Chapter 32. SPECULATIVE SECURITIES AND FRAUDULENT SALES.

§1. Commissioner of Securities.—The auditor of this State is hereby made, and shall be, the commissioner of securities of this State, and he shall have power and authority to employ such assistants as are necessary for the administration of this chapter.(1925, c. 66, §2.)

§2. Definitions.—When used in this chapter the following terms shall, unless the text otherwise indicates, have the following respective meanings:

(a) “Security” shall include any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation, certificate of interest in a profit sharing agreement, certificate of interest in a syndicate agreement, certificate or share of or in an investment trust, certificate of interest in an oil, gas or mining lease, collateral trust certificate, pre-organization certificate, pre-organization subscription, any share, investment contract, or beneficial interest in or title to property, profits or earnings or any other instrument commonly known as a security;

(b) “Person” shall include a natural person, a corporation created under the laws of this or any other state, country, sovereignty, or political subdivision thereof, a partnership, an association, a syndicate, a joint stock company, a trust and any unincorporated organization. As used herein the term “trust” shall be deemed to include a common law trust, but shall not include a trust created or appointed under or by virtue of a last will and testament, or by a court of law or equity, or any public charitable trust;

(c) “Sale” or “sell” shall include every disposition, or attempt to dispose, of a security or interest in a security for value. Any security given or delivered with, or as a bonus on account of, any purchase of securities or any other thing shall be conclusively presumed to constitute a part of the subject of such purchase and to have been sold for value. “Sale” or “sell” shall also include an exchange, an attempt to sell, an option of sale, a solicitation of a sale, a subscription or an offer to sell, directly or by an agent, or by a circular, letter, advertisement or otherwise;

(d) “Dealer” shall include every person other than a salesman who in this State engages either for all or part of his time directly or through an agent in the business of selling any securities issued by another person or purchasing or otherwise acquiring such securities from another for the purpose of reselling them or of offering them for sale to the public, or offering, buying, selling or otherwise dealing or trading in securities as agent or principal for a commission or at a profit, or who deals in futures or differences in market quotations of prices or values of any securities or accepts margins on purchases or sales or pretended purchases or sales of such securities: Provided, That the word “dealer” shall not include a person having no place of business in this State who sells or offers to sell securities exclusively to brokers or dealers actually engaged in buying and selling securities as a business;

(e) “Issuer” shall mean and include every person who proposes to issue, has issued, or shall hereafter issue any security. Any natural person who acts as a promoter for and on behalf of a corporation, trust or unincorporated association or partnership of any kind to be formed shall be deemed to be an issuer;

(f) “Salesman” shall include every natural person, other than a dealer, employed or appointed or authorized by a dealer or issuer to sell securities in any manner in this State. The partners of a partnership and the executive officers of a corporation or other association registered as a dealer shall not be salesmen within the meaning of this definition;

(g) “Agent” shall mean salesman as hereinabove defined;

(h) “Commissioner” shall mean the commissioner of securities.(1925, c. 66, §3; 1929, c. 77.)

§3. Securities Not Included.—Except as hereinafter otherwise expressly provided, the provisions of this chapter shall not apply to any of the following classes of securities:

(a) Any security issued or guaranteed by the United States or any territory or insular possession thereof, or by the District of Columbia or by any state or political subdivision or agency thereof;

(b) Any security issued or guaranteed by any foreign government with which the United States is at the time of the sale or offer of sale thereof maintaining diplomatic relations, or by any state, province or political subdivision thereof having the power of taxation or assessment;

(c) Any security issued by a national bank or by any federal land bank or joint-stock land bank or national farm loan association under the provisions of the federal laws, or by the war finance corporation or by any corporation created or acting as an instrumentality of the government of the United States pursuant to authority granted by the congress of the United States: Provided, That such corporation is subject to supervision or regulation by the government of the United States;

(d) Any security issued or guaranteed either as to principal, interest or dividend by a corporation owning or operating a railroad or any other public service utility: Provided, That such corporation is subject to regulation or supervision either as to its rates and charges or as to the issue of its own securities by a public commission, board or officer of the government of the United States, or of any state, territory or insular possession thereof, or of any municipality located therein, or of the District of Columbia, or of the Dominion of Canada or any province thereof; also equipment notes or bonds based on chattel mortgages, leases, or agreements for conditional sale of cars, motive power or other rolling stock, steamboats, barges, or other marine equipment, mortgaged, leased or sold to or furnished for the use of or upon a railroad or other public service utility corporation, or equipment trust certificates, or equipment notes or bonds where the ownership or title of such equipment is pledged or retained in accordance with the provisions of the laws of the United States, or of any state, or of the Dominion of Canada, to secure the payment of such equipment trust certificates, bonds or notes; also bonds, notes or other evidences of indebtedness issued by a holding corporation and secured by collateral consisting of any securities hereinabove in this subdivision (d) described: Provided, That the collateral securities equal in fair value at least one hundred and twenty-five per centum of the par value of the bonds, notes or other evidences of indebtedness so secured;

(e) Any security issued by a corporation or ganized exclusively for educational, benevolent, fraternal, charitable or reformatory purposes and not for pecuniary profit, and no part of the net earnings of which inures to the benefit of any private stockholder or individual;

(f) Securities appearing in any list of securities dealt in on the New York, Boston or Chicago stock exchange or on any other recognized and responsible stock exchange which has been previously approved by the commissioner and which securities have been so listed pursuant to official authorization by such exchange and also all securities senior to any securities so listed, or evidences of indebtedness guaranteed by companies any stock of which is so listed, such securities to be exempt only so long as such listing shall remain in effect;

(g) Any security issued by a state bank, trust company, building and loan association or savings institution incorporated under the laws of and subject to the examination, supervision, and control of any state or territory of the United States or of any insular possession thereof;

(h) Negotiable promissory notes or commercial paper: Provided, That such issue of notes or commercial paper matures in not more than twelve months from date of issue and shall be issued within three months after the date of sale;

(i) Any security other than common stock outstanding and in the hands of the public for a period of not less than five years upon which no default in payment of principal, interest or dividend exists and upon which no such default has occurred for a continuous immediately preceding period of five years.(1925. c. 66, §4.)

