PRIOR PRINTER'S NOS. 1850, 1911 PRINTER'S NO. 2019
No. 1415 Session of 1990
INTRODUCED BY HOLL, JANUARY 22, 1990
AS AMENDED ON THIRD CONSIDERATION, MARCH 19, 1990
AN ACT 1 Amending the act of December 5, 1972 (P.L.1280, No.284), 2 entitled "An act relating to securities; prohibiting 3 fraudulent practices in relation thereto; requiring the 4 registration of broker-dealers, agents, investment advisers, 5 and securities; and making uniform the law with reference 6 thereto," adding a definition of "associated person"; and 7 further providing for registration requirements and 8 procedure, for suspension and revocation of registration, for 9 civil liability, for criminal penalties and for fees. 10 The General Assembly of the Commonwealth of Pennsylvania 11 hereby enacts as follows: 12 Section 1. Section 102 of the act of December 5, 1972 13 (P.L.1280, No.284), known as the Pennsylvania Securities Act of 14 1972, is amended by adding a definition to read: 15 Section 102. Definitions.--When used in this act, the 16 following definitions shall be applicable, unless the context 17 otherwise requires: 18 * * * 19 (c.1) "Associated person" means any partner, officer or 20 director of (or person occupying a similar status or performing 21 similar functions), or other individuals employed by or
1 associated with, an investment adviser, except clerical or 2 administerial personnel, who: 3 (i) Makes any recommendations or otherwise renders advice 4 regarding securities directly to advisory clients; 5 (ii) Manages accounts or portfolios of clients; 6 (iii) Determines which recommendation or advice regarding 7 securities should be given, including: 8 (A) a person who is a member of the investment adviser's 9 investment committee that determines general investment advice 10 to be given to clients or, 11 (B) if the investment adviser has no investment committee, 12 the person or persons who determine general client investment 13 advice providing that, if there are more than five such persons 14 who determine general investment advice, only the supervisors of 15 such persons are deemed to be investment adviser representatives 16 solely by virtue of this paragraph; or 17 (iv) Immediately supervises employes in the performance of 18 any of the foregoing. 19 * * * 20 Section 2. Section 301(e) of the act, amended March 25, 1981 21 (P.L.1, No.1), is amended and the section is amended by adding a 22 subsection to read: 23 Section 301. Registration Requirement.--Unless exempted 24 under section 302 hereof: 25 * * * 26 (c.1) It is unlawful for any investment adviser to employ an 27 associated person to represent him in this Commonwealth unless 28 the associated person is registered under this act. The 29 registration of an associated person is not effective during any 30 period when he is not associated with a specified investment 19900S1415B2019 - 2 -
1 adviser registered under this act. When an associated person 2 begins or terminates association with an investment adviser, or 3 begins or terminates those activities which make him an 4 associated person, the investment adviser shall promptly notify 5 the commission. The commission may adopt a temporary 6 registration procedure to permit associated persons to change 7 employers without suspension of their registrations under this 8 act. 9 * * * 10 (e) Every registration expires on December 31 of each year 11 unless renewed [except (i) the registrations of broker-dealers, 12 investment advisers, and agents registered under this act as of 13 the effective date of this amending act and (ii) those agents 14 which become registered for such broker-dealers subsequent to 15 the effective date of this amendatory act shall expire on the 16 date such registration expires under the statute and regulations 17 in effect at the time of such registration. In order to 18 facilitate cooperation with other securities administrators and 19 regulatory authorities in the simplification and coordination of 20 registration, application and renewal procedures, the commission 21 may by regulation provide for the renewal of any registration 22 included in clauses (i) and (ii) above until December 31 of the 23 year in which such registration expires upon payment of the 24 registration fee. For this purpose, the commission may adjust 25 the registration fee proportionately. Nothing in this section 26 shall prohibit any person included in clause (i) or (ii) above 27 from voluntarily electing to renew a registration prior to the 28 date such registration would otherwise expire]. No registration 29 is effective after its expiration, unless a renewal application 30 has been timely filed, and expiration of a registration for 19900S1415B2019 - 3 -
1 which no renewal application has been filed is deemed an
2 application for withdrawal under section 305(f).
3 Section 3. Section 303(a)(i) of the act, amended March 25,
4 1981 (P.L.1, No.1), is amended to read:
5 Section 303. Registration Procedure.--(a) (i) A broker-
6 dealer, agent, [or] investment adviser or associated person may
7 obtain an initial or renewal license by filing an application
8 with the commission. The application shall contain such
9 information, and in such detail, as the commission by rule
10 requires concerning the applicant's form and place of
11 organization, proposed method of doing business, and financial
12 condition, the qualifications and experience of the applicant,
13 including, in the case of a broker-dealer or investment adviser,
14 the qualifications and experience of any partner, officer,
15 director, or affiliate, or a person occupying a similar status
16 or performing similar functions any injunction or administrative
17 order or conviction referred to in section 305(a)(ii),
18 information about affiliates or predecessors of the applicant,
19 and any other matters which the commission determines are
20 relevant to the application.
