Chap. 359.—An ACT to amend and re-enact an act entitled an act to prevent
unfairness, imposition or fraud in the sale or disposition of certain securities
herein defined by requiring an inspection and regulation of the business of
any person, association, partnership, or corporation, engaged or intending
to engage, whether as principal, broker, or agent, in the sale of any such
securities in the State of Virginia as may be necessary to prevent unfair-
ness, imposition or fraud in the sale or disposition of said securities, and
prescribing penalties for the violation thereof, approved March a 1918 :

B 151]

Approved March 20, 1920.

1. Be it enacted by the general assembly of Virginia, That an act
entitled an act to prevent unfairness, imposition or fraud in the sale
or disposition of certain securities herein defined by requiring an in-
spection thereof, providing for such inspection, supervision and regu-
lation of the business of any person, association, partnership, or cor-
poration, engaged or intending to engage, whether as principal, broker.
or agent, in the sale of any such securities in the State of Virginia as
may be necessary to prevent unfairness, imposition or fraud in the
sale or disposition of said securities, and prescribing penalties for the
violation thereof, approved March twenty-third, nineteen hundred and
eighteen, be amended and re-enacted so as to read as follows:

Sec. 1. Definitions of terms “securities,” “speculative securities,”
“speculative enterprise” and “promoter” as used in this act.—The term
“securities” as used in this act shall be taken to mean stock certificates,
shares, bonds, debentures, certificates of participation, contracts, con-
tracts or bonds for the sale and conveyance of land on deferred pay-
ments or installment plan, subscriptions to the capital stock or other
securities of any corporation or joint stock company, whether the same
has been chartered or organized or not; or other instruments 1n the
nature thereof by whatsoever name known or called. The term

“speculative securities” as used in this act shall be taken to mean and
include (1) all securities to promote or induce the sale of which, profit,
gain or advantage unusual in the ordinary course of legitimate busi-
ness is in any way advertised or promised; (2) all securities for pro-
moting the sale of which a commission of more than seven and one-
half per centum is offered or paid, either in money, stock, property or
otherwise, either directly or indirectly ; (3) the securities of any enter-
prise, association, partnership or corporation which has included or
proposes to include in its assets as a material part thereof, oil, gas,
coal or mineral lands, services of any person or persons, leases or
rights, options, patents, formulae, good-will, promotion, or intangible
assets, or which has issued or proposes to issue a material part of its
securities in payment for formulae, options, patents, good-will, pro-
motion or intangible assets, oil, gas, coal, or mineral lands, services
of any person or persons, or any consideration of a similar nature other
than money ; (4) securities made or issued in furtherance or promotion
of any enterprise or scheme for the sale of unimproved or undeveloped
land on any deferred payment or installment plan, where the value
of such securities materially depends on the future performance of
any stipulation or promise to furnish irrigation or transportation
facilities, sidewalks, sewers, gas, light, streets, or. other value en-
hancing utility or improvement; (5) contracts issued by persons or
companies commonly styling themselves as “home” companies, which
purport to entitle the holder thereof to a loan from the issuer after
the payment of certain installments or dues, or contracts of a similar
nature by whomsoever issued, or by whatsoever name called; (6)
any stock contract, certificate of participation or other agreement
which purports to permit persons, associations, partnerships or cor-
porations to purchase any property, real, personal, or intangible at a
less price or upon more favorable terms than the general public is
permitted to purchase same; (7) deeds, contracts, subscription agree-
ments or other papers or contracts, by which persons are or may
be sold title to or interests in units or lots of oil or mineral lands or
in lands outside of this State, which are so divided to be planted in
trees, vines or shrubs, or are divided or to be divided into town or
suburban lots; provided that this clause shall not be construed to
include the bona fide owners of any such lot or unit who may sell
same for his own account and not as a part of or in furtherance of any
promotion. The term “speculative enterprise” as used in this act shall
be taken to mean any business undertaking, project, venture or activity
for the promotion or furtherance of which “speculative securities” as
herein defined are made, issued, sold or offered for sale. The word
“‘promoter” as used in this act shall include any person, agent, broker,
partnership, association or corporation who shall sell, offer for sale,
advertise or do any act in furtherance of the sale, barter or exchange
of any “speculative securities” as defined in this act.