§4. Sales Not Included.—Except as hereinafter expressly provided the provisions of this chapter shall not apply to the sale of any security in any of the following transactions:

(a) At any judicial, executor’s, administrator’s, guardian’s, or conservator’s sale, or at any sale by a receiver or trustee in insolvency or bankruptcy;

(b) By or for the account of a pledgee, holder or mortgagee selling or offering for sale or delivery in the ordinary course of business and not for the purpose of avoiding the provisions of this chapter, to liquidate a bona fide debt, a security pledged in good faith as security for such debt;

(c) An isolated transaction in which any security is sold, offered for sale, subscription or delivery by the owner, thereof, or by his representative for the owner’s account, such sale or offer for sale, subscription or delivery not being made in the course of repeated and successive transactions of a like character by such owner, or on his account by such representative, and such owner or representative not being the underwriter of such security;

(d) The distribution by a corporation actively engaged in the business authorized by its charter, of capital stock, bonds or other securities to its stockholders or other security holders as a stock dividend or other distribution out of earnings or surplus; or the issue of securities to the security holders or creditors of a corporation for cash, or in exchange for the securities of such security holders or claims of such creditors, or partly for cash and partly in exchange for the securities or claims of such security holders or creditors; or the issue of capital stock of a corporation sold or distributed by it entirely among its own stockholders and security holders, or to its organizers and promoters, or to all of the persons interested in any property or business to purchase or take over which the corporation is created, where no commission or other remuneration is paid or given directly or indirectly in connection with the sale or distribution of such capital stock;

(e) The sale, transfer or delivery to any banking institution, insurance company or to any corporation or to any broker or dealer: Provided, That such broker or dealer is actually engaged in buying and selling securities as a business;

(f) The transfer to or exchange by one corporation with another corporation of their own securities in connection with a consolidation or merger of such corporations;

(g) Bonds or notes secured by mortgage up on real estate where the entire mortgage together with all of the bonds or notes secured thereby are sold to a single purchaser at a single sale.(1925, c. 66, §5.)

§5. When Sales Unlawful.—No securities except of a class exempt under a provision of section three hereof or unless sold in any transaction exempt under a provision of section four hereof shall be sold within this State unless such securities shall have been registered by notification or by qualification as hereinafter defined.

A record of the registration of securities shall be kept in a register of securities to be kept in the office of the commissioner, in which register of securities shall also be recorded any orders entered by the commissioner with respect to such securities. Such register and all information with respect to the securities registered therein shall be open to public inspection.(1925, c. 66, §6.)

§6. Securities Registered by Notification; How Registered.—The following classes of securities shall be entitled to registration by notification in the manner provided in this section:

(a) Securities issued by a corporation, partnership, association, company, syndicate or trust owning a property, business or industry which has been in continuous operation not less than three years and which has shown, during a period of not less than two years or more than ten years next prior to the close of its last fiscal year preceding the offering of such securities, average annual net earnings, after deducting all prior charges not including the charges upon securities to be retired out of the proceeds of sale, as follows:

(1) In the case of interest bearing securities, not less than one and one-half times the annual interest charge thereon and upon all other outstanding interest bearing obligations of equal rank;

(2) In the case of preferred stock, not less than one and one-half times the annual dividend requirements on such preferred stock and on all other outstanding stock of equal rank;

(3) In the case of common stock not less than six per cent upon all outstanding common stock of equal rank, together with the amount of common stock then offered for sale reckoned upon the price at which such stock is then offered for sale or sold;

(b) Bonds or notes secured by first mortgage upon real estate leased to a corporation for a term of years at a net rental sufficient to pay the interest and to retire the principal of all bonds or notes secured by such mortgage during the term of the lease where the lease is irrevocable and is pledged under the mortgage securing such bonds or notes: Provided, That any class of stock of the lessee is exempt under any of the provisions of section three except subdivision (e) and subdivision (i) thereof or will fall within subdivision (a) of this section six;

(c) Any bond or note secured by a first mortgage upon agricultural lands used and valuable principally for agricultural purposes (not including oil, gas or mining property or leases), or upon city, town or village real estate or leaseholds situated in any state or territory of the United States or in the District of Columbia or in the Dominion of Canada as follows;

(1) When the mortgage is a first mortgage upon such agricultural lands, used and valuable principally for agricultural purposes, and when the aggregate face value of such bonds or notes, not including interest notes or coupons, secured thereby does not exceed seventy-five per cent of the then fair market value of such lands plus sixty per cent of the insured value of any improvements thereon; or

(2) When the mortgage is a first mortgage upon city, town or village real estate or leaseholds, and when the aggregate face value of such bonds or notes, not including interest notes or coupons, secured by such real estate or leaseholds does not exceed seventy-five per cent of the then fair market value of such mortgaged real estate or leaseholds, respectively, including any improvements appurtenant thereto, and when such mortgaged property is used principally to produce through rental a net annual income, after deducting operating expenses and taxes, or has a fair rental value after deducting operating expenses and taxes, at least equal to the annual interest plus not less than three per cent of the principal of such mortgage indebtedness; or

(3) When the mortgage is a first mortgage upon city, town or village real estate or leaseholds upon which real estate or leaseholds a building or buildings is or are about in good faith forthwith to be erected according to the expressed terms of the mortgage, and when reasonably adequate provision has been made for financing the full completion of such building free and clear of any lien superior to such mortgage, and when the aggregate face value of the bonds or notes, not including interest notes or coupons, secured by such first mortgage does not exceed seventy-five per cent of the fair market value of such mortgaged prop

erty, including the building or buildings to be erected thereon as aforesaid, and when such mortgaged property is to be used principally to produce through rental a net annual income, after deducting operating expenses and taxes, or will have a fair rental value after deducting operating expenses and taxes, at least equal to the annual interest plus not less than three per centum of the principal of such mortgage indebtedness: Provided, That all advertisements, circulars, and letters advertising the sale of such bonds or notes and all receipts of payments therefor shall bear in bold type upon the face thereof a legend stating that such bonds or notes are construction bonds or notes, and all other written or printed offerings of such bonds or notes shall contain a statement to the same effect.

