Chap. 99.—An ACT to amend and re-enact Section 4 of, and to add sub-
divisions | (r) and (s), prescribing certain further exemptions, to an act
entitled “an act to prevent unfairness, imposition or fraud in the sale or
disposition of certain ‘securities’ herein defined by requiring an inspec-
tion thereof, providing for such inspection, supervision and regulation of
the business of any persons, association, partnership, or corporation, en-

- -gaged-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 thereot”, ap-
proved March 23, 1918, as heretofore, from time to time, amended, revised
and re-enacted. [S B 36]

Approved March 10, 1938

‘1. Be it enacted by the General Assembly of Virginia, That sec-
tion four 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 thereof, providing for such inspection, super-
vision and regulation of the business of any persons, association, part-
nership, 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, imposi-
tion or fraud in the sale or disposition of said securities, and prescribing
penalties for the violation theréof”, approved March twenty-third, nine-
teen ‘hundred and eighteen; as heretofore, from time to time, amended,
revised arid re-enacted, be amended and re-enacted so as to read as fol-
lows: © ee A bs iv
Section 4. Except as otherwise expressly provided in this act, the
provisions of this act shall not apply to the sale of any securities of any
of the following kinds nor in any of the following transactions, not-
withstanding that any one or more of the subdivisions of section three
are, or may be, applicable, and the commission shall have jurisdiction,
upon formal or informal application, payment of filing fee, and sub-
mission of such facts and data as may be necessary, to determine
whether or not particular security or securities, transaction or trans-
actions, or series of transactions, is or are exempt under the provisions
of this section, and to issue, if desired, a certificate to the effect that
an exemption applies when so found, and such certificate shall have the
same effect as prescribed in the preceding section in case of a de-
termination by the commission that the securities law does not apply.

(a) <Any security issued or guaranteed by the United States or
any territory or insular possession thereof, or by the District of Col-
umbia or by any state or political subdivision or agency thereof.

(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,
nineteen hundred and sixteen, or by the war finance corporation or by
any corporation created or acting as an instrumentality of the govern-
ment of the United States pursuant to authority granted by the Con-
gress of the United States or pursuant to other valid Federal authority.

(d) Any security issued or guaranteed as to principal, by a cor-
poration owning or operating a railroad, or by any other public service
utility, provided, that such railroad or other public service utility 1s
subject to regulation and supervision both as to its rates and charges
and as to the issue of its own securities, and as to the issuance of its
own securities is actually regulated and supervised, by a public com-
mission, board or officer of the government of the United States, and/or
of the State of Virginia; and equipment notes or bonds based on chattel
mortgages, leases, or agreements for conditional sales, of cars, motive
power, or other rolling stock, mortgaged, leased, or sold to, or fur-
nished for the use of or upon, any railroad or other public service
utility when the issuance of such equipment notes or bonds has been
regulated and supervised by a public commission, board or officer
of the government of the United States and/or of the State of Vir-
ginia; and equipment trust certificates, equipment notes and equipment
bonds of, or issued by, or on account of, any railroad or other public
service utility, when the ownership or title of such equipment is pledged
or retained in accordance with the provisions of the laws of the United
States and/or of the State of Virginia, to secure the payment of such
equipment trust certificates, notes, or bonds, and when the issuance
of such equipment trust certificates, notes, or bonds has been regulated
and supervised by any public commission, board or officer of the gov-
ernment of the United States and/or of the State of Virginia; and all
other securities issued and sold under the actual regulation and super-
vision of the United States government and/or of any department and/
or of any agency thereof, and/or under the actual regulation and super-
vision of the State of Virginia and/or of any department and/or of
any agency thereof; provided that mere registration of securities with
the Federal Trade Commission or otherwise as the securities act of
nineteen hundred and thirty-three may be amended, shall not consti-
tute, nor be construed to constitute, an exemption within the meaning
of this subdivision (d) of section four of the Virginia securities law,
nor within the meaning of any other provision thereof; provided, fur-
ther, that the filing of stock or bond statement under provisions of
section one hundred and sixty-seven of the Constitution and _ section
thirty-seven hundred and eighty-eight of the Code, as same may be
from time to time amended, shall not constitute, nor be construed to con-
stitute, such regulation and supervision of the State of Virginia and/or
of any department and/or of any agency thereof within the contem-
plation of such language as used herein, nor shall such filing consti-
tute an exemption hereunder; and provided, further, that the securi-
ties of any railroad or other public service utility which are expressly
exempted or excepted from the regulatory and supervisory laws, now
or hereafter enacted, of the United States and/or of the State of Vir-
ginia shall not be required to be qualified or registered under the Vir-
ginia securities law.

