMEDY

A. A sale or contract for sale of any securities to any purchaser in violation of section 44-1841 or 44-1842 or article 13 of this chapter is voidable at the election of the purchaser, and the purchaser may bring an action in a court of competent jurisdiction to recover the consideration paid for the securities, with interest, taxable court costs and reasonable attorney fees, less the amount of any income received by dividend or otherwise from ownership of the securities, on tender of the securities purchased or the contract made, or for damages if the purchaser no longer owns the securities.
B. A person against whom an action for a violation of section 44-1991 is brought is not liable under subsection A of this section if the person sustains the burden of proof that the person did not know and in the exercise of reasonable care could not have known of the untrue statement or misleading omission.

REMEDY FOR VOIDABLE PURCHASES

A. A purchase or contract for purchase from a seller of securities made in violation of section 44-1842, 44-1991 or 44-1994 is voidable at the election of the seller of the securities, and the seller may bring an action in a court of competent jurisdiction to recover the amount of the seller's damages, with interest, taxable court costs and reasonable attorney fees.
B. A person against whom an action for a violation of section 44-1991 is brought is not liable under subsection A of this section if the person sustains the burden of proof that the person did not know and in the exercise of reasonable care could not have known of the untrue statement or misleading omission.

JOINT AND SEVERAL LIABILITY: PROPORTIONATE LIABILITY: DETERMINATION OF RESPONSIBILITY; UNCOLLECTIBLE SHARE: SETTLEMENT DISCHARGE: LIMITATION ON ACTIONS: DEFINITIONS

A. Subject to the provisions of this section, an action brought under section 44-2001, 44-2002 or 44-2032 may be brought against any person, including any dealer, salesman or agent, who made, participated in or induced the unlawful sale or purchase, and such persons shall be jointly and severally liable to the person who is entitled to maintain such action. No person shall be deemed to have participated in any sale or purchase solely by reason of having acted in the ordinary course of that person's professional capacity in connection with that sale or purchase.
B. Any covered person against whom a final judgment is entered in a private action is jointly and severally liable for damages only if the trier of fact determines that the covered person recklessly or knowingly committed a violation of this chapter.
C. A covered person against whom a final judgment is entered in a private action is liable solely for the portion of the judgment that corresponds to the percentage of responsibility of the covered person as prescribed in subsection D of this section. In any case in which a contractual relationship permits, a covered person who prevails in any private action may recover the attorney fees and costs of that covered person for the private action.
D. The court in a private action shall instruct the jury to answer special interrogatories, or if there is no jury, make findings, for each covered person and any other person the parties claim to have caused or contributed to the loss incurred by the plaintiff, including any person who has entered into a settlement with the plaintiff or plaintiffs, concerning each of the following:
1. Whether the person committed a violation of this chapter.
2. The percentage of responsibility of the person, measured as a percentage of the total fault of all persons who caused or contributed to the loss incurred by the plaintiff.
3. Whether the person knowingly committed a violation of this chapter.
E. The responses to the interrogatories or findings under subsection D of this section shall specify the total amount of damages that the plaintiff is entitled to recover and the percentage of responsibility of each covered person found to have caused or contributed to the loss incurred by the plaintiff or plaintiffs. In determining the percentage of responsibility under this section, the trier of fact shall consider both the nature and extent of:
1. The conduct of each covered person found to have caused or contributed to the loss incurred by the plaintiff or plaintiffs.
2. The causal relationship between the conduct of each covered person and the damages incurred by the plaintiff or plaintiffs.
F. Notwithstanding subsection C of this section, on a motion made within six months after a final judgment is entered in any private action, if the court determines that all or part of the share of the judgment of the covered person is not collectible against that covered person and is also not collectible against a covered person described in subsection B of this section, each covered person described in subsection C of this section is liable for the uncollectible share as follows:
1. Each covered person is jointly and severally liable for the uncollectible share if the plaintiff establishes that the plaintiff is an individual whose recoverable damages under the final judgment are greater than ten per cent of the net worth of the plaintiff, and the plaintiff's net worth is less than two hundred thousand dollars, excluding the value of the plaintiff's owned primary residence.
2. With respect to any plaintiff not described in paragraph 1 of this subsection, each covered person is liable for the uncollectible share in proportion to the percentage of responsibility of that covered person, except that the total liability of a covered person under this subsection may not exceed fifty per cent of the proportionate share of that covered person, as determined under subsection E of this section.
G. For purposes of subsection F of this section, net worth is determined as of the date immediately preceding the date of the purchase or sale by the plaintiff of the security that is the subject of the action and is equal to the fair market value of assets, minus liabilities, including the net value of the plaintiff's investments in real and personal property and personal residences.
H. The total payments required pursuant to subsection F of this section shall not exceed the amount of the uncollectible share. A covered person against whom judgment is not collectible is subject to contribution and to any continuing liability to the plaintiff on the judgment.
I. To the extent that a covered person is required to make an additional payment pursuant to subsection F of this section, the covered person may recover contribution from any of the following or any combination of the following:
1. The covered person originally liable to make the payment.
2. Any covered person liable jointly and severally pursuant to subsection B of this section.
3. Any covered person who is held proportionately liable pursuant to this section, who is liable to make the same payment and who has paid less than the person's proportionate share of that payment.
4. Any other person who is responsible for the conduct giving rise to the payment and who would have been liable to make the same payment.
J. The standard for allocation of damages under subsections B, C and D of this section and the procedure for reallocation of uncollectible shares under subsection F of this section shall not be disclosed to members of the jury.
K. If a covered person settles any private action at any time before a final verdict or judgment, the court shall enter an order discharging the covered person from all claims for contribution brought by other persons. On entry of the settlement by the court, the court shall enter a bar order constituting the final discharge of all obligations to the plaintiff of the settling covered person arising out of the action. The order bars all future claims for contribution arising out of the action by:
1. Any person against the settling covered person.
2. The settling covered person against any person, other than a person whose liability has been extinguished by the settlement of the settling covered person.
L. If a covered person enters into a settlement with the plaintiff before a final verdict or judgment, the verdict or judgment shall be reduced by the greater of either:
1. The amount that corresponds to the percentage of responsibility of that covered person.
2. The amount paid to the plaintiff by that covered person.
M. Except as provided in subsection K of this section, a covered person who becomes jointly and severally liable for damages in any private action may recover contribution from any other person who, if joined in the original action, would have been liable for the same damages. A claim for contribution shall be determined based on the percentage of responsibility of the claimant and of each person against whom a claim for contribution is made.
N. In any private action determining liability, an action for contribution shall be brought within six months after the entry of a final, nonappealable judgment in the action, except that an action for contribution brought by a covered person who was required to make an additional payment pursuant to subsection F of this section may be brought within six months after the date on which the payment was made.
O. For purposes of this section, reckless conduct by a covered person does not constitute a knowing violation of this chapter by the covered person.
P. For the purposes of this section:
1. "Covered person" means a defendant in any private action arising under sections 44-1991 and 44-1992 or a defendant who is an outside director in a private action arising under section 44-1997.
2. "Knowingly committed a violation of this chapter" means either:
(a) In an action that is based on an untrue statement of material fact or omission of a material fact necessary to make the statement not misleading, the covered person makes an untrue statement of a material fact with actual knowledge that the representation is false or omits the statement of a fact necessary in order to make the statement made not misleading, with actual knowledge that, as a result of the omission, one of the material representations of the covered person is false and other persons are likely to reasonably rely on that misrepresentation or omission.
(b) In an action that is based on any conduct that is not described in subdivision (a), the covered person engages in conduct with actual knowledge of the facts and circumstances that make the conduct of that covered person a violation of this chapter.