The provisions of this subdivision (e) shall not apply in the case of bonds or notes secured wholly or partly by first mortgage on leaseholds, the value of which leaseholds is required to meet the ratio of property value to face value of obligations as provided in clauses (2) and (3) above, unless all advertisements, circulars and letters advertising the sale of such bonds or notes and all receipts of payments therefor, and such bonds and notes shall bear in bold type not less than eighteen point upon the face thereof a legend stating that such bonds or notes are secured wholly or partly by mortgage on a leasehold, as the case may be, and all other written or printed offerings of such bonds or notes shall contain a statement to the same effect.When used in this subdivision (c) the term “mortgage” shall be deemed to include a trust deed to secure a debt.Securities entitled to registration by notification shall be registered by the filing, by the issuer or any registered dealer interested in the sale thereof, in the office of the commissioner, of a statement with respect to such securities containing the following:

(1) Name of issuer;

(2) A brief description of the security including amount of the issue;

(3) Amount of securities to be offered in the State;

(4) A brief statement of the facts which show that the security falls within one of the classes in this section defined;

(5) The price at which the securities are to be offered for sale.In the case of securities falling within the class defined by subdivisions (a) or (b), if the circular to be used for the public offering is not filed with the statement, then a copy of such circular shall be filed in the office of the commissioner within two days thereafter or within such further time as the commissioner shall

allow.In the case of securities falling within the class defined by subdivision (c), the circular to be used for the public offering shall be filed with the statement. The filing of such statement in the office of the commissioner and the payment of the fee hereinafter provided shall constitute the registration of such security. Upon such registration, such securities may be sold in this State by any registered dealer giving notice in the manner hereinafter provided in section ten, subject, however, to the further order of the commissioner as hereinafter provided.If, at any time in the opinion of the commissioner, the information contained in the statement or circular filed is misleading, incorrect, inadequate or incomplete, or the sale or offering for sale of the security may work or tend to work a fraud, the commissioner may require from the person filing such statement such further information as may in his judgment be necessary to establish the classification of such security as claimed in such statement or to enable the commissioner to ascertain whether the sale of such security would be fraudulent, or would result in fraud, and the commissioner may also suspend the right to sell such security pending further investigation by entering an order specifying the grounds for such action, and by notifying personally by mail, telephone or telegraph the person filing such statement and every registered dealer who shall have

notified the commissioner of an intention to sell such security. The refusal to furnish information required by the commissioner within a reasonable time to be fixed by the commissioner may be a proper ground for the entry of such order of suspension. Upon the entry

of any such order of suspension no further sales of such security shall be made until the further order of the commissioner.In the event of the entry of such order of suspension the commissioner shall upon request give a prompt hearing to the parties interested. If no hearing is requested within a period of twenty days from the entry of such order, or if upon such hearing the commissioner shall determine that any such security does not fall within a class entitled to registration under this section, or that the sale thereof would be fraudulent or would result in fraud, he shall enter a final order prohibiting sales of such

security, with his findings with respect thereto: Provided, That if the finding with respect to such security is that it is not entitled to registration under this section, the applicant may apply for registration by qualification by complying with the requirements of section seven of this article. Appeals from such final order may be taken as hereinafter provided. If, however, upon such hearing, the commissioner shall find that the security is entitled to registration under this section, and that its sale will neither be fraudulent nor result in fraud, he shall forthwith enter an order revoking such order of suspension and such security shall be restored to its status as a security registered under this section, as of the date of such order of suspension. At the time of filing the statement, as hereinbefore prescribed in this section, the applicant shall pay to the commissioner a fee of one twentieth of one per cent of the aggregate par value of the securities to be sold in this State for which the applicant is seeking registration, but in no case shall such fee be less than twenty- five dollars or more than one hundred dollars. In the case of stock having no par value, the price at which such stock is to be offered to the public shall be deemed to be the par value of such stock.Every registration under this section shall expire on the thirtieth day of June in each year, but new registrations for the succeeding year shall be issued upon written application and upon payment of a fee of twenty-five dollars, without filing of further statements. or furnishing any further information unless specifically required by the commissioner. Applications for renewals must be made not less than thirty days before the first day of the ensuing registration year, otherwise they shall be treated as original applications.(1925, c. 66, §7.)

§7. Securities Registered by Qualification.—All securities required by this article to be registered before being sold in this State, and not entitled to registration by notification, shall be registered only by qualification in the manner provided by this section.

The commissioner shall receive and act up on applications to have securities registered by qualification, and may prescribe forms on which he may require such applications to be submitted. Applications shall be in writing and shall be duly signed by the applicant and sworn to by any person having knowledge of the facts, and filed in the office of the commissioner and may be made either by the issuer of the securities for which registration is applied or by any registered dealer desiring to sell the same within this State.

The commissioner may require the applicant to submit to the commissioner the follow ing information respecting the issuer and such other information as he may in his judgment deem necessary to enable him to ascertain whether such securities shall be registered pursuant to the provisions of this section:

(a) The names and addresses of the directors, trustees and officers, if the issuer be a corporation or association or trust organized or existing under the common law (as hereinbefore defined), of all partners, if the issuer be a partnership, and of the issuer, if the issuer be an individual;

(b) The location of the issuer’s principal business office and of its principal office in this State, if any;

(c) The purposes of incorporation (if incorporated) and the general character of the business actually to be transacted by the issuer, and the purpose of the proposed issue;

(d) A statement of the capitalization of the issuer; a balance sheet showing the amount and general character of its assets and liabilities on a day not more than sixty days prior to the date of filing such balance sheet; a detailed statement of the plan upon which the issuer proposes to transact business; a copy of the security for the registration of which application is made; and a copy of all circulars, prospectuses, advertisements or other descriptions of such securities then prepared by or for such issuer and by or for such applicant (if the applicant shall not be the issuer) to be used for distribution or publication in this State;

(e) A statement of the amount of the issuer’s income, expenses, and fixed charges during the last fiscal year, or if in actual business less than one year, then for such time as the issuer has been in actual business;

(f) A statement showing the price at which such security is proposed to be sold, together with the maximum amount of commission or other form of remuneration to be paid in cash or otherwise, directly or indirectly, for or in connection with the sale or offering for sale of such securities;

(g) A detailed statement showing the items of cash, property, services, patents, good will and any other consideration for which such securities have been or are to be issued in payment;

(h) The amount of capital stock which is to be set aside and disposed of as promotion stock, the objects and purposes for which, and the parties to whom, it is to be issued.

