Chap. 408.—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 corpo-
rution, enguged or intending to engage, whether as principal, broker or
avent, in the sule 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 sald securities, and prescribing penalties for the violation
thereof. [HI B 346)

Approved March 23, 1918.

1. Be it enacted by the general assembly of Virginia, That the
term “securities” as used in this act shall taken to mean stock
certificates, shares, bonds, debentures, certificates of participation,
contracts, contracts or bonds for the sale and conveyance of land
on deferred payments or installment plan, 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 (1) all securities to promote or induce the sale of which,
profit, gain or advantage unusual in the ordinary course of legiti-
mate business 1s in any way advertised or promised; (2) all securi-
ties for promoting 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) all
securities the value of which materially depends on proposed or
promised future promotion rather than on present tangible assets
and conditions; (4) the securities of any enterprise, association,
partnership or corporation which has included or proposes to include
in i{S assets as a material part thereof, oil, gas, coal or mineral
lands, leases or rights, options, patents, formulae, good-will, pro-
motion, or intangible assets, or which has issued or proposes to
issue @ material part of its securities in payment for formulae,
options, patents, good-will, promotion or intangible assets: (5)
securities made or issued in furtherance or promotion of any enter-
prise or scheme for the sale of unimproved or undeveloped land on
uny 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 facili-
lies, sidewalks, sewers, gas, light, streets, or other value enhancing
itilify or improvement; (6) contracts issued by persons or compa-
mes commonly styling themselves as “home” companies, which pur-
port to entitle the holder thereof to a loan from the issue after the
payment of certain installments or dues, or contracts of a similar
nature by whomsoever issued, or by whatsoever name called; (7)
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 1s
permitted to purchase same. 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 mace, 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 secur-
ities” as defined in this act.

2. 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 pros-
pectus, or by any other form of public offering, to attempt to pro-
mote the sale of any speculative securities in this State, unless there
first shall have been filed with the State corporation commission,
hereafter called the commission, duly sworn to; (1) a copy of the
securities so to be promoted; (2) a stateemnt in substantial detail
of the assets and liabilities of the person or company making and
issuing such securities and of any person or company guarantee-
ing the same, including specifically the total amount of such securi-
ties 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 mortgage or of
the instrument creating such lien, and a competent appraisal or
valuation of the property covered thereby, with a specific state-
ment of all prior liens thereon, if any; (4) a full statement of facts
showing the gross and net earnings of any person or company mak-
ing and issuing or guaranteeing such securities, or of any property
covered by any such mortgage or lien; (5) all knowledge or infor-
mation 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 and 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 prospec-
tus 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,
2ddresses 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,
ogether with satisfactory evidence of their good character, has been
jled hereunder and there shall have been paid to the commission
1 registration fee of 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 follow-
ing; (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 directors or trustees, and
of the owners of the capital stock, if the promoter be a corporation
or association; (9) a statement 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 insured or guaranteed by a co-part-
nership or unincorporated association; (11) a copy of its charter
and by-laws if the securities be issued or guaranteed by a corpora-
tion; (12) any other information concerning 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 sub-
scriptions 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 in payment for pat-
ents, options, formulae, copyrights, leases, or for any consideration,
whether similar thereto or not, other than par value or more in
money, together with a full statement of the exact amount which is
being paid directly or indirectly in money, securities or otherwise
for the promotion of such corporation or the flotation of such secur-
ities either directly or indirectly to any person whatsoever; (14) a
filing fee of twenty-five ($25.00) dollars.

3. Every foreign promoter before selling or offering for sale
any speculative securities, in this State shall also file with the com-
mission his or its written consent, irrevocable, that action 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 Commonwealth and stip-
ulating 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 seere-
tary and president to execute the same. When lawful process
against any such promoter shall be served upon the secretary of the
Sommonwealth, 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 commission by such defendant. A judg-
ment, 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.

4. If from the statements, papers and documents on file, or from
other evidence submitted, it shall appear, and the commission shall
find (1) that the makers or guarantors of said securities are insol-
vent, or are untrustworthy; (2) or that the promoters’ plan of busi-
ness is 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 busi-
ness; (4) or that the promoters’ literature or advertising is mislead-
ing and calculated 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; the said commission shall reduce its said find-
ings to writing and attest the same by the signature of the chair-
man or secretary thereof. Notice of such finding or findings, shall
immediately be given to the applicant by registered mail. And it
shall thereafter be unlawful for the promoter or other person 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 any such speculative security or securities in
this State, until such order be set aside as herein provided.

5. The commission shall, at any time, have the authority and
jurisdiction to investigate the affairs of any speculative enterprise,
the securities of which are being 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 para-

aph (4), and to ascertain whether or not any order which may

promulgated as provided in paragraph (4) shall be continued or
vacated, and after giving the promoters a hearing, may, if the evi-
dence warrant, make any of the adverse findings enumerated in
section four of this act, and may make such order as to the costs as
appears to be just, and it shall thereafter be unlawful for any pro-
moter to sell, offer for sale, or by means of any advertisement, cir-
cular, or prospectus, or by any other form of public offering to
attempt to promote the sale of the securities of such speculative
ente rise in this State, until such order be set aside as herein pro-
vided.