Sec. 2. Information and fees required of promoters; conditions
precedent to offering securities for sale; bond required.—It shall be
hereafter unlawful for any promoter to sell or offer for sale (except
to banks, bankers, trust companies or dealers in securities) or by
means of any advertisement, circulars or prospectus, or by any other
form of public offering, to attempt to promote the sale of any specula-
tive securities in this State until the said promoter shall have first ap-
plied for and secured from the State corporation commission, herein-
after called the commission, a permit to do so, and no such permit
shall be granted until there first shall have been filed with the com-
mission by the applicant and made a part of such application, duly
sworn to: (1) a copy of the securities so to be promoted; (2) a state-
ment in substantial detail of the assets and liabilities of the person or
company making and issuing such securities and of any person or com-
pany guaranteeing the same, including specifically the total amount of
such securities and of any securities prior thereto in interest or lien,
authorized or issued by any such person or company; (3) if such
securities are secured by mortgage or other lien, a copy of such mort-
gage or of the instrument creating such lien, and a competent appraisal
or valuation of the property covered thereby, with a specific statement
of all prior liens thereon, if any; (4) a full statement of facts showing
the gross and net earnings, if any, of any person or company making,
issuing or guaranteeing such securities, or of any property covered by
any such mortgage or lien; (5) all knowledge or information in the
possession of such promoter relative to the character or value of such
securities or of the property or earning power of the person or com-
pany making, issuing or guaranteeing the same; (6) a copy of any
prospectus or advertising matter which is to be used in connection
with such promotion, and no such prospectus or advertising matter
shall be used, unless the same has been filed hereunder, but same may
be amended from time to time, by filing copies of the amendments with
the commission; (7) the names, addresses, and selling territory in this
State of any agents by or through whom any such securities are to be
sold, and no such agents shall be employed unless such statement with
respect to them, together with satisfactory evidence of their good
character, has been filed hereunder and there shall have been paid to
the commission a registration fee of twenty-five dollars for each such
agent. The payment of such fee shall be payment in full of all fees
for registration of such agent until and including the first day of May
next following; (8) the name and address of such promoter, including
the names and addresses of all partners, if the promoter be a partner-
ship, and the names and addresses of the officers and directors or
trustees, if the promoter be a corporation or association; (9) a state-
ment showing in detail the plan on which the business or enterprise
is to be conducted; (10) the articles of co-partnership or association,
and all other papers pertaining to its organization, if the securities be
issued or guaranteed by a co-partnership or unincorporated associa-
tion; (11) a copy of its charter and by-laws if the securities be issued
or guaranteed by a corporation; (12) any other information concern-
ing the said promotion, its assets or the persons interested therein,
which the commission may require; (13) a copy of the contract to be
used in taking subscriptions for such securities wherein shall be set
out a complete and accurate statement, without unnecessary verbiage,
of any stock or security of the corporation whose securities are being
offered for sale, which has been or is proposed to be issued for any
consideration, other than par value or more in money, together with
a full statement of the exact amount which is being paid, or 1s pro-
posed or promised or contracted to be paid, directly or indirectly in
money, securities or otherwise for the promotion of such corporation
or the flotation of such securities, either directly or indirectly, to any
person whatsoever; (14) a filing fee of fifty dollars; (15) in any case
the commission shall have the right to require of any promoter before
granting a permit for the sale of stock a bond, the form whereof shall
be prescribed and the surety approved by the commission penalty
whereof shall be fixed by the commission at not more than twenty
per centum of the face value of the securities issued or proposed or
authorized to be issued. The said bond shall be with surety and pay-
able to the Commonwealth, conditioned that the facts set forth in the
application for such permit and in all other documents required by
this act to be filed with the commission are true, and that the pro-
visions of this act shall be strictly complied with. Such bond may be
made with individual sureties or a surety company authorized to do
business in this State, but it shall be the duty of the commission to
satisfy itself that such surety is amply solvent before accepting same;
if and when the application shall have been approved by the commis-
sion, the applicant shall before receiving a permit to sell stock in the
State, pay a license fee, which license fee shal] be computed at the rate
of one-fourth of one per centum upon the par value of all securities per-.
mitted to be sold in the State, irrespective of the actual value of such
securities or the consideration to be received therefor. For the pur-
poses of this section, stock without nominal or par value shall be as-
sumed to have a par value of one hundred dollars per share. The
amount of the filing fee hereinbefore provided for shall be deducted
from the amount of license fee so ascertained.