If the issuer is a corporation, there shall be filed with the application a certified copy of its articles of incorporation with all amendments and of its existing by-laws. If the issuer is a trustee there shall be filed with the application a copy of all instruments by which the trust is created or declared and in which it is accepted and acknowledged. If the issuer is a partnership or an unincorporated association, or joint stock company, or any other form of organization whatsoever, there shall be filed with the application a copy of its articles of partnership or association and all other papers pertaining to its organization.

All of the statements, exhibits and documents of every kind required by the commissioner under this section, except properly certified public documents, shall be verified by the oath of the applicant or of the issuer in such manner and form as may be required by the commissioner.

With respect to securities required to be registered by qualification under the provisions of this section, the commissioner may by order duly recorded fix the maximum amount of commission or other form of remuneration to be paid in cash or otherwise, directly or indirectly, for or in connection with the sale or offer ing for sale of such securities.

(i) At the time of filing the information, as hereinbefore prescribed in this section, the applicant shall pay to the commissioner a fee of one-twentieth of one per cent of the aggregate par value of the securities to be sold in this State, for which the applicant is seeking registration, but in no case shall such fee be less than twenty-five dollars or more than three hundred dollars. In case of stock having no par value the price at which such stock is to be offered to the public shall be deemed to be the par value of such stock.

If upon examination of any application the commissioner shall find that the sale of security referred to therein would not be fraudulent or would not work or tend to work a fraud upon the purchaser, or that the enterprise or business of the issuer is not based upon unsound business principles, then, upon the payment of the fee provided in this section, he shall record the registration of such security in the register of securities, and thereupon such security so registered may be sold by the issuer or by any registered dealer who has notified the commissioner of his intention so to do, in the manner hereinafter provided in section ten, subject, however, to the further order of the commissioner as hereinafter provided.

If, after registration, any material change is made in the status of any issuer or its financial condition, or in the price at which such security is proposed to be sold, the commissioner shall immediately be notified of such change by the issuer or dealer who made, application for the registration of such security and any change in the price at which such security is proposed to be sold shall be subject to the approval of the commissioner.

Every issuer whose securities have been registered for sale under this section shall be subject to examination as to its methods of business by the commissioner or by his duly authorized representative at any time the commissioner may deem it advisable, and any applicant for registration shall be subject to such examination. The expense of such examination shall be paid by such applicant or issuer and the failure or refusal of such applicant or issuer to pay such expense upon the demand of the commissioner shall work a forfeiture of its right to registration in this State.

Every registration under this section shall expire on the thirtieth day of June in each year, but new registrations for the succeeding year shall be issued upon written application and upon payment of a fee of twenty-five dollars, such application to be accompanied by a statement of the financial condition of the issuer within the preceding sixty days and any further information specifically required by the commissioner. Applications for renewals must be made not less than thirty days before the first day of the ensuing registration year, otherwise they shall be treated as original applications.(1925, c. 66, §8.)

§8. Commissioner to Accept Service of Process for Issuer.—Upon any application for registration by notification under section six made by an issuer, and upon any application for registration by qualification under section seven, whether made by an issuer or registered dealer, where the issuer is not domiciled in this State, there shall be filed with such application the irrevocable written consent of the issuer that suits and actions, growing out of the violation of any provision or provisions of this chapter, may be commenced against it in the proper court of any county in this State in which a cause of action may arise or in which the plaintiff may reside, by the service of any process or pleading authorized by the laws of this State, on the commissioner of securities, and by the acceptance of such service of process by the commissioner for and on behalf of such issuer, such consent stipulating and agreeing that such service of such process or pleadings on such commissioner, or such acceptance by the commissioner, shall be taken and held in all courts to be as valid and binding as if due service had been made upon the issuer himself, and such written consent shall be authenticated by the seal of such issuer, if it has a seal, and by the acknowledged signature of a member of the copartnership or company, or by the acknowledged signature of any officer of the incorporated or unincorporated association, if it be an incorporated or unincorporated association, duly authorized by resolution of the board of directors, trustees or managers of the corporation or association, and shall in such case be accompanied by a duly certified copy of the resolution of the board of directors, trustees or managers of the corporation or association, authorizing the officers to execute the same, but no such process shall be Served on the commissioner or accepted by him less than ten days before the return thereof. In case, any process or pleadings mentioned in this chapter are served upon the commissioner, or accepted by him, it shall be by duplicate copies, one of which shall be filed in the office of the commissioner and another immediately forwarded by registered mail to the principal office of the issuer against which such process or pleadings are directed.(1925, c. 66, §9.)

§9. Registration Revoked; Sale Suspended.—The commissioner may revoke the registration of any security by entering an order to that effect, with his findings in respect thereto, if upon examination into the affairs of the issuer of such security and after reasonable notice and hearing it shall appear that the issuer:

(a) Is insolvent; or

(b) Has violated any of the provisions of this chapter or any order of the commissioner Of which such issuer has notice; or

(c) Has been or is engaged or is about to engage in fraudulent transactions; or

(d) Is in any other way dishonest or has made any fraudulent representations in any prospectus, or in any circular or other literature that has been distributed concerning the issuer or its securities; or

(e) Is of bad business repute; or

(f) Does not conduct its business in accordance with law; or

(g) That its affairs are in an unsound condition; or

(h) That the enterprise or business of the issuer is not based upon sound business principles. Pending the hearing the commissioner may order the suspension of the sale of the security provided such order shall state the cause of such suspension.

