PRIOR PRINTER'S NO. 2560 PRINTER'S NO. 2861
No. 1970 Session of 1972
INTRODUCED BY MESSRS. GOODMAN, FRANK, DOMBROWSKI, ARTHURS, KOWALYSHYN, FINEMAN, SCANLON, CROWLEY, HETRICK, J. J. JOHNSON, BIXLER, ENGLEHART, HOPKINS, WARGO, PRENDERGAST, IRVIS, O'BRIEN, F. M. ALLEN, MANBECK AND R. O. DAVIS, FEBRUARY 28, 1972
AS REPORTED FROM COMMITTEE ON BUSINESS AND COMMERCE, HOUSE OF REPRESENTATIVES, AS AMENDED, MAY 16, 1972
AN ACT
1 Relating to securities; prohibiting fraudulent practices in
2 violation RELATION thereto; requiring the registration of <--
3 broker-dealers, agents, investment advisers, and securities;
4 and making uniform the law with reference thereto.
5 The General Assembly of the Commonwealth of Pennsylvania
6 hereby enacts as follows:
7 PART I
8 SHORT TITLE; DEFINITIONS
9 Section 101. Short Title.--This act shall be known and may
10 be cited as the "Pennsylvania Securities Act of 1972."
11 Section 102. Definitions.--When used in this act, the
12 following definitions shall be applicable, unless the context
13 otherwise requires:
14 (a) "Advertisement" means any publicly disseminated, written
15 or printed communication, including without limitation,
16 communication by radio, television, or other public media, used
17 in connection with a sale or purchase or an offer to sell or
1 purchase a security. 2 (b) "Affiliate" means any person controlled by controlling <-- 3 "AFFILIATE OF," OR A PERSON "AFFILIATED WITH," A SPECIFIED <-- 4 PERSON, MEANS A PERSON THAT DIRECTLY, OR INDIRECTLY THROUGH ONE 5 OR MORE INTERMEDIARIES, CONTROLS, IS CONTROLLED BY, or IS under <-- 6 common control with, whether directly or indirectly THE PERSON <-- 7 SPECIFIED. 8 (c) "Agent" means any person INDIVIDUAL, other than a <-- 9 broker-dealer, who represents a broker-dealer or issuer in 10 effecting or attempting to effect purchases or sales of 11 securities. "Agent" does not include a person AN INDIVIDUAL who <-- 12 represents an issuer in effecting transactions in securities 13 exempted by section 202 or in effecting transactions exempted by 14 section 203 and does not include a person AN INDIVIDUAL who has <-- 15 no place of business in this State if he effects transactions in 16 this State exclusively with broker-dealers. An officer, 17 director, or partner OR EMPLOYE of a broker-dealer or issuer, or <-- 18 a person AN INDIVIDUAL occupying a similar status or performing <-- 19 similar functions, is an agent only if he otherwise comes within 20 this definition and receives compensation directly or indirectly 21 related to purchases or sales of securities. 22 (d) "Bank" means any bank, baking BANKING and trust company, <-- 23 savings bank, trust company or private bank, as defined in the 24 Banking Code of 1965, act of November 30, 1965 (P.L.847), or any 25 savings and loan association, as defined in the Savings 26 Association Code of 1967, act of December 14, 1967 (P.L.746), or 27 any successor statutes thereto, or any banking institution, 28 trust company or savings and loan institution organized under 29 the laws of the United States, or a receiver, conservator or 30 other liquidating agent of any of the foregoing. 19720H1970B2861 - 2 -
1 (e) "Broker-dealer" means any person engaged in the business 2 of effecting transactions in securities for the account of 3 others or for his own account. "Broker-dealer" does not include: 4 (i) An agent; 5 (ii) An issuer; 6 (iii) A bank, when effecting transactions for its own 7 account or as agent FOR THE ACCOUNT OF ANOTHER under section 302 <-- 8 (c); 9 (iv) An executor, administrator, guardian, conservator or 10 pledgee; 11 (v) A person who has no place of business in this State if 12 he effects transactions in this State exclusively with or 13 through (A) the issuers of the securities involved in the 14 transactions, (B) other broker-dealers, or (C) OR (B) persons <-- 15 ENGAGING IN TRANSACTIONS exempt by section 203 (c); <-- 16 (vi) A person licensed as a real estate broker OR AGENT <-- 17 under the Real Estate Brokers License Act of one thousand nine 18 hundred and twenty-nine, act of May 1, 1929 (P.L.1216), as 19 amended, and whose transactions in securities are isolated 20 transactions incidental to that business; 21 (vii) A person whose dealings in securities are limited to 22 transactions exempt by section 203 (j); or 23 (viii) Other persons not within the intent of this 24 subsection whom the commission by rule or order REGULATION <-- 25 designates. 26 (f) "Commission" means the Pennsylvania Securities 27 Commission. 28 (g) "Control" (including the terms "controlling," 29 "controlled by" and "under common control with") means the 30 possession, directly or indirectly, of the power to direct or 19720H1970B2861 - 3 -
1 cause the direction of the management and policies of a person, 2 whether through the ownership of voting securities, by contract, 3 or otherwise. 4 (h) "Fraud," "deceit" and "defraud" are not limited to 5 common law fraud or deceit. 6 (i) "Guaranteed" means guaranteed as to payment of 7 principal, interest, purchase price, dividend or call premium. 8 or as to the identity of any security to be delivered upon the <-- 9 exercise of an option. 10 (j) "Investment adviser" means any person who, for 11 compensation, engages in the business of advising others, either 12 directly or through publications or writings, as to the value of 13 securities or as to the advisability of investing in, purchasing 14 or selling securities, or who, for compensation and as a part of 15 a regular business, issues or promulgates analyses or reports 16 concerning securities. "Investment adviser" does not include: 17 (i) A bank; 18 (ii) A lawyer, accountant, engineer or teacher whose 19 performance of these services is solely incidental to the 20 practice of his profession; 21 (iii) A broker-dealer whose performance of these services is <-- 22 solely incidental to the conduct of his business as a broker- 23 dealer and who receives no special compensation for them; 24 REGISTERED UNDER THIS ACT WITHOUT THE IMPOSITION OF THE <-- 25 CONDITION REFERRED TO IN SECTION 305 (B) (V); 26 (iv) A publisher of any bona fide newspaper, news magazine 27 or business or financial publication of general, regular and 28 paid circulation WHICH IS NOT SOLELY ENGAGED IN THE RENDERING OF <-- 29 INVESTMENT ADVICE; and the agents and servants thereof IN THE <-- 30 PERFORMANCE OF THEIR REGULAR DUTIES ON BEHALF OF SUCH 19720H1970B2861 - 4 -
1 PUBLICATION; 2 (v) A person whose advice, analyses or reports relate only 3 to securities exempted under section 202 (a); 4 (vi) A person who has no place of business in this State if 5 his only clients in this State are other investment advisers or 6 persons ENGAGING IN TRANSACTIONS exempt under section 203 (c); <-- 7 (vii) Other persons not within the intent of this subsection 8 whom the commission by rule or order REGULATION designates. <-- 9 (k) "Institutional investor" means any bank, insurance 10 company, pension or profit sharing plan or trust, investment 11 company, as defined in the Investment Company Act of 1940, other 12 financial institution or any person, OTHER THAN AN INDIVIDUAL, <-- 13 which is the sole owner of CONTROLS any of the foregoing, the <-- 14 FEDERAL GOVERNMENT, State or any agency or political subdivision <-- 15 thereof or any other person so designated by rule or order <-- 16 REGULATION of the commission. <-- 17 (l) "Issuer" means any person who issues or proposes to 18 issue any security, and any promoter who acts for an issuer 19 proposed to be formed. With respect to certificates of deposit, 20 voting trust certificates or collateral-trust certificates, or 21 with respect to certificates of interest or shares in an 22 unincorporated investment trust not having a board of directors 23 or persons performing similar functions or of the fixed, 24 restricted management or unit type, the term "issuer" means the 25 person or persons performing the acts and assuming the duties of 26 depositor or manager pursuant to the provisions of the trust or 27 other agreement or instrument under which the security is 28 issued; except that with respect to equipment-trust certificates 29 or like securities, the term "issuer" means the person by whom 30 the equipment or property is or is to be used. With respect to 19720H1970B2861 - 5 -
1 certificates of interest or participation in oil, gas or mining 2 titles or leases or in payments out of production under such 3 titles or leases, the term "issuer" means the person or persons 4 in active control of ACTIVELY MANAGING the exploration or <-- 5 development of the property who sell such interests or 6 participations or payments or any person or persons who 7 subdivide and sell such interests or participations or payments. 8 The determination of the person or persons in active control of <-- 9 ACTIVELY MANAGING the exploration or development of the property <-- 10 shall be made on the basis of the actual relationship of the 11 parties and not on the basis of the legal designation of a 12 person's interest. In the case of an unincorporated association <-- 13 which is permitted by statute, rule or order or which provides 14 by its articles or governing instruments or by resolution for 15 limited liability of any or all of its members, or in the case 16 of a trust, committee, or other legal entity, the trustees or 17 members thereof shall not be individually liable as issuers of 18 any security issued by the association, trust, committee, or 19 other legal entity. MEMBERS OF UNINCORPORATED ASSOCIATIONS, <-- 20 WHICH MEMBERS HAVE LIMITED LIABILITY, AND ANY TRUSTEE OR MEMBER 21 OF A TRUST, COMMITTEE OR OTHER LEGAL ENTITY SHALL NOT BE DEEMED 22 TO BE AN "ISSUER" FOR THE PURPOSES OF THIS ACT. 23 (m) "Nonissuer "NON-ISSUER transaction" means any <-- 24 transaction not directly or indirectly for the benefit of the 25 issuer. A transaction is indirectly for the benefit of the <-- 26 issuer if any portion of the purchase price of any securities 27 involved in the transaction will be received indirectly by the 28 issuer. 29 (n) "Person" means an individual, corporation, partnership, 30 association, joint stock company, syndicate, trust where the 19720H1970B2861 - 6 -
1 interests of the beneficiaries are evidenced by a security, an 2 unincorporated organization, government, political subdivision 3 of a government, or any other entity. 4 (O) "PROMOTER" INCLUDES (I) ANY PERSON WHO, ACTING ALONE OR <-- 5 IN CONJUNCTION WITH ONE OR MORE OTHER PERSONS, DIRECTLY OR 6 INDIRECTLY TAKES INITIATIVE IN FOUNDING AND ORGANIZING THE 7 BUSINESS OR ENTERPRISE OF AN ISSUER; AND (II) ANY PERSON WHO, IN 8 CONNECTION WITH THE FOUNDING AND ORGANIZING OF THE BUSINESS OR 9 ENTERPRISE OF AN ISSUER, DIRECTLY OR INDIRECTLY RECEIVES IN 10 CONSIDERATION OF SERVICES OR PROPERTY, OR BOTH SERVICES AND 11 PROPERTY, TEN PER CENT OR MORE OF ANY CLASS OF SECURITIES OF THE 12 ISSUER OR TEN PER CENT OR MORE OF THE PROCEEDS FROM THE SALE OF 13 ANY CLASS OF SECURITIES. HOWEVER, A PERSON WHO RECEIVES SUCH 14 SECURITIES OR PROCEEDS EITHER SOLELY AS UNDERWRITING COMMISSIONS 15 OR SOLELY IN CONSIDERATION OF PROPERTY SHALL NOT BE DEEMED A 16 PROMOTER WITHIN THE MEANING OF THIS CLAUSE IF SUCH PERSON DOES 17 NOT OTHERWISE TAKE PART IN FOUNDING AND ORGANIZING THE 18 ENTERPRISE. 19 (o) (P) "Publish" means publicly to issue or circulate by <-- 20 newspaper, mail, radio or television, or otherwise to 21 disseminate to the public. 22 (p) (Q) "Reporting company" means any person which is <-- 23 required to file, and has for at least ninety days prior to the 24 time of application of this definition filed, all periodic 25 reports plus the most recent annual report with the Securities 26 and Exchange Commission pursuant to the requirements of section 27 13 or 15 (d) of the Securities Exchange Act of 1934 or of 28 section 8 of the Investment Company Act of 1940, and the 29 regulations adopted thereunder, or for whom there is publicly 30 available the information concerning such person which is 19720H1970B2861 - 7 -
1 specified in CLAUSES (1) THROUGH (14) INCLUSIVE, AND CLAUSE (16) <-- 2 OF paragraph (a) (4) of Rule 15 c2-11 adopted under the 3 Securities Exchange Act of 1934, or if the issuer PERSON is an <-- 4 insurance company the information specified in section 12 (g) 5 (2)(G) (i) of that act. Information shall ALSO be deemed <-- 6 "publicly available" under this section if it has been filed in 7 such places or with such persons as the commission may specify 8 by rule or order REGULATION. <-- 9 (q) (R) (i) "Sale" or "sell" includes every sale, <-- 10 disposition or exchange, and every contract of sale of, or 11 contract to sell, a security or interest in a security for value 12 or any issuance of securities pursuant to any merger, 13 consolidation, sale of assets or other corporate reorganization, 14 INVOLVING THE EXCHANGE OF SECURITIES, IN WHOLE OR IN PART, FOR <-- 15 THE SECURITIES OF ANY OTHER PERSON. 16 (ii) "Offer" or "offer to sell" includes every direct or 17 indirect attempt or offer to sell or dispose of, or solicitation 18 of an offer to purchase, a security or interest in a security 19 for value. 20 (iii) Any security given or delivered with, or as a bonus on 21 account of, any purchase of securities or any other thing is 22 considered to constitute part of the subject of the purchase and 23 to have been offered and sold for value. 24 (iv) Every sale or offer of a warrant or right to purchase 25 or subscribe to another security of the same or another issuer, 26 as well as every sale or offer of a security which gives the 27 holder a present or future right or privilege to convert into 28 another security of the same or another issuer, is considered to 29 include an offer of the other security. 30 (v) A purported gift of assessable stock (for which the 19720H1970B2861 - 8 -
1 statutory consideration has not been paid) involves an offer and 2 sale. 3 (vi) An offer OF rescission made pursuant to section 504 (E) <-- 4 involves an offer and sale. 5 (vii) The terms defined in this subsection "SALE," "SELL," <-- 6 "OFFER" AND "OFFER TO SELL" do not include: (A) any bona fide 7 secured transaction in, or loan of, outstanding securities; or 8 (B) any dividend payable with respect to the securities of a 9 corporation in the same or any other class of securities of such 10 corporation. so long as the security distributed as a dividend <-- 11 does not constitute an offer to purchase a security of the 12 corporation or any other person. 13 (viii) A dividend or distribution by any person to all or 14 any class of its security holders of the securities of any other 15 person, whether or not such dividend or distribution is for 16 value, involves a sale. 17 (r) (S) "Securities Act of 1933," "Securities Exchange Act <-- 18 of 1934," "Public Utility Holding Company Act of 1935," "Trust 19 Indenture Act of 1939," "Investment Advisers Act of 1940," 20 "Investment Company Act of 1940" and "Internal Revenue Code of 21 1954" mean the Federal statutes of those names as amended before 22 or after the effective date of this act, or any successor 23 statutes thereto. Section numbers of such statutes or 24 regulations adopted thereunder and referred to herein include 25 such amendments thereto as may be adopted before or after the 26 effective date of this act. "Securities and Exchange Commission" 27 means the "United States Securities and Exchange Commission." 28 (s) (T) "Security" means any note; stock; treasury stock; <-- 29 bond; debenture; evidence of indebtedness; share of beneficial 30 interest in a business trust; certificate of interest or 19720H1970B2861 - 9 -
1 participation in any profit-sharing agreement; collateral trust 2 certificate; preorganization certificate or subscription; 3 transferable share; investment contract; voting trust 4 certificate; certificate of deposit for a security; limited 5 partnership interest; certificate of interest or participation 6 in an oil, gas or mining title or lease or in payments out of 7 production under such a title or lease; any beneficial interest <-- 8 or other security issued in connection with a funded employes' 9 pension, profit-sharing, stock bonus, or similar benefit plan; 10 or, in general, any interest or instrument commonly known as or 11 having the incidents of a "security"; any ownership interest in <-- 12 a condominium or cooperative apartment project, as such terms 13 are commonly used; or any certificate of interest or 14 participation in, temporary or interim certificate for, receipt 15 for, guarantee of, or warrant or right to subscribe to or 16 purchase, any of the foregoing. All of the foregoing are 17 securities whether or not evidenced by written document. 18 "Security" does not include: (i) any beneficial interest in any 19 voluntary inter vivos trust which is not created for the purpose 20 of carrying on any business, or (ii) any beneficial interest in 21 any testamentary trust, or (iii) any insurance or endowment 22 policy or annuity contract under which an insurance company 23 admitted in this State promises to pay a sum of money (whether 24 or not based upon the investment performance of a segregated 25 fund) either in a lump sum or periodically for life or some 26 other specified period, or (iv) any certificate issued under 27 section 809 of The Insurance Company Law of 1921, act of May 17, 28 1921 (P.L.682), as amended. 29 (t) (U) "State" means any state, territory or possession of <-- 30 the United States, the District of Columbia and Puerto Rico. 19720H1970B2861 - 10 -
1 (u) "Underwriter" means a person who has purchased from an <-- 2 issuer or an affiliate of an issuer with a view to, or offers or 3 sells for an issuer or an affiliate of an issuer in connection 4 with, the distribution of any security, or participates or has a 5 direct or indirect participation in any such undertaking, or 6 participates or has a participation in the direct or indirect 7 underwriting of any such undertaking; but such term shall not 8 include a person whose interest is limited to a commission from 9 an underwriter not in excess of the usual and customary 10 distributors' or sellers' commission. 11 (V) "UNDERWRITER" MEANS A PERSON WHO HAS AGREED WITH AN <-- 12 ISSUER OR OTHER PERSON ON WHOSE BEHALF A DISTRIBUTION IS TO BE 13 MADE (I) TO PURCHASE SECURITIES FOR DISTRIBUTION OR (II) TO 14 DISTRIBUTE SECURITIES FOR OR ON BEHALF OF SUCH ISSUER OR OTHER 15 PERSON OR (III) TO MANAGE OR SUPERVISE A DISTRIBUTION OF 16 SECURITIES FOR OR ON BEHALF OF SUCH ISSUER OR OTHER PERSON. 17 PART II 18 REGISTRATION OF SECURITIES 19 Section 201. Registration Requirement.--It is unlawful for 20 any person to offer or sell any security in this State unless 21 the security is registered under this act or the security or 22 transaction is exempted under section 202 or 203 hereof. 23 Section 202. Exempt Securities.--The following securities 24 are exempted from section 201: 25 (a) Any security issued or guaranteed by the United States, 26 any state OR CANADIAN PROVINCE, any political subdivision of a <-- 27 state OR CANADIAN PROVINCE, foreign government with which the <-- 28 United States currently maintains diplomatic relations, or any 29 agency or corporate or other instrumentality of any of the 30 foregoing, or any certificate of deposit for any of the 19720H1970B2861 - 11 -
1 foregoing, provided that (i) IF THE ISSUER OR GUARANTOR IS A <-- 2 FOREIGN GOVERNMENT OTHER THAN CANADA OR AN INSTRUMENTALITY OF A 3 FOREIGN GOVERNMENT OTHER THAN CANADA, such security or 4 certificate of deposit therefor is recognized as a valid 5 obligation by the issuer or guarantor thereof or its or their 6 successors; and (ii) if an industrial revenue obligation, AND <-- 7 PROVIDED, THAT such obligation is exempt from registration under 8 the Securities Act of 1933. 9 (b) Any security, the offer, sale, issuance or guarantee of 10 which is (i) IS subject to regulation by the Interstate Commerce <-- 11 Commission, the Comptroller of the Currency, the Federal Deposit 12 Insurance Corporation or, with respect to banks, by the 13 Pennsylvania Department of Banking; (ii) registered under the <-- 14 Public Utility Holding Company Act of 1935; OR (II) IS <-- 15 REGISTERED UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935, 16 OR THE ACT OF MAY 28, 1937 (P.L.1053), KNOWN AS THE "PUBLIC 17 UTILITY LAW"; or (iii) the issuer of which is regulated as to 18 the issuance or guarantee of the SUCH security by a governmental <-- 19 authority of the United States. 20 (c) Any commercial paper which arises out of a current 21 transaction or the proceeds of which have been or are to be used 22 for current transactions, and which evidences an obligation to 23 pay cash within nine months of the date of AFTER issuance, <-- 24 exclusive of days of grace, or any renewal of such paper which 25 is likewise limited, or any guarantee of such paper or of any 26 such renewal, except where such paper is proposed to be sold or 27 offered to the public in units of less than ten thousand dollars <-- 28 ($10,000) FIVE THOUSAND DOLLARS ($5,000) to any single person. <-- 29 (d) Any security issued or guaranteed by any Federal credit 30 union or any credit union, industrial loan association or other 19720H1970B2861 - 12 -
