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H. 3017
STATUS INFORMATION
General Bill
Sponsors: Reps. Kirsh, Clyburn and Bales
Document Path: l:\council\bills\pt\2148mm05.doc
Introduced in the House on January 11, 2005
Currently residing in the House Committee on Labor, Commerce and Industry
Summary: Changes to Uniform Securities Act
HISTORY OF LEGISLATIVE ACTIONS
Date Body Action Description with journal page number
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12/8/2004 House Prefiled
12/8/2004 House Referred to Committee on Labor, Commerce and Industry
1/11/2005 House Introduced and read first time HJ-49
1/11/2005 House Referred to Committee on Labor, Commerce and Industry
HJ-51
View the latest legislative information at the LPITS web site
VERSIONS OF THIS BILL
TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 1976, BY ADDING SECTION 35-1-1250 SO AS TO PROHIBIT ADDITIONAL ACTIVITIES IN CONNECTION WITH A TRANSACTION IN A SECURITY, INCLUDING FICTITIOUS PRICE QUOTATIONS, CREATION OF A DECEPTIVE APPEARANCE OF ACTIVE TRADING OR OTHER ACTIVITY, ISSUANCE OF DECEPTIVE ANALYSES, REPORTS, OR FINANCIAL STATEMENTS, AND OTHER MANIPULATION OF THE MARKET IN THAT SECURITY; TO AMEND SECTION 35-1-20, AS AMENDED, RELATING TO THE DEFINITION OF INVESTMENT ADVISOR FOR PURPOSES OF THE UNIFORM SECURITIES ACT, SO AS TO DELETE THE EXCLUSION OF A FEDERAL COVERED ADVISER AND AN OUTDATED REFERENCE; TO AMEND SECTION 35-1-70, AS AMENDED, RELATING TO FINANCIAL STATEMENTS REQUIRED BY THE SECURITIES COMMISSIONER, SO AS TO CHANGE "GENERALLY ACCEPTED ACCOUNTING PRACTICES" TO "GENERALLY ACCEPTED ACCOUNTING PRINCIPLES"; TO AMEND SECTION 35-1-420, AS AMENDED, RELATING TO REGISTRATION OF INVESTMENT ADVISERS, SO AS TO MAKE TECHNICAL CHANGES; TO AMEND SECTION 35-1-440, AS AMENDED, RELATING TO APPLICATIONS FOR REGISTRATION, SO AS TO PROVIDE THAT AN APPLICATION MAY BE WITHDRAWN ONLY AS ORDERED BY THE SECURITIES COMMISSIONER IF THE COMMISSIONER PROCEEDS TO POSTPONE OR DENY AN APPLICATION; TO AMEND SECTION 35-1-820, AS AMENDED, RELATING TO REGISTRATION OF SECURITIES BY NOTIFICATION, SO AS TO CHANGE "GENERALLY ACCEPTED ACCOUNTING PRACTICES" TO "GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" AND TO MAKE TECHNICAL CHANGES; TO AMEND SECTION 35-1-900, AS AMENDED, RELATING TO FEES IN CONNECTION WITH REGISTRATION, SO AS TO PROVIDE THAT AN AMENDMENT OF A FILED REGISTRATION STATEMENT AFTER ITS EFFECTIVE DATE REQUIRES A FILING FEE OF TWO HUNDRED FIFTY DOLLARS; TO AMEND SECTION 35-1-1490, AS AMENDED, RELATING TO LIABILITY FOR ILLEGAL OR FRAUDULENT TRANSACTIONS IN SECURITIES, SO AS TO MAKE IT UNLAWFUL TO USE FRAUD OR DECEIT IN ADVISING ON THE SALE OR PURCHASE OF A SECURITY AND IN PURCHASING A SECURITY AND TO PROVIDE FOR PUNITIVE DAMAGES IN THOSE INSTANCES AND IN THE CASE OF A FRAUDULENT SALE OR OFFER TO SELL; TO AMEND SECTION 35-1-1500, AS AMENDED, RELATING TO JOINT AND SEVERAL LIABILITY, SO AS TO PROVIDE FOR THE LIABILITY OF A PERSON WHO CONTROLS ANOTHER PERSON WHO IS LIABLE FOR ILLEGAL OR FRAUDULENT SECURITIES TRANSACTIONS; TO AMEND 35-1-1530, AS AMENDED, RELATING TO LIMITATION OF ACTIONS, SO AS TO DELETE REFERENCES TO OFFERS OF REFUNDS BEFORE FILING SUIT; TO AMEND SECTION 35-1-1590, AS AMENDED, RELATING TO CRIMINAL PENALTIES FOR VIOLATIONS OF THE UNIFORM SECURITIES ACT, SO AS TO MAKE IT A FELONY TO MAKE