(e) Any security issued by a State bank or trust company in-
corporated under the laws of and subject to the supervision and con-
trol of any State or territory of the United States or of any insular
possession thereof, provided such State bank or trust company is
being, or will be, regularly examined by the proper authorities of such
State or territory of the United States or any insular possession there-
of.

({) Any security issued by a corporation organized exclusively
and solely for religious, benevolent, charitable, educational, fraternal,
or reformatory purposes and not for pecuniary profit, and no part of
the net earnings of which inures to the benefit, directly or indirectly,
of any private stockholder, member, or other individual, and no part
of the dues or other income and/or property of which has inured, is
to inure, or shall inure, directly or indirectly, to any stockholder,
member, officer, director and/or employee, or to any other person,
except as fair compensation for any services rendered or as other fair
consideration upon valid contract, other than as beneficiary under the
purposes of such corporation, and provided that compensation, if any,
to anyone, directly or indirectly on account of the sale or distribution
of stock and/or memberships of or in such enterprise, and/or for the
collection of subscriptions or membership fees, shall not be over ten
per centum of the amounts actually collected and paid into the treasury
of religious, benevolent, charitable, educational, fraternal, or reforma-
tory, and non-profit enterprises.

(g) Securities issued by any building and loan association which
has been organized and is subject to and is actually supervised and ex-
amined by the proper authorities of this State.

(h) Securities fully listed on New York stock exchange, Chicago
stock exchange, Philadelphia stock exchange, Baltimore stock exchange,
Richmond stock exchange, Boston stock exchange, New York curb ex-
change, board of trade of the city of Chicago, or any other recognized
and responsible stock exchange which has been previously approved by
the Corporation Commission, which securities have been so listed pur-
suant to official authorization by such exchange, provided this exemp-
tion shall apply only to sales for execution on the exchange on which
such security is so fully listed, or on an approved exchange on which
such security is also admitted to trading, and provided this exemption
shall not apply to securities merely admitted to trading privileges,
though on an approved exchange, when such securities are not fully
listed on any other approved exchange, and provided this exemption
shall apply only so long as the full listing of such securities shall re-
main in effect and so long as admission to trading, when applicable
as an exemption, shall remain in effect, and only so long as the ex-
change involved remains, or the exchanges involved remain, approved
and in good standing under the provisions of this act. Application for
approval may be made by any organized stock exchange in such man-
ner and upon such forms as may be prescribed by the commission,
accompanied by relevant facts and data and the payment of an appli-
cation for approval fee of one hundred dollars, and the commission
shall have such hearing and make such investigation as may be neces-
sary to determine the propriety of giving approval, including such in-
spection as may be deemed necessary or desirable, the necessary cost
of which is to be borne by the applicant, and in the exercise of its sound
discretion the commission may enter an order of approval upon the
finding that the requirements for listing are such as to effect substan-
tially the publicity and reasonable protection of the public now exist-
ing in the cases of the exchanges herein approved and as contemplated
by the Virginia securities law. The commission shall have jurisdiction,
after due notice, opportunity to be heard, investigation and hearing,
to revoke the approval of any exchange which has been approved by
it and/or to revoke the recognition of any of the exchanges approved
herein upon finding that the practices or requirements of any such
exchange so approved or recognized herein, as the case may be, have
been so changed or modified or are in their actual operation found to
be such that the publicity and protection contemplated by this law is
no longer given, or as a matter of fact is not given, and the principles
of res adjudicata ordinarily applicable in civil matters shall not be
applicable to this matter which is hereby declared to be administra-
tive rather than judicial. Notice hereunder may be by registered mail,
at least ten days before such hearing, and acceptance of approval by
this. act and. securing. approval thereunder shall. constitute consent. to
such notice. | , | ae :
(1) Securities of any insurance, surety, guaranty, or other such
company, subject. to, and actually licensed and supervised by the Bureau
of Insurance and Banking, provided that this exemption shall not apply
to flotation of securities of such company prior to the actual licensing
and taking effect of the supervisory powers of the Bureau of Insur-
ance and Banking, but provided that it shall not be necessary to
qualify such securities under the securities law in any case in which
section forty-two hundred and thirty-seven, Code of nineteen hundred
and nineteen, or any amendment or revision thereof embodyig the sub-
stantial provisions of section forty-two hundred and thirty-seven of the
Code, has been complied with.

