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Law Offices of Eric Norstedt, P.A.
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Davie, Florida, 33314
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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

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Puerto Rico Seguridades Ley
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Selected Sections of the

Kentucky Securities Act

 

Sections included on this page:

DEFINITIONS

292.310 Definitions for chapter.
When used in this chapter, unless the context otherwise requires:
(1) "Agent" means any individual other than a broker-dealer who represents a broker-dealer or issuer in effecting or attempting to effect purchases or sales of securities, except as otherwise provided in this chapter.

(a) "Agent" does not include an individual who represents:

1. An issuer in:

a. Effecting a transaction in a security exempted by subsection (1), (2), (3), (10), or (11) of KRS 292.400, or subsection (5), (9), or (12) thereof if no commission or other remuneration is received for the sale of such securities or effecting a transaction in a security exempted by KRS 292.400(15) even if commission or other remuneration is received for the sale of such security provided that the individual offers or sells no other security except securities exempted by KRS 292.400(15);

b. Effecting transactions exempted by KRS 292.410 unless otherwise required;

c. Effecting transactions in a covered security under Section 18(b)(3) or 18(b)(4)(d) of the Securities Act of 1933 if no commission or other remuneration is paid or given directly or indirectly for soliciting any
person in Kentucky;

d. Effecting transactions with existing employees, partners, or directors of the issuer if no commission or other remuneration is paid or given directly or indirectly for soliciting any person in this state; or

e. Effecting other transactions if the individual primarily performs, or is intended primarily to perform upon completion of an offering of the issuer's own securities, substantial duties for or on behalf of the issuer otherwise than in connection with transactions in the issuer's own securities and the individual's compensation is not based, in whole or in part, upon the amount of purchases or sales of the issuer's own securities effected for the issuer; or

2. A broker-dealer in effecting transactions described in Section 15(h)(2) of the
Securities Exchange Act of 1934.

(b) A partner, officer, or director of a broker-dealer or issuer, or a person occupying a similar status or performing similar functions is an "agent" only if he otherwise comes within the definition in this subsection;

(2) "Broker-dealer" means any person engaged in the business of effecting transactions in securities for the account of others or for his own account. "Broker-dealer" does not include:

(a) An agent, issuer, bank, savings institution, or trust company; (b) A person that effects transactions in this state exclusively in securities exempted by
KRS 292.400(15); or

(c) A person who has no place of business in this state:

 

1. If he effects transactions in this state exclusively with or through the issuers of
the securities involved in the transactions, other broker-dealers, or banks,
savings institutions, trust companies, insurance companies, investment
companies as defined in the Investment Company Act of 1940, pension or
profit-sharing trusts, or other financial institutions or institutional buyers,
whether acting for themselves or as trustees; or

2. If during any period of twelve (12) consecutive months he does not direct more
than fifteen (15) offers to sell or to buy into this state in any manner to persons
other than those specified in this paragraph;

(3) "Certified" means, when used in regard to financial statements, examined and reported
upon in accordance with generally accepted auditing standards with an opinion expressed
by a certified public accountant;

(4) "Executive director" means the executive director of the Office of Financial Institutions or
any individual employee of the Office of Financial Institutions expressly designated by
order of the executive director to act in the executive director's place;

(5) "Covered advisor" means any person who is registered under Section 203 of the Investment
Advisers Act of 1940, 15 U.S.C. sec. 80b-3;

(6) "Covered security" means any security that is a covered security under Section 18(b) of the
Securities Act of 1933 or rules or regulations promulgated thereunder;
(7) "Office" means the Office of Financial Institutions of the Commonwealth of Kentucky;

(8) "Fraud," "deceit," and "defraud" are not limited to common-law deceit;

(9) "Guaranteed" means guaranteed as to payment of principal, interest, or dividends;

(10) "Investment adviser" means any person who, for compensation, engages in the business of
advising others, either directly or through publications or writings, as to the value of
securities or as to the advisability of investing in, purchasing, or selling securities, or who,
for compensation and as a part of a regular business, issues or promulgates analyses or
reports concerning securities. "Investment adviser" does not include:

(a) A bank, savings institution, or trust company;

(b) A lawyer, accountant, engineer, or teacher whose performance of these services is
solely incidental to the practice of his profession;

(c) A broker-dealer whose performance of these services is solely incidental to the
conduct of his business as a broker-dealer and who receives no special compensation
for them;

(d) A publisher of any bona fide newspaper, news magazine, or business or financial
publication of general, regular, and paid circulation;

(e) A person whose advice, analyses, or reports relate only to securities exempted by
KRS 292.400(1);

(f) A person who has no place of business in this state if:

1. His only clients in this state are other investment advisers, covered advisers,
broker-dealers, banks, savings institutions, trust companies, insurance
companies, pension or profit-sharing trusts, or other financial institutions or
institutional buyers, whether acting for themselves or as trustees; or

2. During any period of twelve (12) consecutive months he does not have more
than five (5) clients other than those specified in subparagraph 1;
(g) An investment adviser representative or a person excluded from the definition of
investment adviser representative;

(h) A person who is excluded from the definition of investment adviser under Section
202(a)(11) of the Investment Advisors Act of 1940;

(i) A covered adviser; or

(j) Such other persons not within the intent of this subsection as the executive director
may by rule or order designate;

(11) "Investment adviser representative" means:

(a) With respect to any investment adviser registered or required to be registered under
this chapter, any partner, officer, director of, or a person occupying a similar status or
performing similar functions, or other individual employed by or associated with an
investment adviser, except clerical or ministerial personnel, who:

1. Makes any recommendations or otherwise renders advice regarding securities;
2. Manages accounts or portfolios of clients;
3. Determines which recommendation or advice regarding securities should be
given;

4. Solicits, offers, or negotiates for the sale of or sells investment advisory
services; or

5. Supervises employees who perform any of the functions described in this
paragraph; and

(b) With respect to any covered adviser, any person defined as an investment adviser
representative who has a place of business located in Kentucky, as those terms are
defined in Rule 203A-3 promulgated in accordance with the Investment Advisors Act
of 1940.

(12) "Issuer" means any person who issues or proposes to issue any security, except that with
respect to certificates of deposit, voting trust certificates, or collateral-trust certificates, or
with respect to certificates of interest or shares in an unincorporated investment trust not
having a board of directors (or persons performing similar functions) or of the fixed,
restricted management, or unit type, the term "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 the security is issued,
and except that with respect to fractional undivided interests in oil, gas, or other mineral
rights, the term "issuer" means the owner of any such right or of an interest in such right
(whether whole or fractional) who creates fractional interests therein for the purpose of
distribution;

(13) "Nonissuer" means not directly or indirectly for the benefit of the issuer;

(14) "Person" means an individual, a limited liability company, a corporation, a partnership, a
limited partnership, an association, a joint-stock company, a trust where the interests of the
beneficiaries are evidenced by a security, an unincorporated organization, a government, or
a political subdivision of a government;

(15) "Rule" or "regulation" means either or both administrative rules or administrative
regulations promulgated by any governmental or other regulatory or self-regulatory entity,
as the context requires;

(16) "Sale" or "sell" includes every contract of sale of, contract to sell, or disposition of, a
security or interest in a security for value. "Offer" or "offer to sell" includes every attempt
to offer to dispose of, or solicitation of an offer to buy, a security or interest in a security for
value. Any security given or delivered with, or as a bonus on account of, any purchase of
securities or any other thing is considered to constitute part of the subject of the purchase
and to have been offered and sold for value. A purported gift of assessable stock is
considered to involve an offer and sale. Every sale or offer of a warrant or right to purchase
or subscribe to another security of the same or another issuer, as well as every sale or offer,
of a security which gives the holder a present or future right or privilege to convert into
another security of the same or another issuer, is considered to include an offer of the other
security;

(17) "Securities Act of 1933," "Securities Exchange Act of 1934," "Public Utility Holding
Company Act of 1935," and "Investment Company Act of 1940" mean the federal statutes
of those names as amended before or after January 1, 1961;