FALSE STATEMENTS, DESTROY OR CONCEAL DOCUMENTS, AND OTHERWISE OBSTRUCT OR INTERFERE WITH AN AUDIT, EXAMINATION, OR INVESTIGATION BY THE SECURITIES COMMISSIONER AND TO PROVIDE PENALTIES FOR VIOLATIONS; BY ADDING SECTION 11-35-37 SO AS TO PROVIDE THAT A PERSON WHO VIOLATES THE UNIFORM SECURITIES ACT OR WHO IS INCORPORATED IN A TAX HAVEN IS AN INELIGIBLE VENDOR; AND TO AMEND SECTION 34-3-540, AS AMENDED, RELATING TO ADMISSIBILITY OF BANK RECORDS IN EVIDENCE, SO AS TO PROVIDE THAT THE SECURITIES COMMISSIONER HAS ACCESS TO THE FINANCIAL RECORDS OF A CUSTOMER OF A FINANCIAL INSTITUTION IN CONNECTION WITH AN INVESTIGATION CONDUCTED PURSUANT TO THE UNIFORM SECURITIES ACT.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. Chapter 1, Title 35 of the 1976 Code is amended by adding:
"Section 35-1-1250. (A) In addition to other prohibitions of this article, it is unlawful for a person to:
(1) wilfully quote a fictitious price with respect to a security;
(2) effect a transaction in a security that involves no change in the beneficial ownership of the security for the purpose of creating a false or misleading appearance of active trading in a security or activity with respect to the market for the security;
(3) enter an order for the purchase of a security with the knowledge that, at substantially the same time, an order of substantially the same size and at substantially the same price for the sale of the security has been, or will be, entered by or for the same person or an affiliated person for the purpose of creating a false or misleading appearance of active trading in a security or an activity with respect to the market for the security;
(4) enter an order for the sale of a security with knowledge that, at substantially the same time, an order of substantially the same size and at substantially the same price for the purchase of the security has been, or will be, entered by or for the same person or an affiliated person for the purpose of creating a false or misleading appearance of active trading in a security or an activity with respect to the market for the security; or
(5) employ another deceptive or fraudulent device, scheme, or artifice to manipulate the market in a security, including the issuance of analyses, reports, or financial statements that are false or misleading in any material respect.
(B) A transaction effected in compliance with the applicable provisions of the Securities Exchange Act of 1934 and the rules and regulations of the Securities and Exchange Commission is not manipulation of the market as described in subsection (A)."
SECTION 2. Section 35-1-20(8) of the 1976 Code, as last amended by Act 134 of 1997, is further amended to read:
"(8) 'Investment adviser' means any a person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities or who, for compensation and as a part of a regular business, issues or promulgates analyses or reports concerning securities. 'Investment adviser' also includes a financial planners planner and other persons person who, as an integral component of other financially related services, provide provides the foregoing described investment advisory services to others for compensation and as part of a business or who hold themselves holds himself out as providing the foregoing those investment advisory services to others for compensation.