LIMITATION OF CIVIL ACTIONS

A. No civil action shall be maintained under this article to enforce any liability based on a violation of section 44-1841 or 44-1842 unless brought within one year after the violation occurs.
B. Except as provided in subsection C of this section, no civil action shall be brought under this article to enforce any liability based on a violation of article 13 of this chapter unless brought within two years after discovery of the fraudulent practice on which the liability is based, or after the discovery should have been made by the exercise of reasonable diligence.
C. No civil action shall be brought under this article to enforce any liability based on a violation of section 44-1997 or 44-1998 unless brought within two years after the discovery of the untrue statement or the omission. No action shall be brought to enforce a liability created under section 44-1997 more than five years after a bona fide offer of the security to the public or under section 44-1998 more than five years after the sale of the security.

REMEDY NOT EXCLUSIVE

Nothing in this article shall limit any statutory or common law right of any person in any court for any act involved in the sale of securities.

ENFORCEMENT
CEASE AND DESIST ORDERS: CIVIL PENALTY: INJUNCTIONS: CIVIL RESTITUTION: PROSECUTIONS FOR VIOLATIONS

If it appears to the commission, either on complaint or otherwise, that any person has engaged in, is engaging in or is about to engage in any act, practice or transaction that constitutes a violation of this chapter, or any rule or order of the commission under this chapter, the commission may, in its discretion:
1. Issue an order directing such person to cease and desist from engaging in the act, practice or transaction, or doing any other act in furtherance of the act, practice or transaction, and to take appropriate affirmative action within a reasonable period of time, as prescribed by the commission, to correct the conditions resulting from the act, practice or transaction including, without limitation, a requirement to provide restitution as prescribed by rules of the commission. If a person fails to comply with an order issued under this paragraph, the superior court in Maricopa county, on application by the commission shall:
(a) Issue an order to show cause why the person has not complied with the commission's order. On a showing that the person has violated the commission's order, the court may exercise its contempt powers and impose a civil penalty of not more than twenty thousand dollars for each violation as the court considers to be just and proper.
(b) Award reasonable costs, including attorney fees, to the commission, unless other circumstances make an award of costs unjust. Any costs, including attorney fees, collected pursuant to this paragraph shall be deposited, pursuant to sections 35-146 and 35-147, in the state general fund.
2. Apply to the superior court in Maricopa county or any federal court for an injunction restraining the person from the violation, and on a showing by the commission that the person has engaged in, is engaging in or is about to engage in an act, practice or transaction in violation of this chapter or any rule or order of the commission, a temporary restraining order, preliminary injunction or permanent injunction shall be granted without bond. Process in those actions may be served on the defendant in any county of this state in which the defendant transacts business or is found.
3. Apply to the superior court in Maricopa county or any federal court for an order restoring to any person in interest any monies or property, real or personal, that may have been acquired or transferred in violation of this chapter.
4. Petition the superior court in Maricopa county or transmit any evidence available concerning the act, practice or transaction to the attorney general and the attorney general may petition the superior court in Maricopa county for the appointment of a conservator to reorganize the affairs of, or a receiver to wind up the affairs of, the violator. Process in those actions may be served on the defendant in any county in this state where the defendant transacts business or may be found.
5. Transmit any evidence available concerning the act, practice or transaction to a county attorney, the attorney general or the United States attorney who may, with or without the transmittal, directly institute or cause to be instituted any criminal proceedings as the evidence warrants.

CIVIL PENALTIES

A. A person who, in a civil proceeding, is found to have violated any provision: his chapter or any rule or order of the commission shall pay a civil penalty in an amount of not to exceed five thousand dollars for each violation.
B. The commission, or the attorney general at the commission's request, may bring an action in Maricopa county in the same manner as the filing of other such actions. On the finding of a violation of this chapter or any rule or order of the commission by the defendant in any such action, the court may impose the civil penalty provided by this section in an amount it deems appropriate for each such violation. Nothing in this section shall be construed to limit the right of a party in an action under this section to a trial by jury.
C. If an administrative penalty has been imposed pursuant to section 44-2036 for violation of the same provision, rule or order arising out of the same circumstances and has been paid by the person against whom the civil penalty is imposed, the court shall reduce the civil penalty by the amount of the administrative penalty paid.
D. A person who violates any order or injunction issued by a court of competent jurisdiction pursuant to this chapter, in addition to any other penalty or remedy for contempt of court, shall pay to this state a civil penalty of not more than twenty thousand dollars for each violation as the court deems just and proper. For the purpose of this section, the superior court issuing any order or injunction shall retain jurisdiction and the cause shall be continued. The commission or the attorney general acting in the name of this state may petition for recovery of civil penalties pursuant to this section.

VIOLATION: CLASSIFICATION

A person who knowingly violates any provision of this chapter or any rule, regulation or order of the commission thereunder for which a penalty is not provided is guilty of a class 1 misdemeanor.