(18) "Security" means any note, stock, treasury stock, bond, 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 settlement investment, voting-trust certificate, certificate of
deposit for a security; fractional undivided interest in oil, gas, or other mineral rights; or, in
general, any interest or instrument commonly known as a "security," or any certificate of
interest in 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. "Security" does not
include any insurance or endowment policy or annuity contract under which an insurance
company promises to pay a fixed number of dollars either in a lump sum or periodically for
life or some other specified period;

(19) "State" means any state, territory, or possession of the United States, as well as the District
of Columbia and Puerto Rico;

(20) "Viatical settlement investment" means the contractual right to receive any portion of the
death benefit or ownership of a life insurance policy or certificate, for consideration that is
less than the expected death benefit of the life insurance policy or certificate. "Viatical
settlement investment" does not include:

(a) Any transaction between a viator and a viatical settlement provider as defined by
KRS 304.15-020 and 304.15-700 to 304.15-720;

(b) Any transfer of ownership or beneficial interest in a life insurance policy from a
viatical settlement provider to another viatical settlement provider as defined by KRS
304.15-020 and 304.15-700 to 304.15-720 or to any legal entity formed solely for the
purpose of holding ownership or beneficial interest in a life insurance policy or
policies;

(c) The bona fide assignment of a life insurance policy to a bank, savings bank, savings
and loan association, credit union, or other licensed lending institution as collateral
for a loan; or

(d) The exercise of accelerated benefits pursuant to the terms of a life insurance policy
issued in accordance with Subtitle 15 of KRS Chapter 304; and

(21) Nothing in this section shall be construed to affect the classification of property for ad
valorem tax purposes.

 

FRAUDULENT AND OTHER PROHIBITED PRACTICES

292.320 Fraudulent and other prohibited practices.
(1) It is unlawful for any person, in connection with the offer, sale, or purchase of any
security, directly or indirectly:

(a) To employ any device, scheme, or artifice to defraud;

(b) To make any untrue statement of a material fact or to omit to state a material
fact necessary in order to make the statements made, in the light of the
circumstances under which they are made, not misleading; or

(c) To engage in any act, practice, or course of business which operates or would
operate as a fraud or deceit upon any person.

(2) It is unlawful for any person who receives any consideration from another person
primarily for advising the other person as to the value of securities or their purchase
or sale, whether through the issuance of analyses or reports or otherwise:

(a) To employ any device, scheme, or artifice to defraud the other person; or

(b) To engage in any act, practice, or course of business which operates or would
operate as a fraud or deceit upon the other person.

(3) It is unlawful for any investment adviser to enter into, extend, or renew any
investment advisory contract unless it provides in writing:

(a) That the investment adviser shall not be compensated on the basis of a share
of capital gains upon or capital appreciation of the funds or any portion of the
funds of the client unless the client is an "accredited investor," as defined by
Rule 501 of the Securities Act of 1933;

(b) That no assignment of the contract may be made by the investment adviser
without the consent of the other party to the contract; and

(c) That the investment adviser, if a partnership, shall notify the other party to the
contract of any change in the membership of the partnership within a
reasonable time after the change.

(4) Paragraph (a) of subsection (3) of this section does not prohibit an investment
advisory contract which provides for compensation based upon the total value of a
fund averaged over a definite period, or as of definite dates or taken as of a definite
date. "Assignment", as used in paragraph (b) of subsection (3) of this section
includes any direct or indirect transfer or hypothecation of an investment advisory
contract by the assignor or of a controlling block of the assignor's outstanding
voting securities by a security holder of the assignor; but, if the investment adviser
is a partnership, no assignment of an investment advisory contract is considered to
result from the death or withdrawal of a minority of the members of the investment
adviser having only a minority interest in the business of the investment adviser, or
from the admission to the investment adviser of one (1) or more members who,
after admission, will be only a minority of the members and will have only a
minority interest in the business.