21 * * *
22 Section 4. Section 305(a)(v), (vii) and (xiii), (b)(ii), (f)
23 and (g) of the act, amended June 25, 1986 (P.L.256, No.68), are
24 amended and subsection (a) is amended by adding a clause to
25 read:
26 Section 305. Denial, Suspension and Revocation of
27 Registration.--(a) The commission may, by order, deny, suspend,
28 or revoke any registration or may censure any registrant if it
29 finds that such order is in the public interest and that such
30 registrant or applicant, or in the case of any broker-dealer or
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1 investment adviser, any affiliate thereof, whether prior or 2 subsequent to becoming associated with such person: 3 * * * 4 (v) Has wilfully violated any provision of the Securities 5 Act of 1933, the Securities Exchange Act of 1934, the Trust 6 Indenture Act of 1939, the Investment Advisers Act of 1940, the 7 Investment Company Act of 1940, the Commodity Exchange Act of 8 1974, any law of a foreign country governing or regulating the 9 business of broker-dealers, agents, investment advisers, 10 commodities futures or banking or this act, or any predecessor 11 law, or of any rule or regulation under any of such statutes; or 12 * * * 13 (vii) Has failed reasonably to supervise his agents or 14 employes, if he is a broker-dealer, or his associated persons or 15 employes, if he is an investment adviser, but no person shall be 16 deemed to have failed in such supervision if there have been 17 established procedures, and a system for applying such 18 procedures, which would reasonably be expected to prevent and 19 detect, in so far as practicable, any violation of statutes, 20 rules or orders described in subsection (v) and if such person 21 has reasonably discharged the duties and obligations incumbent 22 upon him by reason of such procedures and system without 23 reasonable cause to believe that such procedures and system were 24 not being complied with; or 25 * * * 26 (xiii) Has made any material misrepresentation to or 27 withheld or concealed from or omitted to state to the commission 28 or any of its representatives any material fact necessary in 29 order to make the statements made, in the light of the 30 circumstances under which they are made, not misleading, or has 19900S1415B2019 - 5 -
1 refused to furnish information reasonably requested by the 2 commission[.]; or 3 (xiv) Is subject to any currently effective order or orders 4 entered within the past five years of any securities regulator 5 of another country denying registration to, or revoking or 6 suspending the registration of, such person, or the associate of 7 such person, as a broker-dealer, agent, investment adviser, 8 futures commission merchant, commodity pool operator or 9 commodity trading adviser; or is subject to any currently 10 effective order of any securities exchange or self-regulatory 11 organization operating under the authority of the securities 12 regulator of another country suspending or expelling such person 13 from membership in such exchange or self-regulatory association. 14 (b) The following provisions govern the application of 15 section 305(a)(xi): 16 * * * 17 (ii) The commission may not enter an order against an 18 investment adviser on the basis of the lack of qualification of 19 any person other than (A) the investment adviser himself if he 20 is an individual, [or] (B) any other person who represents the 21 investment adviser in doing any of the acts which make him an 22 investment adviser[.] or (C) an associated person. 23 * * * 24 (f) Withdrawal from the status of a registered broker- 25 dealer, agent [or], investment adviser or associated person 26 becomes effective on the thirtieth day after receipt of an 27 application to withdraw, or within such shorter period as the 28 commission determines, unless a revocation or suspension 29 proceeding is pending before the commission when the application 30 is filed or a proceeding to revoke or suspend or to impose 19900S1415B2019 - 6 -
1 conditions upon the withdrawal is instituted before the 2 commission within thirty days after the application is filed. If 3 a proceeding is so pending or instituted, withdrawal becomes 4 effective at such time and upon such conditions as the 5 commission by order determines. If no proceeding is so pending 6 or instituted and withdrawal automatically becomes effective, 7 the commission may institute a revocation or suspension 8 proceeding under subsection (a)(ii) within one year after 9 withdrawal became effective and enter a revocation or suspension 10 order as of the last date on which the registration was in 11 effect. 12 (g) No order may be entered under this section except under 13 subsection (d) without appropriate prior notice to the applicant 14 or registrant as well as the employer or prospective employer if 15 the applicant or registrant is an agent or associated person, 16 opportunity for hearing and written findings of fact and 17 conclusions of law. In cases of denial orders, such findings and 18 conclusions shall be provided only if requested by the 19 applicant. 20 Section 5. Section 501 of the act is amended by adding 21 subsections to read: 22 Section 501. Civil Liabilities.--* * * 23 (f) Any investment adviser who violates section 301 shall be 24 liable to the client for all fees paid, directly or indirectly, 25 to the investment adviser for investment advisory services. 26 (g) Any investment adviser who violates section 404(a) 27 through (d) or any material provision of section 404(f), or 28 otherwise makes any untrue statement of a material fact or omits 29 stating a material fact necessary in order to make statements 30 made, in the light of the circumstances under which they are 19900S1415B2019 - 7 -