1 similar association organized and supervised under the laws of 2 this State. 3 (e) Any security (except evidences of indebtedness, whether 4 interest bearing or not) of an issuer (i) organized exclusively 5 for educational, benevolent, fraternal, religious, charitable, 6 social, athletic or reformatory purposes and not for pecuniary 7 profit, if no part of the net earnings of the issuer inures to 8 the benefit of any private shareholder or individual, or (ii) 9 organized as a chamber of commerce or trade or professional 10 association. The fact that amounts received from memberships, or 11 dues, or both will or may be used to construct or otherwise 12 acquire facilities for use by members of the nonprofit 13 organization does not disqualify the organization from this 14 exemption. This exemption shall not apply to the securities of 15 any nonprofit organization if any promoter thereof expects or 16 intends to make a profit directly or indirectly from any 17 business or activity associated with the organization or 18 operation of such nonprofit organization. 19 (f) Any security listed, or approved for listing upon notice 20 of issuance, on a securities exchange or national securities <-- 21 quotation service THE NEW YORK, AMERICAN, OR PHILADELPHIA- <-- 22 BALTIMORE-WASHINGTON STOCK EXCHANGE OR ANY OTHER SECURITIES 23 EXCHANGE OR QUOTED ON ANY NATIONAL QUOTATION SERVICE designated 24 by rule REGULATION of the commission; or any other security or <-- 25 class of securities which the commission may specify by rule or 26 order; any other security of the same issuer which is of senior 27 or substantially equal rank; any security called for by 28 subscription rights or warrants so listed, or approved OR <-- 29 QUOTED; and any warrant or right to purchase or subscribe to any 30 of the foregoing. 19720H1970B2861 - 13 -
1 (g) Any investment contract issued in connection with an 2 employe's stock option, purchase, savings, pension, profit 3 sharing or similar benefit plan, provided, in the case of plans 4 adopted after the effective date hereof which are not qualified 5 under section 401 of the Internal Revenue Code of 1954 and which 6 provide for contribution by employes, the commission is notified 7 in writing thirty days before the commencement of the offering 8 in this State. 9 (h) Any security of a licensed REGISTERED broker-dealer <-- 10 issued to its officers, partners or employes, subject to such 11 rules REGULATIONS as the commission may establish. <-- 12 (I) ANY SECURITY AS TO WHICH THE COMMISSION BY REGULATION OR <-- 13 ORDER FINDS THAT REGISTRATION IS NOT NECESSARY OR APPROPRIATE 14 FOR THE PROTECTION OF INVESTORS. 15 Section 203. Exempt Transactions.--The following 16 transactions are exempted from section 201: 17 (a) Any transaction not NON-ISSUER TRANSACTION EXCEPT WHERE <-- 18 directly or indirectly for the benefit of the issuer or an 19 affiliate of the issuer. 20 (b) Any NON-ISSUER transaction directly or indirectly for <-- 21 the benefit of an affiliate of the issuer (but not directly or <-- 22 indirectly for the benefit of the issuer) which is exempted from 23 section 5 of the Securities Act of 1933, excepting only the <-- 24 OTHER THAN THOSE transactions exempted in or pursuant to section <-- 25 3 (a) (11) or 3 (b) of the Securities Act of 1933, and the rules <-- 26 and regulations now or hereafter adopted thereunder. 27 (c) Any offer or sale to an institutional investor or to a 28 broker-dealer, whether the buyer is acting for itself or in some 29 fiduciary capacity. 30 (d) Any sales by an issuer to not more than fifteen TWENTY- <-- 19720H1970B2861 - 14 -
1 FIVE persons (excluding those designated in subsection (c)) in 2 this State during a period of twelve consecutive months if (i) 3 the issuer reasonably believes that each buyer in this State is <-- 4 purchasing for his own account and without a present view to 5 making a public distribution of such securities in this State 6 within eighteen months after the payment of the full purchase 7 price by the buyer for all of the securities purchased by him 8 pursuant to this subsection; SHALL OBTAIN THE WRITTEN AGREEMENT <-- 9 OF EACH SUCH PERSON NOT TO SELL THE SECURITY WITHIN TWELVE 10 MONTHS AFTER THE DATE OF PURCHASE; (ii) no public MEDIA <-- 11 advertisement is used or public solicitation MASS MAILING made <-- 12 in connection with soliciting such sales; (iii) no commissions, <-- 13 selling expenses (other than legal and accounting fees and 14 printing costs) or promotional considerations are given, paid or 15 incurred in connection therewith; and (iv) such sales are not 16 part of a public offering of the securities of the issuer being 17 made concurrently in this State and elsewhere. "Promotional 18 consideration" means consideration paid in the form of cash or 19 securities or both to any person for services in connection with 20 founding and organizing the business or enterprise of the 21 issuer. Promotional consideration shall not include any fee paid 22 to any person in connection with any sale under section 203 (c). 23 AND (III) NO CASH OR SECURITIES IS GIVEN OR PAID, DIRECTLY OR <-- 24 INDIRECTLY, TO ANY PROMOTER IN CONNECTION THEREWITH. PURCHASERS 25 OF SECURITIES REGISTERED UNDER THIS ACT OR SOLD IN RELIANCE UPON 26 AN EXEMPTION UNDER THIS ACT OTHER THAN THIS SUBSECTION (D) OR 27 SUBSECTION (F) SHALL NOT BE INCLUDED IN COMPUTING THE TWENTY- 28 FIVE PERSONS FOR PURPOSES OF THIS EXEMPTION. A notice in the 29 form prescribed by the commission, signed by the officers and/or <-- 30 OR directors of the issuer under oath and stating the name, <-- 19720H1970B2861 - 15 -
1 principal business address of the issuer, PROPOSED USE OF THE <-- 2 PROCEEDS FROM THE SALE and such facts as are necessary to 3 establish this exemption shall be filed, together with a copy of 4 all ANY offering literature used in connection with such offer <-- 5 or sale, with the commission not later than the day on which the 6 securities are FIRST issued or the issuer FIRST receives <-- 7 consideration from any person therefor, whichever is earlier. 8 (e) Any offer to not more than fifty persons during a period 9 of twelve consecutive months if no sales result from such offer 10 or if sales resulting from such offer are exempt by reason of 11 subsection (d) hereof. 12 (f) Any offer or sale of a preorganization subscription to <-- 13 not more than fifteen persons, if no commission or other 14 remuneration is paid or given directly or indirectly for 15 soliciting any subscriber in this State, and no payment is made 16 by any subscriber until the securities subscribed for may be 17 sold under this act. OR SECURITIES OF A NEWLY-FORMED PERSON AS <-- 18 PART OF ITS INITIAL CAPITALIZATION TO NOT MORE THAN FIVE 19 PERSONS. 20 (g) Any transaction between the issuer or other person on 21 whose behalf the offering is made and an underwriter, or among 22 underwriters. 23 (h) Any offer (but not a sale) of a security for which a 24 registration statement has been filed under the Securities Act 25 of 1933 if (i) no stop order or refusal order is in effect and 26 no public proceeding or examination looking toward such an order 27 is pending under the Securities Act of 1933 or this act; and 28 (ii) no such offer is made until after such registration 29 statement (including a prospectus) has been filed with or mailed 30 to the commission. 19720H1970B2861 - 16 -
1 (i) Any sale of a security registered under section 5 of the 2 Securities Act of 1933 or exempt from registration under section 3 3 (b) if: (i) a copy of any prospectus or offering circular 4 utilized or proposed to be utilized in connection therewith is 5 filed with MAILED TO the commission within two BUSINESS days <-- 6 after such prospectus or offering circular is filed with the 7 Securities and Exchange Commission; (ii) the filing fee 8 specified in section 602 (b) is paid with respect to such 9 offering; (iii) the issuer of the security is a reporting 10 company; and (iv) no stop order or refusal order is in effect 11 and no public proceeding or investigation looking toward such an 12 order is pending under the Securities Act of 1933 or this act. 13 (j) Any transaction in a bond or other evidence of 14 indebtedness secured by a real or chattel mortgage or deed of 15 trust, or by an agreement for the sale of real estate or 16 chattels, if the entire mortgage, deed of trust, or agreement, 17 together with all the bonds or other evidences of indebtedness 18 secured thereby, is offered and sold as a unit. 19 (k) Any judicial sale or any transaction by an executor, 20 administrator, sheriff, marshal, receiver, trustee in 21 bankruptcy, guardian or conservator. 22 (l) Any transaction now or hereafter exempted from section 5 23 of the Securities Act of 1933 by virtue of sections 3 (a) (9) or 24 3 (a) (10) thereof; 25 (m) Any transaction incident to a judicially approved <-- 26 reorganization in which a security is issued in exchange for one 27 or more outstanding securities, claims or property interests, or 28 partly in such exchange and partly for cash; provided, however, 29 that the commission be given notice of and the right to appear 30 at and intervene in any hearing on the terms of such 19720H1970B2861 - 17 -
1 reorganization. PROVIDED, HOWEVER, THAT THE COMMISSION BE GIVEN <-- 2 NOTICE OF ANY HEARING REFERRED TO IN SECTION 3 (A) (10). 3 (n) (M) Any transaction executed by a bona fide pledgee <-- 4 without any purpose of evading this act. 5 (o) (N) Any transaction pursuant to an offer to existing <-- 6 security holders of the issuer or of a corporation which, prior 7 to the commencement of the offer, owned substantially all of the 8 voting stock of the issuer or was organized for the purpose of 9 the offer by persons in control of the issuer, if no commission 10 or other remuneration other than a standby commission is paid or 11 given directly or indirectly for soliciting any security holder 12 in this State, and if the issuer first files a notice specifying 13 the terms of the offer and all other information which the 14 commission by rule REGULATION requires, and the commission does <-- 15 not by order disallow the exemption within five days. "Security 16 holders" include persons who at the time of the transaction are 17 holders of convertible securities, nontransferable warrants, or 18 transferable warrants exercisable within not more than ninety 19 days of their issuance. 20 (p) (O) Any transaction incident to a vote by security <-- 21 holders (or written consent of some or all security holders in 22 lieu of such vote) pursuant to the articles of incorporation or 23 the applicable corporation statute or other statute governing 24 such person, or pursuant to a partnership agreement, a 25 declaration of trust, trust indenture or any agreement among 26 security holders on a merger, consolidation, sale of assets in 27 consideration, in whole or part, of the issuance of securities 28 of another person, RECLASSIFICATION OF SECURITIES, or <-- 29 reorganization involving the exchange of securities, in whole or 30 in part, for the securities of any other person if, but only if: 19720H1970B2861 - 18 -
1 (i) in the case of a merger, consolidation, or sale of assets, <-- 2 one party to the reorganization SUCH TRANSACTION is required or <-- 3 permitted to file proxy materials pursuant to section 14 (a) of 4 the Securities Exchange Act of 1934 OR SECTION 20 OF THE <-- 5 INVESTMENT COMPANY ACT OF 1940 and does file such materials with 6 the commission at least ten days prior to a meeting of security 7 holders called for the purpose of approving such transaction; 8 and such proxy materials with such additions or modifications as <-- 9 the commission may direct, are distributed to the security 10 holders of the person to be acquired; EACH PARTY TO SUCH <-- 11 TRANSACTION; or (ii) such materials as may be specified by rule <-- 12 or order REGULATION of the commission are prepared in connection <-- 13 with the proposed transaction and, after review by the 14 commission, distributed to the security holders of the person to <-- 15 be acquired; EACH PARTY TO THE TRANSACTION; provided, however, <-- 16 that clause (i) and (ii) of this subsection and section 602 (c) 17 shall not be applicable to any PARTY TO A transaction where not <-- 18 more than twenty-five per cent of the security holders of the <-- 19 person to be acquired SUCH PARTY are residents of this State. <-- 20 (q) (P) Any offer or sale of an evidence of indebtedness of <-- 21 an issuer either: organized exclusively for educational, 22 benevolent, fraternal, religious, charitable, social, athletic 23 or reformatory purposes and not for pecuniary profit, if no part 24 of the net earnings of the issuer inures to the benefit of any 25 private shareholder or individual; or organized as a chamber of 26 commerce or trade or professional association if there has been 27 filed with the commission a notice identifying the security and 28 the basis of its qualification under this exemption together 29 with such further information as the commission may by rule or <-- 30 order REGULATION require, and if the commission does not by <-- 19720H1970B2861 - 19 -
1 order disallow the exemption within ten days or such shorter 2 period as it may permit. The security qualifies under this 3 exemption: (i) if IF (I) the issuer and any predecessor have not <-- 4 defaulted within the current fiscal year or AND the three <-- 5 preceding fiscal years in any fixed interest or principal 6 obligation; and (ii) the issuer complies with rules REGULATIONS <-- 7 of the commission with respect to trust indentures and the use 8 of a prospectus; and (iii) the security qualifies under either <-- 9 of the following: 10 (A) The securities proposed to be sold are secured by a 11 mortgage or deed of trust upon land and buildings, which 12 mortgage or deed of trust is or will become a first lien at or 13 prior to the issuance of such evidences of indebtedness, or 14 provision satisfactory to the commission is made for escrowing 15 the proceeds from their sale until such first lien is 16 established, and the total amount of such securities does not 17 exceed fifty SEVENTY-FIVE per cent of the then fair market value <-- 18 of the land and buildings included in such mortgage or deed of 19 trust, less the amount of any unpaid special assessment taxes. ; <-- 20 or 21 (B) The issuer or its predecessors have had net revenues for 22 each of the two fiscal years next preceding such offer or sale, 23 or average net revenues for the last three fiscal years next 24 preceding such offer or sale, of not less than one and one-half 25 times the aggregate annual interest requirements on the issue of 26 securities to be sold under this subsection and all securities 27 of equal or prior rank to be outstanding immediately after such 28 sale. "Net revenues" means the excess of revenues over all 29 expenses of operation and maintenance, excluding from expenses 30 provision for depreciation and excluding extraordinary, 19720H1970B2861 - 20 -
1 nonrecurring items of revenue and expense. This exemption shall 2 not apply to the securities of any nonprofit organization if any 3 promoter thereof expects or intends to make a profit directly or 4 indirectly from any business or activity associated with the 5 organization or operation of such nonprofit organization. 6 (r) Any stock split and any stock dividend, whether the <-- 7 corporation distributing the dividend is the issuer or not, if 8 nothing of value is given by stockholders for the dividend other 9 than the surrender of a right to a cash or property dividend in 10 lieu of the stock and if the dividend is issued pro rata by 11 class. In the case of a stock 12 (Q) ANY BONA FIDE DISTRIBUTION IN PARTIAL OR TOTAL <-- 13 LIQUIDATION OF A PERSON, WHETHER OR NOT THE ASSETS BEING 14 DISTRIBUTED INCLUDE SECURITIES OF ANY OTHER PERSON AND WHETHER 15 OR NOT WHOLLY OR PARTIALLY IN EXCHANGE FOR THE SECURITIES OF THE 16 PERSON MAKING THE DISTRIBUTION, AND ANY STOCK SPLIT AND ANY 17 STOCK DIVIDEND, WHERE THE CORPORATION DISTRIBUTING THE DIVIDEND 18 IS NOT THE ISSUER, IF NOTHING OF VALUE IS GIVEN BY STOCKHOLDERS 19 FOR THE DIVIDEND OTHER THAN THE SURRENDER OF A RIGHT TO A CASH 20 OR PROPERTY DIVIDEND IN LIEU OF THE STOCK AND IF THE DIVIDEND IS 21 ISSUED PRO RATA BY CLASS; PROVIDED, HOWEVER, IN THE CASE OF A 22 DISTRIBUTION OR dividend by a corporation not the issuer, such 23 corporation may be required to SHALL file with the commission, <-- 24 ten days prior to the intended date of THE distribution of the <-- 25 OR dividend, a statement containing the facts and circumstances <-- 26 surrounding the DISTRIBUTION OR dividend. to indicate whether <-- 27 the dividend is for the purpose of avoiding the registration 28 provisions of this act. 29 (s) (R) Any transaction or class of transactions as to which <-- 30 the commission by rule REGULATION or order finds that <-- 19720H1970B2861 - 21 -
1 registration is not necessary or appropriate for the protection 2 of investors. 3 Section 204. Exemption Proceedings.--(a) The commission may 4 by rule or REGULATION AS TO ANY TYPE OF SECURITY OR TRANSACTION, <-- 5 OR BY order in a particular case, as to any security or 6 transaction or any type of security or transaction, withdraw or <-- 7 further condition exemptions under this section, or increase or 8 decrease INCREASE the number of purchasers or offerees <-- 9 permitted, or waive the conditions in either of section SECTIONS <-- 10 202 or 203. and may require reports of sales under any such <-- 11 exemption. 12 (b) The commission may by order deny or revoke any exemption 13 specified in section 202 or 203 with respect to a specific 14 security or transaction. No such order may be entered without 15 appropriate prior notice to all interested parties, opportunity 16 for hearing, and written findings of fact and conclusions of 17 law, except that the commission may by order summarily deny or 18 revoke any of the specified exemptions pending final 19 determination of any proceeding under this section. Upon the 20 entry of a summary order, the commission shall promptly notify 21 all interested parties that it has been entered and reasons 22 therefor and that within fifteen days of the receipt of a 23 written request the matter will be set down for hearing. If no 24 hearing is requested and none is ordered by the commission, the 25 order will remain in effect until it is modified or vacated by 26 the commission. If a hearing is requested or ordered, the 27 commission, after notice of and opportunity for hearing to all 28 interested persons, may modify or vacate the order or extend it 29 until final determination. No order under this section may 30 operate retroactively. No person may be considered to have 19720H1970B2861 - 22 -
1 violated section 201 by reason of any offer or sale effected
2 after the entry of an order under this section if he sustains
3 the burden of proof that he did not know, and in the exercise of
4 reasonable care could not have known, of the order.
5 (c) In any proceeding under this act, the burden of proving
6 an exemption or an exception from a definition is upon the
7 person claiming it.
8 Section 205. Registration by Coordination.--(a) Registration
9 by coordination may be used for any offering for which a
10 registration statement has been filed under the Securities Act
11 of 1933 or for any proposed sale pursuant to the exemption
12 contained in section 3 (b) of such act where such registration
13 statement or notification of proposed sale has not become
14 effective.
