Selected Sections of the
Puerto Rico Securities Act
Sections included on this page:
§ 881. Definitions.
When used in this chapter, unless otherwise construed from the context:
(a) Commissioner Shall mean the Commissioner of Financial Institutions, as defined in §§ 2001 et seq. of Title 7.
(b) Agent Shall mean any individual other than a broker-dealer, who represents a broker-dealer, or an issuer, in conducting or attempting to conduct the purchase or sale of securities. The term agent does not include an individual who represents:
(1) An issuer:
(A) By conducting transactions regarding a security exempted under clauses (1), (2), (3), (10), or (11) of § 882(a) of this title.
(B) By conducting transactions exempted under § 882(b) of this title.
(C) By conducting transactions regarding a federally covered security, as described in § 18(b) (3) and 18(b) (4) (D) of the Securities Act of 1933.
(D) By conducting transactions with existing employees, partners, or directors of the issuer if no commission or other remuneration is paid or given directly or indirectly for soliciting any person in Puerto Rico.
(E) Conducting transactions as an employee of, and in behalf of the Government of Puerto Rico, or any political subdivision, agency, corporation or instrumentality thereof.
(2) A broker-dealer when conducting transactions in Puerto Rico limited to those described in § 15(h) (2) of the Securities Exchange Act of 1934. A partner, official or director of a broker-dealer or issuer, or a person holding a similar status or performing similar functions shall be an agent only if he/she is otherwise covered by this definition.
(c) Broker-dealer Shall mean any person engaged in effecting transactions in securities, on the account of others or on his own account. Broker-dealer shall not include:
(1) A government instrumentality.
(2) An agent.
(3) An issuer.
(4) A bank, savings institution, or a trust company with banking powers, provided the activities of these institutions related to the securities business are limited to:
(A) Those categories listed in subsections (B) (i) through (B) (xi) of Section 3(a) (4) and subsections (C) (ii) and (C) (iii) of Section 3(a) (5) of the Securities Exchange Act of 1934, and (B) the offer and sale to individuals for the investment of funds deposited in:
(i) An individual retirement account, as the term is defined in § 8569 of Title 13;
(ii) a non-deductible individual retirement account, as defined in § 8569b of Title 13, or
(iii) an educational savings account, as defined in § 8572 of Title 13.
(5) A person who does not have a place of business in Puerto Rico if:
(A) The person carries out transactions in Puerto Rico exclusively with or through:
(i) The issuers of the securities involved in the transaction;
(ii) other broker-dealers;
(iii) banks, savings institutions, trust companies, insurance companies, investment companies as such are defined in the Investment Companies Act of Puerto Rico, §§ 661-683 of this title, pension trusts or shares in the benefit or other financial institutions or institutional buyers acting on their own account or as trustees, or
(B) during any other period of twelve consecutive months does not in any way make more than fifteen sale or purchase offers in Puerto Rico to persons other than those specified in paragraph (A), whether the person making the offer or the persons to whom the offer is made are in Puerto Rico.
(d) Fraud, deceit, and defraud Shall not be limited to the definition of dolus according to the Civil Code.
` (e) Guaranteed Shall mean guaranteed as to the payment of principal, interest or dividends.
(f) Investment adviser Shall mean any person who, for compensation, is engaged in the business of advising others, whether directly or through publications or briefs on the price of securities or on the convenience of investing, purchasing, or selling securities, or who, for compensation and as a part of an established business, issues or promulgates analyses or reports concerning securities. The term "investment adviser" also includes financial planners, and those other persons that, as an integral part of other related financial services, provide to others the [aforesaid] advisory services in exchange for compensation.