'Investment adviser' does not include:
(a) an employee of an investment adviser;
(b) a bank, savings institution, or trust company;
(c) a lawyer, accountant, engineer, or teacher whose performance of these services is solely incidental to the practice of his profession;
(d) a broker-dealer whose performance of these services is solely incidental to the conduct of his business as a broker-dealer and who receives no special compensation for them;
(e) a publisher of any bona fide newspaper, news column, newsletter, news magazine, or business or financial publication or service, whether communicated in hard copy form, or by electronic means, or otherwise, that does not consist of the rendering of advice on the basis of the specific investment situation of each client;
(f) any person that is a federal covered adviser; or
(g) such other persons not within the intent of this item as the securities commissioner may designate by rule or order designate. Until October 10, 1999, the exclusions provided in Section 35-1-20(8)(f) shall not apply to a person who fails to pay the fees required under Section 35-1-480(B) of this chapter."
SECTION 3. Section 35-1-70 of the 1976 Code, as last amended by Act 134 of 1997, is further amended to read:
"Section 35-1-70. (A) The securities commissioner may prescribe by rule or order prescribe:
(a)(1) the form and content of a financial statements statement required under pursuant to this chapter,;
(b)(2) the circumstances under which a consolidated financial statements shall statement must be filed; and
(c)(3) whether any a required financial statements shall statement must be certified by an independent or a certified public accountants accountant.
(B) All financial statements shall must be audited and prepared in accordance with generally accepted accounting practices principles, except as otherwise provided by the securities commissioner by rule or order."
SECTION 4. Section 35-1-420 of the 1976 Code, as last amended by Act 134 of 1997, is further amended to read:
"Section 35-1-420. (1)(A) It is unlawful for any a person to transact business in this State as an investment adviser or investment adviser representative unless he is registered under pursuant to this chapter or exempt from licensing under pursuant to this chapter. The following An investment advisers advisor or investment advisor representative are is exempt from the licensing requirements of Section 35-1-420 this chapter if:
(a) an investment adviser if:
(i)(1) it has as its only clients in this State are other investment advisers, federal covered advisers, broker-dealers, or financial or institutional investors; or
(ii)(2) it has no place of business in this State and the investment adviser during the preceding twelve-month period it has not had more than five clients, other than those specified in sub-subitem (i) item (1), who are residents of this State; and
(b)(3) other investment advisers it is exempt by the securities commissioner, by rule or order, exempts.
(2)(a)(B) It is unlawful for:
(1) any a person required to be registered as an investment adviser under pursuant to this chapter to employ an investment adviser representative unless the investment adviser representative is registered under pursuant to this chapter. The registration of an investment adviser representative is not effective during any a period when that he is not employed by an investment adviser registered under pursuant to this chapter or a federal covered adviser not required to be registered.; and
(b)(2) It is unlawful for an investment adviser representative of a federal covered adviser to transact business unless such the investment adviser representative is registered under pursuant to this chapter, or is exempt from registration.
(c)(C) When If an investment adviser representative begins or terminates employment with an investment adviser or a federal covered adviser, the investment adviser, in the case of Section 35-1-420(2)(a) subsection (B)(1) and the investment adviser representative in the case of Section 35-1-420(2)(b) subsection (B)(2), shall notify promptly notify the securities commissioner."
SECTION 5. Section 35-1-440 of the 1976 Code, as last amended by Act 134 of 1997, is further amended to read:
"Section 35-1-440. (A) A broker-dealer, an agent, an investment adviser, or an investment adviser representative may obtain an initial or renewal registration by filing with the securities commissioner an application together with a consent to service of process pursuant to Section 35-1-1410. The application must contain whatever information the securities commissioner by rule or order requires concerning: such matters as
(a)(1) the applicant's form and place of organization,;
(b)(2) the applicant's proposed method of doing business,;
(c)(3) the qualifications and business history of the applicant,;
(d)(4) in the case of a broker-dealer or investment adviser, the qualifications and business history of any partner, officer, or director, any of a person occupying a similar status or performing similar functions, or any of a person directly or indirectly controlling the broker-dealer or investment adviser,;
(e)(5) in the case of an investment adviser, the qualifications and business history of any an employee,;
(f)(6) any injunction, or administrative order, or conviction of a misdemeanor involving a security or any an aspect of the securities business and any a conviction of a felony,;
(g)(7) the applicant's financial condition and history; and
(h)(8) information to be furnished or disseminated to any client or prospective client, if the applicant is an investment adviser.