15 (b) A registration statement under this section shall
16 contain the following information and be accompanied by the
17 following documents in addition to the information specified in
18 section 207 (b) and the consent to service of process required
19 by section 701:
20 (i) Two copies of the preliminary prospectus or offering
21 circular filed under the Securities Act of 1933;
22 (ii) If the commission by rule or order REGULATION requires, <--
23 a copy of the articles of incorporation and bylaws or their
24 substantial equivalents currently in effect, a copy of any
25 agreements with or among underwriters, a copy of any indenture
26 or other instrument governing the issuance of the security to be
27 registered, and a specimen or copy of the security;
28 (iii) If the commission BY REGULATION OR ORDER requires, any <--
29 other information, or copies of any documents, filed under the
30 Securities Act of 1933; and
19720H1970B2861 - 23 -
1 (iv) An undertaking to forward TO THE COMMISSION all future <-- 2 amendments to the Federal prospectus or offering circular, other 3 than an amendment which merely delays the effective date of the 4 registration statement, not later than the first business day 5 after they are forwarded to or filed with the Securities and 6 Exchange Commission, or such longer period as the commission 7 permits. 8 (c) A registration statement under this section 9 automatically becomes effective at the moment the Federal 10 registration statement OR NOTIFICATION becomes effective if (i) <-- 11 no stop order is in effect in this State and no proceeding is 12 pending under section 208; (ii) and the registration statement 13 has been on file with the commission for at least ten days; 14 (iii) a statement of the maximum and minimum proposed offering 15 prices and the maximum underwriting discounts and commissions 16 has been on file for two full business days, or such shorter 17 period as the commission permits; and (iv) the offering is made 18 within these limitations. 19 (d) The registrant shall notify the commission promptly by 20 telephone or telegram of the date and time when the Federal 21 registration statement became effective and the content of the 22 price amendment, if any, and shall file a post-effective 23 amendment promptly containing the information and documents in 24 the price amendment. "Price amendment" means the final Federal 25 amendment which includes a statement of the offering price, 26 underwriting and selling discounts or commissions, amount of 27 proceeds, conversion rates, call prices and other matters 28 dependent upon the offering price. Upon failure to receive the 29 required notification and post-effective amendment with respect 30 to the price amendment, the commission may enter a stop order, 19720H1970B2861 - 24 -
1 without notice or hearing, retroactively denying effectiveness 2 to the registration statement or suspending its effectiveness 3 until compliance with this subsection is effected, if it 4 promptly notifies the registrant by telephone or telegram of the 5 issuance of such order. If the registrant proves compliance with 6 the requirements of this subsection as to notice and post- 7 effective amendment, the stop order shall be vacated as of the 8 time of its entry. The commission may by rule REGULATION or <-- 9 order waive any of the conditions specified in subsection (b) or 10 (c). 11 (e) If the Federal registration statement becomes effective 12 before all the conditions in this section are satisfied and they 13 are not waived, the registration statement automatically becomes 14 effective as soon as all the conditions are satisfied. If the 15 registrant advises the commission of the date when the Federal 16 registration statement is expected to become effective, the 17 commission shall promptly advise the registrant by telephone or 18 telegram, at the registrant's expense, whether all the 19 conditions are satisfied and whether it then contemplates the 20 institution of a proceeding under section 208; but this advice 21 by the commission does not preclude the institution of such a 22 proceeding at any time. 23 Section 206. Registration by Qualification.--(a) Any 24 security may be registered by qualification. 25 (b) A registration statement under this section shall 26 contain the information specified in section 207 (b), shall be 27 accompanied by the consent to service of process required by 28 section 701 and shall contain such further information and be <-- 29 accompanied by such further documents as the commission by rule 30 or otherwise requires. For this purpose the commission may 19720H1970B2861 - 25 -
1 classify issuers and types of securities. AND SHALL CONTAIN THE <--
2 FOLLOWING INFORMATION AND BE ACCOMPANIED BY THE FOLLOWING
3 DOCUMENTS:
4 (1) WITH RESPECT TO THE ISSUER AND ANY SIGNIFICANT
5 SUBSIDIARY: ITS NAME, ADDRESS, AND FORM OF ORGANIZATION; THE
6 STATE OR FOREIGN JURISDICTION AND DATE OF ITS ORGANIZATION; THE
7 GENERAL CHARACTER AND LOCATION OF ITS BUSINESS; A DESCRIPTION OF
8 ITS PHYSICAL PROPERTIES AND EQUIPMENT; AND A STATEMENT OF THE
9 GENERAL COMPETITIVE CONDITIONS IN THE INDUSTRY OR BUSINESS IN
10 WHICH IT IS OR WILL BE ENGAGED;
11 (2) WITH RESPECT TO EVERY DIRECTOR AND OFFICER OF THE
12 ISSUER, OR PERSON OCCUPYING A SIMILAR STATUS OR PERFORMING
13 SIMILAR FUNCTIONS: HIS NAME, ADDRESS, AND PRINCIPAL OCCUPATION
14 FOR THE PAST FIVE YEARS; THE AMOUNT OF SECURITIES OF THE ISSUER
15 HELD BY HIM AS OF A SPECIFIED DATE WITHIN THIRTY DAYS OF THE
16 FILING OF THE REGISTRATION STATEMENT; THE AMOUNT OF THE
17 SECURITIES COVERED BY THE REGISTRATION STATEMENT TO WHICH HE HAS
18 INDICATED HIS INTENTION TO SUBSCRIBE; AND A DESCRIPTION OF ANY
19 MATERIAL INTEREST IN ANY MATERIAL TRANSACTION WITH THE ISSUER OR
20 ANY SIGNIFICANT SUBSIDIARY EFFECTED WITHIN THE PAST THREE YEARS
21 OR PROPOSED TO BE EFFECTED;
22 (3) WITH RESPECT TO PERSONS COVERED BY CLAUSE (2): THE
23 REMUNERATION PAID DURING THE PAST TWELVE MONTHS AND ESTIMATED TO
24 BE PAID DURING THE NEXT TWELVE MONTHS, DIRECTLY OR INDIRECTLY,
25 BY THE ISSUER (TOGETHER WITH ALL PREDECESSORS, PARENTS,
26 SUBSIDIARIES, AND AFFILIATES) TO ALL THOSE PERSONS IN THE
27 AGGREGATE;
28 (4) WITH RESPECT TO ANY PERSON OWNING OF RECORD, OR
29 BENEFICIALLY IF KNOWN, TEN PER CENT OR MORE OF THE OUTSTANDING
30 SHARES OF ANY CLASS OF EQUITY SECURITY OF THE ISSUER: THE
19720H1970B2861 - 26 -
1 INFORMATION SPECIFIED IN CLAUSE (2) OTHER THAN HIS OCCUPATION; 2 (5) WITH RESPECT TO EVERY PROMOTER IF THE ISSUER WAS 3 ORGANIZED WITHIN THE PAST THREE YEARS: THE INFORMATION SPECIFIED 4 IN CLAUSE (2), ANY AMOUNT PAID TO HIM WITHIN THAT PERIOD OR 5 INTENDED TO BE PAID TO HIM, AND THE CONSIDERATION FOR ANY SUCH 6 PAYMENT; 7 (6) WITH RESPECT TO ANY PERSON ON WHOSE BEHALF ANY PART OF 8 THE OFFERING IS TO BE MADE IN A NON-ISSUER DISTRIBUTION: HIS 9 NAME AND ADDRESS; THE AMOUNT OF SECURITIES OF THE ISSUER HELD BY 10 HIM AS OF THE DATE OF THE FILING OF THE REGISTRATION STATEMENT; 11 A DESCRIPTION OF ANY MATERIAL INTEREST IN ANY MATERIAL 12 TRANSACTION WITH THE ISSUER OR ANY SIGNIFICANT SUBSIDIARY 13 EFFECTED WITHIN THE PAST THREE YEARS OR PROPOSED TO BE EFFECTED; 14 AND A STATEMENT OF HIS REASONS FOR MAKING THE OFFERING; 15 (7) THE CAPITALIZATION AND LONG-TERM DEBT (ON BOTH A CURRENT 16 AND PRO FORMA BASIS) OF THE ISSUER AND ANY SIGNIFICANT 17 SUBSIDIARY, INCLUDING A DESCRIPTION OF EACH SECURITY OUTSTANDING 18 OR BEING REGISTERED OR OTHERWISE OFFERED, AND A STATEMENT OF THE 19 AMOUNT AND KIND OF CONSIDERATION (WHETHER IN THE FORM OF CASH, 20 PHYSICAL ASSETS, SERVICES, PATENTS, GOODWILL, OR ANYTHING ELSE) 21 FOR WHICH THE ISSUER OR ANY SUBSIDIARY HAS ISSUED ANY OF ITS 22 SECURITIES WITHIN THE PAST TWO YEARS OR IS OBLIGATED TO ISSUE 23 ANY OF ITS SECURITIES; 24 (8) THE KIND AND AMOUNT OF SECURITIES TO BE OFFERED; THE 25 PROPOSED OFFERING PRICE OR THE METHOD BY WHICH IT IS TO BE 26 COMPUTED; ANY VARIATION THEREFROM AT WHICH ANY PROPORTION OF THE 27 OFFERING IS TO BE MADE TO ANY PERSON OR CLASS OF PERSONS OTHER 28 THAN THE UNDERWRITERS, WITH A SPECIFICATION OF ANY SUCH PERSON 29 OR CLASS; THE BASIS UPON WHICH THE OFFERING IS TO BE MADE IF 30 OTHERWISE THAN FOR CASH; THE ESTIMATED AGGREGATE UNDERWRITING 19720H1970B2861 - 27 -
1 AND SELLING DISCOUNTS OR COMMISSIONS AND FINDERS' FEES 2 (INCLUDING SEPARATELY CASH, SECURITIES, CONTRACTS, OR ANYTHING 3 ELSE OF VALUE TO ACCRUE TO THE UNDERWRITERS OR FINDERS IN 4 CONNECTION WITH THE OFFERING) OR, IF THE SELLING DISCOUNTS OR 5 COMMISSIONS ARE VARIABLE; THE BASIS OF DETERMINING THEM AND 6 THEIR MAXIMUM AND MINIMUM AMOUNTS; THE ESTIMATED AMOUNTS OF 7 OTHER SELLING EXPENSES, INCLUDING LEGAL, ENGINEERING, AND 8 ACCOUNTING CHARGES; THE NAME AND ADDRESS OF EVERY UNDERWRITER 9 AND EVERY RECIPIENT OF A FINDER'S FEE; A COPY OF ANY 10 UNDERWRITING OR SELLING-GROUP AGREEMENT PURSUANT TO WHICH THE 11 DISTRIBUTION IS TO BE MADE, OR THE PROPOSED FORM OF ANY SUCH 12 AGREEMENT WHOSE TERMS HAVE NOT YET BEEN DETERMINED; AND A 13 DESCRIPTION OF THE PLAN OF DISTRIBUTION OF ANY SECURITIES WHICH 14 ARE TO BE OFFERED OTHERWISE THAN THROUGH AN UNDERWRITER; 15 (9) THE ESTIMATED CASH PROCEEDS TO BE RECEIVED BY THE ISSUER 16 FROM THE OFFERING; THE PURPOSES FOR WHICH THE PROCEEDS ARE TO BE 17 USED BY THE ISSUER; THE AMOUNT TO BE USED FOR EACH PURPOSE; THE 18 ORDER OR PRIORITY IN WHICH THE PROCEEDS WILL BE USED FOR THE 19 PURPOSES STATED; THE AMOUNTS OF ANY FUNDS TO BE RAISED FROM 20 OTHER SOURCES TO ACHIEVE THE PURPOSES STATED; THE SOURCES OF ANY 21 SUCH FUNDS; AND, IF ANY PART OF THE PROCEEDS IS TO BE USED TO 22 ACQUIRE ANY PROPERTY (INCLUDING GOODWILL) OTHERWISE THAN IN THE 23 ORDINARY COURSE OF BUSINESS, THE NAMES AND ADDRESSES OF THE 24 VENDORS, THE PURCHASE PRICE, THE NAMES OF ANY PERSONS WHO HAVE 25 RECEIVED COMMISSIONS IN CONNECTION WITH THE ACQUISITION, AND THE 26 AMOUNTS OF ANY SUCH COMMISSIONS AND ANY OTHER EXPENSE IN 27 CONNECTION WITH THE ACQUISITION (INCLUDING THE COST OF BORROWING 28 MONEY TO FINANCE THE ACQUISITION); 29 (10) A DESCRIPTION OF ANY STOCK OPTIONS OR OTHER SECURITY 30 OPTIONS OUTSTANDING, OR TO BE CREATED IN CONNECTION WITH THE 19720H1970B2861 - 28 -
1 OFFERING, TOGETHER WITH THE AMOUNT OF ANY SUCH OPTIONS HELD OR 2 TO BE HELD BY EVERY PERSON REQUIRED TO BE NAMED IN CLAUSE (2), 3 (4), (5), (6), OR (8) AND BY ANY PERSON WHO HOLDS OR WILL HOLD 4 TEN PER CENT OR MORE IN THE AGGREGATE OF ANY SUCH OPTIONS; 5 (11) THE DATES OF, PARTIES TO, AND GENERAL EFFECT CONCISELY 6 STATED OF, EVERY MANAGEMENT OR OTHER MATERIAL CONTRACT MADE OR 7 TO BE MADE OTHERWISE THAN IN THE ORDINARY COURSE OF BUSINESS IF 8 IT IS TO BE PERFORMED IN WHOLE OR IN PART AT OR AFTER THE FILING 9 OF THE REGISTRATION STATEMENT OR WAS MADE WITHIN THE PAST TWO 10 YEARS, TOGETHER WITH A COPY OF EVERY SUCH CONTRACT; AND A 11 DESCRIPTION OF ANY PENDING LITIGATION OR PROCEEDING TO WHICH THE 12 ISSUER IS A PARTY AND WHICH MATERIALLY AFFECTS ITS BUSINESS OR 13 ASSETS (INCLUDING ANY SUCH LITIGATION OR PROCEEDING KNOWN TO BE 14 CONTEMPLATED BY GOVERNMENTAL AUTHORITIES); 15 (12) A COPY OF ANY PROSPECTUS, PAMPHLET, CIRCULAR, FORM 16 LETTER, ADVERTISEMENT, OR OTHER SALES LITERATURE INTENDED AS OF 17 THE EFFECTIVE DATE TO BE USED IN CONNECTION WITH THE OFFERING; 18 (13) A SPECIMEN OR COPY OF THE SECURITY BEING REGISTERED; A 19 COPY OF THE ISSUER'S ARTICLES OF INCORPORATION AND BYLAWS, OR 20 THEIR SUBSTANTIAL EQUIVALENTS, AS CURRENTLY IN EFFECT; AND A 21 COPY OF ANY INDENTURE OR OTHER INSTRUMENT COVERING THE SECURITY 22 TO BE REGISTERED; 23 (14) A SIGNED OR CONFORMED COPY OF AN OPINION OF COUNSEL AS 24 TO THE LEGALITY OF THE SECURITY BEING REGISTERED (WITH AN 25 ENGLISH TRANSLATION IF IT IS IN A FOREIGN LANGUAGE), WHICH SHALL 26 STATE WHETHER THE SECURITY WHEN SOLD WILL BE LEGALLY ISSUED, 27 FULLY PAID, AND NONASSESSABLE, AND, IF A DEBT SECURITY, A 28 BINDING OBLIGATION OF THE ISSUER; 29 (15) THE WRITTEN CONSENT OF ANY ACCOUNTANT, ENGINEER, 30 APPRAISER, OR OTHER PERSON WHOSE PROFESSION GIVES AUTHORITY TO A 19720H1970B2861 - 29 -
1 STATEMENT MADE BY HIM, IF ANY SUCH PERSON IS NAMED AS HAVING
2 PREPARED OR CERTIFIED A REPORT OR VALUATION (OTHER THAN A PUBLIC
3 AND OFFICIAL DOCUMENT OR STATEMENT) WHICH IS USED IN CONNECTION
4 WITH THE REGISTRATION STATEMENT;
5 (16) A BALANCE SHEET OF THE ISSUER AS OF A DATE WITHIN FOUR
6 MONTHS PRIOR TO THE FILING OF THE REGISTRATION STATEMENT; A
7 PROFIT AND LOSS STATEMENT AND ANALYSIS OF SURPLUS FOR EACH OF
8 THE THREE FISCAL YEARS PRECEDING THE DATE OF THE BALANCE SHEET
9 AND FOR ANY PERIOD BETWEEN THE CLOSE OF THE LAST FISCAL YEAR AND
10 THE DATE OF THE BALANCE SHEET, OR FOR THE PERIOD OF THE ISSUER'S
11 AND ANY PREDECESSORS' EXISTENCE IF LESS THAN THREE YEARS; AND,
12 IF ANY PART OF THE PROCEEDS OF THE OFFERING IS TO BE APPLIED TO
13 THE PURCHASE OF ANY BUSINESS, THE SAME FINANCIAL STATEMENTS
14 WHICH WOULD BE REQUIRED IF THAT BUSINESS WERE THE REGISTRANT, OR
15 SUCH OTHER FINANCIAL STATEMENTS AS MAY BE REQUIRED PURSUANT TO
16 SECTION 609 (C); AND
17 (17) SUCH ADDITIONAL INFORMATION AS THE COMMISSION REQUIRES
18 BY REGULATION OR ORDER.
19 FOR PURPOSES OF THIS SECTION 206 (B) THE COMMISSION MAY
20 CLASSIFY ISSUERS AND TYPES OF SECURITIES.
21 (c) Registration under this section becomes effective when
22 the commission so orders. If a registration statement has been
23 on file for at least thirty days and all information required by
24 the commission has been furnished, the person filing the
25 statement may at any time file a written request that the
26 commission take action within ten days following the filing of
27 such request. If a request is filed and the commission takes no
28 action within the period, the registration becomes effective at
29 the end of the ten-day period.
