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Law Offices of Eric Norstedt, P.A.
2924 Davie Road, Suite 200
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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Selected Sections of the

Montana Securities Act

 

Sections included on this page:

____________________________________________________________________________

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, in, into, or from this state, to:
     (a) employ any device, scheme, or artifice to defraud;

     (b) make any untrue statement of a material fact or 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) engage in any act, practice, or course of business that operates or would operate as a fraud or deceit upon any person.

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

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

     (ii) to engage in any act, practice, or course of business that operates or would operate as a fraud or deceit upon the other person; or

     (iii) without disclosing to the client in writing before the completion of the transaction the capacity in which the person is acting and obtaining the consent of the client to the transaction:

     (A) acting as principal for the person's own account, to knowingly sell any security to or purchase any security from a client; or

     (B) acting as agent for a person other than the client, to knowingly effect the sale or purchase of any security for the account of the client.

     (b) The prohibitions of subsection (2)(a)(iii) do not apply to any transaction with a customer of a broker-dealer if the broker-dealer is not being compensated for rendering investment advice in relation to the transaction.

     (3) In the solicitation of advisory clients, it is unlawful for a person to:

     (a) make a false statement of a material fact; or

     (b) omit a material fact necessary to make a statement not misleading in light of the circumstances under which it is made.

     (4) Except as permitted by rule or order of the commissioner, it is unlawful for any investment adviser who is registered or required to be registered to enter into, extend, or renew any investment advisory contract unless it provides in writing that:

     (a) the investment adviser may 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;
     (b) an assignment of the contract may not be made by the investment adviser without the consent of the other party to the contract; and

     (c) 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.

     (5) Subsection (4)(a) does not prohibit an investment advisory contract that 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 subsection (4)(b), 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, an assignment of an investment advisory contract is not 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 or more members who, after admission, will be only a minority of the members and will have only a minority interest in the business.

     (6) It is unlawful for an investment adviser to take or have custody of any securities or funds of any client if:

     (a) the commissioner by rule prohibits custody; or

     (b) in the absence of rule, the investment adviser fails to notify the commissioner that the investment adviser has or may have custody.

INJUNCTIONS AND OTHER REMEDIES-LIMITATIONS ON ACTIONS

(1) If it appears to the commissioner that any person has engaged or is about to engage in any act or practice constituting a violation of any provision of parts 1 through 3 of this chapter or any rule or order under this chapter, the commissioner may:

     (a) issue an order directing the person to cease and desist from continuing the act or practice after reasonable notice and opportunity for a hearing. The commissioner may issue a temporary order pending the hearing that:

     (i) remains in effect until 10 days after the hearing examiner issues proposed findings of fact
and conclusions of law and a proposed order; or

     (ii) becomes final if the person to whom notice is addressed does not request a hearing within 15 days after receipt of the notice; or

     (b) without the issuance of a cease and desist order, bring an action in any court of competent jurisdiction to enjoin any acts or practices and to enforce compliance with parts 1 through 3 of 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 must be granted and a receiver or conservator may be appointed for the defendant or the defendant's assets. The commissioner may not be required to post a bond. If the commissioner prevails, the commissioner is entitled to reasonable attorneys' fees as fixed by the court.

     (2) A final judgment or decree, criminal or civil, determining that a person has violated parts 1 through 3 of this chapter in an action brought by the commissioner for the violation, other than a consent judgment or decree entered before trial, is prima facie evidence against that person in an action brought against the person under 30-10-307.

     (3) The commissioner may, after giving reasonable notice and an opportunity for a hearing under this section, impose a fine not to exceed $5,000 per violation upon a person found to have engaged in any act or practice constituting a violation of any provision of parts 1 through 3 of this chapter or any rule or order issued under parts 1 through 3 of this chapter. The fine is in addition to all other penalties imposed by the laws of this state and must be collected by the commissioner in the name of the state of Montana and deposited in the general fund. Imposition of any fine under this subsection is an order from which an appeal may be taken pursuant to 30-10-308. If any person fails to pay a fine referred to in this subsection, the amount of the fine is a lien upon all of the assets and property of the person in this state and may be recovered by suit by the commissioner and deposited in the general fund. Failure of the person to pay a fine also constitutes a forfeiture of the right to do business in this state under parts 1 through 3 of this chapter.

     (4) (a) An administrative or civil action may not be maintained by the commissioner under this section to enforce a liability founded on a violation of 30-10-201(1) through (3) or 30-10-202 unless it is brought within 2 years after the violation occurs.