(j) Securities of companies subject to supervision and actually
supervised by the Bureau of Insurance and Banking, other than those
herein otherwise excepted, provided that this exemption shall not apply
to the original flotation of the securities of such company or enterprise,
nor to any securities issued prior to the actual taking effect of the
supervisory powers of the Bureau of Insurance and Banking, and pro-
vided further that this exemption shall not apply to the securities of
corporations, firms or individuals engaged in, or proposing to engage
in, business under the uniform small loan law, and/or under the in-
dustrial loan law, even though supervisory powers have taken effect
and are in effect.

(k) Securities of an enterprise or project which, for the three
years next preceding has paid dividends, out of earnings only, at the
guaranteed rate in the case of preferred stock, in case of other than
preferred stock, at a rate of not less than five per centum annually
of the par value in the case of par stock, or, in case of no par
stock, not less than five per centum annually of the book value dur-
ing the three-year period, on the stock of the same class as that being
so offered and sold or on an issue inferior in right to participate in
earnings or profits to the security being so offered and sold, provided
that in cases in which the enterprise or project is new but consists of
a combination of two or more previously going concerns, this ex-
emption shall apply only if the accumulated combined earnings appli-
cable to dividends for the three years next preceding are sufficient to
pay dividends on the securities of the new enterprise at the rates above
mentioned.

(m) Securities, otherwise subject to qualification under this act,
offered for sale, sold, and advertised for sale only at the place or places
of business of regularly established dealers in securities duly licensed
under this act, and, or through the regularly retained and employed
licensed salesmen or solicitors of such dealers outside the regular place
or places of business of such licensed dealer, provided such securities
have been duly registered, or notification of intention to register has
been given, as severally provided hereinafter. ,

The exemption contained: in this ‘subsection (m) of. section four
shall not be operative unless such dealer has been duly licensed under
the provisions of this act, and shall have, prior to such sale, or offer-
ing, or advertisement, filed with the State Corporation Commission
a registration of such offering accompanied by a statement duly -exe-
cuted by such dealer that such dealer has no information which leads
him to believe that the maximum total overhead expense of organiza-
tion and flotation, including commissions, exceeds a named per centum,
not over fifteen per centum, of the total selling price of such issue of
securities, and such other information as may have been previously
prescribed by the commission. But, if such dealer shall give to the
State Corporation Commission on or prior to date of such sale, offer-
ing, or advertisement, notification of the intention to register a security,
such dealer shall have two days, excluding day of notification and the
day of registration, from the time of giving such preliminary notice, or
from date designated for such sale, offering or advertisement, to file
a complete registration, and such notification may be given by tele-
gram or telephone, as well as by mail, or by personal, written or verbal,
notice; and pending such period, that is to say, on the effective date
of such notification, the two intervening days and the day of making
registration, such dealer may proceed with offering, sale and adver-
tisement of such securities as if the registration had been completed,
on the day on which notification was effective, provided that such reg-
istration shall be completed before the expiration of the third day after
the effective date of such notification.