Sec. 3. Suits on bond.—Any person who shall be induced to pur-
chase any speculative securities as defined in this act by any promoter,
by reason of any misrepresentation of any material fact concerning
such securities, contained in said application or other documents sub-
mitted in connection therewith or furnished to the commission, upon
its request or any other written or printed matter issued or used by
said promoter or its or his agents in making such sale, shall have the
right to bring suit upon the bond above provided for, and such bond
shall be security for such person for his losses; but such person shall
not be entitled to recover more than the money paid, or the actual
value of the property given, or the labor performed, in exchange for
such securities, with legal interest from the date of the payment or
the performance of the services, or the transfer of the property. One
or more recoveries upon such bond shall not vitiate the same, but it
shall remain in. full force and effect, but no recoveries upon such bond
shall ever exceed the full amount of same, and upon suits being
commenced in excess of the amount of same, the commission may re-
quire a new bond, and, if the same is not given within thirty days, the
commission may revoke the permit herein provided for, provided,
however, that any suit or action instituted under this section shall be
commenced within one year from the date of any such sale by such
promoter or its or his agents.

Sec. 4. Foreign promoter to appoint secretary of the Common-
wealth as agent on whom process may be served; effect of service.—
Every foreign promoter, before being granted a permit to sell of
offer for sale any speculative securities in this State, shall also file
in duplicate with the commission his or its written consent, irrevocable,
that action or suit may be commenced against him or it in the proper
courts of any county or city in this State in which a cause of action
may arise,.by the service of process on the secretary of the Common-
wealth and stipulating and agreeing that such service of process on
the secretary of the Commonwealth shall be taken and held in all
courts, to be as valid and binding as if due service had been made
upon himself in person or the company itself, according to the laws of
this or any other State, and such instrument shall be authenticated
by the seal of said foreign corporation, and shall be accompanied by a
duly certified copy of the order or resolution of the board of directors,
trustees, or managers of the corporation authorizing the said secretary
and president to execute the same; it shall be the duty of the com-
mission to file one copy of such consent with the secretary of the
Commonwealth. When lawful process against any such promoter
shall be served upon the secretary of the Commonwealth, he shall
forthwith mail a copy of such process to the defendant or defendants
therein named, at such address as may have been filed with the com-
mission by such defendant. A judgment, decree or order of any court
entered or made against any such person, firm or corporation after
service of process or notice as aforesaid shall be valid and binding on
such defendant, in case of a corporation, as if it had been incorporated
under the laws of this State and served with process or notice therein,
and in the case of members of a firm or individuals, as if they had
been personally served with process or notice therein. But foreign,
unincorporated associations shall not be permitted to sell speculative
securities in this State, until the commission shall be satisfied that the
officers executing such consent have power under the laws of this
State to bind the members of such association. .

