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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

Pennsylvania Securities Act

 

Sections included on this page:

 

_______________________________________________________________________

Section 101. Short Title.

 

This act shall be known and may be cited as the "Pennsylvania Securities Act of 1972."

Section 102. Definitions.

 

When used in this act, the following definitions shall be applicable, unless the context otherwise requires:

(a) "Advertisement" means any communication used in connection with a
sale or purchase or an offer to sell or purchase a security which is publicly disseminated by means of print, radio, television, Internet or other media. ((a) amended July 4, 2002, P.L.721, No.108)

(b) An "affiliate" of, or a person "affiliated" with, a specified
person, means a person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the person specified.

(c) "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. "Agent" does not include: (i) an individual who represents an issuer in effecting transactions in securities exempted by section 202, transactions exempted by section 203 or transactions in a covered security described in sections 18(b)(3) and (4)(D) of the Securities Act of 1933 (48 Stat. 74, 15 U.S.C. § 77r) if no compensation is paid or given directly or indirectly for soliciting any person in this State in connection with any of the foregoing transactions; (ii) an individual who represents a broker-dealer in effecting transactions in this State, which transactions are limited to those described in section 15(h)(2) of the Securities Exchange Act of 1934 . §78o(h)(2)); and (iii) an individual who has no place of business in this State if he effects transactions in this State exclusively with broker dealers. Except where representing an issuer in effecting transactions in securities registered under section 205 or 206, a bona fide officer, director, or partner or employee of a broker-dealer or issuer, or an individual occupying a similar status or performing similar functions, is an agent only if he otherwise comes within this definition and receives compensation directly or indirectly related to purchases or sales of securities. ((c) amended Nov. 24, 1998, P.L.829, No.109) (c.1) ((c.1) deleted by amendment Nov. 24, 1998, P.L.829, No.109)

(d) "Bank" means a bank, savings bank, savings institution, savings and loan association, thrift institution, trust company or similar
organization which is organized or chartered under the laws of a state or of the United States, is authorized to and receives deposits and is supervised and examined by an official or agency of a state or by the United States if its deposits are insured by the Federal Deposit Insurance Corporation or a successor authorized by Federal law. ((d) amended July 4, 2002, P.L.721, No.108)

(e) "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:

(i) An agent;

(ii) An issuer;

(iii) A bank which meets the exceptions from the definition of "broker" under section 3(a)(4)(B) or (E) or the definition of "dealer" under section 3(a)(5)(B) or (C) of the Securities Exchange Act of 1934 (48 Stat. 881, 15 U.S.C. § 78c(a)(4)(B) or (E) or (5)(B) or (C));

(iv) An executor, administrator, guardian, conservator or pledgee;

(v) A person who has no place of business in this State if he effects transactions in this State exclusively with or through (A) the issuers of the securities involved in the transactions, (B) broker-dealers or institutional investors;

(vi) A person licensed as a real estate broker or agent under the act of February 19, 1980 (P.L.15, No.9), known as the Real Estate Licensing and Registration Act, and whose transactions in securities are isolated transactions incidental to that business; or

(vii) Other persons not within the intent of this subsection whom the commission by regulation designates. ((e) amended Nov. 23, 2004, P.L.930, No.132)

(f) "Commission" means the Pennsylvania Securities Commission.

(f.1) "Federally covered adviser" means a person who is registered under section 203 of the Investment Advisers Act of 1940 (54 Stat. 847, 15 U.S.C. § 80b-3). ((f.1) added Nov. 24, 1998, P.L.829, No.109)(f.2) "Federally covered security" means any security that is a covered security under section 18(b) of the Securities Act of 1933 (48 Stat. 74, 15 U.S.C. § 77r(b)). ((f.2) added Nov. 24, 1998, P.L.829, No.109) (g) "Control" (including the terms "controlling," "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise.

(h) "Fraud," "deceit" and "defraud" are not limited to common law fraud or deceit.

(i) "Guaranteed" means guaranteed as to payment of principal, interest, purchase price, dividend or call premium.

(j) "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:

(i) A bank;

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

(iii) A broker-dealer registered under this act without the imposition of the condition referred to in section 305(b)(v); (iv) A publisher of any bona fide newspaper, news column, newsletter, news magazine or business or financial publication or service, whether communicated in hard copy form or by electronic means or otherwise, that does not consist of the rendering of advice on the basis of the specific investment situation of each client and is of general, regular and paid circulation; and the agents and servants thereof in the performance of their regular duties on behalf of such publication or service;

(v) A person whose advice, analyses or reports relate only to securities exempted under section 202(a);

(vi) A person who has no place of business in this State if his only clients in this State are other investment advisers, federally covered advisers, broker-dealers or institutional investors;

(vii) A person who has a place of business in this State and during the preceding twelve-month period has had not more than five clients in or out of this State and does not hold himself out generally to the public as an investment adviser;

(viii) A person that is an investment adviser representative;

(ix) A federally covered adviser;

(x) A person excluded from the definition of "investment adviser" under section 202(a)(11) of the Investment Advisers Act of 1940 (54 Stat. 847, 15 U.S.C. § 80b-2(a)(11)); or

(xi) Other persons not within the intent of this subsection whom the commission by regulation designates.