This exemption is subject to the qualifications and provisos, that if
the selling commission, direct or indirect, to such licensed regular dealer
and/or so far as known to the dealer, to any other person or persons
whomsoever, in any form whatsoever, be over seven and one-half per
centum, and/or if the total overhead of organization, promotion, flota-
tion and/or selling expenses, including commissions, be over fifteen per
centum, of the selling price to the public, and such fact be known to the
dealer or if the dealer has notice of any facts which would put a reason-
ably prudent person on notice that such might be the fact, such fact or,
facts shall be fairly and fully disclosed to the public, to all prospects,
and to all subscribers and purchasers, and if these qualifications and
provisos be not complied with any sale so made shall be voidable and
any offer, sale, advertisement and/or participation shall be a misde-
meanor to the same extent, in the same manner and in the same cases
as otherwise provided in this act, notwithstanding this exemption, pro-
vided that compliance with requirements of the Securities Act of nine-
teen hundred and thirty-three, as amended, relative to delivery of pros-
pectus, shall be a‘sufficient compliance, when applicable, with the fore-
going requirements as to disclosure of the percentage of commissions
and/or overhead. , !

This exemption is further subject to the qualification and proviso
that it shall not apply in any case in which the ‘total overhead of or-
ganization, promotion, flotation, and/or selling expenses, including com-
missions, direct or indirect, and/or in any form whatsoever and/or to
any person or persons, corporation or corporations whatsoever, is in
excess of twenty per centum of the selling price to the public, unless,
upon application to the Commission for a certificate of exemption, the
Commission, in the exercise of its judicial discretion as to the propriety,
fairness, and reasonable necessity of greater commissions and/or over-
head, shall approve same and issue a certificate of exemption based on
the registration or notification, as the case may be, but in no case shall
the overhead exceed thirty per centum of the selling price to the public.

It is the contemplation of the foregoing and other similar provisions
that that percentage of the amount paid by the subscriber or purchaser
which represents the difference between the maximum permitted over-
head and/or commission and one hundred shall go to the treasury of
the enterprise or project for the legitimate purposes thereof, and to
serve as a fund and source for earning the hoped for return upon the
investment.

Nothing herein shall be construed, however, to exempt from quali-
fication subdivisions of land lying outside of Virginia when the pro-
visions of this act are otherwise applicable thereto.

In order for such regular dealer to be entitled to offer for sale and
advertise for sale and sell securities, otherwise subject to regular quali-
fication under this act, in regular, established place or places of busi-
ness and/or through regularly employed and duly licensed salesmen
and solicitors outside of such place or places of business, such dealer
must be a regular dealer in securities and must have been in business
in this State and have had a regular place of business in this State for
a period of six months prior to the date of his application for license
as a licensed dealer under this act, and must, in addition to other re-
quirements applicable, obtain from the State Corporation Commission
a dealer’s license, and each salesman or solicitor who offers, sells, or
participates in the sale of securities outside of such regular place or
places of business must obtain a salesman’s or solicitor’s license. Be-
fore the State Corporation Commission shall be authorized or em-
powered to issue such dealer’s license in order to entitle the holder there-
of to the benefit of this exemption it shall be furnished, in such manner
as may be required and upon such forms as may be prescribed, satis-
factory evidence of the facts constituting the basis of the claim ot
eligibility and of the good character, standing, reputation and integ-
rity, of the individuals composing the officers and directorate of the
corporation, and of the corporation, if the dealer be a corporation, and
of the members of the partnership if it be a partnership, and of the
individual if it be an individual, and of the dealer’s reasonable financial
responsibility. The commission may, in its discretion, accept a bond
with satisfactory surety and with conditions analogous to those pre-
scribed in section five-r hereof, and in such penalty as the commission
may determine, in lieu of, or in supplement to, evidence of reasonable
financial responsibility.

No salesman’s or solicitor’s license shall be issued by the State
Corporation Commission to any regular employee of any such dealer
entitling such employee to offer, sell or participate in the sale of se-
curities outside of the regular place or places of business of such dealer
unless and until satisfactory evidence of the good character of suc
regular employee shall first have been furnished in such manner an
upon such forms as may be prescribed.