30 (d) The commission may by rule REGULATION or order require <--
19720H1970B2861 - 30 -
1 as a condition of registration under this section that a 2 prospectus containing any designated part of the information 3 contained in the registration statement or filed with it be sent 4 or given to each person to whom an offer is made before or 5 concurrently with: the first written offer made to him, 6 otherwise than by means of a public advertisement, by or for the 7 account of the issuer or any other person on whose behalf the 8 offering is made, or by any underwriter or broker-dealer who is 9 offering part of an unsold allotment or subscription taken by 10 him as a participant in the distribution; or the confirmation of 11 any sale made by or for the account of any person; or the 12 payment pursuant to any sale; or the delivery of the security 13 pursuant to any sale; whichever first occurs. 14 Section 207. General Registration Provisions.--(a) A 15 registration statement may be filed by the issuer, any other 16 person on whose behalf the offering is to be made or a licensed 17 broker-dealer. but the commission may in specific cases require <-- 18 that it be executed by the issuer. 19 (b) Every registration statement shall specify: (i) the 20 amount of securities to be offered in this State; (ii) the 21 states in which a registration statement or application in 22 connection with the offering has been or is to be filed; (iii) 23 any adverse order, judgment or decree entered in connection with 24 the offering by the regulatory authorities in any state or by 25 any court or the Securities and Exchange Commission, or any 26 withdrawal with prejudice of a registration statement or 27 application relating to the offering; AND (iv) the names of all <-- 28 underwriters and broker-dealers selling or offering the 29 securities in this State. and (v) such other information as may <-- 30 be required by the form therefor adopted by the commission 19720H1970B2861 - 31 -
1 pursuant to section 609. 2 (c) Any document filed under this act or a predecessor law 3 within five years preceding the filing of a registration 4 statement may be incorporated by reference in the registration 5 statement. 6 (d) The commission may by rule REGULATION or otherwise <-- 7 permit the omission of any item of information or document from 8 any registration statement. 9 (e) The commission may by rule REGULATION or order require <-- 10 as a condition of registration BY QUALIFICATION OR AS A <-- 11 CONDITION OF REGISTRATION BY COORDINATION (IF MORE THAN SIXTY- 12 SIX AND TWO-THIRDS PER CENT OF THE ISSUE OF SECURITIES PART OR 13 ALL OF WHICH IS TO BE REGISTERED BY COORDINATION IS TO BE SOLD 14 IN PENNSYLVANIA) that a report by an accountant, engineer, 15 appraiser or other professional person be filed. The commission 16 may also designate one of its employes to make an examination of 17 the business and records of an issuer of securities for which a 18 registration statement has been filed by qualification. 19 (f) In the case of a nonissuer distribution, information may 20 not be required under section 206 (b) or section 207 (k) unless 21 it is known to the person filing the registration statement or 22 to the persons on whose behalf the distribution is to be made, 23 or can be furnished by them without unreasonable effort or 24 expense. 25 (g) The commission may by rule REGULATION or order require <-- 26 as a condition of registration that any security issued within 27 the past two years or to be issued to a promoter for a 28 consideration substantially different from the public offering 29 price, or to any person for a consideration other than cash, be 30 deposited in escrow; or that the proceeds from the sale of the 19720H1970B2861 - 32 -
1 registered security in this State be escrowed until the issuer 2 receives a specified amount from the sale of the security either 3 in this State or elsewhere; or it may impose both such 4 requirements. The commission may by rule REGULATION or order <-- 5 determine the conditions of any escrow required hereunder, but 6 may not reject a depository solely because of location in 7 another state. 8 (h) The commission may by rule REGULATION require that DEBT <-- 9 securities of designated classes TO BE REGISTERED BY <-- 10 QUALIFICATION shall be issued under a trust indenture containing 11 such provisions as it determines, BUT SUCH PROVISIONS SHALL NOT <-- 12 BE IN ADDITION TO OR INCONSISTENT WITH THE TERMS REQUIRED OR 13 PERMITTED BY THE TRUST INDENTURE ACT OF 1929. 14 (i) The commission may by rule or order REGULATION require <-- 15 (I) WITH RESPECT TO REGISTRATION BY COORDINATION THAT A COPY OF <-- 16 EACH FORM OF SUBSCRIPTION OR SALE CONTRACT USED OR PROPOSED TO 17 BE USED IN THIS STATE BE FILED WITH THE COMMISSION PRIOR TO ITS 18 USE IN THIS STATE; AND (II) WITH RESPECT TO REGISTRATION BY 19 QUALIFICATION THAT, as a condition of registration, that any <-- 20 security registered be sold only on a specified form of 21 subscription or sale contract; and (III) that a signed or <-- 22 conformed copy of each SUCH contract be filed with the <-- 23 commission or preserved for any period up to three years. 24 (j) A registration statement is effective for one year from 25 its effective date, or any longer period during which the 26 security is being offered or distributed in a nonexempted 27 transaction by or for the account of the issuer or other person 28 on whose behalf the offering is being made, or by any 29 underwriter or broker-dealer who is still offering part of an 30 unsold allotment or subscription taken by him as a participant 19720H1970B2861 - 33 -
1 in the distribution, provided that the commission has been 2 notified of such continued offering and the period thereof. Any 3 SUCH extension of the offering period FOR SECURITIES REGISTERED <-- 4 BY QUALIFICATION shall be subject to rules REGULATIONS <-- 5 established by the commission. The fact that a registration 6 statement has been effective in this State with respect to any 7 security does not permit sales of securities of the same class 8 by the issuer or an affiliate of the issuer if such person did 9 not file the registration statement, unless a separate 10 registration statement is filed and declared effective with 11 respect thereto, or absent an applicable exemption. AN EXEMPTION <-- 12 FROM REGISTRATION IS AVAILABLE. A registration statement may not 13 be withdrawn after its effective date if any of the securities 14 registered have been sold in this State, unless permitted by 15 rule REGULATION or order of the commission. No registration <-- 16 statement is effective during the time a stop order is in effect 17 under section 208. 18 (k) During the effective period of a registration statement, 19 the commission may by rule or order REGULATION require the <-- 20 person who filed the registration statement to file reports with 21 the commission, not more often than quarterly, to keep 22 reasonably current the information contained in the registration 23 statement and to disclose the progress of the offering; 24 provided, however, that any person may file with the commission <-- 25 copies of reports filed NO PERSON NEED COMPLY WITH ANY SUCH <-- 26 REGULATION OF THE COMMISSION IF SUCH PERSON FILES WITH THE 27 COMMISSION COPIES OF ALL REPORTS SUCH PERSON IS REQUIRED TO FILE 28 with the Securities and Exchange Commission including form SR in <-- 29 lieu of the foregoing. AND IF SUCH REPORTS ARE FILED IN A TIMELY <-- 30 MANNER. If any of the securities registered have been sold in 19720H1970B2861 - 34 -
1 the State, the commission may by rule or order REGULATION extend <-- 2 the period for filing the reports for an additional term not 3 exceeding two years from the date the registration became 4 effective or the date of its last amendment or extension. 5 (l) A registration statement relating to redeemable 6 securities issued by an open-end management company or unit 7 investment trust, as defined in the Investment Company Act of 8 1940, or to securities issued by any class of financial 9 institutions which the commission by rule determines, may be 10 amended after its effective date so as to increase the specified 11 amount of securities proposed to be offered. The amendment 12 becomes effective when the commission so orders. 13 (m) No warrant or right to purchase or subscribe to another <-- 14 security and no security convertible into another security shall 15 be registered unless it appears to the commission that both the 16 warrant or right or convertible security and the securities 17 deliverable on the exercise of the warrant or right or 18 conversion privilege comply with the provisions of this act. 19 (n) (M) Each person who accepts an offer to purchase <-- 20 securities registered by qualification directly from an issuer 21 or an affiliate of an issuer shall have the right to withdraw 22 his acceptance without incurring any liability to the seller, 23 underwriter (if any) or any other person, within two business 24 days after he receives a final prospectus with respect <-- 25 PROSPECTUS RELATING to the offering (WHICH IS NOT MATERIALLY <-- 26 DIFFERENT FROM THE FINAL PROSPECTUS RELATING TO SUCH OFFERING) 27 and a notice explaining the provisions of this subsection. As 28 used herein, the term "final prospectus" shall mean the document 29 prepared in accordance with such rules REGULATIONS as the <-- 30 commission may provide, to be used by the seller in connection 19720H1970B2861 - 35 -
1 with an offering of securities in this State after the 2 registration of such securities has become effective under this 3 act. Each person who accepts an offer to purchase securities 4 exempted from registration by section 203 (d), (f), (q) or (s), <-- 5 (P) OR (R), directly from an issuer or affiliate of an issuer <-- 6 shall have the right to withdraw his acceptance without 7 incurring any liability to the seller, underwriter (if any) or 8 any other person, within two business days after he enters into 9 a binding contract of purchase, or makes any payment for the 10 securities being offered or the exemption becomes effective, 11 whichever is later. 12 Section 208. Denial, Suspension, and Revocation of 13 Registrations.--(a) The commission may issue a stop order 14 denying effectiveness to, or suspending or revoking the 15 effectiveness of, any registration statement if it finds that 16 the order is in the public interest and that: 17 (i) The registration statement as of its effective date or 18 as of any earlier date in the case of an order denying 19 effectiveness, or any amendment filed under section 207 (l) as 20 of its effective date, or any report under section 207 (k) is 21 incomplete in any material respect or contains any statement 22 which was, in the light of the circumstances under which it was 23 made, false or misleading with respect to any material fact, or 24 omits OMITTED to state a material fact necessary in order to <-- 25 make the statements made, in the light of the circumstances 26 under which they are made, not misleading; 27 (ii) Any provision of this act or any rule, REGULATION, <-- 28 order or condition lawfully imposed under this act has been 29 wilfully violated, in connection with the offering by: (A) the 30 person filing the registration statement, (B) the issuer, (C) 19720H1970B2861 - 36 -
1 any partner, officer or director of the issuer, (D) any person 2 occupying a similar status or performing similar functions, (E) 3 any affiliate of the issuer, but only if the person filing the 4 registration statement is an affiliate of the issuer, or (F) any 5 broker-dealer; or other person involved directly or indirectly <-- 6 in the offering; 7 (iii) The securities are the subject of an administrative 8 stop order or similar order or a permanent or temporary 9 injunction of any court of competent jurisdiction entered under 10 any other Federal or State act applicable to the offering, but 11 the commission may not institute a proceeding against an 12 effective registration statement under this section more than 13 one year from the date of the order or injunction relied on, and 14 it may not enter an order under this section on the basis of an 15 order or injunction entered under any other state act unless 16 that order or injunction was based on facts which would 17 currently constitute a ground for a stop order under this act; 18 (iv) The issuer's enterprise or method of business includes 19 or would include activities which are illegal where performed; 20 (v) The offering has been or would be made with unreasonable 21 amounts of underwriters' and sellers' discounts, commissions or 22 other compensation, or promoters' profits or participation, or 23 unreasonable amounts or kinds of options, or has worked or 24 tended to work a fraud upon purchasers or would so operate, or <-- 25 involves an unreasonable distribution of voting rights; PROVIDED <-- 26 THAT ANY UNDERWRITING COMPENSATION APPROVED BY A NATIONAL 27 SECURITIES ASSOCIATION REGISTERED UNDER THE SECURITIES EXCHANGE 28 ACT OF 1934 WITH RESPECT TO THE UNDERWRITING ACTIVITIES OF ITS 29 MEMBERS SHALL NOT BE DEEMED UNREASONABLE UNDER THIS SECTION; 30 (vi) The applicant or registrant has failed to pay the 19720H1970B2861 - 37 -
1 proper filing fee; but the commission may only enter a denial 2 order under this subsection, and it shall vacate any such order 3 when the deficiency has been corrected; OR <-- 4 (vii) Advertising prohibited by section 606 (e) has been 5 used in connection with the sale or offering of the securities. 6 or <-- 7 (viii) In the case of unsecured debt or preferred equity 8 securities with a fixed dividend rate, the financial condition 9 of the issuer affects or would affect the soundness of the 10 securities. 11 (b) The commission may not institute a stop order proceeding 12 against an effective registration statement on the basis of a 13 fact or transaction known to it when the registration statement 14 became effective unless the proceeding is instituted within 15 thirty days after effectiveness. 16 (c) In a proceeding for registration by qualification, the <-- 17 registrant has the burden of satisfying the requirements of 18 subsection (a). In a proceeding for registration by 19 coordination, the commission has the burden of establishing the 20 existence of one of the grounds enumerated in subsection (a). 21 (d) (C) The commission may issue a summary order denying, <-- 22 postponing, suspending or revoking the effectiveness of a 23 registration statement pending final determination of any 24 proceeding under this section. Upon the entry of the order, the 25 commission shall promptly notify each person specified in 26 subsection (e) (D) that it has been entered and the reasons <-- 27 therefor and that within fifteen days after the receipt of a 28 written request the matter will be set down for hearing. If no 29 hearing is requested or ordered, the commission, after notice of 30 and opportunity for hearing to each person specified in 19720H1970B2861 - 38 -
1 subsection (e) (D); may modify or vacate the order or extend it <-- 2 until final determination. 3 (e) (D) No stop order may be entered under this section <-- 4 except under subsection (d) (C) without appropriate prior notice <-- 5 to the applicant or registrant, the issuer and the person on 6 whose behalf the securities are to be or have been offered; 7 opportunity for hearing; and written findings of fact and 8 conclusions of law. 9 (f) (E) The commission may vacate or modify a stop order if <-- 10 it finds that the conditions which prompted its entry have 11 changed or that it is otherwise in the public interest to do so. 12 Section 209. Books, Records and Accounts.--Every issuer 13 qualifying REGISTERING securities for sale in this State or who <-- 14 has sold securities in this State pursuant to an exemption 15 contained in section 202 (e), 203 (d), 203 (q) (P) or 203 (s) <-- 16 (R) shall at all times keep and maintain a complete set of <-- 17 books, records, and accounts of such sales and the disposition 18 of the proceeds thereof FOR A PERIOD OF THREE YEARS FOLLOWING <-- 19 THE LAST SALE OF SECURITIES IN THIS STATE OR ONE YEAR AFTER THE 20 DISPOSITION OF ALL PROCEEDS, WHICHEVER IS LONGER, and shall 21 thereafter, at such times as are required by the commission, 22 make and file in the office of the commission, a report, setting 23 forth the securities sold by it under such qualification <-- 24 REGISTRATION or exemption, the proceeds derived therefrom and <-- 25 the disposition thereof. 26 PART III 27 REGISTRATION OF BROKER-DEALERS, AGENTS 28 AND INVESTMENT ADVISERS 29 Section 301. Registration Requirement.--Unless exempted 30 under section 302 hereof: 19720H1970B2861 - 39 -
1 (a) It is unlawful for any person to transact business in 2 this State as a broker-dealer or agent unless he is registered 3 under this act. 4 (b) It is unlawful for any broker-dealer or issuer to employ 5 an agent to represent him in this State unless the agent is 6 registered under this act. The registration of an agent is not 7 effective during any period when he is not associated with a 8 specified broker-dealer registered under this act or a specified 9 issuer. No agent shall at any time represent more than one 10 broker-dealer or issuer, except that where affiliated 11 organizations operating at the same location are registered <-- 12 broker-dealers, an agent may represent any such organization. 13 When an agent begins or terminates a connection with a broker- 14 dealer or issuer, or begins or terminates those activities which 15 make him an agent, the agent as well as the broker-dealer or 16 issuer shall promptly notify the commission. The commission may 17 adopt a temporary registration procedure to permit agents to 18 change employers without suspension of their registrations 19 hereunder. 20 (c) It is unlawful for any person to transact business in 21 this State as an investment adviser unless he is so registered 22 or registered as a broker-dealer under this act or unless he is 23 exempted under section 302 (d). 24 (d) It is unlawful for any licensed broker-dealer, agent or 25 investment adviser, or any affiliate of such a broker-dealer or 26 investment adviser, to transact business EFFECT A TRANSACTION IN <-- 27 SECURITIES in this State if the registrant is in violation of 28 this act, or any rule or REGULATION OR order promulgated under <-- 29 this act of which he has notice, or IF SUCH VIOLATION (I) IS A <-- 30 MATERIAL VIOLATION; (II) RELATES TO TRANSACTIONS EFFECTED IN 19720H1970B2861 - 40 -
1 THIS STATE; AND (III) HAS BEEN COMMITTED BY SUCH REGISTRANT, OR 2 if the information contained in his application for 3 registration, as of the date of such transaction, is incomplete 4 in any material respect or is false or misleading with respect 5 to any material fact. 6 (e) Every registration expires two years from its effective 7 date unless renewed. The commission by rule or order REGULATION <-- 8 may prepare an initial schedule for registration renewals so 9 that subsequent renewals of registrations effective April 1, 10 1972 may be staggered. For this purpose the commission may 11 adjust the registration fee proportionately. No registration is 12 effective after its expiration, UNLESS A REGISTRATION <-- 13 APPLICATION HAS BEEN FILED WITHIN THE TIME PERIOD SPECIFIED IN 14 SECTION 305 and expiration of a registration for which no 15 renewal application has been filed is deemed an application for 16 withdrawal under section 306 305 (f). <-- 17 Section 302. Exemptions.--The following persons shall be 18 exempted from the registration provisions of section 301: 19 (a) A broker-dealer registered under the Securities Exchange 20 Act of 1934, who has not previously had any certificate denied 21 or revoked under this act or any predecessor statute, if he has 22 no place of business in this State and, during any period of 23 twelve consecutive months, he does not direct offers to sell or 24 buy into this State in any manner to persons other than broker- 25 dealers, institutional investors or governmental agencies or AND <-- 26 OTHER instrumentalities designated by rule REGULATION of the <-- 27 commission, or to more than five other customers having an <-- 28 existing account with such broker-dealer prior to any offer made 29 to them in this State, whether or not the offeror or any of the 30 offerees is then present in this State. 19720H1970B2861 - 41 -
1 (b) An agent in so far as he effects transactions on behalf 2 of a broker-dealer who is exempted by the provisions of 3 subsection (a). 4 (c) A bank not licensed REGISTERED as a broker-dealer UNDER <-- 5 THIS ACT executing orders for the purchase or sale of securities 6 as agent for the ACCOUNT OF THE purchaser or seller thereof. in <-- 7 accordance with rules which the commission establishes. 8 (d) A person registered under the Investment Advisers Act of 9 1940, who has not previously had any certificate denied or 10 revoked under this act or any predecessor statute, if he has no <-- 11 place of business in this State and (i) his only clients in this 12 State are other investment advisers, broker-dealers, 13 institutional investors or governmental agencies or AND OTHER <-- 14 instrumentalities designated by rule REGULATION of the <-- 15 commission, or (ii) during any period of twelve consecutive 16 months he does not direct business communications into this 17 State in any manner to more than five clients other than those 18 specified in clause (i) above, whether or not he or any of the 19 persons to whom the communications are directed is then present 20 in this State. 21 (e) Any bona fide officer or director of an issuer, <-- 22 DIRECTOR, PARTNER OR EMPLOYE OF AN ISSUER, OR AN INDIVIDUAL <-- 23 OCCUPYING SIMILAR STATUS OR PERFORMING SIMILAR FUNCTIONS, if 24 such person does not receive any compensation, directly or 25 indirectly, for his activities on behalf of an issuer in 26 connection with any security or transaction not EXCEPT THOSE <-- 27 exempted under section 202 or 203. 28 (f) The commission may by such rules REGULATIONS as it deems <-- 29 necessary or appropriate in the public interest or for the 30 protection of investors, either unconditionally or upon 19720H1970B2861 - 42 -
