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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

Vermont Securities Act

 

Sections included on this page:

SHORT TITLE

This chapter may be cited as the Vermont Uniform Securities Act (2002).

DEFINITIONS

In this chapter, unless the context otherwise requires:
(1) "Agent" means an individual, other than a broker-dealer, who represents a broker-dealer in effecting or attempting to effect purchases or sales of securities or represents an issuer in effecting or attempting to effect purchases or sales of the issuer's securities. But a partner, officer, or director of a broker-dealer or issuer or an individual having a similar status or performing similar functions is an agent only if the individual otherwise comes within the term. The term does not include an individual excluded by rule adopted or order issued under this chapter.
(2) "Bank" means:
(A) a banking institution organized under the laws of the United States;
(B) a member bank of the Federal Reserve System;
(C) any other banking institution, whether incorporated or not, doing business under the laws of a state or of the United States, a substantial portion of the business of which consists of receiving deposits or exercising fiduciary powers similar to those permitted to be exercised by national banks under the authority of the Comptroller of the Currency pursuant to 12 U.S.C. § 92a, and which is supervised and examined by a state or federal agency having supervision over banks, and which is not operated for the purpose of evading this chapter; and
(D) a receiver, conservator, or other liquidating agent of any institution or firm included in subdivision (2)(A), (B), or (C) of this section.
(3) "Broker-dealer" means a person engaged in the business of effecting transactions in securities for the account of others or for the person's own account. The term does not include:
(A) an agent;
(B) an issuer;
(C) a bank or savings institution if its activities as a broker-dealer are limited to those specified in subdivisions 15 U.S.C. § 78c(a)(4)(B)(i) through (vi), (viii) through (x), and (xi) if limited to unsolicited transactions; and 15 U.S.C. § 78c(a)(5)(B) and (C) or a bank that satisfies the conditions described in 15 U.S.C. § 78c(a)(4)(E);
(D) an international banking institution; or
(E) a person excluded by rule adopted or order issued under this chapter.
(4) "Commissioner" means the commissioner of banking, insurance, securities, and health care administration.
(5) "Depository institution" means:
(A) a bank; or
(B) a savings institution, trust company, credit union, or similar institution that is organized or chartered under the laws of a state or of the United States, authorized to receive deposits, and supervised and examined by an official or agency of a state or the United States if its deposits or share accounts are insured to the maximum amount authorized by statute by the Federal Deposit Insurance Corporation, the National Credit Union Share Insurance Fund, or a successor authorized by federal law. The term does not include:
(i) an insurance company or other organization primarily engaged in the business of insurance;
(ii) a Morris Plan bank; or
(iii) an industrial loan company that is not an "insured depository institution" as defined in Section 3(c)(2) of the Federal Deposit Insurance Act, 12 U.S.C. § 1813(c)(2), or any successor federal statute.
(6) "Federal covered investment adviser" means a person registered under 15 U.S.C. § 80b-1 et seq.
(7) "Federal covered security" means a security that is, or upon completion of a transaction will be, a covered security under 15 U.S.C. § 77r(b) or rules or regulations adopted pursuant to that provision.
(8) "Filing" means the receipt under this chapter of a record by the commissioner or a designee of the commissioner.
(9) "Fraud," "deceit," and "defraud" are not limited to common law deceit.
(10) "Guaranteed" means guaranteed as to payment of all principal and all interest.
(11) "Institutional investor" means any of the following, whether acting for itself or for others in a fiduciary capacity:
(A) a depository institution or international banking institution;
(B) an insurance company;
(C) a separate account of an insurance company;
(D) an investment company as defined in 15 U.S.C. § 80a-1 et seq.;
(E) a broker-dealer registered under 15 U.S.C. § 78a et seq.;
(F) an employee pension, profit-sharing, or benefit plan if the plan has total assets in excess of $10,000,000.00 or its investment decisions are made by a named fiduciary, as defined in 29 U.S.C. § 1001 et seq., that is a broker-dealer registered under 15 U.S.C. § 78a et seq., an investment adviser registered or exempt from registration under 15 U.S.C. § 80a-1 et seq., an investment adviser registered under this chapter, a depository institution, or an insurance company;
(G) a plan established and maintained by a state, a political subdivision of a state, or an agency or instrumentality of a state or a political subdivision of a state for the benefit of its employees, if the plan has total assets in excess of $10,000,000.00 or its investment decisions are made by a duly designated public official or by a named fiduciary, as defined in 29 U.S.C. § 1001 et seq., that is a broker-dealer registered under 15 U.S.C. § 78a et seq., an investment adviser registered or exempt from registration under 15 U.S.C. § 80a-1 et seq., an investment adviser registered under this chapter, a depository institution, or an insurance company;
(H) a trust, if it has total assets in excess of $10,000,000, its trustee is a depository institution, and its participants are exclusively plans of the types identified in subdivision (11)(F) or (G) of this section, regardless of the size of their assets, except a trust that includes as participants self-directed individual retirement accounts or similar self-directed plans;
(I) an organization described in 26 U.S.C. § 501(c)(3), corporation, Massachusetts trust or similar business trust, limited liability company, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $10,000,000.00;
(J) a small business investment company licensed by the Small Business Administration under 15 U.S.C. § 681(c) with total assets in excess of $10,000,000.00;
(K) a private business development company as defined in 15 U.S.C. § 80b-2(a)(22) with total assets in excess of $10,000,000.00;
(L) a federal covered investment adviser acting for its own account;
(M) a "qualified institutional buyer" as defined in 17 C.F.R. 230.144A(a)(1), other than subdivision 17 C.F.R. 230.144A(a)(1)(i)(H);
(N) a "major U.S. institutional investor" as defined in 17 C.F.R. 240.15a-6(b)(4)(i);
(O) any other person, other than an individual, of institutional character with total assets in excess of $10,000,000.00 not organized for the specific purpose of evading this chapter; or
(P) any other person specified by rule adopted or order issued under this chapter.
(12) "Insurance company" means a company organized as an insurance company whose primary business is writing insurance or reinsuring risks underwritten by insurance companies and which is subject to supervision by the insurance commissioner or a similar official or agency of a state.
(13) "Insured" means insured as to payment of all principal and all interest.
(14) "International banking institution" means an international financial institution of which the United States is a member and whose securities are exempt from registration under 15 U.S.C. § 77a et seq.
(15) "Investment adviser" means a person that, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or the advisability of investing in, purchasing, or selling securities or that, for compensation and as a part of a regular business, issues or promulgates analyses or reports concerning securities. The term includes a financial planner or other person that, as an integral component of other financially related services, provides investment advice to others for compensation as part of a business or that holds itself out as providing investment advice to others for compensation. The term does not include:
(A) an investment adviser representative;
(B) a lawyer, accountant, engineer, or teacher whose performance of investment advice is solely incidental to the practice of the person's profession;
(C) a broker-dealer or its agents whose performance of investment advice is solely incidental to the conduct of business as a broker-dealer and that does not receive special compensation for the investment advice;
(D) a publisher of a bona fide newspaper, news magazine, or business or financial publication of general and regular circulation;