((j) amended Nov. 24, 1998, P.L.829, No.109)

(j.1) "Investment adviser representative" means:

(i) with respect to any investment adviser registered or required to be registered under this act, any partner, officer, director or person occupying a similar status or performing similar functions, or other individuals employed by or associated with an investment adviser, except clerical or administrative personnel, who performs any of the following:

(A) Makes any recommendations or otherwise renders advice regarding securities;

(B) Manages accounts or portfolios of clients;

(C) Determines which recommendation or advice regarding securities should be given;

(D) Solicits, offers or negotiates for the sale of or sells investment advisory services; or

(E) Supervises employees who perform any of the foregoing;

(ii) with respect to any federally covered adviser, any individual employed by or associated with a federally covered adviser who is an "investment adviser representative" and who has a "place of business" in this State as those terms are defined in the rules and regulations of the Securities and Exchange Commission.

((j.1) added Nov. 24, 1998, P.L.829, No.109)

(k) "Institutional investor" means any bank, insurance company, pension or profit sharing plan or trust (except a municipal pension plan or system), investment company, as defined in the Investment Company Act of 1940, or any person, other than an individual, which controls any of the foregoing, the Federal Government, State or any agency or political subdivision thereof, except public school districts of this State, or any other person so designated by regulation of the commission. ((k) amended Nov. 23, 2004, P.L.924, No.128)

(k.1) "Knowing and knowingly" as used in sections 407(a), 511, 512(a) and 513 shall have the same meaning as the term "knowingly" is defined in 18 Pa.C.S. § 302(b)(2) (relating to general requirements of culpability). ((k.1) amended Nov. 23, 2004, P.L.930, No.132)

(l) "Issuer" means any person who issues or proposes to issue any security, and any promoter who acts for an issuer proposed to be formed. 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; except that with respect to equipment trust certificates or like securities, the term "issuer" means the person by whom the equipment or property is or is to be used. With respect to certificates of interest or participation in oil, gas or mining titles or leases or in payments out of production under such titles or leases, the term "issuer" means the person or persons actively managing the exploration or development of the property who sell such interests or participations or payments or any person or persons who subdivide and sell such interests or participations or payments. The determination of the person or persons actively managing the exploration or development of the property shall be made on the basis of the actual relationship of the parties and not on the basis of the legal designation of a person's interest. Members of unincorporated associations, which members have limited liability, and any trustee or member of a trust, committee or other legal entity shall not be deemed to be an "issuer" for the purposes of this act.

(l.1) "Municipal pension plan or system" means a pension plan or system provided by a municipality as those terms are defined in section 102 of the act of December 18, 1984 (P.L.1005, No.205), known as the Municipal Pension Plan Funding Standard and Recovery Act. ((l.1) added Nov. 23, 2004, P.L.924, No.128)

(m) "Non-issuer transaction" means any transaction not directly or indirectly for the benefit of the issuer.

(n) "Person" means an individual, corporation, partnership, association, joint stock company, syndicate, trust where the interests of the beneficiaries are evidenced by a security, an unincorporated organization, government, political subdivision of a government, or any other entity.

(o) "Promoter" includes (i) any person who, acting alone or in conjunction with one or more other persons, directly or indirectly takes initiative in founding and organizing the business or enterprise of an issuer; (ii) any person who, in connection with the founding and organizing of the business or enterprise of an issuer, directly or indirectly receives in consideration of services or property, or both services and property, ten per cent or more of any class of securities of the issuer or ten percent or more of the proceeds from the sale of any class of securities. For purposes of sections 207 and 208, a "promoter" includes (iii) any person who is described in clauses (i) and (ii); (iv) any person who is an officer or director of the issuer; (v) any person who legally or beneficially owns, directly or indirectly, five per cent or more of any class of the issuer's equity securities; or (vi) any person who is an affiliate of a person described in clause (i), (ii), (iii), (iv) or (v). "Promoter" does not include a person who receives securities or proceeds solely as underwriting compensation if that person does not otherwise come within the definition of "promoter." ((o) amended Nov. 24, 1998, P.L.829, No.109)

(p) "Publish" means publicly to issue or circulate by newspaper, mail, radio, television, Internet or other media or otherwise to disseminate to the public. ((p) amended July 4, 2002, P.L.721, No.108)

(q) "Reporting company" means any person which has been required to
file, and has filed, all required periodic reports with the Securities and Exchange Commission and has filed all annual reports, if any, which it is required to file for at least twelve months prior to the time of application of this definition for persons filing pursuant to the provisions of section 13 or 15(d) of the Securities Exchange Act of 1934 or the provisions of section 30 of the Investment Company Act of 1940. ((q) amended Dec. 7, 1994, P.L.869, No.126)

(r) (i) "Sale" or "sell" includes every sale, disposition or exchange, and every contract of sale of, or contract to sell, a security or interest in a security for value or any issuance of securities pursuant to any merger, consolidation, sale of assets or other corporate reorganization, involving the exchange of securities, in whole or in part, for the securities of any other person.

(ii) "Offer" or "offer to sell" includes every direct or indirect attempt or offer to sell or dispose of, or solicitation of an offer to purchase, a security or interest in a security for value.

(iii) 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.

(iv) 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.

(v) A purported gift of assessable stock (for which the statutory consideration has not been paid) involves an offer and sale. (vi) An offer of rescission made pursuant to section 504(e) involves an offer and sale.

(vii) The terms "sale," "sell," "offer" and "offer to sell" do not include: (A) any bona fide secured transaction in, or loan of, outstanding securities; or (B) any dividend payable with respect to the securities of a corporation in the same or any other class of securities of such corporation.

(viii) A dividend or distribution by any person to all or any class of its security holders of the securities of any other person, whether or not such dividend or distribution is for value, involves a sale.