Every licensed dealer shall pay an annual fee of twenty-five dolla:
($25.00) ; every salesman or solicitor of such dealer authorized to se
seturities under the provisions of this subsection (m) shall pay a
annual license fee of ten dollars, subject to apportionment as herei
provided in the case of salesmen’s licenses under subsection (h) «
section five; and such dealer shall pay a registration fee of one dolla
for each registration of securities under the provisions of this sut
section. All such licenses shall be for the year beginning May fir:
and ending April thirtieth next following; shall be paid to the cler
of the State Corporation Commission, and no license shall be issue
hereunder or registration of a security be valid until the requisite fe
has been paid.

The license herein provided for and the license fees herein provides
to be paid shall be in addition to any other license or fees require
under any other statute.

Upon application for dealer’s license there shall be paid a fee o
twenty-five dollars, in addition to any costs or expenses incident t
investigation, but such application fee shall serve as payment of licens
for the portion of the year intervening between the granting of sucl
license and the first day of May following, in case dealer’s licens
is granted in pursuance of the application, but in case the license i:
for any reason not granted the application fee of twenty-five dollar:
shall not be returnable.

The commission shall have jurisdiction, upon formal or informa
application and-the payment of the filing fee of twenty-five dollars
and subject to payment by applicant of any necessary expenses of in-
vestigation, to determine whether a registration, as provided for here-
in, is necessary, and if it be found not necessary, to issue an order.
in the nature of a certificate, to such effect, and the commission may
issue an order to the effect that due registration, or notification, has
been made or given, and such orders shall be conclusive in the same
manner and to the same extent as in the case of orders in the nature
of certificates of non-applicability, or of exemption, as elsewhere pro-
vided in this act.

The commission shall have jurisdiction in any case, after due notice,
rearing and consideration, to revoke any regular dealer’s license and/or
salesman’s or solicitor’s license issued hereunder upon finding that such
icensee has been guilty of any fraudulent conduct or is otherwise
9f such moral or financial status as to constitute such dealer, salesman,
r solicitor, unworthy to hold a license under the provisions of this
aw, or that the practices of such licensee are such that the measure of
rotection to the public contemplated by this law has not as a fact been
‘iven or is no longer given.

(n) By the owner of any security, or land, not being the under-
vriter of such security, nor the purchaser of such securities ar land
n wholesale quantity for purpose of distribution thereor to the pubic,
s not the maker or issuer. of such security,.nor the promoter of such
and, who shall have acquired and shall sell the same for his own ac-
count in the usual and ordinary course of business and not for the direct
yr indirect promotion of any enterprise or scheme within the purview
xf this act, providing that. such ownership and sale are in good faith.
Repeated or successive sales of any such security or securities or land.
shall be prima facie evidence that the claims of ownership and sale in
ordinary course are not bona fide, but mere shifts or devices to evade
the provisions of this act. a

(0) ‘The sale, transfer, or delivery to any bank, banker, trust com-
pany or dealer in securities, or to any stock or mutual insurance com-
pany, provided that the exemption hereby provided shall not extend to
any distribution of securities so sold, et cetera, by the purchaser when
any provision of section three of this law is applicable and there is
no provision of section four thereof which is applicable to such dis-
tribution. | , 3