(5) Subsection (3)(a) of this section shall also not apply to a contract with any person or
class of persons that the executive director by rule or regulation or by order upon
application determines does not need the protections of subsection (3)(a) of this
section. The executive director may grant a conditional or unconditional exemption
based on factors which include the person's or persons' financial sophistication, net
worth, knowledge of and experience in financial matters, amount of assets under
management, relationship with a registered investment adviser, or other factors as
the executive director determines are consistent with this section.

DENIAL, SUSPENSION, AND REVOCATION OF REGISTRATION

 

292.390 Denial, suspension, and revocation of registration.
(1) The executive director may issue a stop order denying effectiveness to, or
suspending or revoking the effectiveness of, any registration statement if he finds
that the order is in the public interest and that:

(a) The registration statement as of its effective date or as of any earlier date in
the case of an order denying effectiveness, or any amendment under KRS
292.380(5) as of its effective date, is incomplete in any material respect or
contains any statement which was, in the light of the circumstances under
which it was made, false or misleading with respect to any material fact;

(b) Any provision of this chapter or any rule, order, or condition lawfully imposed
under this chapter has been willfully violated, in connection with the offering
by:

1. The person filing the registration statement;

2. The issuer, any partner, officer, or director of the issuer, any person
occupying a similar status or performing similar functions, or any person
directly or indirectly controlling or controlled by the issuer, but only if
the person filing the registration statement is directly or indirectly
controlled by or acting for the issuer; or

3. Any underwriter;

(c) The security registered or sought to be registered is the subject of an
administrative stop order or a similar order or a permanent or temporary
injunction of any court of competent jurisdiction entered under any other
federal or state act applicable to the offering; but:

1. The executive director may not institute a proceeding against an
effective registration statement under this paragraph more than one (1)
year from the date of the order or injunction relied on; and

2. He may not enter an order under this paragraph on the basis of an
injunction entered under any other state act unless that order or
injunction was based on facts which would currently constitute a ground
for a stop order under this section;

(d) The issuer's enterprise or method of business includes or would include
activities which are illegal where performed;

(e) The offering has worked or tended to work a fraud upon purchasers or would
so operate;

(f) The offering has been, or would be, made with unreasonable amounts of
underwriters' and sellers' discounts, commissions, or other compensations, or
promoters' profits or participation, or unreasonable amounts or kinds of
options;

(g) When a security is sought to be registered by notification it is not eligible for
such registration;

(h) When a security is sought to be registered by coordination, there has been a
failure to comply with the undertaking required by KRS 292.360(2)(g);

(i) The applicant or registrant has failed to pay the proper registration fee; but the
executive director may enter only a denial order under this paragraph and he
shall vacate any such order when the deficiency has been corrected;

(j) Commissions, compensation, and selling and other transaction expenses
greater than twenty percent (20%) in the aggregate, or such other amount
specified in the guidelines adopted by the North American Securities
Administrators Association, would be paid directly or indirectly, in
consideration for the sale of securities sought to be registered.

(2) The executive director may not enter a stop order against an effective registration
statement on the basis of a fact or transaction known to him when the registration
statement became effective unless the proceeding is instituted within the next thirty
(30) days.

(3) The executive director may by order summarily postpone or suspend the
effectiveness of the registration statement pending final determination of any
proceeding under this section. Upon the entry of a stop order under any part of this
section, the executive director shall promptly notify the issuer of the securities, the
applicant or registrant, and the person on whose behalf the securities are to be or
have been offered that the order has been entered and of the reasons therefor and
that within fifteen (15) days after the receipt of a written request the matter will be
set down for hearing. If no hearing is requested within fifteen (15) days and none is
ordered by the executive director, the executive director shall enter his written
findings of fact and conclusions of law and the order will remain in effect until it is
modified or vacated by the executive director. If a hearing is requested or ordered,
the executive director, after notice of and opportunity for hearing to the issuer and
to the applicant or registrant, shall enter his written finding of fact and conclusions
of law and may modify or vacate the order. The executive director may modify or
vacate a stop order if he finds that the conditions which prompted its entry have
changed or that it is otherwise in the public interest to do so.