PRIVATE SECURITIES LITIGATION
PRIVATE SECURITIES CLASS ACTION LITIGATION

A. This section applies in each private action that arises under this chapter and that is brought as a plaintiff class action pursuant to the Arizona rules of civil procedure or any federal or other jurisdictional counterpart to the rules.
B. Each plaintiff seeking to serve as a representative party on behalf of a class shall provide a sworn certification to the court that is signed by the plaintiff, filed with the complaint and includes a statement that:
1. The plaintiff has reviewed the complaint and has authorized its filing.
2. The plaintiff did not purchase the security that is the subject of the complaint at the direction of the plaintiff's counsel or in order to participate in any private action arising under this chapter.
3. The plaintiff is willing to serve as a representative party on behalf of a class, including providing testimony at a deposition or trial.
4. Sets forth all of the plaintiff's transactions involving the security that is the subject of the complaint during the class period specified in the complaint.
5. Identifies any other action under this chapter, the securities act of 1933 (15 United States Code sections 77a through 77bbbb) or the securities exchange act of 1934 (15 United States Code sections 78a through 78ll) filed within three years before the plaintiff signs the certification in which the plaintiff has sought to serve as a representative party on behalf of a class.
6. The plaintiff will not accept any payment for serving as a representative party on behalf of a class beyond the plaintiff's pro rata share of any recovery, except as ordered or approved by the court in accordance with subsection J.
C. The certification filed pursuant to subsection B is not a waiver of the attorney-client privilege.
D. Within twenty days after the date on which the complaint is filed, the plaintiff or plaintiffs shall publish, in a widely circulated national business-oriented publication or wire service, a notice advising members of the purported plaintiff class of the pendency of the action, the claims asserted and the purported class period. The notice shall include a statement that, within sixty days after the date on which the notice is published, any member of the purported class may move the court to serve as lead plaintiff of the purported class. If more than one action on behalf of a class asserting substantially the same claim or claims arising under this article is filed, only the plaintiff or plaintiffs in the first filed action are required to publish the notice. The notice is in addition to any notice required pursuant to the Arizona rules of civil procedure or any federal or other jurisdictional counterpart to the rules. Notwithstanding this subsection, the court may narrow the geographic scope of the publication of the notice required by this subsection, if the court finds that substantially all members of the class would receive notice.
E. Within ninety days after the date on which a notice is published under subsection D the court shall consider any motion made by a purported class member in response to the notice, including any motion by a class member who is not individually named as a plaintiff in the complaint or complaints, and shall appoint the most adequate plaintiff as lead plaintiff. The most adequate plaintiff is that member or members of the purported plaintiff class that the court determines to be most capable of adequately representing the interests of class members in accordance with this subsection. Subject to subsection F, the court shall adopt a presumption that the most adequate plaintiff in any private action arising under this chapter is the person or group of persons that has either filed the complaint or made a motion in response to a notice under subsection D, in the determination of the court has the largest financial interest in the relief sought by the class and otherwise satisfies the requirements of rule 23 of the Arizona rules of civil procedure or any federal or other jurisdictional counterpart to the rules.
F. The presumption prescribed in subsection E may be rebutted only on proof by a member of the purported plaintiff class that the presumptively most adequate plaintiff will not fairly and adequately protect the interests of the class or is subject to unique defenses that render that plaintiff incapable of adequately representing the class. A plaintiff may conduct discovery relating to whether a member or members of the purported plaintiff class are the most adequate plaintiff if the plaintiff demonstrates a reasonable basis for a finding that the presumptively most adequate plaintiff is incapable of adequately representing the class.
G. If more than one action on behalf of a class asserting substantially the same claim or claims arising under this chapter has been filed, and any party has sought to consolidate those actions for pretrial purposes or for trial, the court shall not make the determination required by subsection E until after the decision on the motion to consolidate is rendered. As soon as practicable after the decision is rendered, the court shall appoint the most adequate plaintiff as lead plaintiff for the consolidated actions in accordance with this section.
H. Subject to the approval of the court, the most adequate plaintiff shall select and retain counsel to represent the class.
I. Except as the court permits and consistent with the purposes of this section, a person may be a lead plaintiff, or an officer, director or fiduciary of a lead plaintiff, in not more than five class actions during any three consecutive years brought as plaintiff class actions pursuant to the Arizona rules of civil procedure or any federal counterpart to the rules.
J. The share of any final judgment or of any settlement that is awarded to a representative party serving on behalf of a class shall be equal on a per share basis to the portion of the final judgment or settlement awarded to all other members of the class. Nothing in this subsection limits the award of reasonable costs and expenses, including lost wages, directly relating to the representation of the class to any representative party serving on behalf of a class.
K. The terms and provisions of any settlement agreement of a class action shall not be filed under seal, except that on a motion by any party to the settlement, the court may order filing under seal for those portions of a settlement agreement as to which good cause is shown for filing under seal. For purposes of this subsection, good cause exists if publication of a term or provision of a settlement agreement would cause direct and substantial harm to any party.
L. Attorney fees and costs awarded by the court to counsel for the plaintiff class shall not exceed a reasonable percentage of the amount of any damages and prejudgment interest actually paid to the class.
M. Any proposed or final settlement agreement that is published or disseminated to the class shall include a cover page summarizing the information contained in the settlement agreement and:
1. The amount of the settlement proposed to be distributed to the parties to the action, determined in the aggregate and on an average per share basis.
2. If the settling parties agree on the average amount of damages per share that would be recoverable if the plaintiff prevailed on each claim alleged under this chapter, a statement concerning the average amount of the potential damages per share.
3. If the parties do not agree on the average amount of damages per share that would be recoverable if the plaintiff prevailed on each claim alleged under this chapter, a statement from each settling party concerning the issue or issues on which the parties disagree.
4. If any of the settling parties or their counsel intends to apply to the court for an award of attorney fees or costs from any fund established as part of the settlement, a statement indicating which parties or counsel intends to make the application, the amount of fees and costs that will be sought, including the amount of the fees and costs determined on an average per share basis, and a brief explanation supporting the fees and costs sought. The cover page of any notice to a party of any proposed or final settlement agreement shall include a clear summary of the information prescribed by this paragraph.
5. The name, telephone number and address of one or more representatives of counsel for the plaintiff class who will be reasonably available to answer questions from class members concerning any matter contained in any notice of settlement published or disseminated to the class.
6. A brief statement explaining the reasons why the parties are proposing the settlement.
7. Other information required by the court.
N. A statement made in accordance with subsection M, paragraph 2 or 3 concerning the amount of damages is not admissible in any federal or state judicial action or administrative proceeding, other than an action or proceeding arising out of the statement.
O. In any private action arising under this chapter that is certified as a class action pursuant to the Arizona rules of civil procedure or any federal or other jurisdictional counterpart to the rules, the court may require an undertaking from the attorneys for the plaintiff class or the plaintiff class, or both, or from the attorneys for the defendant or the defendant, or both, in those proportions and at those times as the court determines are just and equitable, for the payment of fees and expenses that may be awarded under this section.
P. If a plaintiff class is represented by an attorney who directly owns or otherwise has a beneficial interest in the securities that are the subject of the litigation, the court shall make a determination of whether the ownership or other interest constitutes a conflict of interest sufficient to disqualify the attorney from representing the plaintiff class.