(s) "Securities Act of 1933," "Securities Exchange Act of 1934," "Public Utility Holding Company Act of 1935," "Trust Indenture Act of 1939," "Investment Advisers Act of 1940," "Investment Company Act of 1940" and "Internal Revenue Code of 1954" mean the Federal statutes of those names as amended before or after the effective date of this act, or any successor statutes thereto. Section numbers of such statutes or regulations adopted thereunder and referred to herein include such amendments thereto as may be adopted before or after the effective date of this act.  "Securities and Exchange Commission" means the "United States Securities and Exchange Commission."

(t) "Security" means any note; stock; treasury stock; bond; debenture; evidence of indebtedness; share of beneficial interest in a business trust; certificate of interest or participation in any profit-sharing agreement; collateral trust certificate; preorganization certificate or subscription; transferable share; investment contract; voting trust certificate; certificate of deposit for a security; limited partnership interest; certificate of interest or participation in an oil, gas or mining title or lease or in payments out of production under such a title or lease; membership interest in a limited liability company of any class or series, including any fractional or other interest in such interest, unless excluded by clause (v); or, in general, any interest or instrument commonly known as or having the incidents of 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. All of the foregoing are securities whether or not evidenced by written document. "Security" does not include:

(i) Any beneficial interest in any voluntary inter vivos trust which is not created for the purpose of carrying on any business; or

(ii) Any beneficial interest in any testamentary trust; or

(iii) Any insurance or endowment policy or annuity contract under which an insurance company admitted in this State promises to pay a sum of money (whether or not based upon the investment performance of a segregated fund) either in a lump sum or periodically for life or some other specified period; or

(iv) Any certificate issued under section 809 of The Insurance Company Law of 1921, act of May 17, 1921 (P.L.682), as amended; or

(v) A membership interest in a limited liability company where all of the following conditions are satisfied:

(A) The membership interest is in a company that is not managed by managers;

(B) The purchaser of the membership interest enters into a written commitment to be engaged actively and directly in the management of the company; and (C) The purchaser of the membership interest, in fact, does participate actively and directly in the management of the company. ((t) amended Dec. 7, 1994, P.L.869, No.126)

(u) "State" means any state, territory or possession of the United States, the District of Columbia and Puerto Rico.

(v) "Underwriter" means a person who has agreed with an issuer or other person on whose behalf a distribution is to be made (i) to purchase securities for distribution or (ii) to distribute securities for or on behalf of such issuer or other person or (iii) to manage or supervise a distribution of securities for or on behalf of such issuer or other person.

(w) "Wilful and wilfully" mean the following:

(1) As used in all sections of the act except section 511 with respect to a wilful violation of section 401(a) of the act, and notwithstanding any law or statute to the contrary, wilful means that the person acted intentionally in the sense that the person intended to do the act and was aware of what the person was doing. Proof of evil motive or intent to violate the act or knowledge that the person's conduct violated the act is not required.

(2) For purposes of section 511 with respect to a wilful violation of section 401(a) of the act, wilful means that the person acted intentionally, knowingly or recklessly as those terms are defined in 18 Pa.C.S. § 302 (relating to general requirements of culpability). ((w) amended Nov. 23, 2004, P.L.930, No.132)

 

 

PART IV

FRAUDULENT AND PROHIBITED PRACTICES

 

Section 401. Sales and Purchases.

It is unlawful for any person, inconnection with the offer, sale or purchase of any security in this State, 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.

Section 402. Market Manipulation.

 

--It is unlawful for any person, directly or indirectly, in this State:

(a) For the purpose of creating a false or misleading appearance of
active trading in a security or a false or misleading appearance with
respect to the market for a security:

(i) to effect any transaction in the security which involves no change
in the beneficial ownership thereof; or

(ii) to enter any order or orders for the purchase (or sale) of the
security with the knowledge that an order or orders of substantially the same size, at substantially the same time, and at substantially the same price for the sale (or purchase) of the security, have been or will be entered by or for the same or affiliated persons;

(b) To effect, alone or with one or more other persons, a series of transactions in any security creating actual or apparent active trading in the security or raising or depressing the price of the security for the purpose of inducing the purchase or sale of the security by others; or (c) To induce the purchase or sale of any security by the circulation or dissemination of information to the effect that the price of the security will or is likely to rise or fall because of market operations of any one or more persons conducted for the purpose of raising or depressing the price of the security, if he is selling or offering to sell or purchasing or offering to purchase the security or is receiving a consideration, directly or indirectly, from any such person.

Section 403. Prohibited Transactions; Broker-dealers and Agents.

 

--No broker-dealer or agent shall effect any transaction in, or induce or attempt to induce the purchase or sale of, any security in this State by means of any manipulative, deceptive or other fraudulent scheme, device, or contrivance, fictitious quotation, or in violation of this act or any regulation or order hereunder.

Section 404. Prohibited Advisory Activities.

 

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 analyses or reports or otherwise, in this State:

(1) To employ any device, scheme, or artifice to defraud the other
person.

(2) To engage in any transaction, act, practice, or course of business which operates as a fraud or deceit upon any other person.

(3) Acting as principal for his own account, knowingly to sell any security to or purchase any security from a client, or, acting as broker for a person other than such client, knowingly to effect any sale or purchase of any security for the account of such client, without disclosing to such client in writing before the completion of the transaction the capacity in which he is acting and obtaining the consent of the client to such transaction. The prohibitions of this paragraph shall not apply to any transaction with a customer of a broker-dealer if such broker-dealer is not acting as an investment adviser in relation to such transaction.

(4) To engage in any act, practice, or course of business which is fraudulent, deceptive, or manipulative.