(E) a federal covered investment adviser;
(F) a bank or savings institution;
(G) any other person that is excluded by 15 U.S.C. § 80b-1 et seq. from the definition of investment adviser; or
(H) any other person excluded by rule adopted or order issued under this chapter.
(16) "Investment adviser representative" means an individual employed by or associated with an investment adviser or federal covered investment adviser and who makes any recommendations or otherwise gives investment advice regarding securities, manages accounts or portfolios of clients, determines which recommendation or advice regarding securities should be given, provides investment advice or holds himself or herself out as providing investment advice, receives compensation to solicit, offer, or negotiate for the sale of or for selling investment advice, or supervises employees who perform any of the foregoing. The term does not include an individual who:
(A) performs only clerical or ministerial acts;
(B) is an agent whose performance of investment advice is solely incidental to the individual acting as an agent and who does not receive special compensation for investment advisory services;
(C) is employed by or associated with a federal covered investment adviser, unless the individual has a "place of business" in this state as that term is defined by rule adopted under 15 U.S.C. § 80b-3a, and is:
(i) an "investment adviser representative" as that term is defined by rule adopted under 15 U.S.C. § 80b-3a; or
(ii) not a "supervised person" as that term is defined in 15 U.S.C. § 80b-2(a)(25); or
(D) is excluded by rule adopted or order issued under this chapter.
(17) "Issuer" means a person that issues or proposes to issue a security, subject to the following:
(A) The issuer of a voting trust certificate, collateral trust certificate, certificate of deposit for a security, or share in an investment company without a board of directors or individuals performing similar functions is the person performing the acts and assuming the duties of depositor or manager pursuant to the trust or other agreement or instrument under which the security is issued.
(B) The issuer of an equipment trust certificate or similar security serving the same purpose as the person by which the property is or will be used or to which the property or equipment is or will be leased or conditionally sold or that is otherwise contractually responsible for assuring payment of the certificate.
(C) The issuer of a fractional undivided interest in an oil, gas, or other mineral lease or in payments out of production under a lease, right, or royalty is the owner of an interest in the lease or in payments out of production under a lease, right, or royalty, whether whole or fractional, that creates fractional interests for the purpose of sale.
(18) "Nonissuer transaction" or "nonissuer distribution" means a transaction or distribution not directly or indirectly for the benefit of the issuer.
(19) "Offer to purchase" includes an attempt or offer to obtain, or solicitation of an offer to sell, a security or interest in a security for value. The term does not include a tender offer that is subject to 15 U.S.C. § 78n(d).
(20) "Person" means an individual; corporation; business trust; estate; trust; partnership; limited liability company; association; joint venture; government; governmental subdivision, agency, or instrumentality; public corporation; or any other legal or commercial entity.
(21) "Place of business" of a broker-dealer, an investment adviser, or a federal covered investment adviser means:
(A) an office at which the broker-dealer, investment adviser, or federal covered investment adviser regularly provides brokerage or investment advice or solicits, meets with, or otherwise communicates with customers or clients; or
(B) any other location that is held out to the general public as a location at which the broker-dealer, investment adviser, or federal covered investment adviser provides brokerage or investment advice or solicits, meets with, or otherwise communicates with customers or clients.
(22) "Predecessor act" means chapter 131 of this title.
(23) "Price amendment" means the amendment to a registration statement filed under 15 U.S.C. § 77a et seq. or, if an amendment is not filed, the prospectus or prospectus supplement filed under 15 U.S.C. § 77a et seq. that includes a statement of the offering price, underwriting and selling discounts or commissions, amount of proceeds, conversion rates, call prices, and other matters dependent upon the offering price.
(24) "Principal place of business" of a broker-dealer or an investment adviser means the executive office of the broker-dealer or investment adviser from which the officers, partners, or managers of the broker-dealer or investment adviser direct, control, and coordinate the activities of the broker-dealer or investment adviser.
(25) "Record," except in the phrases "of record," "official record," and "public record," means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.
(26) "Sale" includes every contract of sale, contract to sell, or disposition of a security or interest in a security for value, and "offer to sell" includes every attempt or offer to dispose of, or solicitation of an offer to purchase, a security or interest in a security for value. Both terms include:
(A) a security given or delivered with, or as a bonus on account of, a purchase of securities or any other thing constituting part of the subject of the purchase and having been offered and sold for value;
(B) a gift of assessable stock involving an offer and sale; and
(C) a sale or offer of a warrant or right to purchase or subscribe to another security of the same or another issuer and a sale or offer of a security that gives the holder a present or future right or privilege to convert the security into another security of the same or another issuer, including an offer of the other security.
(27) "Securities and Exchange Commission" means the United States Securities and Exchange Commission.
(28) "Security" means a note; stock; treasury stock; security future; bond; debenture; evidence of indebtedness; certificate of interest or participation in a profit-sharing agreement; collateral trust certificate; preorganization certificate or subscription; transferable share; investment contract; voting trust certificate; certificate of deposit for a security; fractional undivided interest in oil, gas, or other mineral rights; put, call, straddle, option, or privilege on a security, certificate of deposit, or group or index of securities, including an interest therein or based on the value thereof; put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency; or, in general, an interest or instrument commonly known as a "security"; or a 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. The term:
(A) includes both a certificated and an uncertificated security;
(B) does not include an insurance or endowment policy or annuity contract under which an insurance company promises to pay a fixed sum of money either in a lump sum or periodically for life or other specified period;
(C) does not include an interest in a contributory or noncontributory pension or welfare plan subject to 29 U.S.C. § 1001 et seq.;
(D) includes an investment in a common enterprise with the expectation of profits to be derived primarily from the efforts of a person other than the investor and a "common enterprise" means an enterprise in which the fortunes of the investor are interwoven with those of either the person offering the investment, a third party, or other investors; and
(E) includes as an "investment contract" among other contracts an interest in a limited partnership, a limited liability company, an investment in a viatical settlement, or similar agreement.
(29) "Self-regulatory organization" means any national securities exchange, registered securities association, clearing agency registered under 15 U.S.C. § § 78a et seq., or, solely for purposes of Sections 19(b), 19(c), and 23(b) of 15 U.S.C. § 78a et seq., the Municipal Securities Rulemaking Board established under 15 U.S.C. § 78a et seq.
(30) "Sign" means with present intent to authenticate or adopt a record:
(A) to execute or adopt a tangible symbol; or
(B) to attach or logically associate with the record an electronic symbol, sound, or process.
(31) "State" means a state of the United States, the District of Columbia, Puerto Rico, the United States Virgin Islands, or any territory or insular possession subject to the jurisdiction of the United States. (Added 2005, No. 11, § 1, eff. July 1, 2006; amended 2005, No. 122 (Adj. Sess.), §§ 9-12.)