REQUIREMENTS FOR SECURITIES FRAUD ACTIONS INVOLVING MISLEADING STATEMENTS OR OMISSIONS

A. In any private action arising under section 44-1991 or 44-1992 in which the plaintiff alleges that the defendant made an untrue statement of a material fact or omitted a statement of a material fact necessary in order to make the statements made, in the light of the circumstances in which they were made, not misleading, the complaint shall specify each alleged untrue statement or material omission and the reason or reasons why the statement or omission is misleading or the omission is material and, if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed.
B. In any private action arising under section 44-1991 or 44-1992 in which the plaintiff may recover money damages only on proof that the defendant acted with a particular state of mind, for each act or omission that allegedly violates section 44-1991 or 44-1992, the complaint shall state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.
C. In any private action arising under section 44-1991 or 44-1992:
1. On any defendant's motion, the court shall dismiss the complaint if the requirements of subsections A and B of this section are not met.
2. All discovery and other proceedings shall be stayed during the pendency of any motion to dismiss pursuant to rule 12 of the Arizona rules of civil procedure, unless the court finds on the motion of any party that particularized discovery is necessary to preserve evidence or to prevent undue prejudice to that party.
D. During the pendency of any stay of discovery pursuant to subsection C of this section, unless ordered by the court, any party to the action with actual notice of the allegations contained in the complaint shall treat all documents, data compilations, including electronically recorded or stored data, and tangible objects that are in the custody or control of that person and that are relevant to the allegations as if they were the subject of a continuing request for production of documents from an opposing party under the Arizona rules of civil procedure or any applicable federal or other jurisdictional counterpart to the rules. A party aggrieved by the wilful failure of an opposing party to comply with this subsection may apply to the court for an order awarding appropriate sanctions.
E. Except as provided in section 44-1991, subsection B, including actions based on allegations of activities constituting dishonest or unethical practices in the securities industry, in any private action arising under this chapter, the plaintiff has the burden of proving that the act or omission of the defendant alleged to violate the section under which the private action is brought caused the loss for which the plaintiff seeks to recover damages.

SANCTIONS FOR ABUSIVE LITIGATION

A. In any private action arising under this chapter, on final adjudication of the action, unless the parties stipulate otherwise, the court shall include in the record specific findings regarding compliance by each party and each attorney representing any party with each requirement of rule 11(b) of the Arizona rules of civil procedure or any applicable federal or other jurisdictional counterpart to the rules as to any complaint, responsive pleading or dispositive motion. If the federal or other jurisdictional rules of civil procedure do not have a counterpart to rule 11(b) of the Arizona rules of civil procedure, rule 11(b) of the Arizona rules of civil procedure applies.
B. If the court makes a finding under subsection A that a party or attorney violated any requirement of rule 11(b) of the Arizona rules of civil procedure or any federal or other jurisdictional counterpart to the rules as to any complaint, responsive pleading or dispositive motion, the court shall impose sanctions on that party or attorney in accordance with rule 11 of the Arizona rules of civil procedure or any federal or other jurisdictional counterpart to the rules. Before making a finding that any party or attorney has violated the applicable rules, the court shall give that party or attorney notice and an opportunity to respond.
C. Subject to subsections D and E, for the purposes of subsection B, the court shall adopt a presumption that the appropriate sanctions for:
1. Failure of any responsive pleading or dispositive motion to comply with any requirement of rule 11(b) of the Arizona rules of civil procedure or any applicable federal or other jurisdictional counterpart to the rules is an award to the opposing party of reasonable attorney fees and other expenses incurred as a direct result of the violation.
2. Substantial failure of any complaint to comply with any requirement of rule 11(b) of the Arizona rules of civil procedure or any federal or other jurisdictional counterpart to the rules is an award to the opposing party of reasonable attorney fees and other expenses incurred in the action.
D. The presumption prescribed in subsection C may be rebutted only on proof by the party or attorney against whom sanctions are to be imposed that either of the following applies:
1. The award of attorney fees and other expenses will impose an unreasonable burden on that party or attorney and would be unjust, and the failure to make an award would not impose a greater burden on the party in whose favor sanctions are to be imposed.
2. The violation of rule 11(b) of the Arizona rules of civil procedure or federal or other jurisdictional counterpart to the rules was de minimis.
E. If the party or attorney against whom sanctions are to be imposed meets the burden prescribed by subsection D, the court shall award the sanctions that the court deems appropriate pursuant to rule 11 of the Arizona rules of civil procedure or any applicable federal or other jurisdictional counterpart to the rules.