(5) To fail to disclose to the board of school directors of a public school district or to a municipal pension plan or system in this Commonwealth the compensation that such person will give, directly or indirectly, to another person in connection with either obtaining the board of school directors or municipal pension plan or system as an advisory client or advising the board of school directors or municipal pension plan or system as to any transaction involving the purchase or sale of a security with respect to an investment of public school district funds pursuant to section 440.1 of the act of March 10, 1949 (P.L.30, No.14), known as the "Public School Code of 1949," and 53 Pa.C.S. Pt. VII Subpt. B (relating to indebtedness and borrowing) or investment of funds of the municipal pension plan or system. ((5) amended Nov. 23, 2004, P.L.924, No.128)

(6) To represent that he is an investment counsel or to use the name "investment counsel" as descriptive of his business unless a substantial part of his business consists of rendering investment advisory services on the basis of the individual needs of his clients. (7) Unless the person is registered as a broker-dealer under this act, to take and have custody of any securities or funds of any client if he fails to meet such requirements therefor as may be prescribed by the commission by regulation. (b) In the solicitation of advisory clients, it is unlawful for any  person to make any untrue statement of material fact or omit 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.

(c) The prohibitions of this section shall apply to federally covered
advisers and other persons excluded from the definition of investment
adviser under section 102(j)(i) through (viii), (x) and (xi) only to the extent that the prohibited conduct involves fraud or deceit.
(404 amended Nov. 24, 1998, P.L.829, No.109)

Section 405. Contract Requirements.

 

It is unlawful for any investment adviser to enter into, extend, or renew any investment advisory contract if such contract:

(1) provides for compensation to the investment adviser 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;

(2) fails to provide in writing that no assignment of such contract
shall be made by the investment adviser without the consent of the other party to the contract; or

(3) fails to provide in writing that the investment adviser, if a
partnership, will notify the other party to the contract of any change in the membership of such partnership within a reasonable time after such change.

Clause (1) 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, or in any other manner permitted by the Investment Advisers Act of 1940 (54 Stat. 847, 15 U.S.C. § 80b-1 et seq.), and the rules and regulations promulgated thereunder or any contract for the rendering of investment advisory services to an institutional investor. "Assignment," as used in clause (2), 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 or more members who, after admission, will be only a minority of the members and will have only a minority interest in the business. (405 amended Nov. 24, 1998, P.L.829, No.109)

Section 406. Inside Information.

 

It is unlawful for an issuer or any person who is an officer, director, or affiliate of an issuer or any other person whose relationship to the issuer gives him access, directly or indirectly, to material information about the issuer not generally available to the public, to purchase or sell any security of the issuer in this State at a time when he knows material information about the issuer gained from such relationship, which information (a) would significantly affect the market price of that security; (b) is not generally available to the public; and (c) he knows is not intended to be so available, unless he has reason to believe that the person selling to or buying from him is also in possession of the information.

Section 407. Misleading Filings; Misrepresentations of Commission

 

Approval.--(a) It is unlawful for any person to make or cause to be made, in any document filed with the commission or in any proceeding under this act, 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 or, in connection with such statement, 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. Where any person has failed to make reasonable inquiry as to the accuracy of the information being filed with the commission, such person may not rely upon that failure as a defense to a violation of this section.

 

(b) It is unlawful for any person registered as a broker-dealer, agent
or investment adviser under this act to represent or imply in any manner whatsoever that such person has been sponsored, recommended, or approved or that his abilities or qualifications have in any respect been passed upon by the commission. Nothing in this section prohibits a statement (other than in a paid advertisement) that a person is registered under this act, if such statement is true in fact and if the effect of such registration is not misrepresented.

(c)

(i) Neither the fact that an application for registration of
securities or a notice filing under this act has been filed nor the fact that such application or notice filing becomes effective constitutes a finding by the commission that any document filed under this act is true, complete or not misleading. Neither any such fact nor the fact that an exemption is available for a security or a transaction means that the commission has passed upon the merits or qualifications of, or recommended or given approval to any person, security or transaction.

(ii) It is unlawful to make, or cause to be made, to any prospective purchaser or any other person, any representation inconsistent with clause (i) of this subsection. (407 amended Nov. 24, 1998, P.L.829, No.109)

Section 408. Prohibited Transactions Involving Nonprofit Organizations.

 

It is unlawful for any person to purchase or sell or induce or attempt to induce the purchase or sale of any security in this Commonwealth by means of any manipulative, deceptive or other fraudulent scheme, device or contrivance, or in violation of this act or any regulation or order hereunder, in a transaction involving an organization formed exclusively for educational, benevolent, fraternal, religious, charitable, social, athletic, reformatory or cultural purposes and not for pecuniary profit or other charitable organization as defined under section 3 of the act of December 19, 1990 (P.L.1200, No.202), known as the "Solicitation of Funds for Charitable Purposes Act," in which the purchase or sale of the security is a condition for receipt by the organization of a gift, grant, donation or similar contribution or of a promise therefor. (408 added June 19, 1996, P.L.340, No.54)

Section 409. Prohibited Transactions Involving Public School Districts or Municipal Pension Plans or Systems of this State.

 

--It shall be unlawful for any person to purchase or sell or induce or attempt to induce the purchase or sale of any security in this State by means of any manipulative, deceptive or other fraudulent scheme, device or contrivance or in violation of this act or regulation or order issued under this act in a transaction involving a public school district or municipal pension plan or system in this State. (409 amended Nov. 23, 2004, P.L.924, No.128)

 

Section 410. Prearranged Trading Programs.