     (b) An administrative or civil action may not be maintained by the commissioner under this section to enforce a liability founded on a violation of parts 1 through 3 of this chapter or any rule or order issued under this chapter, except 30-10-201(1) through (3) and 30-10-202, unless it is brought within 2 years after discovery by the commissioner or the commissioner's staff of the facts constituting the violation.

     (c) An action may not be maintained under this section to enforce any liability founded on a violation of parts 1 through 3 of this chapter or any rule or order issued under this chapter unless it is brought within 5 years after the transaction on which the action is based.

CRIMINAL LIABILITIES

(1) Any person who willfully violates any provision of parts 1 through 3 of this chapter except 30-10-302, who willfully violates any rule or order under parts 1 through 3 of this chapter, or who willfully violates 30-10-302 knowing the statement made to be false or misleading in any material respect shall upon conviction be fined not more than $5,000 or imprisoned not more than 10 years, or both; however, in the event the person so convicted has been previously convicted of a felony in any way involving securities, imprisonment hereunder for not less than 1 year shall be mandatory. No indictment or information may be returned under parts 1 through 3 of this chapter more than 8 years after the alleged violation; however, the time limitation period may be extended allowing commencement of a prosecution within 1 year after the date the commissioner or other prosecuting officer becomes aware of the violation.

     (2) The commissioner may refer such evidence as may be available concerning violations of parts 1 through 3 of this chapter or of any rule or order hereunder to the attorney general or the proper prosecuting attorney, who may in his discretion, with or without such a reference, institute the appropriate criminal proceedings under parts 1 through 3 of this chapter.

     (3) Nothing in parts 1 through 3 of this chapter limits the power of the state to punish any person for any conduct which constitutes a crime.

CIVIL LIABILITIES-LIMITATIONS ON ACTIONS

 (1) Any person who offers or sells a security in violation of 30-10-202 or offers or sells a security by means of fraud or misrepresentation 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 10% per annum 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 disposed of it; and

     (b) interest at 10% per annum from the date of disposition.

     (2) Every person who directly or indirectly controls a seller liable under subsection (1), every partner, officer, or director (or person occupying a similar status or performing similar functions) or employee of such a seller, and every broker-dealer or salesperson who participates or materially aids in the sale is liable jointly and severally with and to the same extent as the seller if the nonseller knew, or in the exercise of reasonable care could have known, of the existence of the facts by reason of which the liability is alleged to exist. There shall be contribution among the several persons so liable.

     (3) Any tender specified in this section may be made at any time before entry of judgment. A cause of action under this statute survives the death of any person who might have been a plaintiff or a defendant. No person may sue under this section:

     (a) if the buyer has received a written offer, at a time when he owned the security, to refund the consideration paid, together with interest at 10% per annum from the date of payment, less the amount of any income received on the security and he failed to accept the offer within 30 days of its receipt; or

     (b) if the buyer has received a written offer at a time when he did not own the security in the amount that would be recoverable under subsection (1) upon a tender less:

     (i) the value of the security when the buyer disposed of it; and

     (ii) interest at 10% per annum from the date of disposition.

     (4) No person who has made or engaged in the performance of any contract in violation of any provision of parts 1 through 3 of this chapter or any rule or order hereunder or who has acquired any purported right under any such 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 parts 1 through 3 of this chapter or any rule or order hereunder is void as against public policy and in the public interest.

     (5) (a) No action may be maintained under this section to enforce any liability founded on a violation of 30-10-202unless it is brought within 2 years after the violation occurs.

     (b) No action may be maintained under this section to enforce any liability founded on fraud or misrepresentation unless it is brought within 2 years after discovery of the fraud or misrepresentation on which the liability is founded or after such discovery should have been made by the exercise of reasonable diligence.

     (c) In no event may an action be maintained under this section to enforce any liability founded on fraud or misrepresentation unless it is brought within 5 years after the transaction on which the action is based.

SECURITIES RESTITUTION

 (1) The commissioner may, after conducting a hearing pursuant to 30-10-305, require a person found to have committed a violation of 30-10-301 to make restitution for all financial losses sustained by any person as a result of the violation. The commissioner may further require a person found to have violated 30-10-301 to pay 10% annual interest on the amount of restitution from the date of the violation, reasonable attorney fees, and costs associated with bringing the administrative action.

     (2) An amount required to be paid under this section is in addition to all other penalties imposed by law. If a person fails to pay an amount referred to in this section, the amount required to be paid is a lien upon all of the assets and property of the person in this state and may be recovered by suit by the commissioner and remitted to the person ordered to receive restitution.