RIGHT TO WRITTEN INTERROGATORIES

In any private action arising under this chapter in which the plaintiff may recover money damages, if requested by a defendant, the court shall submit to the jury a written interrogatory on the issue of each defendant's state of mind at the time of the alleged violation.

LIMITATION ON DAMAGES: DEFINITIONS

A. Except as provided in subsection B of this section, in any private action arising under section 44-1991 or 44-1992 in which the plaintiff seeks to establish damages by reference to the market price of a security, the award of damages to the plaintiff shall not exceed the difference between the purchase or sale price paid or received, as appropriate, by the plaintiff for the security and the mean trading price of that security during the ninety days beginning on the date on which the information correcting the misstatement or omission that is the basis for the action is disseminated to the market.
B. In any private action arising under section 44-1991 or 44-1992 in which the plaintiff seeks to establish damages by reference to the market price of a security, if the plaintiff sells or repurchases the security before the expiration of the ninety day period prescribed in subsection A of this section, the plaintiff's damages shall not exceed the difference between the purchase or sale price paid or received by the plaintiff for the security and the mean trading price of the security during the period beginning immediately after dissemination of information correcting the misstatement or omission and ending on the date on which the plaintiff sells or repurchases the security.
C. This section shall not apply to damages caused by a violation of section 44-1841 or 44-1842.
D. For purposes of this section, "mean trading price of the security" means an average of the daily trading price of that security, determined as of the close of the market each day during the relevant period.

ATTORNEY FEES PAID FROM DISGORGEMENT MONIES: PROHIBITION

Disgorged monies resulting from a judicial or administrative action brought by the commission shall not be distributed as payment for attorney fees or expenses incurred by private parties seeking distribution of the disgorged monies, except as otherwise ordered by the court on a motion by the commission or, in the case of an administrative action, as otherwise ordered by the commission.

APPLICATION OF SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS: DEFINITIONS

