Chap. 491.—An ACT to amend and re-enact sections 1, 2, 3, 5, 9 and 12 of 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 corpora-
tion, 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
23, 1918, as amended by an act approved March 20, 1920, and as further
amended by an act approved March 29, 1923. [S B 270]

Approved March 25, 1926.

1. Beit enacted by the general assembly of Virginia, That section
one, two, three, five, nine and twelve of an act entitled an act to pre-
vent 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 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.
as amended by an act approved March twentieth, nineteen hundred
and twenty, and as further amended by an act approved March
twenty-ninth, nineteen hundred and twenty-three, be amended and
re-enacted so as to read as follows:

Section 1. Definitions of terms ‘“‘securities,’’ ‘‘speculative se-
curities,’’ ‘‘speculative enterprise’ and ‘‘promoter’’ as used in this
act.—The term “‘securities’’ as used in this act shall be taken to mean
stock, stock certificates, shares, bonds, debentures, certificates of
participation, contracts, contracts or bonds for the sale and convey-
ance of land lying outside of this State on deferred payments or in-
stallment plan, subscriptions to the capital stock or other securities
838 ACTS OF ASSEMBLY. [va.

of any corporation or joint stock company, whether the same has been
chartered or organized or not; or other instruments in 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:

(a) 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.

(b) The securities of any enterprise, association, partnership or
corporation where there is offered or paid more than ten per centum
of the selling price of such securities either in money, stock, property
or otherwise, either directly or indirectly as promotion fee and or as
compensation for the organization of the issuing enterprise, associa-
tion, partnership or corporation, and or the flotation and sale of its
securities.

(c) The securities of any enterprize, 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 anv
person or persons, leases or rights, options, patents, formulae, good-
will, promotion, or intangible assets, or which has issued or propose:
to issue a material part of its securities in pavment for formulae, op-
tions, patents, good-will, promotion or intangible assets, oil, gas, coal
or mineral lands, services of any person or persons, or any considera-
tion of a similar nature other than money.

(d) Lots or units of unimproved or undeveloped land lying out-
side of this State sold or offered for sale on any deferred payment o1
installment plan, where the value of such land materially depends on
the future performance of any stipulation or promise to furnish irriga-
tion or transportation facilities, sidewalks, sewers, gas, light, streets.
or other value enhancing utility or improvements, or contracts made
or issued for the sale of or interest in such lots or units of land.

(e) Contracts issued by persons or companies which purport tc
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
whosoever issued, or by whatsoever name called, other than an insur.
ance contract or a promise to pay a certain sum of money.

({) Any security which purports to permit persons, associations
partnerships or corporations 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.

(¢) Units or lots of oil or mineral lands or any interest therein.

(h) Units or lots of land lying outside of this State, which land 1;
divided so as to be planted in trees, vines, or shrubs or is divided o1
to be divided into town or suburban lots, or any interest therein.

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.

Section 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 or by means
of any advertisement, circular or prospectus, or any form of public or
private offering, to attempt to promote the sale of any speculative
securities in this State until the said promoter shall have first applied
for and secured from the State corporation commission, hereinafter
called the commission, a permit to do so and no such permit shall be
granted until there first shall have been filed with the commission by
the applicant and make a part of such application, duly sworn to:

(a) Acopy of the securities so to be promoted and when applicable
a plat of the lands to be sold.

(b) A statement in substantial detail of the assets and liabilities
of the person or company making and issuing such securities and of
any person or company guaranteeing the same, including specifically
the total amount of such securities and of any securities prior thereto
in interest of lien, authorized or issued by any such person or company.

(c) Ifsuch securities are secured by mortgage or other lien, a copy
of such mortgage or of the instrument creating such lien, and a com-
petent appraisal or valuation of the property covered thereby, with a
specific statement of all prior liens thereon, if any.

(d) Any abstract and a certificate of title may be required in any
case where the commission deems necessary, and if the securities to be
sold are lands or an interest in lands an abstract of title thereto and
the certificate of a competent attorney at law as to the title to such
lands shall be filed unless the commission shall for good cause shown
dispense with it.

(e) 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.

(f) All material facts 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 company making, issuing or guaranteeing the

same.

(g) 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 here-
under, but same may be amended from time to time, by filing copies
of the amendments with the commission.

(h) 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 fled hereunder and there shall have been paid to the com-
mission a registration fee of twenty-five dollars for each such agent;
provided, however, that if such agent’s license shall be granted on or
after November first of any year the fee for such license shall be the
sum of fifteen dollars. The payment of such fee shall be payment in
full of all fees for registration of such agent for the sale of any properly
licensed issue of securities, until and including the first day of May
next following: .

(i) The name and address of such promoter, including the names
and addresses of all partners, if the promoter be a partnership, and the
names and addresses of the officers and directors or trustees, if the
promoter be a corporation or association.

(j) A statement showing in detail the plan on which the business
enterprise is to be conducted.

(k) 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 association.

(1) A copy of its charter and by-laws if the securities be issued or
guaranteed by a corporation; provided, however, that if the corpora-
tion has not been chartered, a copy of the proposed charter and pro-
posed by-laws shall be filed. |

(m) A copy of the contract to be used in taking subscriptions for
such securities wherein shall be set out a complete and accurate state-
ment, 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.

(n) If the securities are lands or interests in lands, a statement
as to the fixed price or the maximum and minimum prices at which
such lands or interests in lands are to be offered or sold.

(o) A full statement of the exact amount which is being paid, or
is proposed 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.

(p) Any other information concerning the said promotion, its
assets or the persons interested therein, which the commission may
require.