1 made, not misleading (the client not knowing of the untruth or 2 omission) and who does not sustain the burden of proof that he 3 did not know and, in the exercise of reasonable care could not 4 have known of the untruth or omission, shall be liable to the 5 client purchasing the security. The client purchasing the 6 security may sue either at law or in equity to recover the 7 consideration paid for the security, together with interest at 8 the legal rate from the date of payment, less the amount of 9 income or distribution, in cash or in kind, received on the 10 security, upon the tender of the security or for damages if the 11 client no longer owns the security. Damages are the amount that 12 would be recoverable upon a tender, less the value of the 13 security when the client disposed of it, plus interest at the 14 legal rate from the date of disposition. Tender shall require 15 only notice of willingness to exchange the security for the 16 amount specified. Any notice may be given by service as in civil 17 actions specified in the Pennsylvania Rules of Civil Procedure. 18 An investment adviser who is liable under this section and any 19 offeror or seller of the security liable under subsection (a) 20 are jointly and severally liable to the client of the investment 21 adviser. 22 Section 6. Section 511 of the act is reenacted to read: 23 Section 511. Criminal Penalties.--Any person who wilfully 24 violates any material provision of this act, except section 25 407(a), or any rule under this act, or any order of which he has 26 notice, or who violates section 407(a) knowing that the 27 statement made was false or misleading in any material respect, 28 may be fined not more than five thousand dollars ($5,000) or 29 imprisoned not more than five years, or both. Each of the acts 30 specified shall constitute a separate offense and a prosecution 19900S1415B2019 - 8 -
1 or conviction for any one of such offenses shall not bar 2 prosecution or conviction for any other offense. No indictment 3 or information may be returned under this act more than five 4 years after the alleged violation. 5 Section 7. Section 602(d) of the act, amended May 9, 1984 6 (P.L.235, No.52), is amended to read: 7 Section 602. Fees.--* * * 8 (d) Every applicant for an initial or renewal license under 9 section 301 shall pay a filing fee of one hundred twenty-five 10 dollars ($125) in the case of a broker-dealer, twenty-five 11 dollars ($25) in the case of an agent [and], one hundred dollars 12 ($100) in the case of an investment adviser and fifty dollars 13 ($50) in the case of an associated person. The term of an 14 agent's or associated person's registration hereunder shall be 15 concurrent with that of his employer, if a broker-dealer or an 16 investment advisor. When an agent changes employers, a twenty- 17 five dollar ($25) fee shall be paid. [A broker-dealer 18 maintaining any office within this State shall pay an additional 19 filing fee of forty dollars ($40) for each office.] When an 20 associated person changes employers, a fifty dollar ($50) fee 21 shall be paid. When an application is denied or withdrawn or a 22 registration revoked, the filing fee shall be retained. 23 * * * 24 Section 8. Section 609 of the act is amended by adding a <-- 25 subsection to read: 26 Section 609. Regulations, Forms and Orders.--* * * 27 (f) In addition to the authority contained in this section, 28 the commission shall have the power and authority to promulgate, 29 adopt, publish and use guidelines, including forms, for the 30 implementation of this act for a period of one year immediately 19900S1415B2019 - 9 -
1 following the effective date of this act pending adoption of 2 final rules and regulations. Guidelines proposed under the 3 authority of this subsection shall be subject to the review of 4 the Attorney General in the manner provided for the review of 5 proposed rules and regulations pursuant to the act of October 6 15, 1980 (P.L.950, No.164), known as the "Commonwealth Attorneys 7 Act," but shall not be subject to review pursuant to the act of 8 June 30, 1989 (P.L.73, No.19), known as the "Regulatory Review 9 Act." 10 SECTION 8. IN ADDITION TO THE AUTHORITY CONTAINED IN SECTION <-- 11 609 OF THE ACT, THE COMMISSION SHALL HAVE THE POWER AND 12 AUTHORITY TO PROMULGATE, ADOPT, PUBLISH AND USE GUIDELINES, 13 INCLUDING FORMS, FOR THE IMPLEMENTATION OF THIS AMENDATORY ACT 14 FOR A PERIOD OF ONE YEAR IMMEDIATELY FOLLOWING THE EFFECTIVE 15 DATE OF THIS AMENDATORY ACT PENDING ADOPTION OF FINAL RULES AND 16 REGULATIONS. GUIDELINES PROPOSED UNDER THE AUTHORITY OF THIS 17 SECTION SHALL BE SUBJECT TO THE REVIEW OF THE ATTORNEY GENERAL 18 IN THE MANNER PROVIDED FOR THE REVIEW OF PROPOSED RULES AND 19 REGULATIONS PURSUANT TO THE ACT OF OCTOBER 15, 1980 (P.L.950, 20 NO.164), KNOWN AS THE COMMONWEALTH ATTORNEYS ACT, BUT SHALL NOT 21 BE SUBJECT TO REVIEW PURSUANT TO THE ACT OF JUNE 25, 1982 22 (P.L.633, NO.181), KNOWN AS THE REGULATORY REVIEW ACT. 23 Section 9. The reenactment of section 511 is intended to 24 reestablish five years as the time for the commencement of 25 prosecution for an offense under the act, THE PROVISION OF 42 <-- 26 PA.C.S. § 5552 (RELATING TO OTHER OFFENSES) NOTWITHSTANDING. 27 Section 10. This act shall take effect in 60 days. A5L70VDL/19900S1415B2019 - 10 -