TERMINATION OF EMPLOYMENT OR ASSOCIATION OF AGENT AND INVESTMENT ADVISER REPRESENTATIVE AND TRANSFER OF EMPLOYMENT OR ASSOCIATION

(a) If an agent registered under this chapter terminates employment by or association with a broker-dealer or issuer, or if an investment adviser representative registered under this chapter terminates employment by or association with an investment adviser or federal covered investment adviser, or if either registrant terminates activities that require registration as an agent or investment adviser representative, the broker-dealer, issuer, investment adviser, or federal covered investment adviser shall promptly file a notice of termination. If the registrant learns that the broker-dealer, issuer, investment adviser, or federal covered investment adviser has not filed the notice, the registrant may do so.
(b) If an agent registered under this chapter terminates employment by or association with a broker-dealer registered under this chapter and begins employment by or association with another broker-dealer registered under this chapter; or if an investment adviser representative registered under this chapter terminates employment by or association with an investment adviser registered under this chapter or a federal covered investment adviser that has filed a notice under section 5405 of this chapter and begins employment by or association with another investment adviser registered under this chapter or a federal covered investment adviser that has filed a notice under section 5405; then upon the filing by or on behalf of the registrant, within 30 days after the termination, of an application for registration that complies with the requirement of subsection 5406(a) of this chapter and payment of the filing fee required under section 5410 of this chapter, the registration of the agent or investment adviser representative is:
(1) immediately effective as of the date of the completed filing, if the agent's Central Registration Depository record or successor record or the investment adviser representative's Investment Adviser Registration Depository record or successor record does not contain a new or amended disciplinary disclosure within the previous 12 months; or
(2) temporarily effective as of the date of the completed filing, if the agent's Central Registration Depository record or successor record or the investment adviser representative's Investment Adviser Registration Depository record or successor record contains a new or amended disciplinary disclosure within the preceding 12 months.
(c) The commissioner may withdraw a temporary registration if there are or were grounds for discipline as specified in section 5412 of this chapter and the commissioner does so within 30 days after the filing of the application. If the commissioner does not withdraw the temporary registration within the 30-day period, registration becomes automatically effective on the 31st day after filing.
(d) The commissioner may prevent the effectiveness of a transfer of an agent or investment adviser representative under subdivision (b)(1) or (2) of this section based on the public interest and the protection of investors.
(e) If the commissioner determines that a registrant or applicant for registration is no longer in existence or has ceased to act as a broker-dealer, agent, investment adviser, or investment adviser representative, or is the subject of an adjudication of incapacity or is subject to the control of a committee, conservator, or guardian, or cannot reasonably be located, a rule adopted or order issued under this chapter may require that the registration be canceled or terminated or the application denied. The commissioner may reinstate a canceled or terminated registration, with or without hearing, and may make the registration retroactive.