The term "investment adviser" does not include:
(1) A representative of an investment adviser;
(2) a government instrumentality;
(3) an attorney, accountant, engineer, or teacher whose rendering of these services are merely incidental to the practice of his/her profession;
(4) a broker-dealer whose rendering of these services is merely incidental to conducting his/her business as such and who receives no special remuneration for them;
(5) the director of any newspaper, news magazine, or business or financial publication of general, regular, and paid circulation;
(6) a person whose advice, analyses, or reports are related solely to securities exempted pursuant to § 882(a)(1) of this title;
(7) a person who has no place of business in Puerto Rico if:
(A) His/her only clients in Puerto Rico are other investment advisers, federally covered investment advisors, broker-dealers, savings banks or institutions but only when acting in their own behalf, trust companies, insurance companies, investment companies, as defined in §§ 661 et seq. of this title, known as the "Investment Companies Act of Puerto Rico", pension or profit-sharing trusts, or other financial institutions or institutional buyers, who act in their own behalf or as trustees, or
(B) if during any period of twelve (12) consecutive months he/she does not have more than five clients in Puerto Rico except those specified in paragraph (A) of this clause, whether or not the investment advisor or any of the persons to whom the communications are addressed are present in Puerto Rico;
(8) any person who is a federally covered investment adviser;
(9) any person excluded from the definition of the term "investment adviser" under § 202(a) (11) of the Investment Advisers Act of 1940, or
(10) any other persons not covered by the intent of this subsection as the Commissioner may determine by regulations or an order to such effect.
(g) Issuer Shall mean any person who issues or proposes to issue any security, except that:
(1) With regard to certificates of deposit, trust certificates [with vote entitlement] or collateralized trust certificates, or with regard to certificates of interest or shares in an unincorporated investment trust that does not have a board of directors or a person performing similar functions or of a fixed and restricted management, or unit type, the term "issuer" shall mean the person or persons performing the acts and assuming the duties of a depositor or manager pursuant to the provisions of the trust contract or other contract or instrument under which the security is issued, and
(2) with regard to certificates in evidence of an interest or shares in oil, gas, or mining titles, deeds or leases, or in payments derived from production by virtue of said titles, deeds or leases shall not be deemed to be an issuer.
(h) Non-issuer Shall mean it does not benefit the issuer directly or indirectly.
(i) Person Shall mean an individual, a corporation, a partnership, an association, a joint stock company, a trust where the interests of the beneficiaries are evidenced by a security, or an unincorporated organization, a government or a political subdivision of a government.
(j) (1) Sale or sell Shall include every sales contract, contract or the sale or disposition of a security or interest in a title acquired by purchase or for value.
(2) Offer and offer to sell Shall include any attempt or offer to dispose of, or the solicitation of an offer for the purchase of a security or interest in a security, other than gratuitously.
(3) Any security given or delivered with, or as a bonus to the account of, any purchase of securities or of any other thing shall be deemed to constitute a part of the subject of the purchase and that has been offered and acquired by purchase.
(4) An alleged gift of stock subject to subsequent payment of amounts to be determined by the corporation, is deemed to involve an offer and sale.
(5) Every sale or offer of a bill of sale, or right to purchase or subscribe to another security of the same or other issuer; as well as every sale or offer of a security that gives the holder a present or future right or privilege, to convert it into another security of the same or different issuer, shall be deemed to include an offer of the other security.
(6) The terms defined in this subsection do not include:
(A) [Any] bona fide pignoration or loan;
(B) [any] stock dividend, whether or not the corporation distributing the dividends is the issuer of the stock, if nothing of value has been given by the stockholders for the dividend, except the waiver of a right to a dividend in cash or property when each stockholder can choose to receive the dividend in cash, or assets or in stock;
(C) any act incidental to a class vote by the stockholders, pursuant to the certificate of incorporation, or the applicable corporate statute, in a merger, consolidation, reclassification of securities, or the sale of corporate assets in consideration of the issue of securities of another corporation, or
(D) any act incident to a judicially approved reorganization in which a security is issued in exchange of one or more outstanding securities, claims, or interest in property, or partly in such exchange and partly in cash.
(k) Securities Act of 1933, Securities Exchange Regulating Act of 1934, Public Utility Holding Company Act of 1935, Investment Advisors Act of 1940, Investment Companies Act of 1940 Mean the federal and local statutes that answer to those names as they have been amended, or are subsequently amended after the effective date of this act.
(l) Security shall mean any note, share, stock on hand, bond, note, evidence of indebtedness, certificate of interest or share in any profit-sharing agreement or partnership, any collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, secured certificate of deposit, a hybrid instrument as defined in this section, undivided interest in oil, gas, or other mineral rights or generally, any interest or instrument commonly known as "securities", or any certificate of interest or share in any of the preceding securities, temporary or provisional certificate or receipt therefor, warrant or right to subscribe to or purchase any of the above. "Security" shall not include any insurance policy, or endowment policy nor annuity contract through which an insurance company is committed to pay a specific sum of money, whether payable in a lump sum or periodically, during the life of the person or other specified period.