In making such examination the commissioner shall have access to and may compel the production of all the books and papers of such issuer, and may administer oaths to and examine the officers of such issuer or any other person connected therewith as to its business and affairs and may also require a balance sheet exhibiting the assets and liabilities of any such issuer or his income statement, or both, to be certified to by a public accountant either of this State or of any other state where the issuer’s business is located, approved by the commissioner.

Whenever the commissioner may deem it necessary, he may also require such balance sheet or income statement, or both, to be made more specific in such particulars as the commissioner shall point out or to be brought down to the latest practicable date.

If any issuer shall refuse to permit an examination to be made by the commissioner, it shall be proper ground for cancellation of registration.

If the commissioner shall deem it necessary he may enter an order suspending the right to sell securities pending any investigation: Provided, That the order shall state the commissioner’s grounds for taking such action.

Notice of the entry of such order shall be given personally or by telephone, telegraph, or mail to the issuer and every registered dealer who shall have notified the commissioner of an intention to sell such security.(1925, c. 66, §10.)

§10. Dealers and Salesmen Registered; Process; Bond; Fees.—No dealer or salesman shall engage in business in this State as such dealer or salesman or sell any securities including securities exempted in section three of this article, except in transactions exempt under section four of this article, unless he has been registered as a dealer or salesman in the office of the commissioner pursuant to the provisions of this section: Provided, That the provisions of this section shall not apply to the sale of securities exempted from the provisions of this article by paragraph (d) of section three hereof when such sales are made by or through bona fide employees of the issuer or its holding or subsidiary company.

Every dealer before engaging in business in this State shall file in the office of the commissioner an application for registration in writing in such form as the commissioner may prescribe, duly verified by oath, which shall state the principal office of the applicant, wherever situated, and the location of the principal office and all branch offices in this State, if any, the name or style of doing business, the names, residence and business addresses of all persons interested in the business as principals, copartners, officers and directors, specifying as to each his capacity and title, the general plan and character of business and the length of time the dealer has been engaged in business. The commissioner may also require such additional information as to the applicant’s previous history, record and association, as he may deem necessary to establish the good repute in business of the applicant.

Every dealer shall file with his application an irrevocable written consent to the service of process upon the commissioner of securities in actions against such dealer in manner and form as hereinabove provided in section eight of this article.

The commissioner may require a dealer to file with his application a bond in the sum of five thousand dollars payable to the State of West Virginia in such form as the commissioner may designate, such bond to be conditioned upon the faithful compliance with the provisions of this article by such dealer and by all salesmen registered by him. Such bond shall be executed as surety by a surety company authorized to do business in this State. If the commissioner shall find that the applicant is of good repute and has complied with the provisions of this section, including the payment of the fee hereinafter provided, he shall register such applicant as a dealer.

Upon the written application of a registered dealer and general satisfactory showing as to good character and the payment of the proper fee, the commissioner shall register as salesmen of such dealer such natural persons as the dealer may request.

The partners of a partnership and the executive officers of a corporation or other association registered as a dealer may act as salesmen during such time as such partnership, corporation or association is so registered without further registration as salesmen. The salesmen registered by a dealer may sell any securities for which the dealer registering such salesmen is registered.

The names and addresses of all persons approved for registration as dealers or salesmen and all orders with respect thereto shall be recorded in a register of dealers and salesmen kept in the office of the commissioner, which shall be open to public inspection. Every registration under this section shall expire on the thirtieth day of June in each year, but new registrations for the succeeding year shall be issued upon written application and upon payment of the fee as hereinafter provided, without filing further statements or furnishing any further information unless specifically required by the commissioner. Applications for renewals must be made not less than thirty days before the first day of the ensuing year, otherwise they shall be treated as original applications. The fee for such registration and for each annual renewal shall be twenty-five dollars in the case of dealers and five dollars in the case of salesmen.

Changes in registration occasioned by changes in the personnel of a partnership or in the principals, copartners, officers or directors of any dealer may be made from time to time by written application setting forth the facts with respect to such change. Every registered dealer who intends to offer any security of any issue, registered or to be registered, shall notify the commissioner in writing of his intention so to do. The notice shall contain the name of the dealer and shall state the name of the security to be offered for sale, and whenever a dealer shall have prepared such notice and shall have forwarded the same by registered mail, postage prepaid and properly addressed to the commissioner, such dealer, as to the contents of such notice and the filing thereof, shall be deemed to have complied with the requirements of this paragraph. Any issuer of a security required to be registered under the provisions of this article, selling such securities, except in exempt transactions as defined in section four hereof, shall be deemed a dealer within the meaning of this section and required to comply with all the provisions hereof.

Every dealer registered under this section shall be subject to examination as to his methods of business by the commissioner or by his duly authorized representative at any time the commissioner may deem it advisable, and any applicant for registration shall submit to such examination. The expense of the examination shall be paid by the applicant and the failure or refusal of such applicant to pay such expense upon the demand of the commissioner shall work a forfeiture of his right to registration under this article.(1925, c. 66, §11.)

§11. Registration Refused, Suspended or Canceled.—Registration under section ten of this article may be refused or any registration granted may be canceled by the commissioner if after a reasonable notice and a hearing the commissioner determines that such applicant or registrant so registered:

(a) Has violated any provision of this chapter or any regulation made hereunder; or

(b) Has made a material false statement in the application for registration; or

(e) Has been guilty of a fraudulent act in connection with any sale of securities, or has been or is engaged or is about to engage in making fictitious or pretended sales or purchases of any of such securities or has been or is engaged or is about to engage in any practice or sale of securities which is fraudulent or in violation of the law; or

(d) Has demonstrated his unworthiness to transact the business of dealer or salesman.

Pending the hearing, the commissioner shall have the power to order the suspension of such dealer’s or salesman’s license; but such order shall state,the cause of such suspension.

In the event the commissioner determines to refuse or cancel a registration as hereinabove provided he shall enter a final order herein with his findings on the register of dealers and salesmen.