DENIAL, REVOCATION, SUSPENSION, WITHDRAWAL, RESTRICTION, CONDITION, OR LIMITATIONS OF REGISTRATION

(a) If the commissioner finds that the order is in the public interest and subsection (d) of this section authorizes the action, an order issued under this chapter may deny an application, or may condition or limit registration of an applicant to be a broker-dealer, agent, investment adviser, or investment adviser representative, and, if the applicant is a broker-dealer or investment adviser, of a partner, officer, director, or person having a similar status or performing similar functions, or a person directly or indirectly in control, of the broker-dealer or investment adviser.
(b) If the commissioner finds that the order is in the public interest and subsection (d) of this section authorizes the action, an order issued under this chapter may revoke, suspend, condition, or limit the registration of a registrant and, if the registrant is a broker-dealer or investment adviser, of a partner, officer, director, or person having a similar status or performing similar functions, or a person directly or indirectly in control, of the broker-dealer or investment adviser. However, the commissioner may not:
(1) institute a revocation or suspension proceeding under this subsection based on an order issued under a law of another state that is reported to the commissioner or a designee of the commissioner more than one year after the date of the order on which it is based; or
(2) under subdivision (d)(5)(A) or (B) of this section, issue an order on the basis of an order issued under the securities act of another state unless the other order was based on conduct for which subsection (d) of this section would authorize the action had the conduct occurred in this state.
(c) If the commissioner finds that the order is in the public interest and subdivisions (d)(1) through (6), (8), (9), (10), (12), or (13) of this section authorize the action, an order under this chapter may censure, impose a bar on, or impose a civil penalty on a registrant in an amount not more than $15,000.00 for each violation and not more than $1,000,000.00 for more than one violation, and recover the costs of the investigation from the registrant, and, if the registrant is a broker-dealer or investment adviser, a partner, officer, director, or person having a similar status or performing similar functions, or a person directly or indirectly in control of the broker-dealer or investment adviser. The limitations on civil penalties contained in this subsection shall not apply to settlement agreements.
(d) A person may be disciplined under subsections (a) through (c) of this section if the person:
(1) has filed an application for registration in this state under this chapter or the predecessor act within the previous 10 years, which, as of the effective date of registration or as of any date after filing in the case of an order denying effectiveness, was incomplete in any material respect or contained a statement that, in light of the circumstances under which it was made, was false or misleading with respect to a material fact;
(2) willfully violated or willfully failed to comply with this chapter or the predecessor act or a rule adopted or order issued under this chapter or the predecessor act within the previous 10 years. As used in this subdivision, the term "willfully" means purposely or willingly committing the act or making the omission and does not require an intent to violate the law or to injure another or to acquire any advantage;
(3) has been convicted of a felony or within the previous 10 years has been convicted of a misdemeanor involving a security, a commodity future or option contract, or an aspect of a business involving securities, commodities, investments, franchises, insurance, banking, or finance;
(4) is enjoined or restrained by a court of competent jurisdiction in an action instituted by the commissioner under this chapter or the predecessor act, a state, the Securities and Exchange Commission, or the United States from engaging in or continuing an act, practice, or course of business involving an aspect of a business involving securities, commodities, investments, franchises, insurance, banking, or finance;
(5) is the subject of an order, issued after notice and opportunity for hearing by:
(A) the securities or other financial services regulator of a state or the Securities and Exchange Commission or other federal agency denying, revoking, barring, or suspending registration as a broker-dealer, agent, investment adviser, federal covered investment adviser, or investment adviser representative;
(B) the securities regulator of a state or the Securities and Exchange Commission against a broker-dealer, agent, investment adviser, investment adviser representative, or federal covered investment adviser;
(C) the Securities and Exchange Commission or a self-regulatory organization suspending or expelling the registrant from membership in the self-regulatory organization;
(D) a court adjudicating a United States Postal Service fraud order;
(E) the insurance regulator of a state denying, suspending, or revoking registration as an insurance agent; or
(F) a depository institution or financial services regulator suspending or barring the person from the depository institution or other financial services business;
(6) is the subject of an adjudication or determination, after notice and opportunity for hearing, by the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Federal Trade Commission, a federal depository institution regulator, or a depository institution, insurance, or other financial services regulator of a state that the person willfully violated the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Advisers Act of 1940, the Investment Company Act of 1940, or the Commodity Exchange Act, the securities or commodities law of a state, or a federal or state law under which a business involving investments, franchises, insurance, banking, or finance is regulated;
(7) is insolvent, either because the person's liabilities exceed the person's assets or because the person cannot meet the person's obligations as they mature, but the commissioner may not enter an order against an applicant or registrant under this subdivision without a finding of insolvency as to the applicant or registrant;
(8) refuses to allow or otherwise impedes the commissioner from conducting an audit or inspection under subsection 5411(d) of this chapter or refuses access to a registrant's office to conduct an audit or inspection under subsection 5411(d);
(9) has failed to supervise reasonably an agent, investment adviser representative, or other individual, if the agent, investment adviser representative, or other individual was subject to the person's supervision and committed a violation of this chapter or the predecessor act or a rule adopted or order issued under this chapter or the predecessor act within the previous 10 years;
(10) has not paid the proper filing fee within 30 days after having been notified by the commissioner of a deficiency, but the commissioner shall vacate an order under this subdivision when the deficiency is corrected;
(11) after notice and opportunity for a hearing, has been found within the previous 10 years:
(A) by a court of competent jurisdiction to have willfully violated the laws of a foreign jurisdiction under which the business of securities, commodities, investment, franchises, insurance, banking, or finance is regulated;
(B) to have been the subject of an order of a securities regulator of a foreign jurisdiction denying, revoking, or suspending the right to engage in the business of securities as a broker-dealer, agent, investment adviser, investment adviser representative, or similar person; or
(C) to have been suspended or expelled from membership by or participation in a securities exchange or securities association operating under the securities laws of a foreign jurisdiction;
(12) is the subject of a cease and desist order issued by the Securities and Exchange Commission or issued under the securities, commodities, investment, franchise, banking, finance, or insurance laws of a state;
(13) has engaged in dishonest or unethical practices in the securities, commodities, investment, franchise, banking, finance, or insurance business within the previous 10 years; or
(14) is not qualified on the basis of factors such as training, experience, and knowledge of the securities business. However, in the case of an application by an agent for a broker-dealer that is a member of a self-regulatory organization or by an individual for registration as an investment adviser representative, a denial order may not be based on this subdivision if the individual has successfully completed all examinations required by subsection (e) of this section. The commissioner may require an applicant for registration under section 5402 or 5404 of this chapter who has not been registered in a state within the two years preceding the filing of an application in this state to complete successfully an examination.
(e) A rule adopted or order issued under this chapter may require that an examination, including an examination developed or approved by an organization of securities regulators, be completed successfully by a class of individuals or all individuals. An order issued under this chapter may waive, in whole or in part, an examination as to an individual, and a rule adopted under this chapter may waive, in whole or in part, an examination as to a class of individuals if the commissioner determines that the examination is not necessary or appropriate in the public interest and for the protection of investors.
(f) If the commissioner finds it necessary to preserve the public welfare, the commissioner may suspend or deny an application summarily; restrict, condition, limit, or suspend a registration; or censure, bar, or impose a civil penalty on a registrant before final determination of an administrative proceeding. Upon the issuance of an order, the commissioner shall promptly notify each person subject to the order that the order has been issued, the reasons for the action, and that, within 15 days after the receipt of a request in a record from the person, the matter will be scheduled for a hearing. If a hearing is not requested and none is ordered by the commissioner within 30 days after the date of service of the order, the order becomes final by operation of law. If a hearing is requested or ordered, the commissioner, after notice of and opportunity for hearing to each person subject to the order, may modify or vacate the order or extend the order until final determination.
(g) An order issued may not be issued under this section, except under subsection (f) of this section, without:
(1) appropriate notice to the applicant or registrant;
(2) opportunity for hearing; and
(3) findings of fact and conclusions of law in a record in accordance with the procedures set forth in chapter 25 of Title 3 (Administrative Procedure Act).
(h) A person that controls, directly or indirectly, a person not in compliance with this section may be disciplined by order of the commissioner under subsections (a) through (c) of this section to the same extent as the noncomplying person, unless the controlling person did not know, and in the exercise of reasonable care could not have known, of the existence of conduct that is a ground for discipline under this section.
(i) The commissioner may not institute a proceeding under subsection (a), (b), or (c) of this section based solely on material facts actually known by the commissioner unless an investigation or the proceeding is instituted within one year after the commissioner actually acquires knowledge of the material facts.

