CHAPTER 265

An Act to amend the Code of Virginia by adding a section numbered
$8.1-86.1, relating to restrictions upon the purchase and sale of equity
securities of domestic stock insurance companies. CH 875]

Approved March 31, 1966

Be it enacted by the General Assembly of Virginia:

1. That the Code of Virginia be amended by adding a section numbered
88.1-36.1, as follows:

§ 38.1-36.1. (1) Every person who is directly or indirectly the
beneficial owner of more than ten per centum of a class of any equity
security of a domestic stock insurance company, or who is a director or
an officer of such company, shall file in the office of the Commission on or
before the first day of July, nineteen hundred sixty-six, or within ten
days after he becomes such beneficial owner, director or officer, a state-
ment, in such form as the Commission may prescribe, of the amount of
all equity securities of such company of which he is the beneficial owner
and, within ten days after the close of each calendar month thereafter, if
there has been a change in his ownership during such month, he shall
file in the office of the Commission a statement, in such form as the
ission may prescribe, indicating his ownership at the close of the

calendar month and such changes in his ownership as have occurred

during such calendar month. ;

(2) For the purpose of preventing the unfair use of information
which may have been obtained by such beneficial owner, director or
officer by reason of his relationship to such company, any profit realized
by him from any purchase and sale, or any sale and purchase, of any
equity security of such company within any period of less than six
months, unless such equity security was acquired in good faith in con-
nection with a debt previously contracted, shall inure to and be recover-
able by the company, irrespective of any intention on the part of such
beneficial owner, director or officer in entering into such transaction of
holding the equity security purchased or of not repurchasing the equity
security sold for a period exceeding six months. Suit to recover such
profit may be instituted at law or in equity in any court of competent
jurisdiction by the company, or by the owner of any equity security of
the company in the name and in behalf of the company if the company
shall fail or refuse to bring such suit within sixty days after request or
shall fail to diligently prosecute the same thereafter; but no such suit
shall be brought more than two years after the date such profit was
realized. This subsection shall not be construed to cover any transaction
where such beneficial owner was not such, both at the time of the pur-
chase and sale, or the sale and purchase, of the equity security involved,
or any transaction or transactions which the Commission by rules and
regulations may exempt as not comprehended within the purpose of this
subsection.

(3) It shall be unlawful for any such beneficial owner, director or
officer, directly or indirectly, to sell any equity security of such company
if the person selling the security or his principal (a) does not own the
security sold, or (b) if owning the equity security, does not deliver it
against such sale within twenty days thereafter, or does not within five
days after such sale deposit it in the mails or other usual channels of
transportation; but no person shall be deemed to have violated this sub-
section if he proves that notwithstanding the exercise of good faith he
was unable to make such delivery or deposit within such time, or that
to do so would cause undue inconvenience or expense.

(4) The provisions of subsection (2) of this section shall not apply
to any purchase and sale, or sale and purchase, and the provisions of
subsection (3) of this section shall not apply to any sale of an equity
security of a domestic stock insurance company not then or theretofore
held by him in an investment account, by a dealer in the ordinary course
of his business and incident to the establishment or maintenance by him
of a primary or secondary market (otherwise than on an exchange as
defined in the Securities Exchange Act of 1934) for such equity security.
The Commission may, by such rules and regulations as it deems necessary
or appropriate in the public interest, define and prescribe terms and con-
ditions with respect to equity securities held in an investment account and
transactions made in the ordinary course of business and incident to the
establishment or maintenance of a primary or secondary market.

(5) The provisions of subsections (1), (2) and (3) of this section
shal] not apply to foreign or domestic arbitrage transactions unless made
in contravention of such rules and regulations as the Commission may
adopt in order to carry out the purposes of this section.

(6) The term “equity security” when used in this section means any
stock or similar security; or any security convertible, with or without
consideration, into such a security, or carrying any warrant or right to
subscribe to or purchase such a security; or any such warrant or right;
or any other security which the Commission shall deem to be of a similar
nature and consider necessary or appropriate, by such rules and regulations
as it may prescribe in the public interest or for the protection of investors,
to treat as an equity security.

(7) The provisions of subsections (1), (2) and (8) of this section
shall not apply to equity securities of a domestic stock insurance company
if (a) such equity securities shall be registered, or shall be required to be
registered, pursuant to Section 12 of the Securities Exchange Act of 1934,
as amended; or if (b) such domestic stock insurance company shall not
have any class of its equity securities held of record by one hundred or
more persons on the last business day of the year next preceding the year
in which equity securities of the company would be subject to the pro-
visions of subsections (1), (2) and (3) of this section except for the pro-
visions of this subsection (b).

(8) The Commission shall have the power to make such rules and
regulations as may be necessary for the execution of the functions vested
in it by subsections (1) through (7) of this section, and may for such
purpose classify domestic stock insurance companies, equity securities
and other persons or matters within its jurisdiction. The Commission may
also by rules and regulations, or upon application of any interested person,
by order, after due notice and an opportunity for hearing, exempt from the
provisions of this section any officer, director or beneficial owner of equity
securities of any domestic stock insurance company upon such terms and
conditions and for such period of time as it deems necessary or appropriate,
if the Commission finds that such action is not inconsistent with the public
interest or the protection of investors. No provision of subsections (1), (2)
and (3) of this section imposing any liability shall apply to any act done
or omitted in good faith in conformity with any rule or regulation of the
Commission, notwithstanding that such rule or regulation may, after such
act or omission, be amended or rescinded or determined by judicial or other
authority to be invalid for any reason.