(B) For all applicants who are not members of the National Association of Securities Dealers (NASD), a criminal record history must be obtained, at the rate set by law, from the South Carolina Law Enforcement Division on an applicant's initial application for registration under pursuant to this section. All convictions of misdemeanors involving a security or any aspect of the securities business and all felonies recorded within ten years of the date of the application must be noted on the registration.
(C) If the securities commissioner institutes a proceeding pursuant to this chapter to postpone or deny an application for registration, the applicant may withdraw the application only at the time and pursuant to the conditions the securities commissioner determines by order."
SECTION 6. Section 35-1-820 of the 1976 Code, as last amended by Act 134 of 1997, is further amended to read:
"Section 35-1-820. The following securities may be registered by notification, whether or not they the securities also are also eligible for registration by coordination under pursuant to Section 35-1-840:
(1) any security whose issuer and any predecessors have been in continuous operation for at least five years, if:
(a) there has been no default during the current fiscal year or within the three preceding fiscal years in the payment of principal, interest, or dividends on any security of the issuer, or any predecessors, with a fixed maturity or a fixed interest or dividend provisions provision; and
(b) the issuer and any predecessors during the past three fiscal years have had average net earnings, determined in accordance with generally accepted accounting practices, principles;
(i) which are applicable to all securities without a fixed maturity or a fixed interest or dividend provision outstanding at the date the registration statement is filed and equal at least five percent of the amount of such those outstanding securities, as measured by the maximum offering price or the market price on a day, selected by the registrant, within thirty days before the date of filing the registration statement, whichever is higher, or book value on a day, selected by the registrant, within ninety days of the date of filing the registration statement to the extent that there is neither a readily determinable market price nor a cash offering price,; or
(ii) which, if the issuer and any predecessors have not had any a security of the type specified in clause subsubitem (i) outstanding for three full fiscal years, equal at least five percent of the amount, as measured in clause subsubitem (i), of all securities which will be outstanding if all the securities being offered or proposed to be offered, whether or not they are proposed to be registered or offered in this State, are issued; and
(2) any security, other than a certificate of interest or participation in an oil, gas, or mining title, or lease, or in payments out of production under such a that title or lease, registered for nonissuer distribution if:
(a) any a security of the same class has ever been registered under pursuant to this chapter or a predecessor law; or
(b) the security being registered was issued originally issued pursuant to an exemption under provided by this chapter or a predecessor law."
SECTION 7. Section 35-1-900 of the 1976 Code, as last amended by Act 134 of 1997, is further amended to read:
"Section 35-1-900. (A) Every Each person filing a registration statement shall pay a filing fee as required by the securities commissioner. A filing fee of five hundred dollars shall remain in effect unless and until the securities commissioner promulgates a rule or order establishing a different fee. No A registration statement may must not be renewed or reregistered unless another filing fee of five hundred dollars or other appropriate amount as may be specified by the securities commissioner is paid. When a registration statement is withdrawn before the effective date or a preeffective stop order is entered under Sections 35-1-1010 to 35-1-1050 pursuant to this chapter, the securities commissioner shall retain the entire filing fee.
(B) Amendment of a filed registration statement after its effective date so as to increase the proposed securities offer must be accompanied by a filing fee of two hundred fifty dollars or the appropriate amount specified by the securities commissioner and is effective on the date ordered by the securities commissioner."
SECTION 8. Section 35-1-1490 of the 1976 Code, as last amended by Act 134 of 1997, is further amended to read;
"Section 35-1-1490. (A) Any It is unlawful for a person who to:
(1) offers offer or sells sell a security in violation of subsection (2) of Section 35-1-170 or Section 35-1-410 or Section 35-1-810, or of any rule or order under Section 35-1-50 which requires the affirmative approval of sales literature before it is used or of any condition imposed under Section 35-1-950 or Section 35-1-990; or
(2) Offers offer or sells sell a security by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, the buyer not knowing of the untruth or omission, and who does not sustain the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of the untruth or omission;
(3) violate Section 35-1-1220 by practicing fraud or deceit in advising on the purchase or sale of a security as described; or
(4) purchase a security by means of an untrue statement of a material fact or an omission to state a material fact necessary in order to make the statement made, in the light of the circumstances under which it is made, not misleading, the seller not knowing of the untruth or omission, and who does not sustain the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of the untruth or omission.