(m) State shall mean any state, territory, or possession of the United States, the District of Columbia, and Puerto Rico.
(n) Accredited investors Shall mean any person who meets the requirements established in the categories provided in 17 C.F.R. § 230.501(a), or any similar provision that amends or substitutes said regulations, or such person that the issuer determines that reasonably meets said requirements at the time of the sale of the securities.
(o) Investment advisor representative Shall mean any partner, official or director of an investment advisor, or a person who has a similar status or performs similar functions; or any person (except clerical or ministerial personnel), employed by or associated to a registered investment advisor, or who should register under the provisions of; or who has a place of business in Puerto Rico and (with the exception of clerical or ministerial personnel), is employed by or is associated with a federally covered investment advisor and performs any of the following functions:
(1) Makes any recommendation or issues any other type of advice with regard to securities;
(2) administers accounts or investment portfolios of clients;
(3) determines the recommendations or advice that should be issued with regard to securities;
(4) procures, offers or negotiates the sale of, or sells, investment advice services, or
(5) supervises employees who perform any of the above functions.
(p) Federal covered adviser Shall mean any person registered as such in [the] SEC under the provisions of § 203 of the Investment Advisors Act of 1940.
(q) Federal covered security Shall mean any security that is a covered security under the provisions of § 18(b) of the Securities Act of 1933, or the rules or regulations approved by [the] SEC thereunder. Provided, That until October 10, 1999, or until any other date that is allowable by applicable federal law, when the written notice fees corresponding to a federally covered security are not promptly paid to the Commissioner after the Commissioner has issued a written notice to the issuer requiring said payment, or the payment of an additional amount owed for said account, as provided in this chapter, it shall be deemed that said security does not constitute a federal covered security as defined herein. For the purposes of this subsection, the term "promptly" shall mean a period of time that shall not exceed five (5) working days from the date of the Commissioner's notice.
(r) SEC Shall mean the Federal Securities and Exchange Regulating Commission, entitled the "Securities and Exchange Commission".
(s) Person associated with a broker-dealer or an associated person of a broker-dealer The phrase "person associated with a broker-dealer" or "associated person of a broker-dealer" shall have the same meaning as that assigned in § 3(a) (18) of the Securities Exchange Regulating Act of 1934, to the phrases "person associated with a broker-dealer" or "associated person of a broker-dealer". Said meaning shall also include any definition or construction adopted by [the] SEC under said § 3(a) (18).
(t) Hybrid product The phrase "hybrid product" means an instrument, service, or product that even though it is in the nature of a security, it may, at the same time, be deemed as a banking or insurance instrument, service, or product. The Commissioner, through a circular letter issued at his/her discretion, may interpret whether an instrument constitutes a hybrid instrument as defined in this section and if it is subject to the various provisions of this chapter, if any.
"Hybrid product" shall not include the following: (i) Those products or securities subject to regulation by the Commissioner, under the Uniform Securities Act on dates prior to the effective date of this act, (ii) identified banking products or instruments as this term is defined in this section.
(u) Identified banking product or instrument Shall mean:
(1) A deposit account or savings account, certificate of deposits, or other deposit instrument issued by a bank, credit and savings cooperative, or any other institution duly authorized to accept deposits from the general public. Provided, however, That the phrase "deposit or savings account certificate of deposit", or other deposit instrument used in this section shall not include those instruments or products whose yields are established in terms of matters other than interest rates.
(2) A banker's acceptance.
(3) A letter of credit issued or loan granted by a bank, credit and savings cooperative, or any other institution duly authorized to grant loans.
(4) A debit account arising originated through a credit card or similar agreement kept at a bank or any other institution duly authorized to render such services.
(5) A share in a loan granted by a bank, an entity affiliated to a bank (other than a broker or dealer), a credit and savings cooperative, or any other institution duly authorized to grant loans when said shares in said loans, or when said shares are sold to:
(A) A qualified investors as this term is defined in this chapter, or
(B) to other persons that:
(i) Have the opportunity to review and evaluate any material information, including information regarding the credit of the borrower, and
(ii) based on such factors as financial sophistication, net worth, knowledge and experience in financial matters, have the capability to evaluate the information available, as determined under generally acceptable banking standards or guidelines.
(6) Any swap agreement, including credit swaps or equity swaps, respectively. However, when an equity swap is sold directly to a person who does not meet the requirements to be considered as a qualified investor as defined in this section, such swap shall not be deemed as an identified banking product.