A. This section only applies to a forward-looking statement made by:
1. At the time that the statement is made, an issuer that is subject to the reporting requirements of section 13(a) or section 15(d) of the securities exchange act of 1934 (15 United States Code section 78m(a) or section 78o(d)).
2. A person acting on behalf of an issuer described in paragraph 1 of this subsection.
3. An outside reviewer who is retained by an issuer described in paragraph 1 of this subsection and who is making a statement on behalf of that issuer.
4. An underwriter of an issuer described in paragraph 1 of this subsection who uses information provided by the issuer or information derived from information provided by the issuer.
B. Except if specifically provided by rule or order of the commission, this section does not apply to a forward-looking statement if the statement is:
1. Made in connection with the issuer's business or operations and if any of the following applies to the issuer:
(a) At any time during the three consecutive years before the date on which the statement was first made, the issuer was convicted of a felony or misdemeanor pursuant to section 44-1961, subsection A, paragraph 8, or clauses (i) through (iv) of section 15(b)(4)(B) of the securities exchange act of 1934 (15 United States Code section 78o(b)(4)(B)), has been found to have violated or been made subject to an order, judgment or decree under section 44-1961, subsection A, paragraph 9, 10 or 11, or has been made the subject of a judicial or administrative decree or order arising out of a governmental action that prohibits future violations of the antifraud provisions of the federal, Arizona or other jurisdictions' securities laws, requires that the issuer cease and desist from violating the antifraud provisions of the federal, Arizona or other jurisdictions' securities laws or determines that the issuer violated the antifraud provisions of the federal, Arizona or other jurisdictions' securities laws.
(b) The issuer makes the forward-looking statement in connection with an offering of securities by a blank check company.
(c) The issuer issues penny stock.
(d) The issuer makes the forward-looking statement in connection with a roll up transaction.
(e) The issuer makes the forward-looking statement in connection with a going private transaction.
2. Included in a financial statement prepared in accordance with generally accepted accounting principles.
3. Contained in a registration statement of or issued by an investment company.
4. Made in connection with a tender offer.
5. Made in connection with an initial public offering.
6. Made in connection with an offering by or relating to the operations of a partnership, a limited liability company or a direct participation investment program.
7. Made in a disclosure of beneficial ownership in a report required to be filed with the SEC pursuant to section 13(d) of the securities exchange act of 1934 (15 United States Code section 78m(d)).
C. Except as provided in subsection B of this section, in any private action that arises under this chapter and that is based on an untrue statement of a material fact or an omission of a material fact necessary to make the statement not misleading, pursuant to subsection A of this section, a person, issuer, outside reviewer or underwriter is not liable for any written or oral forward-looking statement if and to the extent that either of the following exists:
1. The forward-looking statement is identified as a forward-looking statement and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement or the statement is immaterial.
2. The plaintiff fails to prove that the forward-looking statement if made by a natural person was made with actual knowledge by that person that the statement was false or misleading, or if made by a business entity, was made by or with the approval of an executive officer of that entity and was made or approved by that officer with actual knowledge by that officer that the statement was false or misleading.
D. In the case of an oral forward-looking statement made by an insurer that is subject to the reporting requirements of section 13(a) or section 15(d) of the securities exchange act of 1934, (15 United States Code section 78m(a) or section 78o(d)) or by a person acting on behalf of the issuer, the requirement set forth in subsection C, paragraph 1 of this section is satisfied if both of the following are true:
1. The oral forward-looking statement is accompanied by a cautionary statement that the oral statement is a forward-looking statement and that the actual results could differ materially from those projected in the forward-looking statement.
2. If the oral forward-looking statement is accompanied by an oral statement that additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statement is contained in a readily available written document, the oral statement shall identify the document or the portion of the document that contains the additional information about those factors relating to the forward-looking statements and the written document shall contain a cautionary statement that satisfies the standard established in subsection C, paragraph 1 of this section.
E. Any document that is filed with the commission or the SEC or that is generally disseminated is readily available for purposes of subsection D of this section.
F. The exemption provided for in subsection C of this section is in addition to any exemption that the commission may establish by rule under subsection J of this section.
G. Nothing in this section imposes on any person a duty to update a forward-looking statement.