     (3) The commissioner or a person awarded restitution may bring suit in a court of competent jurisdiction to recover the sums awarded, attorney fees, and costs incurred in obtaining a judgment.

    (4) Failure of a person to pay any amount ordered under this section constitutes a forfeiture of the right to do business in this state.

REQUIREMENTS FOR SECURITIES FRAUD ACTIONS-DEFINITION

 (1) In any private action arising under this part, if the plaintiff alleges that the defendant made an untrue statement or omitted a material fact necessary in order to make the statements made, in light of the circumstances in which they were made, not misleading, the complaint must specify each statement alleged to have been misleading and the reason or reasons why the statement is misleading. If an allegation regarding the statement or omission is made on information and belief, the complaint must state with particularity all facts on which that belief is based.

     (2) In any private action arising under this part in which the plaintiff may recover money damages only on proof that the defendant acted with a particular state of mind, the complaint must, with respect to each act or omission alleged to violate this part, state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.

     (3) In any private action arising under this part, the court shall on the motion of any defendant, dismiss the complaint if the requirements of subsections (1) and (2) are not met.

     (4) (a) In any private action arising under this part, all discovery and other proceedings must be stayed during the pendency of any motion to dismiss unless the court finds, upon the motion of any party, that particularized discovery is necessary to preserve evidence or to prevent undue prejudice to that party.

     (b) During the pendency of any stay of discovery pursuant to this subsection (4), unless otherwise 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 the party 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 Montana Rules of Civil Procedure.

     (5) A party aggrieved by the willful failure of an opposing party to comply with subsection (4) may apply to the court for an order awarding appropriate sanctions.

     (6) In any private action arising under this part, the plaintiff has the burden of proving that the act or omission of the defendant alleged to violate this title caused the loss for which the plaintiff seeks to recover damages.

     (7) As used in 30-10-316 through 30-10-323 and this section, "private action arising under this part" means an action against a person referred to in 30-10-319(2).

SANCTIONS

 (1) In any private action arising under this part, upon final adjudication of the action, 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 of the Montana Rules of Civil Procedure as to any complaint, responsive pleading, or dispositive motion.

     (2) If the court makes a finding under subsection (1) that a party or attorney violated any requirement of Rule 11 of the Montana Rules of Civil Procedure as to any complaint, responsive pleading, or dispositive motion, the court shall impose sanctions on the party or attorney in accordance with Rule 11. Prior to making a finding that any party or attorney has violated Rule 11, the court shall give the party or attorney notice and an opportunity to respond.

     (3) (a) Subject to subsections (3)(b) and (3)(c), for the purposes of subsection (2), the court shall adopt a presumption that the appropriate sanction:

     (i) for failure of any responsive pleading or dispositive motion to comply with any requirement of Rule 11 is an award to the opposing party of the reasonable attorney fees and other expenses incurred as a direct result of the violation; and

     (ii) for substantial failure of any complaint to comply with any requirement of Rule 11 is an award to the opposing party of the reasonable attorney fees and other expenses incurred in the action.

     (b) The presumption described in subsection (3)(a) may be rebutted only upon proof by the party or attorney against whom sanctions are to be imposed that:

     (i) 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; or

     (ii) the violation of Rule 11 was de minimis.

     (c) If the party or attorney against whom sanctions are to be imposed meets its burden under subsection (3)(b), the court shall award the sanctions that the court considers appropriate pursuant to Rule 11.

DEFENDANT’S RIGHT TO WRITTEN INTERROGATORIES

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

LIMITATION ON DAMAGES

 (1) The provisions of this section limit any damages otherwise available under this part.

(2) Except as provided in subsection (3), in any private action arising under this part in which the plaintiff seeks to establish damages by reference to the market price of a security that is traded in a national securities market, the award of damages to the plaintiff may not exceed the difference between the purchase or sale price paid or received, as appropriate, by the plaintiff for the subject security and the mean trading price of that security during the 90-day period 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.

(3) In any private action arising under this part in which the plaintiff seeks to establish damages by reference to the market price of a security that is traded on a national securities market, if the plaintiff sells or repurchases the subject security prior to the expiration of the 90-day period described in subsection (2), the plaintiff's damages may 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 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.

(4) For purposes of this section, the mean trading price of a security must be an average of the daily trading price of that security, determined as of the close of the market each day during the 90-day period referred to in subsection (2).