6. Apepals may be taken by either party from the decision of
the commission to the supreme court of appeals of Virginia. The
pranting of such appeal, however, unless so ordered by the court,
shall not operate as a stay of proceedings.

The provisions of this act shall not apply to (a) securities
of the United States; or any foreign government; or of any State
or territory; or of any county, city, township, district or other pub-
lic taxing sub-division of any State or territory of the United States
or any foreign government. (b) Securities of public service or
utilities corporations, the issues of which are regulated by the com-
mission or by the public service commission or board of similar
authority of any State or territory of the United States; or secum-
ties senior thereto. (c) Securities of any national 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 authorities thereof.
(d) Securities of any company which are not offered for sale to
more than twenty-five persons in this State. (e) Securities of any
domestic corporation organized without capital stock, for religious,
charitable or reformatory purposes. (f) Securities of persons,
firms or corporations which are not comprehended in the defini-
tion of “speculative securities” contained in clause one of this act.
(g) Securities of any corporation whose maximum authorized capi-
tal stock is not more than twenty-five thousand dollars.

8. The commission, its assistants 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 examination, 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 question
propounded to him by the commission, its assistant or agent. No
person shall refuse to testify because his testimony would tend to
incriminate himself, but if called to testify by the commission or
the Commonwealth, he shall not thereafter be prosecuted 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 investi-
gation, 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 asso-
ciation 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 per-
son or persons or corporations to be investigated and the commis-
sion’s certificate hall be sufficient evidence of such notice and the
mailing thereof.

_ 10%. It shall be unlawful for any promoter to engage in sell-
ing, Offering to sell or contracting to sell any speculative security,
except by printed contract, the form of which shall be approved by
the corporation commission and in which shall be plainly set out
In ten point type without unnecessary verbiage, the exact amount
of money, fees, commissions, bonus or promotion stock 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, formulas, copyrights, leases, or
promotion or intangible assets, either directly or indirectly, by any
shift or device whatsoever, and it shall be unlawful for any corpo-
rate officer or other person in any capacity whatsoever to pay or
issue or cause to be issued for any such consideration or as a bonus
any money, stock or securities except as set forth in such subscrip-
tion contract, unless any changed plan together with a properly
changed form of contract, which fori 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 the
holders who have purchased at par or more the majority of such
securities. In every such contract as provided 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 have not
been passed upon by the State corporation commission.”

10. Any promoter who shall commit, in whole or in part, in this
State any act declared unlawful by this act 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 impris-
onment.

11. 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 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 1s a mere
shift or device to evade the provisions of this act.

12. All fees herein provided for shall be collected by the com-
mission and shall be turned into the State treasury. The commis-
sion shall also have full power to employ such temporary assistants
or clerks as he may from time to time deem necessary and fix their
compensation, and all salaries and expenses necessarily incurred in
the administration of this act shall be paid out of fees collected and
turned into the State treasury under the provisions of this act and
the acts hereby repealed, upon the presentation of itemized vouch-
ers, duly verified, and having the approval of the commission. The
auditor shall issue his warrant on the State treasurer for such sala-
ries and expenses, and the State treasurer shall pay the same out of
sald fees, and for that purpose the said fees are hereby appropri-
ated for use during the fiscal years ending on the twenty-eighth
day of February, nineteen hundred and nineteen, and the twenty-
ninth day of February, nineteen hundred and twenty, respectively.

13. Ay 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 of any persons, co-partnership, association, 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, shall knowingly make any false statements mate-
rially 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 convic-
tion 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.

14. 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 unconstitutional, and shall not affect any
other section or part of this act.

15. 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 may, where it
appears necessary to prevent the public from being defrauded,
require that such securities shall be placed in escrow upon such con-
ditions as the commission may direct.

16. It shall be unlawful for any person or persons, associations,
co-partnership, or corporation to receive either directly or indirectly
under any guise, devise, or pretext whatsoever, as promotion fee
or as compensation for the organization of any corporation or floata-
tion of any security whatsoever, more than twenty per centum of the
value of the security promoted, floated or sold, unless in the judg-
ment of the corporation commission it should be proper to allow a
larger per centum, this to cover the total promotion, organization
or floatation fees or expenses either paid to one or more persons,
firms or corporation, either paid in money, stock or other thing
whatsoever.

18. This act shall not be construed to prevent the sale of purely
speculative securities, but to give to the commission power to require
that the promoters of such securities shall honestly apply the pro-
ceeds of the sale thereof to the purpose for which such securities
are sold; and to this end the commission may further require such
promoters to place promotion securities in escrow or to give security
for the proper and honest application of such funds, as may come
into their possession, for another, by reason of such promotion.

22. In the event of the failure of any promoter to comply with
any order which the commission is authorized by this order to make,
then it shall be unlawful for such security to be sold until such order
is complied with or set aside, as herein provided.