GENERAL FRAUD

It is unlawful for a person, in connection with the offer to sell, the offer to purchase, the sale, or the purchase of a security, directly or indirectly:
(1) to employ a device, scheme, or artifice to defraud;
(2) to make an untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or
(3) to engage in an act, practice, or course of business that operates or would operate as a fraud or deceit upon another person.

PROHIBITED CONDUCT IN PROVIDING INVESTMENT ADVICE

(a) It is unlawful for a person that advises others for compensation, either directly or indirectly or through publications or writings, as to the value of securities or the advisability of investing in, purchasing, or selling securities or that, for compensation and as part of a regular business, issues or adopts analyses or reports relating to securities:
(1) to employ a device, scheme, or artifice to defraud another person;
(2) to make an untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or
(3) to engage in an act, practice, or course of business that operates or would operate as a fraud or deceit upon another person.
(b) A rule adopted under this chapter may define an act, practice, or course of business of an investment adviser or an investment adviser representative, other than a supervised person of a federal covered investment adviser, as fraudulent, deceptive, or manipulative, and prescribe means reasonably designed to prevent investment advisers and investment adviser representatives, other than supervised persons of a federal covered investment adviser, from engaging in acts, practices, and courses of business defined as fraudulent, deceptive, or manipulative.
(c) A rule adopted under this chapter may specify the contents of an investment advisory contract entered into, extended, or renewed by an investment adviser.