APPLICABILITY OF SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

 (1) For the purposes of this section, the following definitions apply:

 (a) "Forward-looking statement" means:

 (i) a statement containing a projection of revenue; income per share, including income loss; earnings per share, including earnings loss; capital expenditures; dividends; capital structure; or other financial items;

     (ii) 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;

     (iii) 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;

     (iv) any statement of the assumptions underlying or relating to any statement described in subsection (1)(a)(i), (1)(a)(ii), or (1)(a)(iii);

     (v) 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; or

     (vi) a statement containing a projection or estimate of other items as may be specified by rule or regulation of the commissioner.

     (b) "Going private transaction" has the meaning given that term under the rules or regulations of the United States securities and exchange commission issued pursuant to section 13(e) of the Securities Exchange Act of 1934, 15 U.S.C. 78m(e).

     (c) "Investment company" has the same meaning as in section 3(a) of the federal Investment Company Act of 1940, 15 U.S.C. 80a-3(a).

     (d) (i) "Issuer" has the meaning provided in 30-10-103.

     (ii) The term does not include a broker-dealer as defined in 30-10-103.

     (e) "Penny stock" has the same meaning as in section 3(a)(51) of the Securities Exchange Act of 1934, 15 U.S.C. 78c(a)(51), and the rules and regulations or orders issued pursuant to that section.

     (f) "Person acting on behalf of an issuer" means an officer, director, or employee of the issuer.

     (g) The terms "blank check company", "direct participation investment program", "executive officer of an entity", "limited liability company", "partnership", and "rollup transaction" have the meanings given those terms by rule or regulation of the commissioner.

     (2) This section applies only to a forward-looking statement made by:

     (a) an issuer that, at the time that the statement is made, is subject to the reporting requirements of section (13)(a) or (15)(d) of the Securities Exchange Act of 1934, 15 U.S.C. 78m(a) or 15 U.S.C. 78o(d);

     (b) a person acting on behalf of an issuer subject to the provisions of subsection (2)(a);

     (c) an outside reviewer retained by an issuer subject to the provisions of subsection (2)(a) making a statement on behalf of that issuer; or

     (d) an underwriter, with respect to information provided by an issuer subject to the provisions of subsection (2)(a) or information derived from information provided by that issuer.

     (3) Except to the extent otherwise specifically provided by rule, regulation, or order of the securities and exchange commission, this section does not apply to a forward-looking statement:

     (a) that is made with respect to the business or operations of the issuer, if the issuer:

     (i) during the 3-year period preceding the date on which the statement was first made:

     (A) was convicted of any felony or misdemeanor described in section 15(b)(4)(B)(i) through (iv) of the Securities Exchange Act of 1934, 15 U.S.C. 78o(b)(4)(B), or was convicted under 30-10-306;

     (B) has been made the subject of a judicial or administrative decree or order arising out of a governmental action that:

     (I) prohibits future violations of the antifraud provisions of state or federal securities laws;

     (II) requires that the issuer cease and desist from violating the antifraud provisions of state or federal securities laws; or

     (III) determines that the issuer violated the antifraud provisions of state or federal securities laws;

     (ii) makes the forward-looking statement in connection with an offering of securities by a blank check company;

     (iii) issues penny stock;

     (iv) makes the forward-looking statement in connection with a rollup transaction; or

     (v) makes the forward-looking statement in connection with a going private transaction; or

     (b) that is:

     (i) included in a financial statement prepared in accordance with generally accepted accounting principles;

     (ii) contained in a registration statement of, or otherwise issued by, an investment company;

     (iii) made in connection with a tender offer;

     (iv) made in connection with an initial public offering;

     (v) 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; or

     (vi) made in a disclosure of beneficial ownership in a report required to be filed with the United States securities and exchange commission pursuant to section 13(d) of the Securities Exchange Act of 1934, 15 U.S.C. 78m(d).

     (4) (a) Except as provided in subsection (3), in any private action arising under this part that is based on an untrue statement of a material fact or omission of a material fact necessary to make the statement not misleading, a person referred to in subsection (2) is not liable with respect to any forward-looking statement, whether written or oral, if and to the extent that:

     (i) 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 is immaterial; or

     (ii) the plaintiff fails to prove that the forward-looking statement:

     (A) if made by a natural person, was made with actual knowledge by that person that the statement was false or misleading; or

     (B) if made by a business entity, was made by or with the approval of an executive officer of that entity and made or approved by that officer with actual knowledge by that officer that the statement was false or misleading.