Sec. 5. Adverse finding of commission, notice of, effect of—lIf
from the application for a permit to sell or offer for sale speculative
securities in this State, and from other statements, papers and docu-
ments on file, or from other evidence submitted or from the investiga-
tions of the commission, it shall appear, and the commission shall
find (1) that the makers or guarantors of said securities are insolvent,
or are untrustworthy; (2) or that the promoters’ plan of business 1s
dishonest, or fraudulent; (3) or that the promoters’ plan of business
does not adequately secure investors against the unlawful dissipation
or misapplication of the funds of the enterprise, or business; (4) or
that the promoters’ literature or advertising is misleading and calcu-
lated to deceive purchasers or investors; (5) or that the enterprise or
business of the promoter is unlawful or against public policy; (6) or
is a mere scheme of a promoter or promoters to get money or property
at the expense of the purchasers of the aforesaid securities; (7) or
that the enterprise or business of the promoter is not based upon sound
business principles, the said commission may refuse such permit.
Notice of such refusal shall immediately be given to the applicant by
registered mail.

Sec. 6. Investigation by commission; findings—The commission.
its assistants or agents, shall at any time, have the authority and
jurisdiction, to investigate the affairs and audit the books and accounts
of any speculative enterprise, the securities of which are being sold
or offered for sale or are proposed to be sold or offered for sale in this
State, so far as may be necessary to ascertain whether or not the facts
would justify any or all of the findings enumerated in section five, and
to ascertain whether or not a-permit shall be granted, or whether any
permit which may have been granted, either heretofore or hereafter.
in accordance with this act, shall be continued, suspended or revoked.
and after giving the promoters a hearing, may, if the evidence war-
rant, refuse or revoke said permit, and may make such order as to the
costs, including compensation not exceeding twenty dollars per day
for the time employed in making such examination or audit and actual
hotel, traveling and other expenses of the person or persons making
1920. } ACTS OF ASSEMBLY. 541

the investigation, as appears to be just, and if upon such investigation
such permit shall be revoked or suspended, it shall thereafter be un-
awful for any promoter to sell, offer for sale, or by means of any
advertisement, circular or prospectus, or by any other form of public
offering to attempt to promote the sale of the securities of such specu-
ative enterprise in this State, until such order be set aside as herein
»rovided. The provisions of this section shall apply as well to those
securities which are now being sold as to those which may be per-
mitted to be sold in the future.

Sec. 7. Procedure in investigation—The commission, its assist-
ants or agents shall have the power to issue subpoenas and process
compelling the attendance of any person and the production of any
papers or books for the purposes of such investigation and examina-
tion as is provided for in this act, and shall have power to administer
an oath to any person whose testimony may be required on such
examination or investigation; and it shall be unlawful for any person
to refuse to obey any such subpoena or make answer to any competent
and material questions propounded to him by the commission, its
assistant or agent. No person shall refuse to testify because his testi-
mony would tend to incriminate himself, but if called to testify by the
commission or the Commonwealth, he shall not thereafter be prose-
cuted for any crime growing out of the transaction concerning which
he testifies. Upon the conclusion of any investigation, the commission
may make findings of fact touching the matter or matters under in-
vestigation, and such findings shall be prima facie evidence of the
truth of the matters therein found by the commission in any action,
either civil or criminal, instituted under any of the laws or statutes of
this State against the person, persons, partnership, corporation or
association selling or offering for sale such securities, or their agents
or representatives. The notices provided for in this act may be given
by registered letter mailed to the last known address of person or
persons or corporations to be investigated and the commission’s certifi-
cate shall be sufficient evidence of such notice and the mailing thereof.

Sec. 8. Appeals from decisions of commission—Appeals may be
taken by either party from the decision of the commission to the
supreme court of appeals of Virginia. The granting of such appeal,
however, unless so ordered by the court, shall not operate as a stay
of proceedings.