1 specified terms and conditions or for specified periods, exempt 2 from the provisions of section 301 any class of persons 3 specified in such rules. REGULATIONS. <-- 4 Section 303. Registration Procedure.--(a) (i) A broker- 5 dealer, agent, or investment adviser may obtain an initial or 6 renewal license by filing with the commission an application 7 together with a consent to service of process pursuant to 8 section 701. The application shall contain such information, and 9 in such detail, as the commission by rule requires concerning 10 the applicant's form and place of organization, proposed method 11 of doing business, and financial condition, the qualifications 12 and experience of the applicant, including, in the case of a 13 broker-dealer or investment adviser, the qualifications and 14 experience of any partner, officer, director, or affiliate, OR A <-- 15 PERSON OCCUPYING A SIMILAR STATUS OR PERFORMING SIMILAR 16 FUNCTIONS any injunction or administrative order or conviction 17 referred to in section 305 (a) (ii), information about 18 affiliates or predecessors of the applicant, and any other 19 matters which the commission determines are relevant to the 20 application. The commission may by rule or order require an <-- 21 applicant for an initial license to publish an announcement of 22 the application in one or more specified newspapers published in 23 this State. 24 (ii) If no denial order is in effect and no proceeding is 25 pending under section 305, the registration becomes effective 26 thirty days ON THE THIRTIETH DAY after the filing of any <-- 27 amendment. THE APPLICATION THEREFOR OR ANY MATERIAL AMENDMENT <-- 28 THERETO, OR ON SUCH EARLIER DATE AS THE COMMISSION MAY ORDER. 29 The commission is directed to cooperate with other securities 30 administrators and regulatory authorities to simplify and 19720H1970B2861 - 43 -
1 coordinate registration, application and renewal procedures. 2 (b) Before action on an application, the commission may <-- 3 designate an employe to make an examination of the books, 4 records and affairs of the applicant. 5 (c) (B) A registered broker-dealer or investment adviser may <-- 6 file an application for registration of a successor, whether or 7 not the successor is then in existence, for the unexpired 8 portion of the registrant's term. There shall be no filing fee. 9 (d) (C) The commission may by rule REGULATION prescribe <-- 10 standards of qualification with respect to training, experience 11 and knowledge of the securities business and provide for an 12 examination, which may be written or oral or both, to be taken 13 by any class of or all applicants, as well as persons who 14 represent or will represent an investment adviser, and the 15 commission may by order require an examination of a licensed 16 broker-dealer, agent or investment adviser for due cause. 17 (e) (D) The commission may by rule REGULATION require a <-- 18 minimum capital for broker-dealers and investment advisers and 19 establish limitations on aggregate indebtedness of broker- 20 dealers in relation to net capital and may classify broker- 21 dealers and investment advisers for purposes of such 22 requirements. The commission may not, however, with respect to 23 any broker-dealer who is a member of the National Association of 24 Securities Dealers, Inc. or who is registered with the 25 Securities and Exchange Commission require a higher minimum 26 capital or lower ratio of aggregate indebtedness to net capital 27 than is contained in the rules or regulations adopted by such 28 association or commission. 29 (f) (E) The commission may by rule REGULATION require surety <-- 30 bonds TO BE POSTED by any broker-dealer, investment adviser, and <-- 19720H1970B2861 - 44 -
1 any issuer who employs agents in connection with any security or 2 transaction not exempted by section 202 or 203 in an amount not 3 exceeding ten thousand dollars ($10,000), and all bonds required 4 shall provide for suit thereon by injured customers, clients or 5 purchasers, but no bond may be required of any registered 6 broker-dealer or investment adviser whose net capital exceeds 7 the amount prescribed by rule IN THIS SECTION 303 OR BY <-- 8 REGULATION for this purpose. Such bond, unless cancelled as 9 provided herein, shall be in effect during the entire period 10 that a registration is in effect. Every bond shall contain a 11 provision that such bond is not cancellable, except on thirty- 12 days prior written notice to the person for BY whom the bond was <-- 13 issued POSTED and the commission, provided that such <-- 14 cancellation shall not affect any liability incurred or accrued 15 prior to the effective date of such cancellation. 16 (g) The commission may by rule or order impose other <-- 17 conditions in connection with the issuance of licenses under 18 this act as it deems appropriate in the public interest and for 19 the protection of investors. 20 Section 304. Post-Registration Provisions.--(a) Every 21 registered broker-dealer and investment adviser shall make and 22 keep all accounts, correspondence, memoranda, papers, books and 23 other records which the commission by rule REGULATION <-- 24 prescribes. All records required shall be preserved for three 25 years unless the commission by rule REGULATION prescribes <-- 26 otherwise for particular types of records. All required records 27 shall be kept within this State or shall, at the request of the 28 commission, be made available at any time for examination by it 29 either in the principal office of the registrant or by 30 production of exact copies thereof in this State. 19720H1970B2861 - 45 -
1 (b) Every registered broker-dealer and investment adviser 2 shall file such FINANCIAL reports as the commission by rule <-- 3 REGULATION prescribes. <-- 4 (c) If the information contained in any document filed with 5 the commission is or becomes inaccurate or incomplete in any 6 material respect, the registrant shall promptly file a 7 correcting amendment. 8 (d) The commission shall make periodic examinations, within 9 or without this State, of each broker-dealer and investment 10 adviser at such REASONABLE times and in such scope as it <-- 11 determines. REASONABLE SCOPE. These examinations may be made <-- 12 without prior notice to the broker-dealer or investment adviser. 13 For the purpose of avoiding unnecessary duplication of 14 examinations, the commission, in so far as it deems it 15 practicable in administering this subsection, may SHALL <-- 16 cooperate with securities administrators of other states, the 17 Securities and Exchange Commission, and any national securities 18 exchange or national securities association registered under the 19 Securities Exchange Act of 1934 or any other department or 20 agency of this State. 21 (e) The commission may by rule REGULATION prohibit <-- 22 unreasonable charges, commissions or other compensation of 23 broker-dealers and investment advisers, provided that any 24 commission rate CHARGES, COMMISSIONS, OR OTHER COMPENSATION <-- 25 CONSISTENT WITH RATES set by a national securities exchange, 26 when applied to transactions on that exchange, and any <-- 27 commission rate set OR by the Securities and Exchange Commission <-- 28 OR NATIONAL SECURITIES ASSOCIATION REGISTERED UNDER THE <-- 29 SECURITIES EXCHANGE ACT OF 1934, shall not be deemed 30 unreasonable under this section. Any underwriting compensation 19720H1970B2861 - 46 -
1 approved PERMITTED by a national securities association <-- 2 registered under the Securities Exchange Act of 1934 with 3 respect to the underwriting activities of its members shall not 4 be deemed unreasonable under this section. 5 (f) The commission may prescribe rules WHICH IT FINDS <-- 6 APPROPRIATE IN THE PUBLIC INTEREST AND FOR THE PROTECTION OF 7 INVESTORS for the conduct of business by broker-dealers and 8 investment advisers which it finds appropriate in the public <-- 9 interest and for the protection of investors. WHO ARE NOT <-- 10 MEMBERS OF THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. 11 OR ANY OTHER NATIONAL SECURITIES ASSOCIATION REGISTERED UNDER 12 THE SECURITIES EXCHANGE ACT OF 1934, WHICH ASSOCIATION HAS 13 ADOPTED RULES OF CONDUCT. 14 (g) All broker-dealers and investment advisers registered 15 hereunder shall display copies of their currently effective 16 registration certificates, LICENSES, bearing the seal of the <-- 17 commission, prominently in each place of business within this 18 State. Each such certificate shall contain the names of such 19 persons as the commission shall by rule provide. 20 Section 305. Denial, Suspension and Revocation of 21 Registration.--(a) The commission may, by order, deny, suspend, 22 or revoke any registration or may censure any registrant if it 23 finds that such order is in the public interest and that such 24 registrant or applicant, or in the case of any broker-dealer or 25 investment adviser, any affiliate thereof, whether prior or 26 subsequent to becoming associated with such person: 27 (i) Has, in any application for registration or in any 28 report required to be filed with the commission under this act, 29 or in any proceeding before the commission, wilfully made or 30 caused to be made any statement which was at the time and in the 19720H1970B2861 - 47 -
1 light of the circumstances under which it was made false or 2 misleading with respect to any material fact, or has wilfully 3 omitted to state in any such application, report or proceeding, 4 any material fact which is required to be stated therein or 5 necessary in order to make the statements made, in the light of 6 the circumstances under which they are made, not misleading, or 7 has wilfully failed to amend or supplement such an application, 8 report or statement in a timely manner in accordance with rules 9 which may be adopted by the commission; or 10 (ii) Has, within ten years of the date of the commission's 11 action, been either (A) convicted of a felony or misdemeanor, or 12 (B) held liable in a civil action by final judgment of a court 13 based upon conduct showing moral turpitude, and the commission 14 finds that any such felony, misdemeanor or civil action (I) 15 involved the purchase or sale of any security, or any other 16 aspect of the securities business, (II) arose out of the conduct 17 of the business of a broker-dealer, investment adviser or issuer 18 with respect to a security or transaction not exempt under 19 section 202 or 203, (III) involved embezzlement, fraudulent 20 conversion or misappropriation of property, funds or securities, 21 or (IV) involved the violation of section 1341, 1342 or 1343 of 22 Title 18 of the United States Code; or 23 (iii) Is permanently or temporarily enjoined by any court of 24 competent jurisdiction from engaging in or continuing any 25 conduct or practice involving any aspect of the securities 26 BUSINESS OR INVOLVING FRAUDULENT CONDUCT IN THE banking or <-- 27 insurance business; or 28 (iv) Is subject to any currently effective order or order 29 entered within the past five years of the Securities and 30 Exchange Commission or the securities administrator of any other 19720H1970B2861 - 48 -
1 state denying registration to or revoking or suspending the 2 registration of such person as a broker-dealer, agent or 3 investment adviser or is subject to any currently effective 4 order of any national securities association or national 5 securities exchange (as defined in the Securities Exchange Act 6 of 1934) suspending or expelling such person from membership in 7 such association or exchange, or is the subject of a currently 8 effective United States Postal Service fraud order; but the 9 commission may not institute a revocation or suspension 10 proceeding under this subsection on the basis of an order under 11 another state law MORE THAN ONE YEAR AFTER TERMINATION OF THE <-- 12 EFFECTIVENESS OF THE ORDER RELIED ON AND unless the order was 13 based on facts which would currently constitute grounds for an 14 order under this section; or 15 (v) Has wilfully violated any provision of the Securities 16 Act of 1933, the Securities Exchange Act of 1934, the Trust 17 Indenture Act of 1939, the Investment Advisers Act of 1940, the 18 Investment Company Act of 1940 or this act, or any predecessor 19 law, or of any rule or regulation under any of such statutes; or 20 (vi) Has wilfully aided, abetted, counseled, commanded, 21 induced, or procured the violation by any other person of any of 22 the statutes or rules or regulations referred to in subsection 23 (v); or 24 (vii) Has failed reasonably to supervise his agents, if he 25 is a broker-dealer, or his employes, if he is an investment 26 adviser, but no person shall be deemed to have failed in such 27 supervision if there have been established procedures, and a 28 system for applying such procedures, which would reasonably be 29 expected to prevent and detect, in so far as practicable, any 30 violation of statutes, rules or orders described in subsection 19720H1970B2861 - 49 -
1 (v) and if such person has reasonably discharged the duties and
2 obligations incumbent upon him by reason of such procedures and
3 system without reasonable cause to believe that such procedures
4 and system were not being complied with; or
5 (viii) Is the subject of a currently effective order of the
6 commission denying, suspending or revoking his registration in
7 any other capacity under this act; or
8 (ix) Has engaged in dishonest or unethical practices in the
9 securities business or has taken unfair advantage of a customer;
10 or
11 (x) Is insolvent, either in the sense that his liabilities
12 exceed his assets or in the sense that he cannot meet his
13 obligations as they mature, or is in such financial condition
14 that he cannot continue in business with safety to his
15 customers, or has not sufficient financial responsibility to
16 carry out the obligations incident to his operations PROVIDED <--
17 THAT THE COMMISSION HAS MADE A SPECIFIC FINDING OF INSOLVENCY,
18 ABSENCE OF SAFETY OR INSUFFICIENT FINANCIAL RESPONSIBILITY; or
19 (xi) Is not qualified on the basis of such factors as
20 training, experience and knowledge of the securities business;
21 EXCEPT AS OTHERWISE PROVIDED IN SUBSECTION (B); or <--
22 (xii) Is selling or has sold, or is offering or has offered
23 for sale, in this State securities through any unlicensed agent <--
24 UNREGISTERED AGENT REQUIRED TO BE REGISTERED UNDER THIS ACT or <--
25 for any broker-dealer or issuer with knowledge that such broker-
26 dealer or issuer had not or has not complied with this act; or
27 (xiii) Has made any material misrepresentation to or
28 withheld or concealed from or omitted to state to the commission
29 or any of its representatives any material fact necessary in
30 order to make the statements made, in the light of the
19720H1970B2861 - 50 -
1 circumstances under which they are made, not misleading, or has 2 refused to furnish information reasonably requested by the 3 commission. 4 (b) The enumeration of the causes stated in subsection (a) <-- 5 shall not be exclusive, and the commission may deny, suspend or 6 revoke any registration or censure any registrant or applicant 7 for any cause, whether similar to or different from these 8 causes, when necessary or appropriate in the public interest or 9 for the protection of investors. 10 (B) THE FOLLOWING PROVISIONS GOVERN THE APPLICATION OF <-- 11 SECTION 305 (A) (XI): 12 (I) THE COMMISSION MAY NOT ENTER AN ORDER AGAINST A BROKER- 13 DEALER ON THE BASIS OF THE LACK OF QUALIFICATION OF ANY PERSON 14 OTHER THAN (A) THE BROKER-DEALER HIMSELF IF HE IS AN INDIVIDUAL, 15 OR (B) AN AGENT OF THE BROKER-DEALER. 16 (II) THE COMMISSION MAY NOT ENTER AN ORDER AGAINST AN 17 INVESTMENT ADVISER ON THE BASIS OF THE LACK OF QUALIFICATION OF 18 ANY PERSON OTHER THAN (A) THE INVESTMENT ADVISER HIMSELF IF HE 19 IS AN INDIVIDUAL, OR (B) ANY OTHER PERSON WHO REPRESENTS THE 20 INVESTMENT ADVISER IN DOING ANY OF THE ACTS WHICH MAKE HIM AN 21 INVESTMENT ADVISER. 22 (III) THE COMMISSION MAY NOT ENTER AN ORDER SOLELY ON THE 23 BASIS OF LACK OF EXPERIENCE IF THE APPLICANT OR REGISTRANT IS 24 QUALIFIED BY TRAINING OR KNOWLEDGE OR BOTH. 25 (IV) THE COMMISSION SHALL CONSIDER THAT AN AGENT WHO WILL 26 WORK UNDER THE SUPERVISION OF A REGISTERED BROKER-DEALER NEED 27 NOT HAVE THE SAME QUALIFICATIONS AS A BROKER-DEALER. 28 (V) THE COMMISSION SHALL CONSIDER THAT AN INVESTMENT ADVISER 29 IS NOT NECESSARILY QUALIFIED SOLELY ON THE BASIS OF EXPERIENCE 30 AS A BROKER-DEALER OR AGENT. WHEN IT FINDS THAT AN APPLICANT FOR 19720H1970B2861 - 51 -
1 INITIAL OR RENEWAL REGISTRATION AS A BROKER-DEALER IS NOT 2 QUALIFIED AS AN INVESTMENT ADVISER, IT MAY BY ORDER CONDITION 3 THE APPLICANT'S REGISTRATION AS A BROKER-DEALER UPON HIS NOT 4 TRANSACTING BUSINESS IN THIS STATE AS AN INVESTMENT ADVISER. 5 (VI) THE COMMISSION MAY BY RULE PROVIDE FOR AN EXAMINATION, 6 WHICH MAY BE WRITTEN OR ORAL OR BOTH, TO BE TAKEN BY ANY CLASS 7 OF OR ALL APPLICANTS, AS WELL AS PERSONS WHO REPRESENT OR WILL 8 REPRESENT AN INVESTMENT ADVISER IN DOING ANY OF THE ACTS WHICH 9 MAKE HIM AN INVESTMENT ADVISER. 10 (c) The commission may not institute a suspension or 11 revocation proceeding on the basis of a fact or transaction 12 known to it when the registration became effective unless the 13 proceeding is instituted within thirty days after such effective 14 date. 15 (d) The commission may by order summarily deny, postpone or 16 suspend an application for registration pending final 17 determination of any proceeding under this section. Upon the 18 entry of the order, the commission shall promptly notify the 19 applicant or registrant, as well as the employer or prospective 20 employer if the applicant or registrant is an agent, that it has 21 been entered and of the reasons therefor and that within fifteen 22 days after the receipt of a written request the matter will be 23 set down for hearing. If no hearing is requested and none is 24 ordered by the commission, the order will remain in effect until 25 it is modified or vacated by the commission. If a hearing is 26 requested or ordered, the commission, after notice of and 27 opportunity for hearing, may modify or vacate the order or 28 extend it until final determination. 29 (e) If the commission finds that any registrant or applicant 30 is no longer in existence or has ceased to do business as a 19720H1970B2861 - 52 -
1 broker-dealer, agent or investment adviser, or is subject to an 2 adjudication of mental incompetence or to the control of a 3 committee, conservator or guardian, or cannot be located after 4 reasonable search, the commission may by order revoke the 5 registration or deny the application. 6 (f) Withdrawal from the status of a registered broker- 7 dealer, agent or investment adviser becomes effective thirty <-- 8 days ON THE THIRTIETH DAY after receipt of an application to <-- 9 withdraw, or within such shorter period as the commission 10 determines, unless a revocation or suspension proceeding is 11 pending before the commission when the application is filed or a 12 proceeding to revoke or suspend or to impose conditions upon the 13 withdrawal is instituted before the commission within thirty 14 days after the application is filed. If a proceeding is SO <-- 15 pending or instituted, withdrawal becomes effective at such time 16 and upon such conditions as the commission by order determines. 17 If no proceeding is SO pending or instituted and withdrawal <-- 18 automatically becomes effective, the commission may institute a 19 revocation or suspension proceeding under subsection (a) (ii) 20 within one year after withdrawal became effective and enter a 21 revocation or suspension order as of the last date on which the 22 registration was in effect. 23 (g) No order may be entered under this section except under 24 subsection (d) without appropriate prior notice to the applicant 25 or registrant as well as the employer or prospective employer if 26 the applicant or registrant is an agent, opportunity for hearing 27 and written findings of fact and conclusions of law. In cases of 28 denial orders, such findings and conclusions shall be provided 29 only if requested by the applicant. 30 Section 306. Prohibited Employment.--(a) It is unlawful for 19720H1970B2861 - 53 -
1 any person, as to whom an order suspending or revoking his 2 registration is in effect, willfully to become or to be employed 3 in any capacity by any broker-dealer or investment adviser or in 4 the position of agent for an issuer without the consent of the 5 commission; and it is unlawful for any broker-dealer, investment 6 adviser or issuer (when such employment is in connection with a <-- 7 security or transaction not exempted under section 202 or 203) 8 to permit such a person to become or to remain a person employed 9 by him without the consent of the commission if such broker- 10 dealer, investment adviser or issuer knew, or in the exercise of 11 reasonable care should have known, of such order. 12 (b) No issuer (except for a broker-dealer registered 13 hereunder) shall employ any person as an agent hereunder if such 14 ISSUER KNEW, OR IN THE EXERCISE OF REASONABLE CARE SHOULD HAVE <-- 15 KNOWN, THAT SUCH person has at any time within the twelve 16 previous months participated in this State as an agent, officer 17 or director of an ANOTHER issuer in the sale of securities of <-- 18 that issuer, which securities were registered under section 205 19 or 206. 20 PART IV 21 FRAUDULENT AND PROHIBITED PRACTICES 22 Section 401. Sales and Purchases.--It is unlawful for any 23 person, in connection with the offer, sale or purchase of any 24 security in this State, directly or indirectly: 25 (a) To employ any device, scheme or artifice to defraud; 26 (b) To make any untrue statement of a material fact or to 27 omit to state a material fact necessary in order to make the 28 statements made, in the light of the circumstances under which 29 they are made, not misleading; or 30 (c) To engage in any act, practice or course of business 19720H1970B2861 - 54 -
1 which operates or would operate as a fraud or deceit upon any
2 person.
3 Section 402. Market Manipulation.--It is unlawful for any
4 person, directly or indirectly, in this State:
5 (a) For the purpose of creating a false or misleading
6 appearance of active trading in a security or a false or
7 misleading appearance with respect to the market for a security:
8 (i) to effect any transaction in the security which involves
9 no change in the beneficial ownership thereof; or
10 (ii) to enter any order or orders for the purchase (or sale) <--
11 of the security with the knowledge that an order or orders of
12 substantially the same size, at substantially the same time, and
13 at substantially the same price for the sale (or purchase) of <--
14 the security, have been or will be entered by or for the same or
15 affiliated persons;
16 (b) To effect, alone or with one or more other persons, a
17 series of transactions in any security creating actual or
18 apparent active trading in the security or raising or depressing
19 the price of the security for the purpose of inducing the
20 purchase or sale of the security by others; or
21 (c) To induce the purchase or sale of any security by the
22 circulation or dissemination of information to the effect that
23 the price of the security will or is likely to rise or fall
24 because of market operations of any one or more persons
25 conducted for the purpose of raising or depressing the price of
26 the security, if he is selling or offering to sell or purchasing
27 or offering to purchase the security or is receiving a
28 consideration, directly or indirectly, from any such person.