H. On any motion to dismiss based on subsection C of this section, the court shall consider any statement cited in the complaint and any cautionary statement that is not subject to material dispute and that is cited by the defendant accompanying the forward-looking statement.
I. In any private action arising under this chapter, the court shall stay discovery, other than discovery that is specifically directed to the applicability of the exemption provided by this section, during the pendency of any motion by a defendant for summary judgment that is based on the grounds that the statement or omission on which the complaint is based is a forward-looking statement within the meaning of this section and the exemption provided by this section precludes a claim for relief.
J. In addition to the exemptions provided by this section, the commission by rule may provide exemptions from or under any provision of this chapter, including liability that is based on a statement, projections or other forward-looking information, if the exemption is consistent with the public interest and the protection of investors, as determined by the commission.
K. Nothing in this section limits, either expressly or by implication, the authority of the commission to exercise similar authority or to adopt similar rules for forward-looking statements under any other statute under which the commission exercises rule making authority.
L. For the purposes of this section, unless the context otherwise requires:
1. "Forward-looking statement" means any of the following:
(a) A statement containing a projection of revenues, income, income loss, earnings, earnings per share, loss per share, capital expenditures, dividends, capital structure or other financial items.
(b) A statement of the plans and objectives of management for future operations, including plans or objectives relating to the products or services of the issuer.
(c) A statement of future economic performance, including any statement contained in a discussion and analysis of financial condition by the management or in the results of operations included pursuant to the rules of the commission or the rules and regulations of the SEC.
(d) Any statement of the assumptions underlying or relating to any statement described in subdivision (a), (b) or (c) of this paragraph.
(e) Any report issued by an outside reviewer retained by an issuer, to the extent that the report assesses a forward-looking statement made by the issuer.
(f) A statement containing a projection or estimate of other items specified by commission rule.
2. "Going private transaction" has the same meaning prescribed in the rules and regulations of the SEC issued pursuant to section 13(e) of the securities exchange act of 1934 (15 United States Code section 78m(e)).
3. "Investment company" has the same meaning prescribed in section 3(a) of the investment company act of 1940 (15 United States Code section 80a-3(a)).
4. "Person acting on behalf of an issuer" means any officer, director or employee of the issuer.
5. "Tender offer" has the same meaning prescribed in section 14(d) of the securities exchange act of 1934 (15 United States Code section 78n(d)).
6. The following terms have the same meaning prescribed in the rules of the commission:
(a) "Direct participation investment program".
(b) "Executive officer of an entity".
(c) "Initial public offering".
(d) "Limited liability company".
(e) "Partnership".
(f) "Penny stock".
(g) "Roll up transaction".

LICENSURE OF INVESTMENT ADVISERS AND INVESTMENT ADVISER REPRESENTATIVES
LICENSURE REQUIRED: EXCLUSIONS: VIOLATION: CLASSIFICIATION

A. A person shall not transact business in this state as an investment adviser or investment adviser representative unless any of the following applies:
1. The person is licensed under this article.
2. The person is a federal covered adviser and has made a notice filing under this article.
3. The person is exempt from licensure.
4. The person is a federal covered adviser and is not subject to the notice filing requirements prescribed in section 44-3153.
B. The licensure requirements of this article do not apply to any federal covered adviser or a person that is excluded from the definition of an investment adviser under section 202(a)(11) of the investment advisers act of 1940.
C. An investment adviser that is required to be licensed shall not employ an investment adviser representative unless the investment adviser representative is licensed under this article. The licensure of an investment adviser representative is not effective during any period of time that the investment adviser representative is not employed by a licensed investment adviser or by a federal covered adviser that has made a notice filing pursuant to section 44-3153, subsection E. A licensed investment adviser shall promptly notify the commission when an investment adviser representative begins or terminates employment with the investment adviser by filing a completed form U-4 or form U-5 or any other form as the director may designate.
D. An investment adviser representative shall not conduct business on behalf of a federal covered adviser unless that investment adviser representative is licensed under this article. A federal covered adviser shall notify the commission if any investment adviser representative begins or terminates employment with that federal covered adviser by filing a completed form U-4, form U-5 or any other form the director designates for that purpose.
E. A person who knowingly violates this section is guilty of a class 1 misdemeanor.