(v) Swap agreement The phrase "swap agreement", as used in the definition of the term "identified banking product or instrument", means any individually negotiated contract, agreement, warrant, note, or option that is based, in whole or in part, on the value of, or any interest in, or any quantitative measure or the occurrence of any event related to, one or more commodities, securities, foreign currency, interest or other rates, indexes, or other assets. This term does not include any other identified banking product or instrument, as defined in clauses (1) through (5) of subsection (u) of this section.
(w) Qualified investor The phrase "qualified investor" shall have the same meaning as that given to the phrase "qualified investor" in § 3(a)(54) of the Securities Exchange Regulating Act of 1934 or any order or rule adopted by the SEC thereunder, to interpret it.
§ 851. Sales and purchases.
It shall be unlawful for any person, relative to the offer, sale or purchase of any securities, directly or indirectly:
(1) To employ any device, scheme, or artifice to defraud;
(2) 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;
(3) to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person;
(4) to issue, circulate, or publish any material, printed or through electronic means, containing false representation of a material fact, or omitting information concerning a necessary material fact, so that the information which is issued, circulated or published, in the light of the circumstances in which it was issued, circulated or published, leads to an error, or
(5) to issue, circulate, or publish any material, or make any written statement, unless the name of the person who issues, circulates or publishes or makes the aforesaid, and the fact that it is that person who issues, circulates, publishes or makes the statement, is clearly indicated in that same communication.
§ 852. Advisory activities.
a) It is unlawful for any person who receives any consideration from another person primarily for advising the other person as to the value of securities or their purchase or sale, whether through the issuance of analyses or reports or otherwise,
(1) To employ any device, scheme, or artifice to defraud the other person, or
(2) to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon the other person.
(b) It is unlawful for any investment adviser to enter into, extend, or renew any investment advisory contract unless it provides in writing:
(1) That the investment adviser shall not be compensated on the basis of a share of capital gains upon or capital appreciation of the funds or any portion of the funds of the client;
(2) that no assignment of the contract may be made by the investment adviser without the consent of the other party to the contract, and
(3) that the investment adviser, if a partnership, shall notify the other party to the contract of any change in the membership of the partnership within a reasonable time after the change.
Clause (1) of this subsection does not prohibit an investment advisory contract which provides for compensation based upon the total value of a fund averaged over a definite period, or as of definite dates or taken as of a definite date. "Assignment," as used in clause (2) of this subsection, 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.
(c) It shall be unlawful for any investment adviser to take or have custody of any securities or funds of any client if:
(1) The Commissioner prohibits custody through regulations, or
(2) in the absence of regulations, the investment adviser fails to notify the Commissioner that he/she has or may have custody.
§ 853. Market manipulation.
It shall be unlawful for any person, directly or indirectly:
(a) With the purpose of creating the false or deceptive appearance of the active negotiation of securities, or a false or deceptive impression regarding the existence of a market for specific securities:
(1) To carry out any transaction regarding securities which does not involve a change in the owner of the title deed of the aforesaid, or
(2) to file any order or orders for the purchase or sale of securities with the knowledge that the order or orders are substantially of the same size, or substantially done at the sale time and substantially have the same price for the sale or purchase of the securities, and that these have been made or will be made by or for the same person or for any other person affiliated to the aforesaid.
(b) To carry out, alone, or with one or more persons, a series of transactions regarding any securities, creating an active, actual or apparent negotiation concerning said securities to increase or decrease their price, for the purpose of inducing the purchase or sale of said securities by others.
§ 889. Criminal penalties.
(a) Any person who willfully violates any provision of this chapter except § 884 of this title, or who willfully violates any Regulation or order promulgated under the provisions of this chapter, or who willfully violates section 884 of this title knowing that the statement made is false or misleading in any material respect, shall, upon conviction, be fined not less than five hundred (500) dollars nor more than ten thousand (10,000) dollars, or imprisonment for a term of not less than six (6) months nor more than five (5) years, or both penalties. No proceeding may be initiated more than five (5) years after the alleged violation. Original jurisdiction to hear these cases is hereby conferred to the Court of First Instance.
(b) The Commissioner may refer such evidence as is available in connection with violations of this chapter, or of any regulation or order promulgated hereunder, to the Secretary of Justice, who may, with or without such a reference, initiate the appropriate criminal procedure pursuant to the provisions of this chapter.