(p) The sale, transfer, or delivery to those persons, or to any
of the persons, named in the certificate of incorporation, or amendment
thereof, as directors, managers, or trustees, officers, or 1ncorporators,
provided there be not such sale, et cetera, to a total of more than eight
such directors, managers, or trustees, officers, and/or incorporators,
for permanent or indefinite investment or speculation, or operation of
non-profit activity, and for the purpose of forming a bona fide close cor-
poration or association, and provided that the exemption hereof shall
not extend to any voluntary offer, sale, or distribution of said securi-
ties by any such officer, director, manager, or trustee, or incorporator
while any provision of section three of this law is applicable and there
is no provision of section four thereof which is applicable to such offer
sale, or distribution, and provided further that any offer, sale or dis-
tribution, by any such director, manager or trustee, officer or incor-
porator within one year from date of sale, et cetera, under this exemp-
tion shall be prima facie a violation of this law in any prosecution o1
proceeding thereunder: or the sale, transfer, or delivery to not more
than thirty persons, inclusive of the directors, managers or trustees
officers, and incorporators, or one or more of them, provided that th
names of such persons, as prospective purchasers, have been filed witl
the State Corporation Commission, provided that such sale, et cetera
be for permanent or indefinite investment or speculation, or operatio!
of a non-profit activity, and for the purpose of forming a bona fide clos:
corporation or operation of a non-profit activity, and provided tha
the exemption hereof shall not extend to any voluntary offer, sale, o
distribution of said securities by any of the not over thirty persons t
whom such’ sale, et cetera, shall have been made hereunder, while an
provision of section three of this law is applicable and there is n
provision of section four thereof which is applicable to such offer
sale, or distribution, and provided further that any offer, sale or dis
tribution by any person so named as a prospective purchaser withi
one year from date of sale, et.cetera,.under this exemption, shall be
prima facie a violation of this law in any prosecution or proceeding
thereunder. ee - a rrr
~ Successive lists may be filed, covering additional sales to the same
and/or other purchasers, provided the ultimate total be not over thirty.
Nothing herein shall have the effect of requiring the filing of a
list of prospective purchasers so long as sale, transfer, or delivery be
confined to, and for the sole benefit of, officers, directors, managers
or trustees and/or incorporators, as provided in the first part of this
exemption, sub-division (p) of section four of this law.

_(q) 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 security holders as a stock dividend
or other distribution out of earnings or surplus; or the issue of securi-
ties 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 partly for cash and partly in exchange for the
securities or claims of such security holders or creditors.

(r) Securities of any domestic corporation organized and/or op-
erating under the Cooperative Marketing Act, provided the overhead
of organization, flotation and commissions be not in excess of ten per
centum of the selling price.

(s) Securities consisting of memberships, and incidental benefits
included therewith, issued only to their members by bona fide non-
profit organizations, when offered, sold and distributed by any strictly
non-profit association or organization, whether incorporated or not,
provided, however, that whenever any provision of section three of
this law be applicable and no other provision of section four of this
law is applicable or is made available, it shall be necessary, in order
to obtain the benefit of this exemption, that any such organization shall,
before offering, selling and/or distributing any such memberships
and in order to obtain and enjoy the benefit of this exemption, apply
for and secure, and upon any subsequent material alteration or change
in the scope, terms or provisions of any such membership apply for
and secure from time to time, a certificate of exemption in accord-
ance with the first paragraph of section four of the Securities Law;
and any such organization shall be entitled to such certificate of ex-
emption only when it has been established, to the satisfation of the
commission, that the organization is bona fide, that the contract, or
undertakings incident to membership, in effect or proposed, are fair
and equitable, that the organization appears to the commission to pos-
sess a reasonable capacity to perform the undertakings of the contract
and the obligations arising by virtue of membership therein, and that
there is reasonable probability that the organization will be able to
continue to function, and that the amounts paid or proposed to be paid
on account of overhead of organization and/or flotation are not ex-
cessive; and the commission may, in its discretion, require bond ac-
cording and analogous to the provisions of section five (r) of the
Securities Law as a condition precedent to issuance of a certificate
of exemption hereunder; and provided, further, that nothing herein
contained shall have the effect of superseding or obviating the juris-
diction of the State Corporation Commission under section six of the
Securities Law, for the issuance of cease and desist order, when appli-
cable in a particular case, as to any of the types of organizations here-
by conditionally exempted from necessity of qualification under the
Securities Law, and notwithstanding previous issuance of certificate
of exemption, nor as to any such organization to memberships in which
this exemption is applicable, when a certificate of exemption is re-
quired hereunder and shall not have been secured as herein required;
nor shall anything herein have the effect of excusing from, or in any
way affecting, the necessity of complying with the insurance laws of the
State when applicable, nor with the laws of the State governing the
conduct of intrastate business by any foreign corporation when ap-
plicable, nor with any other applicable law of the State of Virginia.
An emergency existing, this act shall be in force from its passage.