It shall be sufficient cause for refusal or cancellation of registration in case of a partnership or corporation or any unincorporated association, if any member of a partnership or any officer or director of the corporation or association has been guilty of any act or omission which would be cause for refusing or canceling the registration of an individual dealer or salesman.(1925, c. 66, §12.)

§12. Burden of Proof.—It will not be necessary to negative any of the exemptions or classifications in this article provided in any complaint, information, indictment or any other writ or proceedings laid or brought under this article, and the burden of proof of any such exemption shall be upon the party claiming the benefit of such exemption or classification.(1925, c. 66, §13.)

§13. Certain Stock in Escrow.—If the statement containing information as to securities, as provided for in section seven of this article, shall disclose that any such securities shall have been or shall be intended to be issued for any patent right, copyright, trade-mark, process, lease, formulae or good will, or for promotion fees or expenses or for other intangible assets, the amount and nature thereof shall be fully set forth and the commissioner may require that such securities so issued in payment of such patent right, copyright, trade-mark, process, lease, formulae or good will, or for promotion fees or expenses, or for other intangible assets, shall be delivered in escrow to the commissioner under an escrow agreement that the owners of such securities shall not be entitled to withdraw such securities from escrow until all other stockholders who have paid for their stock in cash shall have been paid a dividend or dividends aggregating not less than six per cent, shown to the satisfaction of said commissioner to have been actually earned on the investment in any common stock so held, and in case of dissolution or insolvency during the time such securities are held in escrow, that the owners of such securities shall not participate in the assets until after the owners of all other securities shall have been paid in full. The commissioner may require the owner of any securities placed in escrow to enter into an agreement that he will not sell or otherwise dispose of such securities during the time they are held in escrow.(1925, c. 66, §14.)

§14. Practices Forbidden; Remedies.—Whenever it shall appear to the commissioner, either upon complaint or otherwise, that in the issuance, sale, promotion, negotiation, advertisement or distribution of any securities within this State, including any security exempted under the provisions of section three, or in any transaction exempted under the provisions of section four, any person, as defined in this article, shall have employed or employs, or is about to employ, any device, scheme or artifice to defraud or for obtaining money or property by means of any false pretense, representation or promise, or that any such person shall have made, makes or attempts to make in this State fictitious or pretended purchases or sales of securities or shall have engaged in or engages in or is about to engage in any practice or transaction or course of business relating to the purchase or sale of securities which is fraudulent or in violation of law and which has operated or which would operate as a fraud upon the purchaser, any one or all of which devices, schemes, artifices, fictitious or pretended purchases or sales of securities, practices, transactions and courses of business which are hereby declared to be and are hereinafter referred to as fraudulent practices, the commissioner may investigate, and, whenever he shall believe from evidence satisfactory to him that any such person has engaged in, is engaged or about to engage in any of the practices or transactions heretofore referred to as and declared to be fraudulent practices, he may, in addition to any other remedies, bring an action in the circuit court of Kanawha county in the name and on behalf of the State of West Virginia against such person and any other person or persons heretofore concerned in or in any way participating in or about to participate in such fraudulent practices to enjoin such person, and such other person or persons from continuing such fraudulent practices or engaging therein or doing any act or acts in furtherance thereof. In such action a judgment may be entered awarding such injunction as may be proper. In no case shall the commissioner incur any official or personal liability by instituting in junction or other proceedings or by suspension, revocation or cancellation of any registration under this article.(1925, c. 66, §15.)

§15. Certain Sales Void; Liability to Purchaser.—Every sale or contract for sale made in violation of any of the provisions of this article shall be voidable at the election of the purchaser and the person making such sale or contract for sale and every director, officer or agent of or for such seller who shall have participated or aided in any way in making such sale shall be jointly and severally liable to such purchaser in an action at law in any court of competent jurisdiction, upon tender to the seller of the securities sold or of the contract made, for the full amount paid by such purchaser, together with all taxable court costs and reasonable attorney’s fees in any action or tender under this section: Provided, That no action shall be brought for the recovery of the purchase price after two years from the date of such sale or contract for sale: And provided further, That no purchaser otherwise entitled shall claim or have the benefit of this section who shall have refused or failed within a reasonable time to accept the voluntary offer of the seller to take back the security in question and to refund the full amount paid by such purchaser, together with interest on such amount for the period from the date of payment by such purchaser down to the date of repayment, such interest to be computed:

(a) In case such securities consist of interest bearing obligations, at the same rate as provided in such obligations; and

(b) In case such securities consist of other than interest bearing obligations, at the rate of six per cent per annum; less, in every case, the, amount of any income from such securities that may have been received by such purchaser.(1925, c. 66, §16.)

§16. Appeals Allowed.—An appeal may be taken by any person interested from any final order of the commissioner to the circuit court of Kanawha county by serving upon the commissioner within twenty days after the date of the entry of such order a written notice of d such appeal, stating the grounds upon which a reversal of such final order is sought, together with a demand in writing for a certified transcript of the record and of all papers on file in his office affecting or relating to such order, and by executing a bond in the penal sum of five thousand dollars payable to the State of West Virginia with sufficient surety, to be approved by the commissioner, conditioned upon the faithful prosecution of such appeal to final judgment, and the payment of all costs which shall be adjudged against the appellant. Thereupon the commissioner shall within ten days make, certify and deliver to the appellant such a transcript; and the appellant shall within five days thereafter file the same and a copy of the notice of appeal with the clerk of said court, which notice of appeal shall stand as appellant’s complaint, and thereupon such cause shall be entered on the trial calendar of said court for trial de novo. The court shall receive and consider any pertinent evidence, whether oral or documentary, concerning the order of the commissioner from which the appeal is taken. If the order of the commissioner shall be reversed, said court shall, by its mandate, specifically direct said commissioner as to his further action in the matter, including the making and entering of any order or orders in connection therewith, and the conditions, limitations or restrictions to be therein contained: Provided, That the commissioner shall not thereby be barred from thereafter revoking or altering such order for any proper cause which may thereafter arise or be discovered. If such order shall be affirmed, such appellant shall not be barred after thirty days from filing a new application provided such application is not otherwise barred or limited. Such appeal shall not in anywise suspend the operation of the order appealed from during the pendency of such appeal unless upon proper order of the court. An appeal may be taken from the judgment of the said circuit court on any such appeal on the same terms and conditions as an appeal is taken in civil actions.(1925, c. 66, §17.)