(c) Nothing in this chapter limits the power of the state to punish any person for any conduct which constitutes a crime under the Penal Code, § 1 et seq. of Title 33.
(d) The Commissioner may, in addition to the other remedies established in this chapter, or in substitution thereof, impose upon any person who violates any of the provisions of this chapter, regulations or orders promulgated hereunder, an administrative fine of not less than five hundred (500) dollars nor more than five thousand (5,000) dollars for each violation. The Commissioner may impose an additional fine equal to the total amount of the price paid for any securities offered or sold in violation of the provisions of this chapter, and/or order the return of such a price to the purchasers who so accept, plus interest at the interest rate applicable to judicial decisions as provided by the regulations approved to such effects by the Financial Board created by §§ 2001 et seq. of title 7. If the person upon whom the administrative fine is imposed is not in agreement with it, he/she shall request a hearing, in writing, within ten (10) days following the date of notice. If the person agrees, he/she shall pay the fine no later than the expiration of said ten (10) days, at the Office of the Commissioner, by certified check or money order payable to the Secretary of the Treasury. The injured party shall have the remedy provided in § 891 of this title against the determination of the Commissioner imposing an administrative fine.
§ 890. Civil liabilities.
(a) Any person who:
(1) Offers or sells a security in violation of § 861(a), 871, or 885(b) of this title, or of any rule or order under § 883 of this title which requires the affirmative approval of sales literature before it is used, or of any condition imposed under § 874(d), 875(g), or 875(h) of this title, or
(2) offers or sells a security by means of a false statement of a material fact or omitting to state a material fact needed to prevent that any statement made, in the light of the circumstances under which it was made, leads to misunderstanding (the buyer not knowing of the falsehood or omission), and does not suppport the burden of proof that he did not know, and in exercising reasonable prudency could not have known of the falsehood or omission, shall be liable to the person who buys the security, who may file suit to recover the price paid for the security, in addition to the interest at the rate applicable to judicial awards as provided by the regulations approved to such effects the Financing Board created by §§ 2001 et seq. of Title 7, starting on the date in which the payment, costs and reasonable Attorney’s fees were made less the sum of any income received on, 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 returning the security, less its price when the buyer disposed of it plus interest at the rate applicable to judicial awards as provided through regulations approved to such effects by the Financing Board created by §§ 2001 et seq. of Title 7, as of the date such security was disposed of.
(b) Every person who directly or indirectly controls a seller liable under subsection (a), every partner, officer, or director of such a seller, every person occupying a similar status or performing similar functions, every employee of such a seller who materially aids in the sale, and every broker-dealer or agent who materially aids in the sale are also liable jointly and severally with and to the same extent as the seller, unless the non-seller who is so liable sustains the burden of proof that he did not know, and in exercise of reasonable care could not have known, of the existence of the facts by reason of which the liability is alleged to exist. There is contribution as in cases of contract among the several persons so liable.
(c) Any tender specified in this section may be made at any time before entry of judgment.
(d) Every cause of action under this statute survives the death of any person who might have been a plaintiff or defendant.
(e) No person may bring a civil suit pursuant to the provisions of this section more than two (2) years after the sale contract has been executed. A person may not bring a civil suit pursuant to the provisions of this section:
(1) If the buyer received a written offer before the suit and when he still owned the security, to refund the price paid plus interest at the rate applicable to judicial awards, as provided by the regulations approved to such effects by the Financing Board created by §§ 2001 et seq. of Title 7, as of the date the payment was made, less the amount of any income earned on the security, and he failed to accept the offer within thirty (30) days from its receipt, or
(2) if the buyer received such an offer before the suit, and when he was no longer the owner of the security unless he had rejected the offer in writing within thirty (30) days of its receipt.
(f) No person who has made or engaged in the performance of any contract in violation of any provision of this chapter or any rule or order hereunder, or who has acquired any purported right under any 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.
(g) Any condition, stipulation, or provision binding any person acquiring any security to waive compliance with any provision of this chapter or any rule or order hereunder is void.
(h) The rights and remedies provided by this chapter are in addition to any other rights or remedies that may exist at law, but this chapter does not create any cause of action not specified in this section or § 862(e) of this title.
(June 18, 1963, No. 60, p. 128, § 410; Aug. 28, 1991, No. 77, § 8.)
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.