     (b) In the case of an oral forward-looking statement made by 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 U.S.C. 78m(a) or 15 U.S.C. 78o(d) or by a person acting on behalf of the issuer, the requirement in subsection (4)(a) must be considered satisfied under the following circumstances:

     (i) if the oral forward-looking statement is accompanied by a cautionary statement that the particular oral statement is a forward-looking statement and that the actual results could differ materially from those projected in the forward-looking statement; and

     (ii) 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 or portion of the written document;

     (iii) if the accompanying oral statement referred to in subsection (4)(b)(ii) identifies the document or portion of the document that contains the additional information about those factors relating to the forward-looking statement; and

     (iv) if the information contained in that written document is a cautionary statement that satisfies the standard established in subsection (4)(a).

     (c) Any document filed with the commissioner or with the securities and exchange commission or generally disseminated must be considered to be readily available for purposes of this section.

     (5) This section does not impose upon any person a duty to update a forward-looking statement.

     (6) On any motion to dismiss based on subsection (4)(a), the court shall consider:

     (a) any statement cited in the complaint; and

     (b) any cautionary statement accompanying the forward-looking statement that is not subject to material dispute and that is cited by the defendant.

     (7) In any private action arising under this part, the court shall stay discovery, other than discovery that is specifically directed to the applicability of the exemption provided for in this section, during the pendency of any motion by a defendant for summary judgment that is based on the grounds that:

     (a) the statement or omission upon which the complaint is based is a forward-looking statement within the meaning of this section; and

     (b) the exemption provided for in this section precludes a claim for relief.

PROHIBITION OF REFERRAL FEES

 A broker, dealer, or person associated with a broker or dealer, may not solicit or accept, directly or indirectly, remuneration for assisting an attorney in obtaining the representation of any person in any private action under this part or under the Securities Act of 1933, 15 U.S.C. 77a, et seq.

PROSECUTION OF PERSONS AIDING VIOLATIONS

 For purposes of any action brought by the commissioner under 30-10-304, 30-10-305, or 30-10-306, for violations of 30-10-301 through 30-10-303, any person that knowingly provides substantial assistance to another person in violation of a provision of this part or of any rule or regulation issued under this part must be considered to be in violation of that provision to the same extent as the person to whom the assistance is provided.

LOSS CAUSATION

 In any private action arising under this part, if any portion or all of the amount recoverable represents other than the depreciation in value of the subject security resulting from a part of the prospectus or oral communication not being true or omitting to state a material fact required to be stated in the prospectus or oral communication or necessary to make the statement not misleading, then that portion or amount is not recoverable with respect to the liability of that person.

CONSTRUCTION

 Sections 30-10-315 through 30-10-322 may not be considered to create or ratify any implied private right of action or to prevent the commissioner, by rule or regulation, from restricting or otherwise regulating private actions under Montana securities laws.

DEFINITIONS

 As used in 30-10-324 through 30-10-326, the following definitions apply:
     (1) (a) "Compensation" means the receipt of money, a thing of value, or a financial benefit.
     (b) Compensation does not include:
     (i) payments to a participant based upon the sale of goods or services by the participant to third persons when the goods or services are purchased for actual use or consumption; or
     (ii) payments to a participant based upon the sale of goods or services to the participant that are used or consumed by the participant.
     (2) (a) "Consideration" means the payment of money, the purchase of goods or services, or the purchase of intangible property.
     (b) Consideration does not include:
     (i) the purchase of goods or services furnished at cost that are used in making sales and that are not for resale; or
     (ii) a participant's time and effort expended in the pursuit of sales or in recruiting activities.
     (3) (a) "Multilevel distribution company" means a person that:
     (i) sells, distributes, or supplies goods or services through independent agents, contractors, or distributors at different levels of distribution;
     (ii) may recruit other participants in the company; and
     (iii) is eligible for commissions, cross-commissions, override commissions, bonuses, refunds, dividends, or other consideration that is or may be paid as a result of the sale of goods or services or the recruitment of or the performance or actions of other participants.
     (b) The term does not include an insurance producer, real estate broker, or salesperson or an investment adviser, investment adviser representative, broker-dealer, or salesperson, as defined in 30-10-103, operating in compliance with this chapter.
     (4) "Participant" means a person involved in a sales plan or operation.
     (5) "Person" means an individual, corporation, partnership, limited liability company, or other business entity.
     (6) (a) "Pyramid promotional scheme" means a sales plan or operation in which a participant gives consideration for the opportunity to receive compensation derived primarily from obtaining the participation of other persons in the sales plan or operation rather than from the sale of goods or services by the participant or the other persons induced to participate in the sales plan or operation by the participant.
     (b) A pyramid promotional scheme includes a Ponzi scheme, in which a person makes payments to investors from money obtained from later investors, rather than from any profits or other income of an underlying or purported underlying business venture.