EVIDENTIARY BURDEN

(a) In a civil action or administrative proceeding under this chapter, a person claiming an exemption, exception, preemption, or exclusion has the burden to prove the applicability of the claim.
(b) In a criminal proceeding under this chapter, a person claiming an exemption, exception, preemption, or exclusion has the burden of going forward with evidence of the claim.

FILING OF SALES AND ADVERTISING LITERATURE

(a) Except as otherwise provided in subsection (b) of this section, a rule adopted or order issued under this chapter may require the filing of a prospectus, pamphlet, circular, form letter, advertisement, sales literature, or other advertising record relating to a security or investment advice, addressed or intended for distribution to prospective investors, including clients or prospective clients of a person registered or required to be registered as an investment adviser under this chapter.
(b) This section does not apply to sales and advertising literature specified in subsection (a) of this section which relates to a federal covered security, a federal covered investment adviser, or a security or transaction exempted by section 5201, 5202, or 5203 of this chapter except as required pursuant to subdivision 5201(7) of this chapter.

MISLEADING FILINGS

It is unlawful for a person to make or cause to be made, in a record that is used in an action or proceeding or filed under this chapter, a statement that, at the time and in the light of the circumstances under which it is made, is false or misleading in a material respect, or, in connection with the statement, to omit to state a material fact necessary to make the statement made, in the light of the circumstances under which it was made, not false or misleading.

MISREPRESENTATIONS CONCERNING REGISTRATION OR EXEMPTION

The filing of an application for registration, a registration statement, a notice filing under this chapter, the registration of a person, the notice filing by a person, or the registration of a security under this chapter does not constitute a finding by the commissioner that a record filed under this chapter is true, complete, and not misleading. The filing or registration or the availability of an exemption, exception, preemption, or exclusion for a security or a transaction does not mean that the commissioner has passed upon the merits or qualifications of, or recommended or given approval to, a person, security, or transaction. It is unlawful to make, or cause to be made, to a purchaser, customer, client, or prospective customer or client a representation inconsistent with this section.

QUALIFIED IMMUNITY

A broker-dealer, agent, investment adviser, federal covered investment adviser, or investment adviser representative is not liable to another broker-dealer, agent, investment adviser, federal covered investment adviser, or investment adviser representative for defamation relating to a statement that is contained in a record required by the commissioner, or designee of the commissioner, the Securities and Exchange Commission, or a self-regulatory organization, unless the person knew, or should have known at the time that the statement was made, that it was false in a material respect or the person acted in reckless disregard of the statement's truth or falsity.

CRIMINAL PENALTIES

(a)(1) Upon conviction, any person shall be fined not more than $100,000.00 or imprisoned not more than five years, or both who:
(A) willfully violates this chapter, or a rule adopted or order issued under this chapter, except section 5504 of this chapter or the notice filing requirements of section 5302 or 5405 of this chapter; or
(B) willfully violates section 5505 of this chapter knowing the statement made to be false or misleading in a material respect.
(2) An individual convicted of violating a rule or order under this chapter may be fined, but may not be imprisoned, if the individual did not have knowledge of the rule or order.
(3) For purposes of subdivision (a)(1) of this subsection, the term "willfully" means purposely or willingly committing the act or making the omission and does not require an intent to violate the law or to injure another or to acquire any advantage.
(b) The attorney general with or without a reference from the commissioner may institute criminal proceedings under this chapter.
(c) This chapter does not limit the power of this state to punish a person for conduct that constitutes a crime under other laws of this state.