 

In connection with the offer, sale or purchase of any security in this State, no person shall be deemed to have violated section 401 or 406 or otherwise to have made an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading if such person demonstrates that the offer, sale or purchase was prearranged in accordance with 17 CFR § 240.10b5-1(c) (relating to trading "on the basis of" material nonpublic information in insider trading cases), or any successor thereto, promulgated under section 10(b) of the Securities Exchange Act of 1934 (48 Stat. 881, 15 U.S.C. § 78a et seq.). (410 added July 4, 2002, P.L.721, No.108)

 

Section 501. Civil Liabilities.

(a) Any person who:

(i) offers or sells a security in violation of section 407(c) or at any time when such person has committed a material violation of section 301, or any regulation relating to either section 301 or 407(c), or any order under this act of which he has notice; or

(ii) offers or sells a security in violation of sections 401, 403, 404 or otherwise 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 purchaser 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, shall be liable to the person purchasing 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, less the amount of any income or distributions, in cash or in kind, 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 the value of the security when the purchaser disposed of it, plus interest at the legal rate from the date of disposition. Tender shall require only notice of willingness to exchange the security for the amount specified. Any notice may be given by service as in civil actions or by certified mail addressed to the last known address of the person liable.

(b) Any person who purchases a security in violation of sections 401, 403, 404 or otherwise 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, shall be liable to the person selling the security to him, who may sue either at law or in equity to recover the security, plus any income or distributions, in cash or in kind, received by the purchaser thereon, upon tender of the consideration received, or for damages if the purchaser no longer owns the security. Damages are the excess of the value of the security when the purchaser disposed of it, plus interest at the legal rate from the date of disposition, over the consideration paid for the security. Tender requires only notice of willingness to pay the amount specified in exchange for the security. Any notice may be given by service as in civil actions or by certified mail to the last known address of the
person liable.

(c) Any person who wilfully participates in any act or transaction in violation of section 402 shall be liable to any other person who purchases or sells any security at a price which was affected by the act or transaction for the damages sustained as a result of such act or transaction. Damages shall be the difference between the price at which the other person purchased or sold securities and the market value which the securities would have had at the time of his purchase or sale in the absence of the act or transaction, plus interest at the legal rate.

(d) Any investment adviser who violates section 405 shall be liable to the other party to the investment advisory contract for all fees paid under such contract to the investment adviser, less any profits earned by such party through transactions effected as a result of advice given under the contract, plus interest at the legal rate. In addition, either party may, at any time, declare the contract null and void as of the date of such declaration. (e) Any person who violates section 406 shall be liable to the person who purchases a security from him or sells a security to him in violation of section 406, for damages equal to the difference between the price at which such security was purchased or sold and the market value which such security would have had at the time of the purchase or sale if the information known to the defendant had been publicly disseminated prior to that time and a reasonable time had elapsed for the market to absorb the information, plus interest at the legal rate, unless the defendant proves that the plaintiff knew the information or that the plaintiff would have purchased or sold at the same price even if the information had been
revealed to him.

(f) Any investment adviser who violates section 301 shall be liable to the client for all fees paid, directly or indirectly, to the investment adviser for investment advisory services during the period of such violation. ((f) amended Nov. 24, 1998, P.L.829, No.109)

(g) Any person who violates section 404(a)(1) through (4) or any material provision of section 404(a)(7) or otherwise makes any untrue statement of a material fact or omits stating a material fact necessary in order to make statements made, in the light of the circumstances under which they are made, not misleading (the person 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, shall be liable to the person purchasing the security.

The person purchasing the security 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, less the amount of income or distribution, in cash or in kind, received on the security, upon the tender of the security or for damages if the person no longer owns the security.

Damages are the amount that would be recoverable upon a tender, less the value of the security when the person disposed of it, plus interest at the legal rate from the date of disposition. Tender shall require only notice of willingness to exchange the security for the amount specified. Any notice may be given by service as in civil actions specified in the Pennsylvania Rules of Civil Procedure. A person who is liable under this section and any offeror or seller of the security liable under subsection (a) are jointly and severally liable to the person purchasing the security. ((g) amended Nov. 24, 1998, P.L.829, No.109)

Section 502. Violation of Registration Requirements.

 

Any person who violates section 201 or any material condition imposed under section 206 or 207 shall be liable to the person purchasing the security offered or sold in violation of section 201 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, less the amount of any income or distributions, in cash or in kind, received on the security, upon the tender of the security, or for damages if he no longer owns the security. Damages shall be the amount that would be recoverable upon a tender less the value of the security when the purchaser disposed of it and interest at the legal rate from the date of disposition. Any person on whose behalf an offering is made and any underwriter of the offering, whether on a best efforts or a firm commitment basis, shall be jointly and severally liable under this section, but in no event shall any underwriter be liable in any suit or suits authorized under this section for damages in excess of the total price at which the securities underwritten by him and distributed to the public were offered to the public. Tender requires only notice of willingness to exchange the security for the amount specified. Any notice may be given by service as in civil actions or by certified mail addressed to the last known address of the person liable. No person shall be liable under this section if the sale of the security is registered prior to the payment or receipt of any part of the consideration for the security sold, even though an offer to sell or a contract of sale may have been made or entered into without registration.

Section 503. Joint and Several Liability; Contribution; Corporation's

Right of Indemnification.

 

(a) Every affiliate of a person liable under section 501 or 502, every partner, principal executive officer or director of such person, every person occupying a similar status or performing similar functions, every employe of such person who materially aids in the act or transaction constituting the violation, and every broker-dealer or agent who materially aids in the act or transaction constituting the violation, are also liable jointly and severally with and to the same extent as such person, unless the person liable hereunder proves 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.