29 Section 403. Prohibited Transactions; Broker-dealers and
30 Agents.--(a) No broker-dealer or agent shall effect any <--
19720H1970B2861 - 55 -
1 transaction in, or induce or attempt to induce the purchase or 2 sale of, any security in this State by means of any 3 manipulative, deceptive or other fraudulent scheme, device, or 4 contrivance. The commission may, by rule, define such schemes, <-- 5 devices or contrivances as are manipulative, deceptive, or 6 otherwise fraudulent. 7 (b) No broker-dealer or agent shall effect any transaction 8 in, or induce or attempt to induce the purchase or sale of any 9 security in this State in connection with which such broker- 10 dealer or agent engages in any fraudulent, deceptive or 11 manipulative act or practice or makes any fictitious quotation. 12 The commission may, by rule, define and prescribe means 13 reasonably designed to prevent such acts and practices as are 14 fraudulent, deceptive, or manipulative and such quotations as 15 are fictitious. 16 (c) No broker-dealer or agent shall effect any transaction 17 in, or induce or attempt to induce the purchase or sale of, any 18 security in this State in contravention of such rules as the 19 commission may prescribe as necessary or appropriate in the 20 public interest or for the protection of investors to provide 21 safeguards with respect to the financial responsibility of 22 broker-dealers. 23 (d) No broker-dealer or agent shall effect or attempt to 24 effect in this State, in contravention of such rules as the 25 commission may prescribe as necessary or appropriate in the 26 public interest or for the protection of investors, (i) any 27 transaction in connection with any security whereby any party to 28 such transaction acquires any put, call, straddle, or other 29 option or privilege of buying or selling the security, or (ii) 30 any transaction in connection with any security with relation to 19720H1970B2861 - 56 -
1 which he has, directly or indirectly, any interest in any such 2 put, call, straddle, option, or privilege, or (iii) any 3 transaction in any security for the account of any person who he 4 has reason to believe has, and who actually has, directly or 5 indirectly, any interest in any such put, call, straddle, 6 option, or privilege with relation to such security. 7 (e) No broker-dealer registered under this act shall effect 8 any transaction in or induce or attempt to induce the purchase 9 or sale of any security in this State in contravention of such 10 rules as the commission may prescribe designed to promote just 11 and equitable principles of trade, to provide safeguards against 12 unreasonable profits or unreasonable rates of commissions or 13 other charges, and in general to protect investors and the 14 public interest, and to remove impediments to and protect the 15 mechanism of a free and open market. CONTRIVANCE, FICTITIOUS <-- 16 QUOTATION, OR IN VIOLATION OF THIS ACT OR ANY REGULATION OR 17 ORDER HEREUNDER. 18 Section 404. Prohibited Activities; Investment Advisers.--It 19 is unlawful for any investment adviser, directly or indirectly, 20 in this State: 21 (a) To employ any device, scheme, or artifice to defraud any 22 client or prospective client. 23 (b) To engage in any transaction, practice, or course of 24 business which operates or would operate as a fraud or deceit <-- 25 upon any client or prospective client. 26 (c) Acting as principal for his own account, knowingly to 27 sell any security to or purchase any security from a client for 28 whom he is acting as investment adviser, or, acting as broker 29 for a person other than such client, knowingly to effect any 30 sale or purchase of any security for the account of such client, 19720H1970B2861 - 57 -
1 without disclosing to such client in writing before the 2 completion of the transaction the capacity in which he is acting 3 and obtaining the written consent of the client to such 4 transaction. 5 (d) To engage in any act, practice, or course of business 6 which is fraudulent, deceptive, or manipulative. The commission <-- 7 may, by rule, define and prescribe means reasonably designed to 8 prevent such acts, practices, and courses of business as are 9 fraudulent, deceptive, or manipulative. 10 (e) To represent that he is an investment counsel or to use 11 the name "investment counsel" as descriptive of his business 12 unless his principal business consists of acting as investment 13 adviser and a substantial part of his business consists of 14 rendering investment advisory services on the basis of the 15 individual needs of his clients. 16 (f) To UNLESS AN ADVISOR IS REGISTERED AS A BROKER-DEALER <-- 17 UNDER THIS ACT, TO take and have custody of any securities or 18 funds of any client if he fails to meet such requirements 19 therefor as may be prescribed by the commission by rule <-- 20 REGULATION. <-- 21 Section 405. Contract Requirements.--(a) No investment <-- 22 adviser shall in this State enter into, extend or renew any 23 investment advisory contract entered into, extended or renewed 24 on or after the effective date of this act, if such contract: 25 (i) Provides for compensation to the investment adviser on 26 the basis of a share of capital gains upon or capital 27 appreciation of the funds or any portion of the funds of the 28 client, except (A) where the investment adviser has not 29 registered and is not required to register under this act, (B) 30 where such contract is for the rendering of investment advisory 19720H1970B2861 - 58 -
1 services to an institutional investor, and (C) as may be 2 otherwise permitted by rule of the commission; 3 (ii) Fails to provide, in writing, that no assignment of 4 such contract shall be made by the investment adviser without 5 the consent of the other party to the contract; or 6 (iii) Fails to provide, in writing, that the investment 7 adviser, if a partnership, will notify the other party to the 8 contract of any change in the membership of such partnership 9 within a reasonable time after such change. 10 (b) As used in this section, "investment advisory contract" 11 means any contract or agreement whereby a person agrees to act 12 as investment adviser or to manage any investment or trading 13 account for a person other than an investment company. Clause 14 (i) of subsection (a) does not prohibit an investment advisory 15 contract which provides for compensation based upon the total 16 value of a fund averaged over a definite period, or as of 17 definite dates, or taken as of a definite date. "Assignment," as 18 used in clause (ii) of subsection (a), includes any direct or 19 indirect transfer or hypothecation of an investment advisory 20 contract by the assignor or of a controlling block of the 21 assignor's outstanding voting securities by a security holder of 22 the assignor; but if the investment adviser is a partnership, no 23 assignment of an investment advisory contract is considered to 24 result from the death or withdrawal of a minority of the members 25 of the investment adviser having only a minority interest in the 26 business of the investment adviser, or from the admission to the 27 investment adviser of one or more members who, after admission, 28 will be only a minority of the members and will have only a 29 minority interest in the business. 30 SECTION 405. CONTRACT REQUIREMENTS.--IT IS UNLAWFUL FOR ANY <-- 19720H1970B2861 - 59 -
1 INVESTMENT ADVISER TO ENTER INTO, EXTEND, OR RENEW ANY 2 INVESTMENT ADVISORY CONTRACT UNLESS IT PROVIDES IN WRITING: 3 (1) THAT THE INVESTMENT ADVISER SHALL NOT BE COMPENSATED ON 4 THE BASIS OF A SHARE OF CAPITAL GAINS UPON OR CAPITAL 5 APPRECIATION OF THE FUNDS OR ANY PORTION OF THE FUNDS OF THE 6 CLIENT; 7 (2) THAT NO ASSIGNMENT OF THE CONTRACT MAY BE MADE BY THE 8 INVESTMENT ADVISER WITHOUT THE CONSENT OF THE OTHER PARTY TO THE 9 CONTRACT; AND 10 (3) THAT THE INVESTMENT ADVISER, IF A PARTNERSHIP, SHALL 11 NOTIFY THE OTHER PARTY TO THE CONTRACT OF ANY CHANGE IN THE 12 MEMBERSHIP OF THE PARTNERSHIP WITHIN A REASONABLE TIME AFTER THE 13 CHANGE. 14 CLAUSE (1) DOES NOT PROHIBIT AN INVESTMENT ADVISORY CONTRACT 15 WHICH PROVIDES FOR COMPENSATION BASED UPON THE TOTAL VALUE OF A 16 FUND AVERAGED OVER A DEFINITE PERIOD, OR AS OF DEFINITE DATES OR 17 TAKEN AS OF A DEFINITE DATE, OR IN ANY OTHER MANNER PERMITTED BY 18 THE INVESTMENT ADVISERS ACT OF 1940, AND THE RULES AND 19 REGULATIONS PROMULGATED THEREUNDER OR ANY CONTRACT FOR THE 20 RENDERING OF INVESTMENT ADVISORY SERVICES TO AN INSTITUTIONAL 21 INVESTOR. "ASSIGNMENT," AS USED IN CLAUSE (2), INCLUDES ANY 22 DIRECT OR INDIRECT TRANSFER OR HYPOTHECATION OF AN INVESTMENT 23 ADVISORY CONTRACT BY THE ASSIGNOR OR OF A CONTROLLING BLOCK OF 24 THE ASSIGNOR'S OUTSTANDING VOTING SECURITIES BY A SECURITY 25 HOLDER OF THE ASSIGNOR; BUT, IF THE INVESTMENT ADVISOR IS A 26 PARTNERSHIP, NO ASSIGNMENT OF AN INVESTMENT ADVISORY CONTRACT IS 27 CONSIDERED TO RESULT FROM THE DEATH OR WITHDRAWAL OF A MINORITY 28 OF THE MEMBERS OF THE INVESTMENT ADVISER HAVING ONLY A MINORITY 29 INTEREST IN THE BUSINESS OF THE INVESTMENT ADVISER, OR FROM THE 30 ADMISSION TO THE INVESTMENT ADVISER OF ONE OR MORE MEMBERS WHO, 19720H1970B2861 - 60 -
1 AFTER ADMISSION, WILL BE ONLY A MINORITY OF THE MEMBERS AND WILL 2 HAVE ONLY A MINORITY INTEREST IN THE BUSINESS. 3 Section 406. Inside Information.--It is unlawful for an 4 issuer or any person who is an officer, director, or affiliate 5 of an issuer or any other person whose relationship to the 6 issuer gives him access, directly or indirectly, to material 7 information about the issuer not generally available to the 8 public, to purchase or sell any security of the issuer in this 9 State at a time when he knows material information about the 10 issuer gained from such relationship, which information (a) 11 would significantly affect the market price of that security; 12 (b) is not generally available to the public; and (c) he knows 13 is not intended to be so available, unless he has reason to 14 believe that the person selling to or buying from him is also in 15 possession of the information. 16 Section 407. Misleading Filings; Misrepresentations of 17 Commission Approval.--(a) It is unlawful for any person to make 18 or cause to be made, in any document filed with the commission 19 or in any proceeding under this act, any statement which is, at 20 the time and in the light of the circumstances under which it is 21 made, false or misleading in any material respect or, in 22 connection with such statement, to omit to state a material fact 23 necessary in order to make the statements made, in the light of 24 the circumstances under which they are made, not misleading. 25 (b) It is unlawful for any person registered as a broker- 26 dealer, agent or investment adviser under this act to represent 27 or imply in any manner whatsoever that such person has been 28 sponsored, recommended, or approved or that his abilities or 29 qualifications have in any respect been passed upon by the 30 commission. Nothing in this section prohibits a statement (other 19720H1970B2861 - 61 -
1 than in a paid advertisement) that a person is registered under
2 this act, if such statement is true in fact and if the effect of
3 such registration is not misrepresented.
4 (c) (i) Neither the fact that an application for
5 registration of securities under this act has been filed nor the
6 fact that such application becomes effective constitutes a
7 finding by the commission that any document filed under this act
8 is true, complete or not misleading. Neither any such fact nor
9 the fact that an exemption is available for a security or a
10 transaction means that the commission has passed upon the merits
11 or qualifications of, or recommended or given approval to any
12 person, security or transaction.
13 (ii) It is unlawful to make, or cause to be made, to any
14 prospective purchaser or any other person, any representation
15 inconsistent with clause (i) of this subsection.
16 PART V
17 ENFORCEMENT
18 Section 501. Civil Liabilities.--(a) Any person who: (i)
19 offers or sells a security in violation of section 301 or 407
20 (c) or any rule REGULATION relating thereto, or any order under <--
21 this act of which he has notice; or (ii) offers or sells a
22 security in violation of sections 401, 403, 404 or otherwise by
23 means of any untrue statement of a material fact or any omission
24 to state a material fact necessary in order to make the
25 statements made, in the light of the circumstances under which
26 they are made, not misleading, the purchaser not knowing of the
27 untruth or omission, and who does not sustain the burden of
28 proof that he did not know and in the exercise of reasonable
29 care could not have known of the untruth or omission, shall be
30 liable to the person purchasing the security from him, who may
19720H1970B2861 - 62 -
1 sue either at law or in equity to recover the consideration paid 2 for the security, together with interest at the legal rate from 3 the date of payment, less the amount of any income OR <-- 4 DISTRIBUTIONS, IN CASH OR IN KIND, received on the security, 5 upon the tender of the security, or for damages if he no longer 6 owns the security. Damages are the amount that would be 7 recoverable upon a tender less the value of the security when 8 the purchaser disposed of it, plus interest at the legal rate 9 from the date of disposition. Tender shall require only notice 10 of willingness to exchange the security for the amount 11 specified. Any notice may be given by service as in civil 12 actions or by certified mail addressed to the last known address 13 of the person liable. 14 (b) Any person who purchases a security in violation of 15 sections 401, 403, 404 or otherwise by means of any untrue 16 statement of a material fact or any omission to state a material 17 fact necessary in order to make the statements made, in light of 18 the circumstances under which they are made, not misleading, 19 shall be liable to the person selling the security to him, who 20 may sue either at law or in equity to recover the security, plus 21 any income OR DISTRIBUTIONS, IN CASH OR IN KIND, received by the <-- 22 purchaser thereon, upon tender of the consideration received, or 23 for damages if the purchaser no longer owns the security. 24 Damages are the excess of the value of the security when the 25 purchaser disposed of it, plus interest at the legal rate from 26 the date of disposition, over the consideration paid for the 27 security. Tender requires only notice of willingness to pay the 28 amount specified in exchange for the security. Any notice may be 29 given by service as in civil actions or by certified mail to the 30 last known address of the person liable. 19720H1970B2861 - 63 -
1 (c) Any person who wilfully participates in any act or
2 transaction in violation of section 402 shall be liable to any
3 other person who purchases or sells any security at a price
4 which was affected by the act or transaction for the damages
5 sustained as a result of such act or transaction. Damages shall
6 be the difference between the price at which the other person
7 purchased or sold securities and the market value which the
8 securities would have had at the time of his purchase or sale in
9 the absence of the act or transaction, plus interest at the
10 legal rate.
11 (d) Any investment adviser who violates section 405 shall be
12 liable to the other party to the investment advisory contract
13 for all fees paid under such contract to the investment adviser,
14 less any profits earned by such party through transactions
15 effected as a result of advice given under the contract, plus
16 interest at the legal rate. In addition, either party may, at
17 any time, avoid the terms of the contract. DECLARE THE CONTRACT <--
18 NULL AND VOID AS OF THE DATE OF SUCH DECLARATION.
19 (e) Any person who violates section 406 shall be liable to
20 the person who purchases a security from him or sells a security
21 to him IN VIOLATION OR SECTION 406, for damages equal to the <--
22 difference between the price at which such security was
23 purchased or sold and the market value which such security would
24 have had at the time of the purchase or sale if the information
25 known to the defendant had been publicly disseminated prior to
26 that time and a reasonable time had elapsed for the market to
27 absorb the information, plus interest at the legal rate, unless
28 the defendant proves that the plaintiff knew the information or
29 that the plaintiff would have purchased or sold at the same
30 price even if the information had been revealed to him.