§17. Fees Paid Into State Treasury.—All fees herein provided for shall be collected by the commissioner and shall be turned into the state treasury.(1925, c. 66, §18.)

§18. Offenses; Penalty; Indictment.—Any person, issuer, dealer, salesman or agent, as defined in section two of this article, or any or all of the officers or agents thereof, alone or in conjunction with others, having devised or intending to devise any scheme or artifice to defraud any person or persons by or through the sale of any securities, as defined in said section two, including securities exempted from registration under section three of this article and including transactions exempt under section four of this article, or through the sale of real estate situate outside of this State, who shall, for the purpose of executing or attempting to execute such scheme or artifice, commit any overt act within this State, shall be guilty of a felony, and, upon conviction thereof, shall be punished by a fine of not more than five thousand dollars, or by imprisonment in the penitentiary for not more than five years, or by both such fine and imprisonment, at the discretion of the court.

An indictment under this section shall be sufficient if substantially as follows:

State of West Virginia,

County of............................, to-wit:

In the............................court of said county. The grand jurors of the State of West Virginia in and for the body of the county of ............................., and now attending said court, upon their oaths, present that................................ as.................................. (issuer, dealer, salesman, agent or officer, as the case may be), having devised or intending to devise a scheme or artifice to defraud, by or through the sale of certain securities, to-wit, (set out the security or securities here as defined in section two of this article), and who for the purpose of executing or intending to execute such scheme or artifice to defraud, on the...............day of........................ 19....., and in the county of............................., did unlawfully and feloniously induce......................... ........................to subscribe and pay for....... shares of the capital stock of................................, at..................................dollars per share, making in all..................................dollars worth of stock for which the said...................................................subscribed and paid, (or state briefly any other overt act committed in pursuance of such scheme or artifice to defraud.)

Against the peace and dignity of the State.(1925, c. 66, §19.)

§19. False Representations; Penalty.—Any person, issuer, dealer, salesman or agent, as defined in section two of this article, who shall, with intent to induce the purchase of any securities, as defined in said section two, including securities exempted from registration under section three of this article and including transactions exempt under section four of this article, or of any real estate situate outside of this State, knowingly or recklessly make any false statement, either oral or written, or knowingly or recklessly conceal any fact materially affecting the value of such securities, or of such real estate, shall be guilty of a felony, and, upon conviction thereof, shall be punished by a fine of not more than five thousand dollars, or by imprisonment in the penitentiary for not more than two years, or by both such fine and imprisonment, at the discretion of the court.(1925, c. 66, §20.)

§20. Signing False Statement; Penalty.—Any person signing any statement, list, inventory, balance sheet or other paper or document required to be verified or sworn to, knowing any representation therein contained to be false or untrue (and the depositing of any such statement or document in the office of the commissioner in connection with any registration under this article, shall be deemed prima facie evidence of knowledge of the falsity thereof or of any representation therein contained, and of the willful signing of such statement or document), shall be guilty of false swearing and shall be subject to the penalties prescribed by the laws of this State therefor.(1925, c. 66, §21.)

§21. Selling Securities in Violation of This Article; Penalty.—Any person, issuer, dealer, salesman or agent who shall sell or offer to sell any securities without compliance with the provisions of this article, shall be guilty of a misdemeanor, and, upon conviction thereof, shall be punished by a fine of not more than one thousand dollars, or by imprisonment in the county jail for not more than one year, or by both such fine and imprisonment, at the discretion of the court.(1925, c. 66, §22.)

§22. Other Offenses; Penalties.—Any person or persons, violating any of the provisions of this article, for which no other penalty is provided shall be guilty of a misdemeanor, and, upon conviction thereof, shall be punished by a fine of not more than five hundred dollars, or by imprisonment in the county jail for not more than six months, or by both such fine and, imprisonment, at the discretion of the court.(1925, c. 66, §23.)

§1. Unlawful to Sell Certain Securities Unless Full Disclosure of Facts be Made.—It is unlawful for any corporation which has issued, or proposes to issue, any of its corporate securities of any description whatsoever, in payment for property, tangible or intangible, of any nature and description whatsoever, or for promo tion purposes, or in payment for any services rendered, or to be rendered, to such corporation, by any officer, agent or employee, or for such officer, agent, broker or other person for such corporation, or any person who has received any securities for any such property, to sell, or to enter into any contract, agreement or arrangement to sell, any of its shares of stock, or any of his shares of stock so acquired, in this State, whether or not such securities are registered under the provisions of article one of this chapter, unless it or he shall first furnish and deliver to the person to whom it is proposed to make any sale, a statement in writing showing specifically all such property, tangible or intangible, which it has received, or proposes to acquire, by issuing in payment therefor any of its corporate securities, and the quantity and class of any securities which it has issued, or proposes to issue, in payment for each item of such properties, and the value of each item of such properties; and for promotion purposes, and for services rendered or to be rendered and the kind of services. Such statement shall be sworn to by the president and treasurer of the corporation: Provided, That printed copies of the original statement may be used if the original statement be delivered to and filed in the office of the commissioner of securities. If any such statement be false in whole or in part, each person making affidavit to the same shall be guilty of false swearing and shall be punished as in other cases of false swearing.

In addition to the penalties imposed by this chapter, or by any other provision of law, each corporation, all of the directors thereof, and the officers, agents, employees and brokers making or aiding in any sale for a corporation, in violation of the provisions of this section, shall be liable jointly and severally to the purchaser, and any person selling his securities in violation hereof shall be liable for the price for which such securities are sold, with interest thereon from the date of sale; and any such purchaser may, within five years from the date of purchase, recover from any or all of the persons so liable, the amount, with interest thereon, paid for such securities.