Sec. 9. Securities exempt from operation of this act—The pro-
visions of this act shall not apply to (a) securities of the United
States ; or any foreign country ; or of any State or territory; or of any
county, city, township, district or other taxing sub-division of any
State or territory of the United States or any foreign government. (b)
Securities of public service or utilities corporations after organization,
which are regulated by the commission or by the public service com-
mission or board of similar authority of any State or territory of the
United States; or securities senior thereto. (c) Securities of any na-
tional bank, or of any bank, trust company or building and loan
association, organized under the laws of this State, after organization
and while subject to examination and supervision by the proper au-
thorities thereof. (d) Securities of any domestic corporation organ-
ized without capital stock, for religious, charitable or reformatory
purposes. (e) Securities of persons, firms or corporations which are
not comprehended in the definition of “speculative securities” con-
tained in section one of this act. (f) The capital stock of a corpora-
tion, whose authorized capital is not more than twenty-five thousand
dollars, provided, however, that if any single enterprise or business
shall be divided into two or more parts and separately incorporated
for the purpose of bringing such enterprise or business within this
exception, it shall be deemed to be a fraudulent evasion of this act and
shall be punishable in the manner prescribed by section eleven hereof.
(g) Securities which are offered for sale or exchange only to the per-
sons named in the charter, as directors, officers or incorporators.

Sec. 10. Contract used by promoter, forms, contents, type.—It
shall be unlawful for any promoter to engage in selling, offering to
sell or contracting to sell any speculative security, except by printed
contract, the form of which shall be approved by the corporation com-
mission and in which shall be plainly set out in type not smaller than
ten point, without unnecessary verbiage, the exact amount of money,
fees, commissions, stock or securities which any person has received
or is to receive by reason of the promotion or sale of such securities
or which has been or is to be given or paid for any property, patents,
options, formulae, copy-rights, leases or promotion or intangible as-
sets, either directly or indirectly, by any shift or device whatsoever,
and it shall be unlawful for any corporate officer or other person in any
capacity whatsoever to pay or issue or cause to be issued or paid
for any such consideration, or as a bonus any money, stock or securi-
ties except as set forth in such subscription contract, unless any
changed plan together with a properly changed form of contract,
shall have first been approved by the commission and such change
shall be agreed to in a regularly called stockholders’ meeting or in the
event the promoter be not a corporation, then same must be agreed
to by those persons or their assignees, who have purchased at par or
more the majority of such securities. In every such contract as pro-
vided for in this section the following shall be stated in twelve point
bold face type: “The value of the stock or securities referred to in
this contract has not been passed upon by the State corporation com-
mission.”

Sec. 11. Violation of provisions of this act, punishment for.—Any
promoter, or other person who shall commit, in whole or in part, in
this State any act declared unlawful by this act or who shall fraudu-
lently evade or attempt to evade the provisions thereof, shall be
deemed guilty of a misdemeanor where not otherwise provided, and
on conviction, be punished by a fine of not less than one hundred nor
more than five thousand dollars, or by confinement in jail for not less
than thirty days or more than one year, or by both such fine and im-
prisonment. Indictments or presentments charging violations of this
act shall not be certified to a justice of the peace for trial. The court
before whom such fine is imposed shall order one-half of such fine to
1920. ] ACTS OF ASSEMBLY. 543

be paid to the person or persons instigating the prosecution in which
such fine was imposed.

Sec. 12. Persons exempt from operation of this act; successive
sales evidence of fraud.—This act shall not apply to the owner of
any speculative security, who is not the maker or issuer thereof, who
shall acquire and sell the same for his own account in the usual and
ordinary course of business and not for the direct or indirect promo-
tion of any enterprise or scheme within the purview of this act, pro-
viding that such ownership is in good faith. Repeated or successive
sales of any such speculative security or securities shall be prima facie
evidence that the claim of ownership is not bona fide, but is a mere
shift or device to evade the provisions of this act.