19720H1970B2861 - 64 -
1 Section 502. Violation of Registration Requirements.--Any 2 person who violates section 201 or any MATERIAL condition <-- 3 imposed under section 206 or 207 shall be liable to the person 4 purchasing the security OFFERED OR SOLD IN VIOLATION OF SECTION <-- 5 201 from him who may sue at law or in equity to recover the 6 consideration paid for the security, together with interest at 7 the legal rate from the date of payment, less the amount of any 8 income OR DISTRIBUTIONS, IN CASH OR IN KIND, received on the <-- 9 security, upon the tender of the security, or for damages if he 10 no longer owns the security. Damages shall be the amount that 11 would be recoverable upon a tender less the value of the 12 security when the purchaser disposed of it and interest at the 13 legal rate from the date of disposition. Any person on whose 14 behalf an offering is made and any underwriter of the offering, 15 whether on a best efforts or a firm commitment basis, shall be 16 jointly and severally liable under this section, but in no event 17 shall any underwriter (unless such underwriter shall have <-- 18 knowingly received from the issuer for acting as an underwriter 19 some benefit, directly or indirectly, in which all other 20 underwriters similarly situated did not share in proportion to 21 their respective interest in the underwriting) be liable in any 22 suit or suits authorized under this section for damages in 23 excess of the total price at which the securities underwritten 24 by him and distributed to the public were offered to the public. 25 Tender requires only notice of willingness to exchange the 26 security for the amount specified. Any notice may be given by 27 service as in civil actions or by certified mail addressed to 28 the last known address of the person liable. No person shall be 29 liable under this section if the sale of the security is 30 registered prior to the payment or receipt of any part of the 19720H1970B2861 - 65 -
1 consideration for the security sold, even though an offer to 2 sell or a contract of sale may have been made or entered into 3 without registration. 4 Section 503. Joint and Several Liability; Contribution; 5 Corporation's Right of Indemnification.--(a) Every affiliate of 6 a person liable under section 501 or 502, every partner, 7 principal executive officer or director of such person, every 8 person occupying a similar status or performing similar 9 functions, every employe of such person who materially aids in 10 the act or transaction constituting the violation, and every 11 broker-dealer or agent who materially aids in the act or 12 transaction constituting the violation, are also liable jointly 13 and severally with and to the same extent as such person, unless 14 the person liable hereunder proves that he did not know, and in 15 the exercise of reasonable care could not have known, of the 16 existence of the facts by reason of which the liability is 17 alleged to exist. There is contribution as in cases of contract <-- 18 among the several persons so liable. 19 (b) A corporation which is liable under this act shall have 20 a right of indemnification against any of its affiliates whose 21 wilful violation of any provision of this act gave rise to such 22 liability. All persons CIVILLY liable under this act shall have <-- 23 a right of contribution against all other persons similarly 24 liable, based upon each person's proportionate share of the 25 total liability, except that no person whose wilful violation of 26 any provision of this act has given rise to any CIVIL liability <-- 27 shall have any right of contribution against any other person 28 guilty merely of a negligent violation. and except that no <-- 29 affiliate whose wilful violation has given rise to any liability 30 shall have any right of contribution against the corporation to 19720H1970B2861 - 66 -
1 which he sustains that relationship. 2 Section 504. Time Limitations on Rights of Action.--(a) No 3 action shall be maintained to enforce any liability created 4 under section 501 (or section 503 in so far as it relates to 5 that section) unless brought before the expiration of six THREE <-- 6 years after the act or transaction constituting the violation or 7 the expiration of one year after the plaintiff receives actual 8 notice or upon the exercise of reasonable diligence should have 9 known of the facts constituting the violation, and of the <-- 10 remedies provided for herein, whichever shall first expire. 11 (b) No action shall be maintained to enforce any liability 12 created under section 502 (or section 503 in so far as it 13 relates to that section) unless brought before the expiration of 14 two years after the violation upon which it is based or the 15 expiration of one year after the plaintiff receives actual 16 notice or upon the exercise of reasonable diligence should have 17 known of the facts constituting such violation, and of the <-- 18 remedies provided for herein, whichever shall first expire. 19 (c) No action shall be maintained to enforce any right of 20 indemnification or contribution created by section 504 503 <-- 21 unless brought before the expiration of one year after final 22 judgment based upon the liability for which the right of 23 indemnification or contribution exists. 24 (d) No purchaser may commence an action under section 501, 25 502 or 503 if, before suit is commenced, the purchaser has 26 received a written offer: (i) stating the respect in which 27 liability under such section may have arisen and fairly advising 28 the purchaser of his rights; offering to repurchase the security 29 for cash, payable on delivery of the security, equal to the 30 consideration paid, together with interest at the legal rate 19720H1970B2861 - 67 -
1 from the date of payment, less the amount of any income OR <-- 2 DISTRIBUTIONS, IN CASH OR IN KIND, received thereon or, if the 3 purchaser no longer owns the security, offering to pay the 4 purchaser upon acceptance of the offer an amount in cash equal 5 to the damages computed in accordance with section 501 (a); and 6 (ii) stating that the offer may be accepted by the purchaser at 7 any time within a specified period of not less than thirty days 8 after the date of receipt thereof, or such shorter period as the 9 commission may by rule prescribe; and the purchaser has failed 10 to accept such offer in writing within the specified period. 11 (e) No seller may commence an action under section 501, 502 12 or 503 if, before suit is commenced, the seller has received a 13 written offer: (i) stating the respect in which liability under 14 such section may have arisen and fairly advising the seller of 15 his rights; (ii) offering to return the security plus the amount 16 of any income OR DISTRIBUTIONS, IN CASH OR IN KIND, received <-- 17 thereon upon payment of the consideration received, or, if the 18 purchaser no longer owns the security, offering to pay the 19 seller upon acceptance of the offer an amount in cash equal to 20 the damages computed in accordance with section 501 (b); and 21 (iii) providing that the offer may be accepted by the seller at 22 any time within a specified period of not less than thirty days 23 after the date of receipt thereof; OR SUCH SHORTER PERIOD AS THE <-- 24 COMMISSION MAY BY REGULATION PRESCRIBE and the seller has failed 25 to accept the offer in writing within the specified period. 26 (f) Offers UNDER SUBSECTION (D) OR (E) OF THIS SECTION 504 <-- 27 shall be in the form and contain the information the commission 28 by rule prescribes. Every offer under this subsection shall be 29 delivered to the offeree personally or sent by certified mail 30 addressed to him at his last known address. If an offer is not 19720H1970B2861 - 68 -
1 performed in accordance with its terms, suit by the offeree 2 under section 501, 502 or 503, shall be permitted without regard 3 to SUBSECTIONS (D) AND (E) OF this section 504. <-- 4 Section 505. Death of Plaintiff or Defendant.--Every cause 5 of action under this act survives the death of any person who 6 might have been a plaintiff or defendant. 7 Section 506. Limitation of Liability.--Except as explicitly 8 provided in this act, no civil liability in favor of any private 9 party shall arise against any person by implication from or as a 10 result of the violation of any provision of this act or any rule 11 or order hereunder. Nothing in this act shall limit any 12 liability which might exist by virtue of any other statute or 13 under common law if this act were not in effect. 14 Section 507. No Waiver of Right of Action.--Any condition, 15 stipulation or provision binding any person acquiring any 16 security to waive compliance with any provision of this act or 17 any rule or order hereunder is void. 18 Section 508. Limitation on Plaintiffs.--No person may base 19 any suit on any contract in violation of this act or any rule or 20 order hereunder if he has made or engaged in the performance of 21 such contract or has acquired any purported right under any such 22 contract with knowledge of the facts by reason of which its 23 making or performance was in violation. 24 Section 509. Right of Commission to Bring Action; Class 25 Actions.--(a) Whenever it appears to the commission that any 26 person has engaged or is about to engage in any act or practice 27 constituting a violation of any provision of this act or any 28 rule or order hereunder, it may in its discretion bring an 29 action in the name of the people of the Commonwealth of 30 Pennsylvania in the Commonwealth Court or in any of the several 19720H1970B2861 - 69 -
1 courts of common pleas of Pennsylvania to enjoin the acts or 2 practices or to enforce compliance with this act or any rule or 3 order hereunder. Upon a proper showing, a permanent or 4 preliminary injunction, restraining order, or writ of mandate <-- 5 MANDAMUS shall be granted, and a receiver or conservator may be <-- 6 appointed for the defendant or the defendant's assets. The court 7 may not require the commission to post a bond. 8 (b) The commission may, with the approval of the Attorney 9 General, include in any action authorized by subsection (a) a 10 claim for restitution or damages under section 501, 502 or 503 11 on behalf of the persons injured by the act or practice 12 constituting the subject matter of the action, and the court 13 shall have jurisdiction to award appropriate relief to such 14 persons, if the court finds that enforcement of the rights of 15 such persons by private civil action, whether by class action or 16 otherwise, would be so burdensome or expensive as to be 17 impractical. 18 Section 510. Investigations and Subpoenas.--(a) The 19 commission in its discretion: 20 (i) May make such public or private investigations within or 21 without this State as it deems necessary to determine whether 22 any person has violated or is about to violate this act or any 23 rule or order hereunder, or to aid in the enforcement of this 24 act or in the prescribing of rules and forms hereunder; 25 (ii) May, for a reasonable time not exceeding thirty days, 26 take possession of the books, records, accounts and other papers 27 pertaining to the business of any broker-dealer or investment 28 adviser or pertaining to the activities of any issuer in 29 connection with any security or transaction, TRANSACTION IN A <-- 30 SECURITY, whether or not exempted under section 202 or 203 and 19720H1970B2861 - 70 -
1 the use of any proceeds obtained therefrom, and place a keeper 2 in exclusive charge of them in the place where they are usually 3 kept. During such possession no person shall remove or attempt 4 to remove any of the books, records, accounts, or other papers 5 except pursuant to a court order or with the consent of the 6 commission; but the directors, officers, partners, and employes 7 of the broker-dealer, investment adviser or issuer may examine 8 them, and employes shall be permitted to make entries therein 9 reflecting current transactions. 10 (iii) May require or permit any person to file a statement 11 in writing, under oath or otherwise as the commission 12 determines, as to all the facts and circumstances concerning the 13 matter being investigated; 14 (iv) May publish information concerning any violation of 15 this act or any rule or order hereunder or concerning 16 securities, or practices in the sale thereof, which appear or 17 tend to be unfair, inequitable or fraudulent, but only where it 18 deems such publication to be in the public interest and for the 19 protection of investors; and 20 (v) May hold hearings, upon reasonable notice, in respect of 21 any matters arising out of the administration of this act. 22 (b) For the purpose of any investigation, hearing or 23 proceeding under this act, the commission or any officer 24 designated by it may administer oaths and affirmations, subpoena 25 witnesses, compel their attendance, take evidence and require 26 the production of any books, papers, correspondence, memoranda, 27 agreements or other documents or records which the commission 28 deems relevant or material to the inquiry. 29 (c) In case of contumacy by, or refusal to obey a subpoena 30 issued to, any person, the Commonwealth Court or any of the 19720H1970B2861 - 71 -
1 several courts of common pleas of Pennsylvania, upon application 2 by the commission, may issue to the person an order requiring 3 him to appear before the commission, or the officer designated 4 by it, there to produce documentary evidence, if so ordered, or 5 to give evidence touching the matter under investigation or in 6 question. Failure to obey the order of the court may be punished 7 by the court as a contempt. 8 (d) (i) If, in a proceeding before the commission, any 9 person shall refuse to testify or to produce evidence of any 10 other kind on the ground that his testimony or evidence may tend 11 to incriminate him, that person may be ordered to give such 12 testimony. The order to testify shall not be given except upon 13 an order of court after a hearing in which the Attorney General 14 has established a need for the grant of immunity, as hereinafter 15 provided; 16 (ii) The Attorney General may petition the Commonwealth 17 Court or the court of common pleas of the county in which such 18 person resides (if he is a resident of this State) for an order 19 requiring any person to testify or produce evidence, which 20 petition may be joined in by the district attorney of such 21 county. Such petition shall set forth the nature of the 22 investigation and the need for the immunization of the witness; 23 (iii) No such witness shall be prosecuted or subjected to 24 any penalty or forfeiture, nor shall there be any liability on 25 the part of and no cause of action of any nature shall arise 26 against, any such witness for or on account of any transaction, 27 matter or thing concerning which he is compelled, after having 28 claimed his privilege against self-incrimination, to testify or 29 produce evidence, nor shall testimony so compelled be used as 30 evidence in any criminal proceeding against him in any court; 19720H1970B2861 - 72 -
1 (iv) No person so ordered to testify or to produce evidence, 2 shall be exempt from any punishment or forfeiture for perjury 3 committed by him while so testifying. Such testimony shall be 4 admissible against him in any criminal action or other 5 proceeding concerning such perjury; 6 (v) Any person who shall refuse or decline to testify or 7 produce evidence of any other kind after being granted immunity 8 and ordered by the court shall be guilty of criminal contempt 9 and, upon conviction thereof, shall be sentenced to pay a fine 10 of not exceeding one thousand dollars ($1,000), or to undergo 11 imprisonment for a period not exceeding one year, or both. 12 Section 511. Criminal Penalties.--(a) Any person who <-- 13 wilfully violates any MATERIAL provision of this act, except <-- 14 section 407 (a), or any rule under this act, or any order of 15 which he has notice, or who violates section 407 (a) knowing or <-- 16 having reasonable cause to believe that the statement made was 17 false or misleading in any material respect, may be fined not 18 more than five thousand dollars ($5,000) or imprisoned not more 19 than five years, or both. Each of the acts specified shall 20 constitute a separate offense and a prosecution or conviction 21 for any one of such offenses shall not bar prosecution or 22 conviction for any other offense. No indictment or information 23 may be returned under this act more than six FIVE years after <-- 24 the alleged violation. 25 (b) Any person who wilfully employs, directly or indirectly, <-- 26 any device, scheme, or artifice to defraud in connection with 27 the offer, purchase, or sale of any security or wilfully 28 engages, directly or indirectly, in any act, practice, or course 29 of business which operates or would operate as a fraud or deceit 30 upon any person in connection with the offer, purchase, or sale 19720H1970B2861 - 73 -
1 of any security shall upon conviction be fined not more than 2 five thousand dollars ($5,000), or imprisoned for not more than 3 five years, or both. 4 PART VI 5 ADMINISTRATION 6 Section 601. Administration.--(a) This act shall be 7 administered by the commission, which shall consist of three 8 commissioners appointed by the Governor with the advice and 9 consent of the Senate. The commissioners shall hold office at 10 the pleasure of the Governor and until their successors are duly 11 appointed and qualified. A quorum of the commission shall be a 12 majority of the commissioners then serving. Any action taken at 13 a meeting at which a quorum of the commission is present shall 14 be the lawful act of the commission for all purposes. 15 (b) The commission shall also employ a secretary, who shall 16 certify to all actions of the commission and shall make and keep 17 all files and records of proceedings before it. 18 (c) It is unlawful for the commission or any of its officers 19 or employes to use for personal benefit any information which is 20 filed with or obtained by the commission and which is not 21 generally available to the public. Nothing in this act 22 authorizes the commission or any of its officers or employes to 23 disclose any SUCH confidential information except among <-- 24 themselves or to other securities administrators, regulatory 25 authorities or governmental agencies, or when necessary or 26 appropriate in a proceeding or investigation under this act or 27 any other law of this State. No provision of this act either 28 creates or derogates from any privilege which exists at common 29 law or otherwise when documentary or other evidence is sought 30 under a subpoena directed to the commission or any of its 19720H1970B2861 - 74 -
1 officers or employes. 2 (d) The principal office of the commission shall be in 3 Harrisburg. It shall establish and maintain offices in such 4 other towns or cities throughout the State as it may, from time 5 to time, determine. 6 (e) The commission shall adopt a seal bearing the 7 inscription: "Pennsylvania Securities Commission." The seal 8 shall be affixed to or imprinted on all orders or certificates 9 issued by it and such other instruments as the commission 10 directs. All courts shall take judicial notice of the seal. 11 Section 602. Fees.--(a) The commission shall charge and 12 collect the fees fixed in this section and remit them to the 13 General Fund. 14 (b) There shall be a minimum filing fee of one hundred <-- 15 dollars ($100) for every registration statement filed under 16 section 205 or 206 and for every exemption under section 203 17 (i). There shall be an additional fee of one-tenth of one per 18 cent of the maximum aggregate offering price at which such 19 securities are to be offered in this State, and the maximum 20 filing fee shall in no case be more than one thousand dollars 21 ($1,000). A fee of fifty dollars ($50) shall be charged for 22 filing a post-effective amendment other than a price amendment 23 under section 205 (d) to an application to register securities 24 or to an application for exemption under section 203 (i). In 25 addition, there shall be paid any fee which would have been 26 required to be paid with the original application if the matters 27 stated in the amendment had been contained in the original 28 application. If the registration statement or exemption under 29 section 203 (i) relates to securities issued by an open-end or 30 closed-end investment company, face-amount certificate company 19720H1970B2861 - 75 -
1 or unit investment trust, as such terms are defined in the 2 Investment Company Act of 1940, the additional fee shall be one- 3 twentieth of one per cent of the maximum aggregate offering 4 price at which the securities are to be offered in this State, 5 and there shall be no maximum fee. When a registration statement 6 is withdrawn before the effective date or a pre-effective stop 7 order is entered under section 208, the minimum fee shall be 8 retained. 9 (B) THE FILING FEES FOR SALES OF SECURITIES UNDER THIS ACT <-- 10 SHALL BE AS FOLLOWS: 11 (1) ONE HUNDRED DOLLARS ($100) FOR EXEMPTION FILINGS UNDER 12 SECTION 203 (I), EXCEPT AS PROVIDED IN CLAUSE (4) BELOW; 13 (2) TWO HUNDRED FIFTY DOLLARS ($250) FOR EVERY REGISTRATION 14 STATEMENT FILED UNDER SECTION 205, EXCEPT AS PROVIDED IN CLAUSE 15 (4) BELOW; 16 (3) ONE HUNDRED DOLLARS ($100) PLUS ONE-TWENTIETH OF ONE PER 17 CENT OF THE MAXIMUM AGGREGATE OFFERING PRICE AT WHICH SUCH 18 SECURITIES ARE OFFERED IN THIS STATE FOR EVERY REGISTRATION 19 STATEMENT FILED UNDER SECTION 206, EXCEPT THAT THE MAXIMUM 20 FILING FEE SHALL BE ONE THOUSAND DOLLARS ($1,000); 21 (4) IN THE CASE OF AN OFFERING OF SECURITIES BY AN OPEN-END 22 OR CLOSED-END INVESTMENT COMPANY, FACE AMOUNT CERTIFICATE 23 COMPANY OR UNIT INVESTMENT TRUST, AS SUCH TERMS ARE DEFINED IN 24 THE INVESTMENT COMPANY ACT OF 1940, THE FILING FEE SHALL BE THE 25 SAME AS SPECIFIED IN CLAUSE (3) ABOVE; AND 26 (5) WHEN A REGISTRATION STATEMENT IS WITHDRAWN BEFORE THE 27 EFFECTIVE DATE OR A PRE-EFFECTIVE STOP ORDER IS ENTERED UNDER 28 SECTION 208, THE COMMISSION SHALL RETAIN ONE HUNDRED DOLLARS 29 ($100) FROM THE FILING FEE. 30 (c) The fee for filing an application for exemption from 19720H1970B2861 - 76 -
1 registration under section 203 (n) (O) (ii) shall be fifty <-- 2 dollars ($50). TWO HUNDRED FIFTY DOLLARS ($250). There shall be <-- 3 no filing fee for an application under section 203 (n) (O) (i). <-- 4 (d) Every applicant for an initial or renewal license under 5 section 301 shall pay a filing fee of two hundred fifty dollars 6 ($250) in the case of a broker-dealer, fifty dollars ($50) in 7 the case of an agent and two hundred dollars ($200) in the case 8 of an investment adviser. The term of an agent's registration 9 hereunder shall be concurrent with that of his employer, if a 10 broker-dealer. When an agent changes employers, there shall be a 11 ten dollar ($10) fee; no additional registration fee shall be 12 paid unless the term of registration of his new employer (if a 13 broker-dealer) expires after the term of his present 14 registration, in which case an additional fee, prorated to allow 15 for the time of expiration of his new employer's registration, 16 shall be paid. A broker-dealer maintaining any office within 17 this State shall pay an additional filing fee of eighty dollars 18 ($80) for each office. When an application is denied or 19 withdrawn or a registration revoked, the filing fee shall be 20 retained. 21 (e) The fee for the commission's acting as an escrow holder 22 for securities under section 207 is fifty dollars ($50). In <-- 23 addition, a fee of two dollars fifty cents ($2.50) shall be paid 24 for the deposit with the commission of each new certificate or 25 other document resulting from a transfer in escrow. 26 (f) For the purpose of determining the fees fixed in 27 subsection (b): 28 (i) The value of the securities shall be the price at which 29 the issuer or seller proposes to sell the securities, or the 30 value, as alleged in the application, or the actual value, as 19720H1970B2861 - 77 -
1 determined by the commission, of the consideration (if other 2 than money) to be received in exchange therefor, or of the 3 securities when sold, whichever is greater. 4 (ii) Interim or voting trust certificates shall have a value 5 equal to the aggregate value of the securities to be represented 6 by the interim or voting trust certificates. 7 (iii) The value of a warrant or right to purchase or 8 subscribe to another security of the same or another issuer 9 shall be an amount equal to the consideration to be paid for 10 such warrant or right plus an amount equal to the consideration 11 to be paid upon purchase of the additional securities, provided 12 that if such latter amount is not determinable at the time of 13 qualification, such amount shall be the then value of such 14 additional securities as determined by the commission. 15 (iv) The maximum aggregate offering price for securities of 16 companies registered under the Investment Company Act of 1940 17 shall be determined by multiplying the number of shares or 18 interests offered by the average between the high and low 19 "market price" for such securities on the fifteenth business day 20 prior to the effective date of registration (or the applicable 21 exemption) hereunder. The market prices shall be the amounts 22 quoted on the securities exchange or quotation service on which 23 such securities are listed. If the market prices for such 24 securities cannot be determined in accordance with the 25 foregoing, then the market price shall be the average of the 26 high "Bid" and low "Asked" prices for such securities on such 27 date, as quoted by any three market makers therefor or such 28 other persons as the commission may, by order, specify. If there 29 is no market for such securities, then the fee provided herein 30 shall be based on the initial offering price for such 19720H1970B2861 - 78 -