This section shall not apply to a corporation, or to the sale of the securities thereof, which at the time has an established business and which, during each of the two preceding years, earned over and above all fixed charges a sum available for the payment of dividends equal to at least five per cent of par of all of its outstanding shares having a par value, and five per cent of the amount at which its shares having no par value, if any, are carried on its books.

§2. Corporations Selling Securities Must Disclose to Purchaser Fact if Other Securities of Same Class Have Been Sold at a Lower Price.—If any corporation issue and dispose of any of its securities with or without par value, at or for a specified consideration or price, it shall be unlawful for such corporation or for any officer, agent, broker or other person, on behalf of such corporation, thereafter, to sell any of its securities of the same class or classes in this State, at or for a higher price, unless it shall first furnish and deliver to the person to whom it is proposed to make such sale a statement in writing showing the quantity, class, date of issue and price or prices at which its securities then outstanding were issued and disposed of, which statement shall be sworn to by the president and treasurer of the corporation: Provided, That printed copies of the original statement may be used if the original statement be delivered to and filed in the office of the commissioner of securities.

In addition to the penalties imposed by this chapter or by any other provision of law, each corporation, all of the directors thereof, and the officers, agents and brokers making, or aiding in making, any sale of securities in violation of this section, shall be jointly and severally liable to the purchaser for the price for which such securities are sold, with interest thereon from the date of sale; and any such purchaser may, within five years from the date of purchase, recover from any or all of the persons so liable, the amount, with interest thereon, paid for such securities.

§3. Sale of Certain Lands, Mines, Oil and Gas Leases, Etc., Unlawful.—It is unlawful for any person, partnership or corporation to sell, or offer for sale, in this State, any lands, situate out of this State, which are to be planted in trees or vines or divided into town or suburban lots, or any unimproved or undeveloped lands, the value of which materially depends on the future performance of any stipulation or promise to furnish irrigation, transportation facilities, streets, sidewalks, sewers, gas, light, or other value enhancing utility or improvement; or any undivided part or share, whether an aliquot part or a part designated on any other basis, of any mine, mineral claim, leasehold or other estate in any mine, mineral, oil or gas, or in the lands containing the same, regardless of where located or situated, the value of which materially depends on the future discovery or development and production of the minerals, including oil and gas, without first having filed with the commissioner of securities a detailed description of the property which, or an interest in or part or share of which, is proposed to be sold, and such information with respect to the value thereof and the title to such property or properties as the commissioner of securities shall require, and without causing such property to be registered by the commissioner of securities in the manner provided for registration of securities by qualification under article one of this chapter; and no person shall sell or offer any such property for sale until he has been registered as a salesman by the commissioner of securities under the provisions for registering dealers and salesmen of securities, contained in article one of this chapter. All of the provisions contained in article one of this chapter governing the registration of securities by qualification, and the registration of dealers and salesmen, shall apply to the registration of properties and salesmen under this section: Provided, That nothing herein shall prevent any bona fide owner of any such land, mine, mining lease, mineral claim, oil or gas rights, leasehold or other property, or interest therein, from selling the same on his own account and not as a part, or in furtherance, of any promotion.

§4. Untrue or Misleading Advertising; How Punished.—Any person or corporation who, with intent to sell or in anywise dispose of merchandise, securities, service or anything offered by such person or corporation, directly or indirectly, to the public for sale or distribution, or with intent to increase the consumption thereof, or to induce the public in any manner to enter into any obligation relating thereto, or to acquire title thereto, or any interest there in, makes, publishes, disseminates, circulates, or places before the public, or causes, directly or indirectly, to be made, published, disseminated, circulated, or placed before the public in this State, in a newspaper or other publication, or in the form of a book, notice, handbill, poster, blue print, map, bill, tag, label, circular, pamphlet, or letter, or in any other way, and advertisement of any sort regarding merchandise, securities, service, land, lot, or anything so offered to the public, which advertisement contains any promise, assertion, representation or statement of fact which is untrue, deceptive or misleading, shall be guilty of a misdemeanor, and, upon conviction thereof, be punished by a fine of not more than two thousand dollars, or confined in jail for a period of not more than six months, or by both such fine and imprisonment.

§5. Penalties.—Any person or corporation who violates any provision of this article, and any person aiding or abetting in such violation, for which a specific penalty is not otherwise provided, shall be guilty of a misdemeanor, and, on conviction therefor, shall be punished by a fine of not more than five thousand dollars, or by confinement in the jail for not more than one year.

§6. Information as to Violations to be Furnished to Commissioner of Securities.—It is the duty of all sheriffs, deputy sheriffs, prosecuting attorneys, assistant prosecuting attorneys, justices, constables, officers and employees of all state banking institutions, and all persons in the employment of the State in any capacity, to promptly report to the commissioner of securities all information obtained by them, showing or tending to show, that any person or corporation is doing any act or engaging in any business in violation of any of the provisions of this chapter; and the commissioner of securities may pay the costs of having any such information transmitted by telegraph or telephone as a part of the expenses properly incurred in the administration of this chapter.

§7. Right to Punish Under Other Statutes.—The fact that any security or property is registered and/or any dealer or salesman is registered or licensed under any provision of this chapter shall be no bar or defense to the conviction and punishment of any person whether or not registered, for making any statement or doing any act or thing which is in violation of, and punishable under, any other law of the State. No penalty or punishment prescribed in this chapter for any violation of any provisions hereof is intended to be or shall be in substitution for, or in lieu of, any other penalty or punishment for such act prescribed by any other statute.

§8. Indictment; Not Necessary to Negative Any Exception; Knowledge.—In any indictment for violation of any provision of this chapter, it shall not be necessary to negative any exception contained in any proviso or elsewhere, in this chapter. Any person accused shall be deemed to have had knowledge of any matter of fact when, by the exercise of reasonable diligence before the commission of the offense with which he is charged, he could have secured such knowledge.

§9. Saving if Part Unconstitutional.—If any provision of this chapter, or the application thereof to any person or circumstance, is held invalid, the remainder of the chapter, and the application of such provision to other persons or circumstances, shall not be affected thereby.