(b) A corporation which is liable under this act shall have a right of
indemnification against any of its affiliates whose wilful violation of any provision of this act gave rise to such liability. All persons civilly liable under this act shall have a right of contribution against all other persons similarly liable, based upon each person's proportionate share of the total liability, except that no person whose wilful violation of any provision of this act has given rise to any civil liability shall have any right of contribution against any other person guilty merely of a negligent violation.

Section 504. Time Limitations on Rights of Action.

 

(a) No action shall be maintained to enforce any liability created under section 501 (or section 503 in so far as it relates to that section) unless brought before the expiration of five years after the act or transaction constituting the violation or the expiration of one year after the plaintiff receives actual notice or upon the exercise of reasonable diligence should have known of the facts constituting the violation, whichever shall first expire. ((a) amended Nov. 23, 2004, P.L.927, No.130)

(b) No action shall be maintained to enforce any liability created
under section 502 (or section 503 in so far as it relates to that section) unless brought before the expiration of two years after the violation upon which it is based or the expiration of one year after the plaintiff receives actual notice or upon the exercise of reasonable diligence should have known of the facts constituting such violation, whichever shall first expire.

(c) No action shall be maintained to enforce any right of indemnification or contribution created by section 503 unless brought before the expiration of one year after final judgment based upon the liability for which the right of indemnification or contribution exists. (d) No purchaser may commence an action under section 501, 502 or 503 if, before suit is commenced, the purchaser has received a written offer:

(i) stating the respect in which liability under such section may have arisen and fairly advising the purchaser of his rights; offering to repurchase the security for cash, payable on delivery of the security, equal to the consideration paid, together with interest at the legal rate from the date of payment, less the amount of any income or distributions, in cash or in kind, received thereon or, if the purchaser no longer owns the security, offering to pay the purchaser upon acceptance of the offer an amount in cash equal to the damages computed in accordance with section 501(a); and (ii) stating that the offer may be accepted by the purchaser at any time within a specified period of not less than thirty days after the date of receipt thereof, or such shorter period as the commission may by rule prescribe; and the purchaser has failed to accept such offer in writing within the specified period. The limitations on a purchaser commencing an action under this subsection shall not apply if the purchaser has accepted an offer to repurchase made under this subsection within the time period specified under this subsection and has complied with all the terms of this subsection but has not received the cash payment specified by this subsection within ninety days of the date of acceptance of the offer to repurchase. ((d) amended July 4, 2002, P.L.721, No.108)

(e) No seller may commence an action under section 501, 502 or 503 if, before suit is commenced, the seller has received a written offer: (i) stating the respect in which liability under such section may have arisen and fairly advising the seller of his rights; (ii) offering to return the security plus the amount of any income or distributions, in cash or in kind, received thereon upon payment of the consideration received, or, if the purchaser no longer owns the security, offering to pay the seller upon acceptance of the offer an amount in cash equal to the damages computed in accordance with section 501(b); and (iii) providing that the offer may be accepted by the seller at any time within a specified period of not less than thirty days after the date of receipt thereof, or such shorter period as the commission may by regulation prescribe; and the seller has failed to accept the offer in writing within the specified period.

(f) Offers under subsection (d) or (e) of this section 504 shall be in the form and contain the information the commission by rule prescribes. Every offer under this subsection shall be delivered to the offeree personally or sent by certified mail addressed to him at his last known address. If an offer is not performed in accordance with its terms, suit by the offeree under section 501, 502 or 503, shall be permitted without regard to subsections (d) and (e) of this section 504.
Compiler’s Note: Section 2 of Act 130 of 2004, which amended section 504(a), provided that the amendment shall apply to all proceedings commenced on or after the effective date of Act 130. 

Section 505. Death of Plaintiff or Defendant.

--(505 repealed Apr. 28, 1978, P.L.202, No.53)

Section 506. Limitation of Liability.—

 

Except as explicitly provided in this act, no civil liability in favor of any private party shall arise against any person by implication from or as a result of the violation of any provision of this act or any rule or order hereunder. Nothing in this act shall limit any liability which might exist by virtue of any other statute or under common law if this act were not in effect.

 

Section 507. No Waiver of Right of Action.

Any condition, stipulation or provision binding any person acquiring any security to waive compliance with any provision of this act or any rule or order hereunder is void.

 

Section 508. Limitation on Plaintiffs.

—No person may base any suit on any contract in violation of this act or any rule or order hereunder if he has made or engaged in the performance of such contract or 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.

 

 Section 509. Right of Commission to Bring Actions for Injunction and Equitable Relief; Class Actions; Contempt of Commission Orders.

(a) Whenever it appears to the commission that any person has engaged or is about to engage in any act or practice constituting a violation of any provision of this act or any rule or order hereunder, it may in its discretion bring an action in the name of the people of the Commonwealth of Pennsylvania in the Commonwealth Court or in any of the several courts of common pleas to enjoin, through a preliminary or permanent injunction, temporary restraining order or writ of mandamus, the acts or practices or to enforce compliance with this act or any rule or order hereunder. The commission also may seek and the court upon proper showing shall grant such other ancillary and equitable relief as the facts warrant, including, without limitation, appointment of a receiver, temporary receiver or conservator of the defendant's assets, a freeze of the defendant's assets, obtaining of an accounting, orders of rescission, orders of restitution, orders of disgorgement or other relief as may be appropriate in the public interest. The court shall not require the commission to meet the criteria for an equitable injunction in order for the court to grant an injunction, restraining order or writ of mandamus. The court shall not require the commission to post a bond.

(b) The commission may, with the approval of the Attorney General, include in any action authorized by subsection (a) a claim for damages under section 501, 502 or 503 on behalf of the persons injured by the act or practice constituting the subject matter of the action, and the court shall have jurisdiction to award appropriate relief to such persons, if the court finds that enforcement of the rights of such persons by private civil action, whether by class action or otherwise, would be so burdensome or expensive as to be impractical.