1 securities. 2 (g) SEVENTY-FIVE DOLLARS ($75). <-- 3 (F) The fee for any examination, audit, or investigation is 4 the actual amount of all salary costs and other compensation 5 paid to the persons making the examination, audit, or 6 investigation, plus the actual amount of expenses reasonably 7 incurred in the performance of the work. Such fee shall only be 8 payable by a registrant, applicant for registration, issuer or 9 other person in connection with an investigation by the 10 commission where it has reason to believe that such person has <-- 11 violated, or is about to violate, BEEN FOUND GUILTY OF A <-- 12 VIOLATION OF the provisions of this act. 13 (h) (G) The commission may fix by rule REGULATION a <-- 14 reasonable charge for any publication issued under its 15 authority. 16 (i) (H) The commission may fix by rule REGULATION reasonable <-- 17 charges for THE COST OF administering examinations required for <-- 18 registration under this act by section 301. 19 Section 603. Administrative Files.--(a) A document is filed 20 when it is received by the commission. 21 (b) The commission shall keep a register of all registrants 22 and registration statements which are or have ever been 23 effective under this act and predecessor laws and all denial, 24 suspension or revocation orders which have been entered under 25 this act and predecessor laws. The register shall be open for 26 public inspection except with respect to summary suspensions 27 under sections 208 (d) and 305 (d). 28 (c) The information contained in or filed with any 29 registration statement, application or report shall be made 30 available to the public in accordance with rules REGULATIONS <-- 19720H1970B2861 - 79 -
1 prescribed by the commission; provided that, upon proper showing 2 of the registrant or issuer, the commission may SHALL treat <-- 3 certain filings as confidential. The commission may publish any <-- 4 information filed with or obtained by it if, in the judgment of 5 the commission, such action is in the public interest. 6 (d) The commission upon request shall furnish to any person, 7 at a reasonable charge, photostatic or other copies, certified 8 under seal of the commission if certification is requested, of 9 any entry in the register or any order or other document on file <-- 10 in its office. MADE AVAILABLE TO THE PUBLIC UNDER SUBSECTION (C) <-- 11 ABOVE. 12 Section 604. Interpretive Opinions of Commission.--The 13 commission in its discretion may honor requests from interested 14 persons for interpretive opinions AND MAY MAKE SUCH OPINIONS <-- 15 AVAILABLE TO THE PUBLIC UNDER SECTION 603 (C). 16 Section 605. Commissioners and Commission Employes; 17 Relationship with Licensed Persons or Qualified Organizations.-- 18 (a) Neither the commissioners nor any employe, clerk or servant 19 of the commission, during their respective terms of employment, 20 shall be interested as a director, officer, shareholder, member, 21 partner, agent, or employe of any person who, during the period 22 of such official's or employe's association with the commission, 23 (i) was licensed or applied for license as a broker-dealer, 24 agent or investment adviser under this act, or (ii) applied for 25 or secured the registration of securities under this act. 26 (b) Nothing contained in subsection (a) shall prohibit the 27 holding or purchasing of any securities by any employe, clerk, 28 or servant in accordance with such rules REGULATIONS as the <-- 29 commission shall adopt for the purpose of protecting the public 30 interest and avoiding conflicts of interest with respect to such 19720H1970B2861 - 80 -
1 employes, clerks and servant. 2 (c) Nothing contained in subsection (a) shall prohibit the 3 holding or purchasing of any securities by any commissioner if; 4 either (i) the commissioner, together with his spouse, minor 5 children and parents or other relatives who are members of his 6 household, owns less than one-tenth of one per cent of any class 7 of outstanding securities of any issuer described in subsection 8 (a) (ii); or (ii) such security is held or purchased through a 9 management account or trust administered by a bank or trust 10 company authorized to do business in this State which has sole 11 investment discretion regarding the holding, purchase and sale 12 of securities, and (A) the commissioner did not, directly or 13 indirectly, advise, counsel, command or suggest the holding, 14 purchase or sale of any such security or furnish any information 15 relating to any such security to such bank or trust company, and 16 (B) such account or trust does not at any time have more than 17 ten per cent of its total assets invested in the securities of 18 any one issuer or hold more than five per cent of the 19 outstanding shares or units of any class of securities of any 20 one issuer. Each commissioner shall report to the Governor not 21 less often than quarterly all holdings, purchases, and sales of 22 securities by him as authorized in this subsection, which <-- 23 reports shall be retained by the Governor's office as public 24 documents. 25 Section 606. Miscellaneous Powers of Commission.--(a) The 26 commission may, by rule or order, REGULATION, require any issuer <-- 27 of securities registered under this act or exempted from 28 registration under section 203 (d), (p), or (r), WHICH ISSUER IS <-- 29 NOT A REPORTING COMPANY, to distribute specified financial <-- 30 information to its shareholders at least annually. 19720H1970B2861 - 81 -
1 (b) If the commission has reason to believe that any sale of <-- 2 an unregistered security is unfair, inequitable or fraudulent, 3 it may, by order, prohibit further sales of such security in 4 this State until it is registered under this act. 5 (c) (B) If in its opinion the public interest and the <-- 6 protection of investors, so require, the commission may , by <-- 7 order, summarily suspend APPLY TO A COURT OF COMPETENT <-- 8 JURISDICTION FOR AN ORDER, SUSPENDING all trading in this State 9 by broker-dealers and agents in any security for any period. 10 which it specifies. No broker-dealer or agent shall effect any <-- 11 transaction in, or induce or attempt to induce the purchase or 12 sale of, any security in this State in which trading is so 13 suspended, except in performance of a contract previously 14 entered into. At any time after the issuance of an order under 15 this subsection, any interested person may, in writing, request 16 that the suspension of trading be vacated. Upon the receipt of a 17 written request, the matter shall be set down for hearing with 18 fifteen days after such receipt. After the hearing, the 19 commission may order the suspension to be continued until 20 modified or vacated by further order if it finds that trading in 21 the security will be unfair or inequitable or will tend to work 22 a fraud upon the purchasers or sellers of the security. 23 Otherwise, it shall vacate the suspension of trading and no 24 further order may be entered under this subsection with respect 25 to the same security in the absence of changed circumstances 26 justifying an order. 27 (d) Every domestic corporation, business, trust, limited 28 partnership or other similar entity, and every such foreign 29 company licensed to do business in this State, shall, within 30 twenty days after receipt of written request from the 19720H1970B2861 - 82 -
1 commission, furnish it with a list of all or part of its 2 stockholders, partners or other holders of ownership interests 3 as the commission may request, showing the amount of stock or 4 other ownership interest held by each, which list shall be duly 5 verified by the president or secretary of the corporation, or 6 officer or managing agent of such entity, if not a corporation. 7 (e) (C) No person shall publish in this State any <-- 8 advertisement concerning any security (OTHER THAN TOMBSTONE <-- 9 ADVERTISEMENTS PERMITTED UNDER THE SECURITIES ACT OF 1933 AND 10 THE INVESTMENT COMPANY ACT OF 1940 AND THE RULES AND REGULATIONS 11 PROMULGATED THEREUNDER) except in accordance with such rules as 12 the commission may promulgate from time to time. No person shall 13 publish any advertisement concerning any security in this State 14 after the commission finds that the advertisement contains any 15 statement that is false or misleading or omits to make any 16 statement necessary in order to make the statements made, in the 17 light of the circumstances under which they are made, not 18 misleading and so notifies the person in writing. Such 19 notification may be given summarily without notice of OR <-- 20 hearing. At any time after the issuance of a notification under 21 this section, the person desiring to use the advertisement may 22 request in writing that the order be rescinded. Upon the receipt 23 of such a written request, the matter shall be set down for 24 hearing to commence within thirty days after such receipt unless 25 the person making the request consents to a later date. After 26 such hearing, the commission shall determine whether to affirm 27 and continue or to rescind such order. 28 (f) (D) The commission may, by rule, REGULATION, delegate <-- 29 any powers specified herein IN THIS ACT to be exercised by the <-- 30 commission to members of the commission's staff, except for 19720H1970B2861 - 83 -
1 powers related to hearings. 2 Section 607. Hearings and Judicial Review.--(a) Within 3 thirty days after any order has become effective without a 4 hearing, any interested party may apply to the commission for a 5 hearing in respect to any matters determined by the order, and a 6 hearing shall be held within thirty days after the application 7 is filed. After the hearing the commission may modify the order 8 as it deems appropriate. 9 (b) Within thirty days after any order has become effective 10 after a hearing, any interested party may apply to the 11 commission for a rehearing. The commission may grant and hold a 12 rehearing if in its judgment sufficient reasons therefor appear. 13 After rehearing, the commission may vacate or modify the order, 14 and any order vacating the original order shall have the same 15 effect as an original order. Failure to grant an application for 16 rehearing within thirty days from the date of the filing shall 17 constitute a denial; and failure, within fifteen days after the 18 conclusion of a rehearing, to issue an order affirming, vacating 19 or modifying the original order shall constitute an affirmation 20 of the original order. 21 (c) Disciplinary hearings and rehearings shall be public 22 unless the commission grants a request joined in by all parties 23 that the hearing be conducted privately. Investigatory hearings 24 shall not be open to members of the general public unless all 25 parties to the hearing agree otherwise. 26 (d) Orders of the commission shall be subject to judicial 27 review in accordance with law, but orders originally entered 28 without a hearing may be reviewed only if the party seeking 29 review has requested a hearing within the time provided by 30 subsection (a). 19720H1970B2861 - 84 -
1 Section 608. Injunction Procedure.--(a) No injunction shall 2 issue in any proceeding under this act suspending or staying any 3 order of the commission, except upon application to the 4 Commonwealth Court of Pennsylvania or the presiding judge 5 thereof, notice of which shall be given to the commission and 6 other parties to the proceeding, and except after an opportunity 7 for a hearing thereon. No injunction shall issue in any other 8 proceeding or action, in any court, which shall have the effect 9 of delaying or preventing any such order from becoming 10 effective, unless the parties to the proceeding before the 11 commission are also parties to the court proceeding or action 12 and except after notice and opportunity for a hearing. 13 (b) No injunction shall issue in any proceeding under 14 section 607 or in any other proceeding or action suspending or 15 staying any order of the commission or having the effect of 16 delaying or preventing any such order from becoming effective 17 unless an undertaking is entered into on the part of the 18 petitioner or plaintiff, with a surety and in the sum the court 19 or the presiding judge thereof directs or approves, to the 20 effect that the petitioner or plaintiff will pay all damages 21 which any party sustains by the suspension or stay of the order 22 or the delay or prevention of the order's becoming effective, 23 and to such other effect as the court or judge directs, and no 24 order or judgment in any proceeding or action shall be stayed on 25 appeal therefrom unless a like undertaking is entered into by 26 the petitioner or plaintiff. 27 Section 609. Rules, REGULATIONS, Forms and Orders.--(a) The <-- 28 commission may make, amend and rescind any rules, REGULATIONS, <-- 29 forms and orders that are necessary to carry out this act, 30 including rules REGULATIONS and forms governing registration <-- 19720H1970B2861 - 85 -
1 statements, applications and reports, and defining any terms, 2 whether or not used in this act, insofar as the definitions are 3 not inconsistent with this act. All rules REGULATIONS of the <-- 4 commission (other than those relating solely to its internal 5 administration) shall BE OF GENERAL APPLICATION AND FUTURE <-- 6 EFFECT AND SHALL be made, amended or rescinded in accordance 7 with the act of June 4, 1945 (P.L.1388), known as the 8 "Administrative Agency Law." LAW," AND THE ACT OF JULY 31, 1968 <-- 9 (P.L.240), KNOWN AS THE "COMMONWEALTH DOCUMENTS LAW," AND NO 10 REGULATION SHALL BE EFFECTIVE UNTIL A PUBLIC HEARING IS HELD 11 THEREON OR UNTIL THIRTY DAYS AFTER THE REGULATION IS PUBLISHED 12 PURSUANT TO SUCH "COMMONWEALTH DOCUMENTS LAW." For the purpose 13 of rules and forms, the commission may classify securities, 14 persons and matters within its jurisdiction, and prescribe 15 different requirements for different classes. The commission 16 may, in its discretion, waive any requirement of any rule <-- 17 REGULATION or form in situations where, in its opinion, such <-- 18 requirement is not necessary in the public interest or for the 19 protection of investors. 20 (b) No rule, REGULATION, form or order may be made, amended <-- 21 or rescinded unless the commission finds that the action is 22 necessary or appropriate in the public interest and for the 23 protection of investors AND CONSISTENT WITH THE PURPOSES FAIRLY <-- 24 INTENDED BY THE POLICY AND PROVISIONS OF THIS ACT. 25 (c) The commission may by rule or order prescribe the form <-- 26 and content of financial statements required under this act, the 27 circumstances under which consolidated financial statements 28 shall be filed, and whether any required financial statements 29 shall be certified by independent or certified public 30 accountants. All financial statements shall be prepared in 19720H1970B2861 - 86 -
1 accordance with generally accepted accounting principles 2 consistently applied, unless otherwise permitted by rule or 3 order. 4 (C) THE COMMISSION MAY BY REGULATION OR ORDER PRESCRIBE THE <-- 5 KIND, FORM AND CONTENT OF FINANCIAL STATEMENTS REQUIRED UNDER 6 THIS ACT, THE FISCAL OR OTHER PERIODS AND DATES FOR SUCH 7 STATEMENTS, THE CIRCUMSTANCES UNDER WHICH CONSOLIDATED OR OTHER 8 COMBINING FINANCIAL STATEMENTS SHALL BE FILED, OR OTHER 9 REQUIREMENTS IT DEEMS NECESSARY FOR FINANCIAL STATEMENT 10 PRESENTATION PURPOSES, AND WHETHER ANY REQUIRED FINANCIAL 11 STATEMENTS SHALL BE CERTIFIED BY INDEPENDENT PUBLIC OR CERTIFIED 12 ACCOUNTANTS IN GOOD STANDING WITH THIS STATE. ALL FINANCIAL 13 STATEMENTS SHALL BE PREPARED REFLECTING CONFORMITY WITH 14 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES CONSISTENTLY APPLIED, 15 UNLESS VARIANCE THEREFROM IS DISCLOSED IN AN ACCEPTABLE MANNER, 16 AND SHALL REFLECT PERTINENT DISCLOSURES BY FINANCIAL NOTES OR 17 OTHER FORM, WHERE REQUIRED FOR THAT DATA IN COMPLIANCE WITH 18 PRONOUNCEMENTS BY RECOGNIZED AUTHORITATIVE ACCOUNTING BODIES OR 19 IF APPLICABLE, BY GOVERNMENTAL AGENCIES, AND UNLESS OTHERWISE 20 PERMITTED BY REGULATION OR ORDER. 21 (d) No provision of this act imposing any liability applies 22 to any act done or omitted in good faith in conformity with any 23 rule, REGULATION, form or order of the commission, <-- 24 notwithstanding that the rule, REGULATION, form or order may <-- 25 later be amended or rescinded or be determined to be invalid for 26 any reason. 27 (E) THE COMMISSION MAY PROPOSE AND ADOPT REGULATIONS UNDER <-- 28 THIS ACT PRIOR TO ITS EFFECTIVE DATE, PROVIDED THAT SUCH 29 REGULATIONS DO NOT TAKE EFFECT UNTIL ON OR AFTER THE EFFECTIVE 30 DATE OF THIS ACT. 19720H1970B2861 - 87 -
1 Section 610. Destruction of Documents and Records.--The 2 commission may make such regulations with respect to record 3 retention as it may deem appropriate and desirable, consistent 4 with law. 5 PART VII 6 GENERAL PROVISIONS 7 Section 701. Service of Process.--(a) Every applicant for 8 registration under this act, and every issuer which proposes to 9 offer a security in this State through any person acting as 10 agent, shall file with the commission, in such form as it by 11 rule REGULATION prescribes, an irrevocable consent appointing <-- 12 the secretary of the commission, or his successor in office, to 13 be his attorney to receive service of any lawful process in any 14 noncriminal suit, action or proceeding against him or his 15 successor, executor or administrator which arises under this act 16 or any rule REGULATION or order hereunder after the consent has <-- 17 been filed, with the same validity as if served personally on 18 the person filing the consent. The consent need not be filed by 19 a person who has filed a consent in connection with a previous 20 registration or license which is then in effect. Service may be 21 made by leaving a copy of the process in the office of the 22 commission, but it is not effective unless the plaintiff 23 promptly sends notice of the service and a copy of the process 24 by registered or certified mail to the defendant or respondent 25 at his last address on file with the commission, and the 26 plaintiff's affidavit of compliance with this subsection is 27 filed in the case on or before the return day of the process, or 28 within such time as the court allows. 29 (b) When any person, including any nonresident of this 30 State, engages in conduct prohibited or made actionable by this 19720H1970B2861 - 88 -
1 act or any rule REGULATION or order hereunder, and he has not <-- 2 filed a consent to service of process under subsection (a) and 3 personal jurisdiction over him cannot otherwise be obtained in 4 this State, that conduct shall be considered equivalent to his 5 appointment of the secretary of the commission to be his 6 attorney to receive service of any lawful process in any 7 noncriminal suit, action or proceeding against him or his 8 successor, executor or administrator which arises out of that 9 conduct and which is brought under this act or any rule <-- 10 REGULATION or order hereunder, with the same validity as if <-- 11 served on him personally. Service may be made by leaving a copy 12 of the process in the office of the commission, but it is not 13 effective unless the plaintiff, who may be the commission in a 14 suit, action or proceeding instituted by it, promptly sends 15 notice of the service and a copy of the process by registered or 16 certified mail to the defendant or respondent at his last known 17 address or takes other steps which are reasonably calculated to 18 give actual notice; and the plaintiff's affidavit of compliance 19 with this subsection is filed in the case on or before the 20 return day of the process or within such time as the court 21 allows. 22 (c) When process is served under this section the court, or 23 the commission in a proceeding before it, shall order such 24 continuance as is necessary to afford the defendant or 25 respondent reasonable opportunity to defend. 26 Section 702. Scope of Act.--(a) The provisions of this act 27 concerning sales and offers to sell apply when TO PERSONS WHO <-- 28 SELL OR OFFER TO SELL WHEN (I) a sale or offer to sell is made 29 in this State or when (II) an offer to purchase is made and <-- 30 accepted in this State. The provisions concerning purchases and 19720H1970B2861 - 89 -
1 offers to purchase apply when TO PERSONS WHO BUY OR OFFER TO BUY <-- 2 WHEN (I) a purchase or offer to purchase is made in this State 3 or WHEN (II) an offer to sell is made and accepted in this <-- 4 State. 5 (b) For the purpose of this section, an offer to sell or to 6 purchase is made in this State, whether or not either party is 7 then present in this State, when the offer originates from this 8 State or is directed by the offeror to this State and received 9 by the offeree in this State , but ; PROVIDED, HOWEVER, for the <-- 10 purpose of section 201 an offer to sell which is not directed to 11 or received by the offeree in this State is not made in this 12 State. 13 (c) For the purpose of this section, an offer to purchase or 14 to sell is accepted in this State when acceptance is 15 communicated to the offeror in this State, and has not 16 previously been communicated to the offeror, orally or in 17 writing, outside this State; and acceptance is communicated to 18 the offeror in this State, whether or not either party is then 19 present in this State, when the offeree directs it to the 20 offeror in this State reasonably believing the offeror to be in 21 this State, and it is received by the offeror in this State. 22 (d) An offer to sell or to purchase is not made in this 23 State when the publisher circulates, or there is circulated on 24 his behalf in this State, any bona fide newspaper or other 25 publication of general, regular and paid circulation which is 26 not published in this State, or a radio or television program 27 originating outside this State is received in this State. 28 Section 703. Statutory Policy.--(a) This act shall be so 29 construed as to effectuate its general purpose to make uniform 30 the law of those states which enact the "Uniform Securities Act" 19720H1970B2861 - 90 -
1 and to coordinate the interpretation and administration of this 2 act with related Federal regulation. 3 (b) If any provision of this act or the application thereof 4 to any person or circumstance is held invalid, the invalidity 5 shall not affect other provisions or applications of this act 6 which can be given effect without the invalid provision or 7 application, and to this end the provisions of this law are 8 declared to be severable. 9 Section 704. Prior Law.--(a) Except as expressly provided in 10 this section, prior law exclusively governs all suits, actions, 11 prosecutions or proceedings which are pending or may be 12 initiated on the basis of facts or circumstances occurring 13 before the effective date of this act. 14 (b) No civil suit or action may be maintained to enforce any 15 liability or to establish that any securities are void under <-- 16 prior law unless brought within any period of limitation which 17 applied when the cause of action accrued. 18 (c) All effective certificates, orders, consents, and 19 registrations under prior law, all administrative orders 20 relating to the same and all conditions imposed upon the same 21 remain in effect so long as they would have remained in effect 22 if this act had not been enacted. They are considered to have 23 been filed, entered, or imposed under this act, but are governed 24 by prior law. 25 (D) PRIOR LAW APPLIES IN RESPECT OF ANY OFFER OR SALE MADE <-- 26 WITHIN SIX MONTHS AFTER THE EFFECTIVE DATE OF THIS ACT PURSUANT 27 TO AN OFFERING BEGUN IN GOOD FAITH BEFORE ITS EFFECTIVE DATE ON 28 THE BASIS OF AN EXEMPTION AVAILABLE UNDER PRIOR LAW. 29 (d) (E) Judicial review of all administrative orders as to <-- 30 which review proceedings have not been instituted by the 19720H1970B2861 - 91 -
1 effective date of this act are governed by section 607, except
2 that no review proceeding may be instituted unless the petition
3 is filed within any period of limitation which applied to a
4 review proceeding when the order was entered AND IN ANY EVENT <--
5 WITHIN SIXTY DAYS AFTER THE EFFECTIVE DATE OF THIS ACT.
6 Section 705. Effective Date.--This act shall take effect
7 January 1, 1973. OCTOBER 1, 1972. <--
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