 CIVIL LIABILITY

(a) Enforcement of civil liability under this section is subject to the Securities Litigation Uniform Standards Act of 1998.
(b) A person is liable to the purchaser if the person sells a security in violation of sections 5301, 5501, or 5502 of this chapter, the purchaser not knowing the untruth or omission or deceptive nature of the conduct and the seller not sustaining the burden of proof that the seller did not know and, in the exercise of reasonable care, could not have known of the untruth or omission or deceptive nature of the conduct. An action under this subsection is governed by the following:
(1) The purchaser may maintain an action to recover the consideration paid for the security, less the amount of any income received on the security, and interest at the legal rate of interest from the date of the purchase, costs, and reasonable attorneys' fees determined by the court, upon the tender of the security, or for actual damages as provided in subdivision (3) of this subsection.
(2) The tender referred to in subdivision (1) of this subsection may be made any time before entry of judgment. Tender requires only notice in a record of ownership of the security and willingness to exchange the security for the amount specified. A purchaser that no longer owns the security may recover actual damages as provided in subdivision (3) of this subsection.
(3) Actual damages in an action arising under this subsection are 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 of interest from the date of the purchase, costs, and reasonable attorneys' fees determined by the court.
(c) A person is liable to the seller if the person buys a security in violation of section 5501 or 5502 of this chapter, the seller not knowing of the untruth or omission or deceptive nature of the conduct, and the purchaser not sustaining the burden of proof that the purchaser did not know, and in the exercise of reasonable care could not have known, of the untruth or omission or deceptive nature of the conduct. An action under this subsection is governed by the following:
(1) The seller may maintain an action to recover the security, and any income received on the security, costs, and reasonable attorneys' fees determined by the court, upon the tender of the purchase price, or for actual damages as provided in subdivision (3) of this subsection.
(2) The tender referred to in subdivision (1) of this subsection may be made any time before entry of judgment. Tender requires only notice in a record of the present ability to pay the amount tendered and willingness to take delivery of the security for the amount specified. If the purchaser no longer owns the security, the seller may recover actual damages as provided in subdivision (3) of this subsection.
(3) Actual damages in an action arising under this subsection are the difference between the price at which the security was sold and the value the security would have had at the time of the sale in the absence of the purchaser's conduct causing liability, the interest at the legal rate of interest from the date of the sale of the security, the costs, and the reasonable attorneys' fees determined by the court.
(d) A person acting as a broker-dealer or agent that sells or buys a security in violation of subsection 5401(a) or 5402(a) or section 5506 of this chapter is liable to the customer. The customer, if a purchaser, may maintain an action for recovery of actual damages as specified in subdivisions (b)(1) through (3) of this section, or, if a seller, for a remedy as specified in subdivisions (c)(1) through (3) of this section.
(e) A person acting as an investment adviser or investment adviser representative that provides investment advice for compensation in violation of subsection 5403(a) or 5404(a) or section 5506 of this chapter is liable to the client. The client may maintain an action to recover the consideration paid for the advice, interest at the legal rate of interest from the date of payment, costs, and reasonable attorneys' fees determined by the court.
(f) A person that receives directly or indirectly any consideration for providing investment advice to another person and that employs a device, scheme, or artifice to defraud the other person or engages in an act, practice, or course of business that operates or would operate as a fraud or deceit on the other person or otherwise violates section 5502 of this chapter is liable to the other person. An action under this subsection is governed by the following:
(1) The person wronged may maintain an action to recover the consideration paid for the advice and the amount of any actual damages caused by the fraudulent conduct, interest at the legal rate of interest from the date of the fraudulent conduct, costs, and reasonable attorneys' fees determined by the court, less the amount of any income received as a result of the fraudulent conduct.
(2) This subsection does not apply to a broker-dealer or its agents if the investment advice provided is solely incidental to transacting business as a broker-dealer, and no special compensation is received for the investment advice.
(g) The following persons are liable jointly and severally with and to the same extent as persons liable under subsections (b) through (f) of this section:
(1) a person that directly or indirectly controls a person liable under subsections (b) through (f) of this section, unless the controlling person sustains the burden of proof that the person did not know, and in the exercise of reasonable care could not have known, of the existence of conduct by reason of which the liability is alleged to exist;
(2) an individual who is a managing partner, executive officer, or director of a person liable under subsections (b) through (f) of this section, including an individual having a similar status or performing similar functions, unless the individual sustains the burden of proof that the individual did not know and, in the exercise of reasonable care could not have known, of the existence of conduct by reason of which the liability is alleged to exist;
(3) an individual who is an employee of or associated with a person liable under subsections (b) through (f) of this section and who materially aids the conduct giving rise to the liability, unless the individual sustains the burden of proof that the individual did not know and, in the exercise of reasonable care could not have known, of the existence of conduct by reason of which the liability is alleged to exist; and
(4) a person that is a broker-dealer, agent, investment adviser, or investment adviser representative that materially aids the conduct giving rise to the liability under subsections (b) through (f) of this section, unless the person sustains the burden of proof that the person did not know and, in the exercise of reasonable care could not have known, of the existence of conduct by reason of which liability is alleged to exist.
(h) A person liable under this section has a right of contribution as in cases of contract against any other person liable under this section for the same conduct.
(i) A cause of action under this section survives the death of an individual who might have been a plaintiff or defendant.
(j) A person may not obtain relief:
(1) under subsection (b) of this section for violation of section 5301 of this chapter, or under subsection (d) or (e) of this section, unless the action is instituted within one year after the violation occurred; or
(2) under subsection (b) of this section, other than for violation of section 5301 of this chapter, or under subsection (c) or (f) of this section, unless the action is instituted within the earlier of two years after discovery of the facts constituting the violation or five years after the violation.
(k) A person that has made, or has engaged in the performance of, a contract in violation of this chapter or a rule adopted or order issued under this chapter, or that has acquired a purported right under the contract with knowledge of conduct by reason of which its making or performance was in violation of this chapter, may not base an action on the contract.
( l ) A condition, stipulation, or provision binding a person purchasing or selling a security or receiving investment advice to waive compliance with this chapter or a rule adopted or order issued under this chapter is void.
(m) The rights and remedies provided by this chapter are in addition to any other rights or remedies that may exist, but this chapter does not create a cause of action not specified in this section or subsection 5411(e) of this chapter.