     (c) A pyramid promotional scheme does not include a sales plan or operation that:
     (i) subject to the provisions of subsection (6)(b)(v), provides compensation to a participant based primarily upon the sale of goods or services by the participant, including goods or services used or consumed by the participant, and not primarily for obtaining the participation of other persons in the sales plan or operation and that provides compensation to the participant based upon the sale of goods or services by persons whose participation in the sales plan or operation has been obtained by the participant;
     (ii) does not require a participant to purchase goods or services in an amount that unreasonably exceeds an amount that can be expected to be resold or consumed within a reasonable period of time;
     (iii) is authorized to use a federally registered trademark or servicemark that identifies the company promoting the sales plan or operation, the goods or services sold, or the sales plan or operation;
     (iv) (A) provides each person joining the sales plan or operation with a written agreement containing or a written statement describing the material terms of participating in the sales plan or operation;
     (B) allows a person at least 15 days to cancel the person's participation in the sales plan or operation plan; and
     (C) provides that if the person cancels participation within the time provided and returns any required items, the person is entitled to a refund of any consideration given to participate in the sales plan or operation; and
     (v) (A) provides for, upon the request of a participant deciding to terminate participation in the sales plan or operation, the repurchase, at not less than 90% of the amount paid by the participant, of any currently marketable goods or services sold to the participant within 12 months of the request that have not been resold or consumed by the participant; and
     (B) if disclosed to the participant at the time of purchase, provides that goods or services are not considered currently marketable if the goods have been consumed or the services rendered or if the goods or services are seasonal, discontinued, or special promotional items. Sales plan or operation promotional materials, sales aids, and sales kits are subject to the provisions of this subsection (6)(b)(v) if they are a required purchase for the participant or if the participant has received or may receive a financial benefit from their purchase.

OPERATING PYRAMID PROMOTIONAL SCHEME UNLAWFUL

1) A person may not conduct or promote or cause to be conducted or promoted a pyramid promotional scheme.

     (2) A person who willfully violates the provisions of subsection (1) shall, for each participant giving consideration, be fined an amount not more than $100,000 or be imprisoned for not more than 10 years, or both.

     (3) A person who violates the provisions of subsection (1) shall, for each participant giving consideration, be assessed a civil penalty in an administrative proceeding in an amount not to exceed $10,000.

NOTICE OF ACTIVITY-CONSENT TO SERVICE

 (1) A multilevel distribution company with a participant that is a resident of this state shall file with the securities commissioner on a form prescribed by the commissioner:
     (a) an annual notice of the company's operation in this state; and
     (b) an irrevocable consent designating the commissioner as its agent for service of process for any alleged violation of 30-10-325.
     (2) Compliance with this section may not by itself subject a company to the provisions of any other statute of this state or to any taxes, licenses, or fees.
     (3) (a) The commissioner may require a multilevel distribution company to disclose the following substantive information:
     (i) the names, home or business addresses, social security numbers and birth dates, and titles of the multilevel distribution company's officers, directors, and trustees;
     (ii) the corporate name; the headquarters street, mailing, and e-mail addresses, as well as telephone and telefax numbers; and the state of domicile and state of incorporation of the multilevel distribution company; and
     (iii) a detailed description of the levels of distribution in the multilevel distribution company, the manner of compensating participants, and the compensation structure of the marketing plan.
     (b) The commissioner may not release to the public the social security numbers of officers, directors, or trustees of a multilevel distribution company.
     (4) This section does not preclude the commissioner from obtaining additional information required of participants or multilevel distribution companies during the course of an investigation or proceeding initiated under this chapter.
     (5) Compliance with this chapter does not confer upon a multilevel distribution company any license or registration or signify that the state has sanctioned, approved, or endorsed a multilevel distribution company or its sales plan or operation.
     (6) A multilevel distribution company or any individual or entity affiliated with a multilevel distribution company may not represent that the multilevel distribution company, individual, or entity is licensed, registered, sanctioned, approved, or endorsed in this state by virtue of compliance with 30-10-325 and this section.
     (7) A multilevel distribution company or any individual or entity affiliated with a multilevel distribution company that violates subsection (6) is subject to the fines, injunctions, and other remedies specified in 30-10-305.


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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