(q) A filing fee of fifty dollars.

(r) In any case the commission shall have the right to require of
any promoter either before granting a permit or after granting a per-
mit for the sale of speculative securities 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 sales price of the securities issued or proposed or auth-
orized to be issued. The said bond shall be with surety and payable
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, and that all moneys
from the sale of such securities will be used for the proper purpose or
purposes as set forth in the security sold and in the papers filed with
the commission; and that the contract of the promoter as set forth in
the securities issued will be complied with. Except when the surety
offered is a surety company authorized to do business in this State, it
shall be the duty of the commission to satisfy itself that such surety
is amply solvent before accepting the same.

When the application shall have been approved by the commission,
the applicant shall before receiving a permit to sell speculative securi-
ties in the State, pay a license fee, which license fee shall be computed
at the rate of one-fourth of one per centum upon the par value of all
securities permitted to be sold in the State, provided, however, that if
the speculative security has no par value such fee shall be based on the
selling price of the security. The maximum fee to be charged or col-
lected hereunder shall not exceed five hundred dollars. The amount
of the filing fee hereinbefore provided for shall be deducted from the
amount of license fee so ascertained.

Section 3. Suits on bond.—Any person who shall be induced to
purchase any speculative securities as defined in this act by any pro-
moter, by reason of any misrepresentation of any material fact con-
cerning such securities, contained in said application or other docu-
ments submitted in connection therewith or furnished to the com-
mission, 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, or
shall have suffered loss by reason of the fact that moneys paid by him
to the promoter of such securities or the promoter’s agent have not
been applied to the proper purpose of the promoter as set forth in the
security sold or the papers filed with the commission, or that the pro-
moter has failed or refused to comply with his contract as set forth
in the security issued, 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 require 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.

Section 5. Adverse findings of commission, notice of, effect of.—
If 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 (a) that the makers or guarantors of said securities are insolvent,
or are untrustworthy; (b) or that the promoters’ plan of business
is dishonest, or fraudulent; (c) 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; (d) or
that the promoters’ literature or advertising is misleading and calcu-
lated to deceive purchasers or investors; (e) or that the enterprise or
business of the promoter is unlawful or against public policy; (f) 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; (g) or that
the enterprise or business of the promoter is not based upon sound
business principles; (h) or that the title to any material part of the
assets of the issuer of the securities is defective, the said commission
may refuse such permit. Notice of such refusal shall immediately be
given to the applicant by registered mail. ,

Section 9. Securities exempt from operations of this act.—The
provisions of this act shall not apply, except as hereinafter otherwise
expressly provided, 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 Co-
lumbia or by any State or political subdivision or agency thereof.

(b) Any security issued or guaranteed by any foreign govern-
ment with which the United States is at the time of the sale or offer
of sale thereof maintaining diplomatic relations, or by any State, or
province 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 farm loan act of July seventeenth, nine-
teen hundred and sixteen, 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.

(d) Any security issued or guaranteed as to principal, by a cor-
poration 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 govern.
ment of the United States, or of any State, territory or insular pos:
session thereof, or of any municipality located therein, or of the Dis.
trict of Columbia, or of the Dominion of Canada or any province
thereof; also equipment notes or bonds based on chattel mcrtgages
leases, or agreements for conditional sale, of cars, motive power o1
other rolling stock mortgaged, leased or sold to or furnished for the
use of or upon a railroad or other public service, or utility corporation
or equipment trust certificates, or equipment notes or bonds where
the ownership or title of such equipment is pledged or retained ir
accordance with the provisions of the laws of the United States or o
any State, or of the Dominion of Canada, to secure the payment o
such equipment trust certificates, bonds or notes.

(e) Any security issued by a State bank or trust company incor
portaed under the laws of and subject to the supervision and contro
of any State or territory of the United States or of any insular posses
sion thereof, provided such State bank or trust company is bein,
regularly examined by the proper authorities of such State or territory
of the United States or the insular possession thereof.

(f) Any security issued by a corporation organized exclusively
for religious, benevolent, charitable, educational, fraternal, or reforma-
tory 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.

(g) Any security issued by a building and loan association which
is incorporated under the laws of this State, provided such building
and loan association has been organized and is subject to regular
examination and supervision by the proper authorities of this State.

(h) Securities listed on the New York stock exchange or’ the
Chicago stock exchange, or on any other recognized and responsible
stock exchange which has been previously approved by the corporation
commission, which securities have been so listed pursuant to official
authorization by such exchange, and all securities senior to any se-
curity so listed, or evidences of indebtedness guaranteed by com-
panies, any stock of which is so listed, provided this exemption shall
apply only so long as the listings of such securities shall remain in effect.

Section 12. Exempt transactions.—Except as hereinafter ex-
pressly provided, the provisions of this act shall not apply to the sale
of any security in any of the following transactions: |

(a) By the owner of any speculative security, not being the
underwriter of such security, nor the purchaser of such securities in
wholesale quantity for purpose of distribution thereof to the public,
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 promotion of any enterprise or scheme
within the purview of this act, providing 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.

(b) The sale, transfer or delivery to any bank, banker, trust com-
pany or dealer in securities.

(c) The sale, transfer or delivery to those persons named in the
charter as directors, officers or incorporators.

(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 divi-
dend or other distribution out of earnings or surplus; or the issue of
securities to the security holders or other creditors of a corporation
in the process of a bona fide reorganization of such corporation made
in good faith and not for the purpose of avoiding the provisions of this
act, either in exchange for the securities of such security holders or
claims of such creditors or party for cash and partly in exchange for
the securities or claims of such security holders or creditors.