 

MISLEADING FILINGS

292.440 Misleading filings.
It is unlawful for any person to make or cause to be made, in any document filed with the
executive director or the executive director's designee or in any proceeding under this
chapter, any statement which is, at the time and in the light of the circumstances under
which it is made, false or misleading in any material respect.

UNLAWFUL REPRESENTATIONS CONCERNING REGISTRATION OR EXEMPTION

 

292.450 Unlawful representations concerning registration or exemption.
(1) Neither the fact that an application for registration under KRS 292.330 or a
registration statement under KRS 292.350, 292.360, or 292.370 has been filed, nor
the fact that a person or security is effectively registered, constitutes a finding by the
executive director that any document filed under this chapter is true, complete, and
not misleading.

(2) Neither any such fact nor the fact that an exemption or exception is available for a
security or a transaction means that the executive director has passed in any way
upon the merits or qualifications of, or recommended or given approval to, any
person, security, or transaction. It is unlawful to make, or cause to be made, to any
prospective purchaser, customer, or client any representation inconsistent with this
section.

(3) Neither the fact that a notice filing for a covered security or for a covered adviser
has been filed, nor the fact that the person, security, or transaction is registered or
exempt from registration, constitutes a finding by the executive director that any
document filed under this chapter is true, complete, and not misleading or that the
person, security, or transaction is entitled to claim an exemption.

(4) It is unlawful to make or cause to be made to any prospective purchaser, customer,
or client any representation inconsistent with this section.

 

REMEDIES

292.470 Remedies.
Whenever it appears to the executive director that any person has engaged or is about to
engage in any act or practice constituting a violation of any provision of this chapter or
any rule or order under this chapter, he may in his discretion bring any or all of the
following remedies:

(1) Issue a cease and desist order, with or without a prior hearing, appealable to
Franklin Circuit Court, against the person or persons engaged in the prohibited
activities directing that person or persons to cease and desist from illegal activity. In
order to issue an order without a prior hearing, the executive director must find that
the delay in issuing a final cease and desist order will cause harm to the public;

(2) An action in the Franklin Circuit Court or any other court of competent jurisdiction
to enjoin any such acts or practices and to enforce compliance with this chapter or
any rule or order under this chapter. Upon a proper showing a permanent or
temporary injunction, restraining order, or writ of mandamus shall be granted and a
receiver or conservator may be appointed for the defendant or the defendant's assets.
Upon a proper showing by the executive director, the court may enter an order of
rescission, restitution, or disgorgement directed to any person who has engaged in
any act constituting a violation of this chapter or any rule or order under this
chapter. The executive director may not be required to post a bond; or

(3) Issue a final order, after notice and an opportunity for a hearing, containing findings
of fact and conclusions of law, directing any person or persons found to have
engaged in, or about to be engaged in, activity that constitutes a violation of this
chapter or any rule or order under this chapter:

(a) To cease and desist from the activity;

(b) To perform any other reasonable mandates directed by the executive director
pursuant to an appropriate remedy fashioned by the executive director and
reasonably calculated to carry out the provisions of this chapter; or
(c) To pay fines assessed under KRS 292.500(14) and costs assessed under KRS
292.500(15).

CIVIL LIABILITIES

 

292.480 Civil liabilities.

(1) Any person, who offers or sells a security in violation of this chapter or of any rules
or orders promulgated hereunder or offers or sells a security by means of any untrue
statement of a material fact or any omission to state a material fact necessary in
order to make the statements made in the light of the circumstances under which
they are made not misleading (the buyer not knowing of the untruth or omission)
and who does not sustain the burden of proof that he did not know and in the
exercise of reasonable care could not have known of the untruth or omission is
liable to the person buying the security from him, who may sue either at law or in
equity to recover the consideration paid for the security, together with interest at the
legal rate from the date of payment costs and reasonable attorneys' fees, less the
amount of any income received on the security, upon the tender of the security, or
for damages if he no longer owns the security. Damages are the amount that would
be recoverable upon a tender less:

(a) The value of the security when the buyer is disposed of it; and

(b) Interest at the legal rate per annum from the date of disposition.

