H. B. 2808
(By Delegates Farris and Gallagher)
[Introduced February 24, 1995; referred to the
Committee on Finance.]
A BILL to amend and reenact section four hundred two, article
four, chapter thirty-two of the code of West Virginia, one
thousand nine hundred thirty-one, as amended, relating to
securities transactions that are exempt from registration
and sales and advertising literature filing.
Be it enacted by the Legislature of West Virginia:
That section four hundred two, article four, chapter
thirty-two of the code of West Virginia, one thousand nine
hundred thirty-one, as amended, be amended and reenacted to read
as follows:
ARTICLE 4. GENERAL PROVISIONS.
§32-4-402. Exemptions.
(a) The following securities are exempt from sections 301
and 403:
(1) Any security (including a revenue obligation) issued or
guaranteed by the United States, any state, any political
subdivision of a state, or any agency or corporate or other
instrumentality of one or more of the foregoing; or any
certificate of deposit for any of the foregoing;
(2) Any security issued or guaranteed by Canada, any
Canadian province, any political subdivision of any such
province, any agency or corporate or other instrumentality of one
or more of the foregoing, or any other foreign government with
which the United States currently maintains diplomatic relations,
if the security is recognized as a valid obligation by the issuer
or guarantor;
(3) Any security issued by and representing an interest in
or a debt of, or guaranteed by, any bank organized under the laws
of the United States, or any bank, savings institution or trust company organized and supervised under the laws of any state;
(4) Any security issued by and representing an interest in
or a debt of, or guaranteed by, any federal savings and loan
association, or any building and loan or similar association
organized under the laws of any state and authorized to do
business in this state;
(5) Any security issued by and representing an interest in
or a debt of, or guaranteed by, any insurance company organized
under the laws of any state and authorized to do business in this
state;
(6) Any security issued or guaranteed by any federal credit
union or any credit union, industrial loan association or similar
association organized and supervised under the laws of this
state;
(7) Any security issued or guaranteed by any railroad, other
common carrier, public utility or holding company which is: (A)
Subject to the jurisdiction of the interstate commerce
commission; (B) a registered holding company under the Public Utility Holding Company Act of 1935, or a subsidiary of such a
company within the meaning of that act; (C) regulated in respect
of its rates and charges by a governmental authority of the
United States or any state; or (D) regulated in respect of the
issuance or guarantee of the security by a governmental authority
of the United States, any state, Canada, or any Canadian
province;
(8) Any security listed or approved for listing upon notice
of issuance on the New York Stock Exchange, the American Stock
Exchange, or the Midwest Stock Exchange, any other stock exchange
approved by the commissioner, the National Association of
Securities Dealers Automated Quotation/National Market
System(NASDAQ/NMS), or any other market system approved by the
commissioner, any other security of the same issuer which is of
senior or substantially equal rank, any security called for by
subscription rights or warrants so listed or approved, or any
warrant or right to purchase or subscribe to any of the
foregoing, except that the commissioner may adopt and promulgate rules and regulations pursuant to chapter twenty-nine-a of this
code which, after notice to such exchange or market system and
an opportunity to be heard, remove any such exchange or market
system from this exemption if the commissioner finds that the
listing requirements or market surveillance of such exchange or
market system are such that the continued availability of such
exemption for such exchange or market system is not in the public
interest and that removal is necessary for the protection of
investors;
(9) Any security issued by any person organized and operated
not for private profit but exclusively for religious,
educational, benevolent, charitable, fraternal, social, athletic
or reformatory purposes, or as a chamber of commerce or trade or
professional association, and no part of the net earnings of
which inures to the benefit of any person, private stockholder or
individual;
(10) Any commercial paper which arises out of a current
transaction or the proceeds of which have been or are to be used for current transactions, and which evidences an obligation to
pay cash within twelve months of the date of issuance, exclusive
of days of grace, or any renewal of such paper which is likewise
limited, or any guarantee of such paper or of any such renewal;
(11) Any investment contract issued in connection with an
employees' stock purchase, savings, pension, profit-sharing or
similar benefit plan if the commissioner is notified in writing
thirty days before the inception of the plan or, with respect to
plans which are in effect on the effective date of this chapter,
within sixty days thereafter (or within thirty days before they
are reopened if they are closed on the effective date of this
chapter); and
(12) Any security issued by an agricultural cooperative
association operating in this state and organized under article
four, chapter nineteen of this code, or by a foreign cooperative
association organized under the laws of another state and duly
qualified to transact business in this state.