(c) Any person violating any (i) stop order issued under section 208,

(ii) cease advertising order issued under section 606(c), (iii) cease and desist order issued under section 606(c.1), (iv) order of the commission requiring a rescission pursuant to section 513, (v) order of the commission imposing any bar described in section 512, (vi) order of the commission requiring return of sales compensation under section 514(a) or (vii) any order of the commission imposing an administrative assessment under section 602.1(b) or (c) from which no appeal of such an order has been taken pursuant to section 607(d) of the act or which has been sustained on appeal, or which has been appealed but where no supersedeas has been granted for the period during which the order has been violated, shall be deemed to be in contempt of such order. Upon petition and certification of such order by the commission, the Commonwealth Court or any of the courts of common pleas if it finds after hearing or otherwise that the person is not in compliance with the order shall adjudge the person in contempt of the order and shall assess such civil penalties of an amount not less than five thousand dollars ($5,000) nor greater than fifteen thousand dollars ($15,000) per violation and grant such equitable relief as it may deem appropriate. ((c) amended July 4, 2002, P.L.721, No.108)

(d) If the commission provides work product or services to a receiver, trustee or conservator appointed by a court pursuant to subsection (a), the court, upon petition by the commission for reimbursement of costs for providing such work product or services, may award the commission reimbursement of all direct costs incurred in providing the work product or services to the receiver, trustee or conservator as well as a pro rata portion of salaries of commission staff who were involved in providing the work product or services. This award may be made from funds recovered by and under the control of the receiver, trustee or conservator who holds the funds for the benefit of investors, provided that the award may not exceed ten per cent of the funds held. Reimbursements received by the commission under this subsection shall be treated as moneys received under section 602.1. ((d) added Nov. 23, 2004, P.L.926, No.129) (509 amended Nov. 24, 1998, P.L.829, No.109)

 

Section 510. Investigations and Subpoenas.

a) The commission in its discretion: (i) May make such public or private investigations within or without this State as it deems necessary to determine whether any person has violated or is about to violate this act or any rule or order hereunder, or to aid in the enforcement of this act or in the prescribing of rules and forms hereunder; (ii) May, for a reasonable time not exceeding thirty days, take possession of the books, papers, accounts and other records, however created, produced or stored, pertaining to the business of any brokerdealer or investment adviser or pertaining to the activities of any issuer in connection with any transaction in a security, whether or not exempted under section 202 or 203 and the use of any proceeds obtained therefrom, and place a keeper in exclusive charge of them in the place where they are usually kept. During such possession no person shall remove or attempt to remove any of the books, records, accounts, or other papers except pursuant to a court order or with the consent of the commission; but the directors, officers, partners, and employes of the broker-dealer, investment adviser or issuer may examine them, and employes shall be permitted to make entries therein reflecting current transactions;

(iii) May require or permit any person to file a statement in writing,
under oath or otherwise as the commission determines, as to all the facts and circumstances concerning the matter being investigated;

(iv) May publish information concerning any violation of this act or any rule or order hereunder or concerning securities, or practices in the sale thereof, which appear or tend to be unfair, inequitable or fraudulent, but only where it deems such publication to be in the public interest and for the protection of investors; and (v) May hold hearings, upon reasonable notice, in respect of any matters arising out of the administration of this act.

(vi) May record presentations made at meetings, seminars or other
assemblies conducted in a public forum which may involve the offer or sale of securities in this State in any manner that the commission determines appropriate. (b) For the purpose of any investigation, hearing or proceeding under this act, the commission or any officer designated by it may administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence and require the production of any books, papers, correspondence, memoranda, agreements or other documents or records which the commission deems relevant or material to the inquiry.

(c) In case of contumacy by, or refusal to obey a subpoena issued to, any person, the Commonwealth Court or any of the several courts of common pleas of Pennsylvania, upon application by the commission, may issue to the person an order requiring him to appear before the commission, or the officer designated by it, there to produce documentary evidence, if so ordered, or to give evidence touching the matter under investigation or in question. Failure to obey the order of the court may be punished by the court as a contempt.

(d) (i) If, in a proceeding before the commission, any person shall refuse to testify or to produce evidence of any other kind on the ground that his testimony or evidence may tend to incriminate him, that person may be ordered to give such testimony. The order to testify shall not be given except upon an order of court after a hearing in which the Attorney General has established a need for the grant of immunity, as hereinafter provided;

(ii) The Attorney General may petition the Commonwealth Court or the court of common pleas of the county in which such person resides (if he is a resident of this State) for an order requiring any person to testify or produce evidence, which petition may be joined in by the district attorney of such county. Such petition shall set forth the nature of the investigation and the need for the immunization of the witness;

(iii) No such witness shall be prosecuted or subjected to any penalty or forfeiture, nor shall there be any liability on the part of and no cause of action of any nature shall arise against, any such witness for or on account of any transaction, matter or thing concerning which he is compelled, after having claimed his privilege against self-incrimination, to testify or produce evidence, nor shall testimony so compelled be used as evidence in any criminal proceeding against him in any court;

(iv) No person so ordered to testify or to produce evidence, shall be exempt from any punishment or forfeiture for perjury committed by him while so testifying. Such testimony shall be admissible against him in any criminal action or other proceeding concerning such perjury;

(v) Any person who shall refuse or decline to testify or produce evidence of any other kind after being granted immunity and ordered by the court shall be guilty of criminal contempt and, upon conviction thereof, shall be sentenced to pay a fine of not exceeding one thousand dollars ($1,000), or to undergo imprisonment for a period not exceeding one year, or both.