DENIAL, REVOCATION OR SUSPENSION OR LICENSE
GROUNDS FOR DENIAL, REVOCATION OR SUSPENSION OF LICENSE: ADMINISTRATIVE REMEDIES

A. After a hearing or notice and an opportunity for a hearing as provided in article 7 of this chapter, the commission may enter an order suspending for a period of not more than one year, denying or revoking the license of an investment adviser or investment adviser representative if the commission finds that it is in the public interest and any one or a combination of the following:
1. The application for licensure of the investment adviser or investment adviser representative, any financial statement, document or other exhibit filed with an application or any supplement or amendment to an application is incomplete, inaccurate or misleading.
2. The investment adviser is insolvent or is in an unsound financial condition.
3. The investment adviser or investment adviser representative violates this chapter or any rule or order of the commission adopted or issued under this chapter.
4. The investment adviser or investment adviser representative fails to file with the commission any record, report, financial statement or other information required under this chapter or any rule or order of the commission adopted or issued under this chapter or refuses to permit an examination pursuant to section 44-3132.
5. The investment adviser knowingly retains an unlicensed investment adviser representative who is required to be licensed under this chapter.
6. The investment adviser permits any person to render investment advice in violation of this chapter.
7. The investment adviser representative is not employed by a licensed or federal covered adviser.
8. The investment adviser or investment adviser representative has been convicted within ten years preceding the date of filing an application for licensure as an investment adviser or investment adviser representative, or at any time after the date of filing an application, of a felony or misdemeanor involving a transaction in securities, of which fraud is an essential element or arising out of the conduct of any business involving securities or any aspect of the securities business.
9. The investment adviser or investment adviser representative is permanently or temporarily enjoined by order, judgment or decree of an administrative tribunal or a court of competent jurisdiction from engaging in or continuing any conduct or practice involving a violation of any federal or state securities laws or a violation of any other regulatory licensing requirements.
10. The investment adviser or investment adviser representative is subject to an order of an administrative tribunal, an SRO or the SEC denying, revoking or suspending membership, licensure or registration as a broker or dealer in securities or as an investment adviser or investment adviser representative for at least six months.
11. The investment adviser or investment adviser representative has been found civilly or criminally liable, by any court of competent jurisdiction or other governmental authority in a civil or criminal action not subsequently reversed, suspended or vacated, for any fraudulent act or practice in connection with any aspect of the securities business.
12. The investment adviser fails to reasonably supervise its investment adviser representatives or employees to assure their compliance with this chapter.
13. The investment adviser or investment adviser representative engages in dishonest or unethical practices in the securities industry.
14. The investment adviser or investment adviser representative engages in dishonest or unethical practices in business or financial matters.
B. In addition to denying, revoking or suspending the license, if the commission finds that an investment adviser or investment adviser representative has engaged in an act, practice or transaction described in subsection A, paragraph 6, 12 or 13, the commission may do one or more of the following:
1. Assess administrative penalties.
2. Order the investment adviser or investment adviser representative to cease and desist from engaging in the act, practice or transaction or doing any other act in furtherance of the act, practice or transaction.
3. Take appropriate affirmative action, as prescribed by the commission, to correct the conditions resulting from the act, practice or transaction, including a requirement to provide restitution.
C. If the investment adviser is a partnership, corporation, unincorporated association, limited liability company or trust, it is sufficient cause for denial of licensure if a member of the partnership, an officer or director of the corporation or unincorporated association, a manager of a limited liability company, a trustee or any other fiduciary of a trust or a person controlling, controlled by or under common control with the investment adviser has been found civilly or criminally liable, by any court of competent jurisdiction or other governmental authority in a civil or criminal action not subsequently reversed, suspended or vacated, for any act or omission that would be sufficient grounds for denying the licensure of an individual investment adviser.

D. If the license of an investment adviser or investment adviser representative is revoked or denied, that investment adviser or investment adviser representative may not file with the commission for licensure under this chapter or for registration under chapter 12 of this title for at least one year from the date of the revocation or denial

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The above is not the complete act. This page contains only certain sections of the statute which we believe you may find informative. We do not and cannot guarantee the above sections are current law in this state. Legislatures may enact revised statutes at any time. Moreover these sections are presented for informational purposes only and are presented "as is" with all faults and with no warranties or guarantees as to the accuracy. Further, The content on these pages are not offered or intended to be legal advice by this firm for any purpose or manner whatsoever. If you require the current and complete version of the Law in your state, you should visit the Legislature home page of the particular state for more information or contact an attorney for advice on obtaining such information.

 

 
 
 
 

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