(b) The following transactions are exempt from sections 301 and 403:
(1) Any isolated nonissuer transaction, whether effected
through a broker-dealer or not;
(2) Any nonissuer distribution of an outstanding security
if: (A) A recognized securities manual contains the names of the
issuer's officers and directors, a balance sheet of the issuer as
of a date within eighteen months, and a profit and loss statement
for either the fiscal year preceding that date or the most recent
year of operations; or (B) the security has a fixed maturity or
a fixed interest or dividend provision and there has been no
default during the current fiscal year or within the three
preceding fiscal years, or during the existence of the issuer and
any predecessors if less than three years, in the payment of
principal, interest or dividends on the security;
(3) Any nonissuer transaction effected by or through a
registered broker-dealer pursuant to an unsolicited order or
offer to buy; but the commissioner may by rule require that the
customer acknowledge upon a specified form that the sale was unsolicited, and that a signed copy of each such form be
preserved by the broker-dealer for a specified period;
(4) Any transaction between the issuer or other person on
whose behalf the offering is made and an underwriter, or among
underwriters;
(5) Any transaction in a bond or other evidence of
indebtedness secured by a real or chattel mortgage or deed of
trust, or by an agreement for the sale of real estate or
chattels, if the entire mortgage, deed of trust, or agreement,
together with all the bonds or other evidences of indebtedness
secured thereby, is offered and sold as a unit;
(6) Any transaction by an executor, administrator, sheriff,
marshal, constable, receiver, trustee in bankruptcy, guardian or
conservator, and any transaction constituting a judicial sale;
(7) Any transaction executed by a bona fide pledgee without
any purpose of evading this chapter;
(8) Any offer or sale to a bank, savings institution, trust
company, insurance company, investment company as defined in the Investment Company Act of 1940, pension or profit-sharing trust,
or other financial institution or institutional buyer, or to a
broker-dealer, whether the purchaser is acting for itself or in
some fiduciary capacity;
(9) Any transaction pursuant to an offer directed by the
offeror to not more than ten persons (other than those designated
in subdivision (8) above) in this state during any period of
twelve consecutive months, whether or not the offeror or any of
the offerees is then present in this state, if: (A) The seller
reasonably believes that all the buyers in this state (other than
those designated in subdivision (8) above) are purchasing for
investment; and (B) no commission or other remuneration is paid
or given directly or indirectly for soliciting any prospective
buyer in this state (other than those designated in subdivision
(8) above); but the commissioner may by rule or order, as to any
security or transaction or any type of security or transaction,
withdraw or further condition this exemption, or increase or
decrease the number of offerees permitted, or waive the conditions in clauses (A) and (B) with or without the
substitution of a limitation on remuneration;
(10) Any offer or sale of a preorganization certificate or
subscription if: (A) No commission or other remuneration is paid
or given directly or indirectly for soliciting any prospective
subscriber; (B) the number of subscribers does not exceed ten;
and (C) no payment is made by any subscriber;
(11) Any transaction pursuant to an offer to existing
security holders of the issuer, including persons who at the time
of the transaction are holders of convertible securities,
nontransferable warrants or transferable warrants exercisable
within not more than ninety days of their issuance, if: (A) No
commission or other remuneration (other than a standby
commission) is paid or given directly or indirectly for
soliciting any security holder in this state; or (B) the issuer
first files a notice specifying the terms of the offer and the
commissioner does not by order disallow the exemption within the
next five full business days;
(12) Any offer (but not a sale) of a security for which
registration statements have been filed under both this chapter
and the Securities Act of 1933 if no stop order or refusal order
is in effect and no public proceeding or examination looking
toward such an order is pending under either chapter.
(13) A security issued by an issuer registered as an
open-end management investment company or unit investment trust
under section (8) of the Investment Company Act of 1940 if:
(A)(i) The issuer is advised by an investment adviser that
it is a depository institution exempt from registration under the
Investment Company Act of 1940, or that is currently registered
as an investment adviser, and has been registered, or is
affiliated with an adviser that has been registered, as an
investment adviser under the Investment Advisers Act of 1940, for
at least three years next preceding an offer or sale of a
security claimed to be exempt under this paragraph; and the
adviser has acted, or is affiliated with an investment adviser
that has acted, as investment adviser to one or more registered investment companies for at least three years next preceding an
offer or sale of a security claimed to be exempt under this
paragraph; or
(ii) The issuer has a sponsor that has at all times
throughout the three years before an offer or sale of a security
claimed to be exempt under this paragraph sponsored one or more
registered investment companies or unit investment trusts the
aggregate total assets of which have exceeded one hundred million
dollars.
(B) The division has received prior to any sale exempted
herein:
(i) A notice of intention to sell which has been executed by
the issuer which sets forth the name and address of the issuer
and the title of the securities to be offered in this state;
(ii) A filing fee equal to one twentieth of one percent of
the maximum aggregate offering price, but such fee shall not be
less than fifty nor greater than fifteen hundred dollars, for
open-end management companies; or
(iii) A filing fee equal to one twentieth of one percent of
the maximum aggregate offering price, but such fee shall not be
less than fifty nor greater than fifteen hundred dollars, for
unit investment trusts.
(C) A separate notice and fee shall be required for each
portfolio, series or class of an open-end management company.
(D) For the purpose of this subsection, an investment
adviser is affiliated with another investment adviser if it
controls, is controlled by or is under common control with the
other investment adviser.
(c) The commissioner may by order deny or revoke any
exemption specified in subdivision (9) or (11) of subsection (a)
or in subsection (b) of this section with respect to a specific
security or transaction. No such order may be entered without
appropriate prior notice to all interested parties, opportunity
for hearing, and written findings of fact and conclusions of law,
except that the commissioner may by order summarily deny or
revoke any of the specified exemptions pending final determination of any proceeding under this subsection. Upon the
entry of a summary order, the commissioner shall promptly notify
all interested parties that it has been entered and of the
reasons therefor and that within fifteen days of the receipt of
a written request the matter will be set down for hearing. If no
hearing is requested and none is ordered by the commissioner, the
order will remain in effect until it is modified or vacated by
the commissioner. If a hearing is requested or ordered, the
commissioner, after notice of and opportunity for hearing to all
interested persons, may modify or vacate the order or extend it
until final determination. No order under this subsection may
operate retroactively. No person may be considered to have
violated section 301 or 403 by reasons of any offer or sale
effected after the entry of an order under this subsection if he
sustains the burden of proof that he did not know, and in the
exercise of reasonable care could not have known, of the order.
(d) In any proceeding under this chapter, the burden of
proving an exemption or an exception from a definition is upon the person claiming it.
NOTE: The purpose of this bill is to provide an exemption
from securities registration for shares of qualified investment
companies upon the filing of a notice and payment of a fee.