(2) Any person who purchases a security in violation of this chapter or of any
administrative regulations or orders promulgated under this chapter or who
purchases a security by means of any untrue statement of a material fact or any
omission to state a material fact necessary in order to make the statements made in
light of the circumstances under which they are made not misleading, the seller not
knowing of the untruth or omission, and who does not sustain the burden of proof
that he did not know and in the exercise of reasonable care could not have known of
the untruth or omission is liable to the person selling the security to him, who may
sue either at law or in equity for:

(a) A return of the security, together with any income received by the purchaser
on the security, costs, and reasonable attorney's fees, upon a tender of the full
amount of the consideration received for the security; or

(b) If the purchaser no longer owns the security, the difference between the fair
value of the security at the date of the transaction and the consideration
received for the security, together with interest on the difference at the legal
rate compounded annually from the date of the transaction, and costs and
reasonable attorney's fees.

(3) For purposes of paragraph (b) of subsection (2) of this section, when the purchaser
no longer owns the security, if a seller seeking relief under paragraph (b) of
subsection (2) of this section offers and presents admissible evidence of the highest
intermediate value of the subject security as of some specific date occurring within
a reasonable period of time after the date of the sale of the security but no later than
the date an action under paragraph (b) of subsection (2) of this section is filed, or of
the total consideration received by the purchaser in a subsequent sale of that
security, it shall be presumed until rebutted by a preponderance of evidence to the
contrary that the value or sale price, as applicable, is the fair value of the security at
the date of the transaction as those terms are used in paragraph (b) of subsection (2)
of this section to measure damages. For purposes of subsections (1) and (2) of this
section and all other provisions of this chapter, statements and omissions may be
either oral or written.

(4) Every person who directly or indirectly controls a seller or purchaser liable under
subsection (1) or (2) of this section, every partner, officer, or director (or person
occupying a similar status or performing similar functions) or employee of a seller
or purchaser who materially aids in the sale or purchase, and every broker-dealer or
agent who materially aids in the sale or purchase is also liable jointly and severally
with and to the same extent as the seller or purchaser, unless the nonseller or
nonpurchaser who is so liable sustains the burden of proof that he did not know, and
in the exercise of reasonable care could not have known, of the existence of the
facts by reason of which the liability is alleged to exist. There is contribution as in
cases of contract among the several persons so liable.

(5) Any tender specified in this section may be made at any time before entry of
judgment. Every cause of action under this statute survives the death of any person
who might have been a plaintiff or defendant. No person may sue under this section
more than three (3) years after the date the occurrence of the act, omission, or
transaction constituting a violation of this chapter was discovered, or in the exercise
of reasonable care should have been discovered. No person may sue under this
section:

(a) If the buyer received a written offer, before suit and at a time when he owned
the security, to refund the consideration paid together with interest at the legal
rate from the date of payment, less the amount of any income received on the
security, and he failed to accept the offer within thirty (30) days of its receipt;

(b) If the buyer received an offer before suit and at a time when he did not own
the security, unless he rejected the offer in writing within thirty (30) days of its
receipt; or

(c) If paragraph (b) of subsection (2) of this section applies, and if the seller
received a written offer before suit equal to the difference between the greater
of the highest intermediate value of the security or the consideration received
by the purchaser upon disposal of the security and the consideration received
by the seller for the security, together with interest on the difference at the
legal rate from the date of the transaction; or if paragraph (a) of subsection (2)
of this section applies, and if the seller received a written offer to return the
security together with any income received by the purchaser on the security;
and in either case he failed to accept the offer within thirty (30) days of its
receipt.

(6) No person who has made or engaged in the performance of any contract in violation
of any provision of this chapter or any rule or order hereunder, or who has acquired
any purported right under any contract with knowledge of the facts by reason of
which its making or performance was in violation, may base any suit on the
contract. Any condition, stipulation, or provision binding any person acquiring any
security to waive compliance with any provision of this chapter or any rule or order
hereunder is void.

(7) The rights and remedies provided by this section are in addition to any other rights

or remedies that may exist at law or in equity.

USinvestorlaw.com Disclaimer
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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