RESCISSION OFFERS

(a) Unless a purchaser, seller, or recipient of investment advice provides written notice of a dispute to the seller, purchaser, or provider of investment advice in conformity to subsection (b) of this section, such purchaser, seller, or recipient of investment advice may not maintain an action under section 5509 of this chapter if:
(1) The purchaser, seller, or recipient of investment advice receives in a record, before the action is instituted:
(A) an offer stating the respect in which liability under section 5509 of this chapter may have arisen and fairly advising the purchaser, seller, or recipient of investment advice of that person's rights in connection with the offer, and any financial or other information necessary to correct all material misrepresentations or omissions in the information that was required by this chapter to be furnished to that person at the time of the purchase, sale, or investment advice;
(B) if the basis for relief under this section may have been a violation of subsection 5509(b) of this chapter, an offer to repurchase the security for cash, payable on delivery of the security, equal to the consideration paid, and interest at the legal rate of interest from the date of the purchase, less the amount of any income received on the security, or, if the purchaser no longer owns the security, an offer to pay the purchaser upon acceptance of the offer damages in an 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 of interest from the date of the purchase in cash equal to the damages computed in the manner provided in this subsection;
(C) if the basis for relief under this section may have been a violation of subsection 5509(c) of this chapter, an offer to tender the security, on payment by the seller of an amount equal to the purchase price paid, less income received on the security by the purchaser and interest at the legal rate of interest from the date of the sale; or if the purchaser no longer owns the security, an offer to pay the seller upon acceptance of the offer, in cash, damages in the amount of the difference between the price at which the security was purchased and the value the security would have had at the time of the purchase in the absence of the purchaser's conduct that may have caused liability and interest at the legal rate of interest from the date of the sale;
(D) if the basis for relief under this section may have been a violation of subsection 5509(d) of this chapter; and if the customer is a purchaser, an offer to pay as specified in subdivision (B) of this subdivision (1); or, if the customer is a seller, an offer to tender or to pay as specified in subdivision (C) of this subdivision (1);
(E) if the basis for relief under this section may have been a violation of subsection 5509(e) of this chapter, an offer to reimburse in cash the consideration paid for the advice and interest at the legal rate of interest from the date of payment; or
(F) if the basis for relief under this section may have been a violation of subsection 5509(f) of this chapter, an offer to reimburse in cash the consideration paid for the advice, the amount of any actual damages that may have been caused by the conduct, and interest at the legal rate of interest from the date of the violation causing the loss;
(2) the offer under subdivision (1) of this subsection states that it must be accepted by the purchaser, seller, or recipient of investment advice within 30 days after the date of its receipt by the purchaser, seller, or recipient of investment advice or any shorter period, of not less than three days, that the commissioner, by order, specifies;
(3) the offeror has the present ability to pay the amount offered or to tender the security under subdivision (1) of this subsection;
(4) the offer under subdivision (1) of this subsection is delivered to the purchaser, seller, or recipient of investment advice, or sent in a manner that ensures receipt by the purchaser, seller, or recipient of investment advice; and
(5) the purchaser, seller, or recipient of investment advice that accepts the offer under subdivision (1) of this subsection in a record within the period specified under subdivision (2) of this subsection is paid in accordance with the terms of the offer.
(b) When a purchaser, seller, or recipient of investment advice provides written notice of a dispute containing a description of the nature of the dispute, the dates on which it occurred, a listing of the persons or entities involved to the seller, purchaser, or provider of investment advice, the person receiving such notice shall have 90 days to resolve the dispute within the terms of subsection (a) of this section. After the expiration of 90 days from the receipt of such notice, the terms of subsection (a) shall not apply to prohibit the pursuit of relief by such purchaser, seller, or recipient of investment advice under section 5509 of this chapter unless the terms of subsection (a) have been satisfied. Such notice shall be sent via certified mail, return receipt requested, or via a national courier service to the principal office and contact person of the purchaser, seller, or provider of investment advice, which:
(1) in the case of a broker-dealer firm or its agent, shall be the principal office and contact person for the firm as set forth in such firm's form B-D registration on file with the commissioner (or any similar registration form adopted by the commissioner hereafter); and
(2) in the case of an investment adviser firm or its representative, shall be the principal office and contact person for the firm as set forth in such firm's form ADV registration or notice filing on file with the commissioner (or any similar registration or notification form adopted by the commissioner hereafter).

CIVIL ENFORCEMENT

(a) If the commissioner believes that a person has engaged, is engaging, or is about to engage in an act, practice, or course of business constituting a violation of this chapter or a rule adopted or order issued under this chapter or that a person has, is, or is about to engage in an act, practice, or course of business that materially aids a violation of this chapter or a rule adopted or order issued under this chapter, the commissioner may maintain an action in the superior court of Washington County to enjoin the act, practice, or course of business and to enforce compliance with this chapter or a rule adopted or order issued under this chapter.
(b) In an action under this section and on a proper showing, the court may:
(1) issue a permanent or temporary injunction, restraining order, or declaratory judgment;
(2) order other appropriate or ancillary relief, which may include:
(A) an asset freeze, accounting, writ of attachment, writ of general or specific execution, and appointment of a receiver or conservator, that may be the commissioner, for the defendant or the defendant's assets;
(B) ordering the commissioner to take charge and control of a defendant's property, including investment accounts and accounts in a depository institution, rents, and profits; to collect debts; and to acquire and dispose of property;
(C) imposing a civil penalty up to $15,000.00 for each violation and not more than $1,000,000.00 for more than one violation; an order of rescission, restitution, or disgorgement directed to a person that has engaged in an act, practice, or course of business constituting a violation of this chapter or the predecessor act or a rule adopted or an order issued under this chapter or the predecessor act. The limitations on civil penalties contained in this subdivision shall not apply to settlement agreements; and
(D) ordering the payment of prejudgment and postjudgment interest; or
(3) order such other relief as the court considers appropriate.
(c) The commissioner may not be required to post a bond in an action or proceeding under this chapter.


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