(B) A person who commits an act prohibited in subsection (A) is liable to the person purchasing the security from him as provided in items (1)-(3), or to the person selling the security pursuant to his advice as provided in item (4), who may sue either at law or in equity is liable to the person buying purchasing the security from him or selling the security pursuant to his advice who may sue either at law or in equity to recover the consideration paid for the security, together with interest at six percent per each year from the date of payment, costs, and reasonable attorneys' fees, less the amount of any income received on the security, upon the tender of the security, or for damages if he no longer owns the security. Damages are the amount that would be recoverable upon a tender less the value of the security when the buyer disposed of it and interest at six percent per each year from the date of disposition. Additionally, the claimant may sue for punitive damages."
SECTION 9. Section 35-1-1500 of the 1976 Code, as last amended by Act 134 of 1997, is further amended to read:
"Section 35-1-1500. Every Each person who directly or indirectly controls a seller person liable under pursuant to Section 35-1-1490, every each partner, officer, or director of such a seller person, every each person occupying a similar status or performing similar functions, every each employee of such a seller person who materially aids in the sale, and every each broker-dealer or agent who materially aids in the sale also are also liable jointly and severally with and to the same extent as the seller person, unless the nonseller who is so liable he sustains the burden of proof that he did not know, and in exercise of reasonable care could not have known, of the existence of the facts by reason of which the liability is alleged to exist. There is contribution as in cases of contract among the several persons so liable."
SECTION 10. Section 35-1-1530 of the 1976 Code, as last amended by Act 78 of 2003, is further amended to read:
"Section 35-1-1530. No A person may not sue under as provided in Section 35-1-1490 or 35-1-1500 more than three years after the contract of sale, except that in cases involving a violation of Section 35-1-1490(2), where the cause of action accrues on or after July 1, 2003, the limitations period is extended to three years after discovery of the untrue statement or omission or after the discovery should have been made by exercise of reasonable diligence. No person may sue under either section if the buyer received:
(a) a written offer, before suit and at a time when he owned the security, to refund the consideration paid together with interest at six percent per year from the date of payment, less the amount of any income received on the security, and he failed to accept the offer within thirty days of its receipt; or
(b) the offer before suit and at a time when he did not own the security, unless he rejected the offer in writing within thirty days of its receipt."
SECTION 11. Section 35-1-1590 of the 1976 Code, as last amended by Act 311 of 1998, is further amended to read:
"Section 35-1-1590. (A) Any A person who wilfully violates any a provision of this chapter except Section 35-1-160, who wilfully violates any rule or order under provided by this chapter, or who wilfully violates Section 35-1-160, knowing the statement made to be false or misleading in any material respect, is guilty of a:
(1) felony and, upon conviction, must be fined not more than fifty thousand dollars or imprisoned not more than ten years, or both, if the person's actions result in loss to an investor of twenty thousand dollars or more;
(2) felony and, upon conviction, must be fined in the discretion of the court or imprisoned not more than five years, or both, if the person's actions result in loss to an investor of more than one thousand dollars but less than twenty thousand dollars;
(3) misdemeanor and, upon conviction, must be fined not more than thirty thousand dollars or imprisoned not more than three years, or both, if the person's actions result in loss to an investor of one thousand dollars or less, or if no losses are proven.
However, no a person may not be imprisoned for the violation of any rule or order if he proves that he had no knowledge of the rule or order.