(e) At the request of the securities regulatory authority of another jurisdiction, the commission may provide assistance if the requesting authority states that it is conducting an investigation which it deems necessary to determine whether a person has violated, is violating or is about to violate laws or rules relating to securities matters that the requesting authority administers or enforces. The commission may, in its sole discretion, conduct such investigation and use the powers conferred under this section as the commission deems necessary to collect information and evidence pertinent to the request for assistance. The assistance may be provided without regard to whether the facts stated in the request would constitute a violation of this act or the laws of this Commonwealth. In deciding whether to provide such assistance, the commission shall consider whether:

(i) the requesting authority is permitted and has agreed to provide reciprocal assistance in securities matters to the commission; and

(ii) compliance with the request would prejudice the public interest. ((e) added July 4, 2002, P.L.721, No.108) (510 amended Nov. 24, 1998, P.L.829, No.109)

Section 511. Criminal Penalties.

 

a) Except as provided in this section, a person who wilfully violates any material provision of this act, except section 407(a), or any rule under this act, or any order of which he has notice, or who violates section 407(a) knowing that the statement made was false or misleading in any material respect, commits a felony of the third degree and may be fined not more than two hundred fifty thousand dollars ($250,000) or imprisoned for not more than seven years, or both, if the amount of money paid by the purchaser for the securities involved in the violation is less than two hundred fifty thousand dollars ($250,000), and not more than five hundred thousand dollars ($500,000) or imprisoned for not more than seven years, or both, if the amount of money or securities involved in the violation is two hundred fifty thousand dollars ($250,000) or more. In addition to fine or imprisonment, or both, a person may be sentenced to make restitution. (b) A person who wilfully violates section 401, 408 or 409 commits a felony of the second degree and may be fined not more than one million dollars ($1,000,000) or imprisoned for not more than ten years, or both. In addition to fine or imprisonment, or both, the person may be sentenced to make restitution.

(c) (1) A person who wilfully violates section 401, 408 or 409
commits a felony of the first degree and may be fined not more than five million dollars ($5,000,000) or imprisoned for not more than twenty years, or both, if one of the conditions specified in paragraph (2) or (3) is met, and not more than ten million dollars ($10,000,000) or imprisoned for not more than twenty years, or both, if both of the conditions specified in paragraphs (2) and (3) are met. In addition to a fine or imprisonment, or both, the person may be sentenced to make restitution.

(2) Within ten years of being convicted under this subsection for wilful violation of section 401, 408 or 409, the person was the subject of:
(i) a criminal felony conviction;

(ii) an injunction issued by any court of competent jurisdiction; or

(iii) an order of the Securities and Exchange Commission, the Commodity Futures Trading Commission, the securities, banking or insurance regulator of another state, a Federal banking regulator or the securities, banking or insurance regulatory authority of another country which found that the person wilfully violated any provision of the Federal or State securities, banking, insurance or commodities laws or the securities, commodities, insurance or banking laws of that country.

(3) One or more of the victims of the unlawful conduct is sixty years
of age or older.

(d) A person who knowingly alters, destroys, shreds, mutilates, conceals, covers up, falsifies or makes a false entry in any record, document or tangible object with the intent to impede, obstruct or influence an investigation by the commission under section 510 or an examination under section 304(d) commits a felony of the second degree and may be fined not more than five hundred thousand dollars ($500,000) or imprisoned for not more than ten years, or both.

(e) A person who knowingly alters, destroys, shreds, mutilates or conceals a record, document or other object or attempts to do so with the intent to impair its integrity or availability for use in a proceeding before the commission or in a proceeding brought by the commission or otherwise obstructs, influences or impedes such proceedings or attempts to do so commits a felony of the second degree and may be fined not more than five hundred thousand dollars ($500,000) or imprisoned for not more than ten years, or both.

(f) A person who knowingly, with the intent to retaliate, takes any action harmful to another person, including interference with the lawful employment or livelihood of another person, for providing the commission with any truthful information relating to a violation of this act commits a felony of the second degree and may be fined not more than five hundred thousand dollars ($500,000) or imprisoned for not more than ten years, or both.

(g) (1) Each of the acts specified in subsections (a) through (f)
shall constitute a separate offense, and a prosecution or conviction for any such offense shall not bar prosecution or conviction for any other offense. No indictment or information may be returned under this act more than five years after the alleged violation.

(2) This section shall be construed to provide additional and
cumulative remedies, and nothing contained in this act shall be construed to affect the ability of the Commonwealth to bring an information or indictment under common law or other criminal statutory provisions for the same conduct.

(h) The following persons have jurisdiction to investigate violations
of this section and institute criminal proceedings for any violation of
this section:

(1) The district attorney of a county.

(2) The Attorney General, in addition to the authority conferred upon the Attorney General by the act of October 15, 1980 (P.L.950, No.164), known as the "Commonwealth Attorneys Act." This paragraph includes authority over a series of violations involving more than one county of this Commonwealth or involving any county of this Commonwealth and another state. No person charged with a violation of this section by the Attorney General shall have standing to challenge the authority of the Attorney General to investigate or prosecute the case, and, if any such challenge is made, the challenge shall be dismissed and no relief shall be available in the courts of this Commonwealth to the person making the challenge.

 

(i) No person charged with a violation of this section by the Attorney
General shall have standing to challenge the authority of the Attorney
General to investigate or prosecute the case, and, if any such challenge is made, the challenge shall be dismissed and no relief shall be available in the courts of this Commonwealth to the person making the challenge.


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