Sec. 13. Fees; disposition of; assistants, expenses and salaries.—
All fees herein provided for shall be collected by the commission
and shall be turned into the State treasury. The commission shall
also have full power to employ such temporary assistants or clerks
as it may from time to time deem necessary and fix their compensa-
tion, and all salaries and expenses necessarily incurred in the adminis-
tration of this act shall be paid out of any funds appropriated for
the purpose. ,

Sec. 14. False statement or entry, making of, a felony; punish-
ment.—Any person who shall knowingly or wilfully subscribe to, or
make or cause to be made any false statements or false entry in any
book of account or other paper of any person, co-partnership, asso-
ciation or corporation subject to the provisions of this act, or exhibit
any false paper, with intention of deceiving any person authorized to
examine into the affairs of such person, co-partnership, association or
corporation, or shall knowingly make any false statements materially
affecting the value of the stocks, bonds, or other securities offered for
sale by any such person, co-partnership, association, or corporation,
shall be deemed guilty of a felony and upon conviction thereof, shall
be fined.not less than one hundred dollars nor more than five thousand
dollars, or shall be imprisoned not less than six months or more than
one year in jail, or not less than one year nor more than ten years in
the State penitentiary, or by both such fine and imprisonment, in the
discretion of the jury or the court trying the case without a jury.

Sec. 15. Constitutionality of this act—Should the courts declare
any section or clause of this act unconstitutional, then such decision
shall affect only the section or clause so declared to be unconstitu-
tional, and shall not affect any other section or part of this act.

Sec. 16. Promotion securities, powers of commission relating to
in escrow.—The commission shall determine what part, if any, of the
securities which any person, firm or corporation, subject to the pro-
visions of this act, proposes to offer or are offering are promotion
securities and may make such order as may seem just and proper to
prevent the sale of such promotion securities in competition with
treasury securities, in such way as to defraud the public, as may seem
proper and just to that end, and for that purpose shall require that
securities issued for other consideration than money, at the same price
that like securities are sold to the public be placed in escrow upon
544 ACTS OF ASSEMBLY, [va.

such conditions as the commission may direct, to remain in escrow
until all treasury stock has been sold or the authority to sell same
surrendered, unless for cause shown same or any part thereof shall
be sooner released.

Sec. 17. Promotion fees, amount of; powers of commission re-
lating to—It shall be unlawful for any person, or persons, associa-
tions, co-partnership or corporation to receive or pay, either directly
or indirectly, under any guise, device, or pretext whatsoever, as pro-
motion fee and as compensation for the organization of any corpora-
tion and flotation and sale of any security whatsoever, more than
twenty per centum of the value of the security promoted, floated and
sold, unless in the judgment of the corporation commission it should
be proper to allow a large per centum which in no case shall exceed
thirty per centum, this is to cover the total promotion, organization
or flotation fees and expense either paid to one or more persons, firms
or corporations, whether paid in money, stock or other things what-
soever.

Except that in the case of the organization of banks, trust com-
panies, banking companies or building and loan companies, the total
costs for organization and sale of securities shall not exceed seven and
one-half (714) per centum of the price at which the securities of such
institution are sold, and nothing herein is to be construed as permitting
such expenses to be paid out of the capital stock of such institution.

Sec. 18. Purpose of this act——This act shall not be construed to
prevent the sale of purely speculative securities, but to give the com-
mission power to regulate the sale thereof and to require that the
promoters of such securities shall honestly apply the proceeds of the
sale thereof to the purpose for which such secuntties are sold.

Sec. 19. Failure of promoter to comply with orders of commis-
sion; effect of —In the event of the failure of any promoter to comply
with any order which the commission is authorized by this act to
make, then it shall be unlawful for such security to be sold until suck
order is complied with or set aside, as herein provided, and the com.
mission shall have power to impose a fine not exceeding five hundred
dollars, for failure or refusal of any person or corporation to comply
with any order which the commission may have made, under authonity
of this act, such fine to be collected by its process, as provided by law

An emergency existing in that the good people of this State shal
be further protected from imposition in the manner prohibited by thi:
act, this act shall be in force from its passage.