(B) A person who wilfully makes or causes to be made to the securities commissioner, or his designee, any false, misleading, or unfounded oral or written statement for the purpose of interfering with the performance of an audit, examination, or investigation by the securities commissioner pursuant to this chapter, or who wilfully (1) creates, causes to be made, produces, destroys, alters, conceals, or secretes a record, report, or document, or (2) hinders or obstructs the securities commissioner, or his designee, in the performance of his duties pursuant to this chapter, is guilty of a felony and, upon conviction, must be fined not more than fifty thousand dollars or imprisoned not more than ten years, or both."
SECTION 12. The 1976 Code is amended by adding:
"Section 11-35-37. (A) For purposes of this section:
(1) 'Ineligible vendor' means a vendor or an affiliate of the vendor, as defined in Section 1563 of the Internal Revenue Code, who must not be a vendor of goods and services pursuant to this chapter.
(2) 'Tax haven' means a jurisdiction outside the United States of America that facilitates the incorporation of business entities or the deposit of funds of business entities, or both of them, seeking to avoid payment of income taxes properly payable to the United States of America.
(B)(1) The State may not enter into a contract for goods or services subject to the provisions of this chapter if the vendor has an officer, director, or owner of an unincorporated business entity, or affiliate of any of them, who was convicted of a violation of Chapter 1 of Title 35, the Uniform Securities Act, the Securities Act of 1933, or the Securities Exchanged Act of 1934, within ten years immediately before the date of the bid solicitation.
(2) Each vendor submitting a bid for a contract for goods or services pursuant to this chapter shall certify that none of its officers, directors, or owners of an unincorporated business entity, or affiliate of any of them, has been convicted of a violation described in item (1) within ten years immediately before the date of the bid solicitation. False certification is a felony and, upon conviction, a person must be fined not more than one hundred thousand dollars or imprisoned not more than ten year, or both.
(3) A contract entered into in violation of this section is void. A contract that is void pursuant to this section may continue in effect until an alternative is arranged if:
(i) immediate termination results in harm to the public health or welfare; and
(ii) the continuation is approved by the State Budget and Control Board.
Approval of continuation of contracts pursuant to this subsection must be given only for the minimum period necessary to protect the public health or welfare.
(4) This section does not impose a duty on the purchasing agent to investigate or verify the information contained in a vendor's certification.
(C) The State may not enter into a contract pursuant to this chapter with a vendor if the vendor or the vendor's officer, director, or owner of an unincorporated business entity, or affiliate of any of them, is incorporated in a tax haven, even if the United States is the principle market for public trading of its stock."
SECTION 13. Section 34-3-540 of the 1976 Code, as last amended by Act 331 of 1998, is further amended by adding at the end:
"(C) Notwithstanding another provision of law to the contrary, the securities commissioner, or his designee, may have access to the financial records of a customer of a financial institution if the records are described with reasonable specificity and are sought pursuant to an investigation conducted by the securities commissioner pursuant to Chapter 1, Title 35."
SECTION 14. The repeal or amendment by this act of any law, whether temporary or permanent or civil or criminal, does not affect pending actions, rights, duties, or liabilities founded thereon, or alter, discharge, release or extinguish any penalty, forfeiture, or liability incurred under the repealed or amended law, unless the repealed or amended provision shall so expressly provide. After the effective date of this act, all laws repealed or amended by this act must be taken and treated as remaining in full force and effect for the purpose of sustaining any pending or vested right, civil action, special proceeding, criminal prosecution, or appeal existing as of the effective date of this act, and for the enforcement of rights, duties, penalties, forfeitures, and liabilities as they stood under the repealed or amended laws.
SECTION 15. If any section, subsection, paragraph, subparagraph, sentence, clause, phrase, or word of this act is for any reason held to be unconstitutional or invalid, such holding shall not affect the constitutionality or validity of the remaining portions of this act, the General Assembly hereby declaring that it would have passed this act, and each and every section, subsection, paragraph, subparagraph, sentence, clause, phrase, and word thereof, irrespective of the fact that any one or more other sections, subsections, paragraphs, subparagraphs, sentences, clauses, phrases, or words hereof may be declared to be unconstitutional, invalid, or otherwise ineffective.
SECTION 16. This act takes effect upon approval by the Governor and applies to a securities transaction that is finalized after that date.
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