Senate Bill No. 705

(By Senator Oliverio)

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[Introduced February 23, 1998; referred to the Committee on the Judiciary.]
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A BILL to amend the code of West Virginia, one thousand nine hundred thirty one, as amended, by adding thereto a new chapter, designated chapter thirty-two-b, relating to the adoption of the model state commodity code as the West Virginia commodities act; including criminal and civil penalties; and providing authority to revoke licenses.

Be it enacted by the Legislature of West Virginia:
That the code of West Virginia, one thousand nine hundred thirty-one, as amended, be amended by adding thereto a new chapter, designated chapter thirty-two-b, to read as follows:
CHAPTER 32B. THE WEST VIRGINIA COMMODITIES ACT.

ARTICLE 1. GENERAL PROVISIONS.
§32B-1-1. Definitions.
(a) "Commissioner" means the auditor of the state of West Virginia.
(b) "Board of trade" means any person or group of persons engaged in buying or selling any commodity or receiving the same for sale on consignment, whether the person or group of persons is characterized as a board of trade, exchange or other form of marketplace.
(c) "Commodity futures trading commission rule" means any rule, regulation or order of the commodity futures trading commission in effect on the effective date of this chapter, and all subsequent amendments, additions or other revisions thereto, unless the commissioner, within ten days following the effective date of the amendment, addition or revision, disallows the application thereof to this chapter or to any provision thereof by rule or order.
(d) "Commodity" means, except as otherwise specified by the commissioner by rule or order, any agricultural, grain or livestock product or byproduct; any metal or mineral, including a precious metal set forth in subsection (m) of this section; any gem or gemstone, whether characterized as precious, semi-precious or otherwise; any fuel, whether liquid, gaseous or otherwise; any foreign currency; and all other goods, articles, products or items of any kind: Provided, That the term commodity does not include:
(1) A numismatic coin whose fair market value is at least fifteen percent higher than the value of the metal it contains; (2) Real property or any timber, agricultural or livestock product grown or raised on real property and offered or sold by the owner or lessee of the real property; or
(3) Any work of art offered or sold by art dealers, at public auction or offered or sold through a private sale by the owner thereof.
(e) "Commodity contract" means any account, agreement or contract for the purchase or sale, primarily for speculation or investment purposes and not for use or consumption by the offeree or purchaser, of one or more commodities, whether for immediate or subsequent delivery or whether delivery is intended by the parties, and whether characterized as a cash contract, deferred shipment or deferred delivery contract, forward contract, futures contract, installment or margin contract, leverage contract or otherwise. Any commodity contract offered or sold is, in the absence of evidence to the contrary, presumed to be offered or sold for speculation or investment purposes. A commodity contract does not include any contract or agreement which requires, and under which the purchaser receives, within twenty- eight calendar days from the payment in good funds of any portion of the purchase price, physical delivery of the total amount of each commodity to be purchased under the contract or agreement.
(f) "Commodity exchange act" means the act of Congress known as the Commodity Exchange Act, as amended to the effective date of this chapter, codified at 7 U.S.C. §1, et seq., and all subsequent amendments, additions or other revisions thereto, unless the commissioner, within ten days following the effective date of any the amendment, addition or revision, disallows the application thereof to this part or to any provision thereof by rule or order.
(g) "Commodity futures trading commission" means the independent regulatory agency established by Congress to administer the Commodity Exchange Act.
(h) "Commodity merchant" means any of the following as defined or described in the Commodity Exchange Act or by commodity futures trading commission rule:
(1) Futures commission merchant;
(2) Commodity pool operator;
(3) Commodity trading advisor;
(4) Introducing broker;
(5) Leverage transaction merchant;
(6) An associated person of any of the foregoing;
(7) Floor broker; and
(8) Any other person, other than a futures association, required to register with the commodity futures trading commission.
(i) "Commodity option" means any account, agreement or contract giving a party thereto the right but not the obligation to purchase or sell one or more commodities or one or more commodity contracts, or both, whether characterized as an option, privilege, indemnity, bid, offer, put, call, advance guaranty, decline guaranty or otherwise, but does not include an option traded on a national securities exchange registered with the United States securities and exchange commission.
(j) "Financial institution" means a bank, savings institution or trust company organized under, or supervised pursuant to, the laws of the United States or of any state.
(k) "Offer" includes every offer to sell, offer to purchase or offer to enter into a commodity contract or commodity option.
(l) "Person" means an individual, a corporation, a partnership, association, a joint-stock company, a trust where the interests of the beneficiaries are evidenced by a security, an unincorporated organization, a government or a political subdivision of a government, but does not include a contract market designated by the commodity futures trading commission or any clearinghouse thereof or a national securities exchange registered with the securities and exchange commission or any employee, officer or director of the contract market, clearinghouse or exchange acting solely in that capacity.
(m) "Precious metal" means the following in either coin, bullion or other form:
(1) Silver;
(2) Gold;
(3) Platinum;
(4) Palladium;
(5) Copper; and
(6) Other items as the commissioner may specify by rule or order.
(n) "Sale" or "sell" includes every sale, contract of sale, contract to sell or disposition, for value.
§32B-1-2. Unlawful commodity transactions.
Except as otherwise provided in section three or four of this article, no person may sell or purchase or offer to sell or purchase any commodity under any commodity contract or under any commodity option or offer to enter into or enter into as seller or purchaser any commodity contract or any commodity option.
§32B-1-3. Exempt person transactions.
(a) The prohibitions in section two of this article do not apply to any transaction offered by and in which any of the following persons (or any employee, officer or director thereof acting solely in that capacity) is the purchaser or seller:
(1) A person registered with the commodity futures trading commission as a futures commission merchant or as a leverage transaction merchant whose activities require the registration;
(2) A person registered with the securities and exchange commission as a broker-dealer whose activities require the registration;
(3) A person affiliated with, and whose obligations and liabilities under the transaction are guaranteed by, a person referred to in subdivision (a) or (b) of this subsection;
(4) Person who is a member of a contract market designated by the commodity futures trading commission or any clearinghouse thereof;
(5) A financial institution; or
(6) A person registered under the laws of this state as a securities broker-dealer whose activities require the registration.
(b) The exemptions provided by this do not apply to any transaction or activity which is prohibited by the Commodity Exchange Act or commodity futures trading commission rule.
§32B-1-4. Exempt transactions.
(a) The prohibitions in section two of this article do not apply to the following:
(1) An account, agreement or transaction within the exclusive jurisdiction of the commodity futures trading commission as granted under the Commodity Exchange Act;
(2) A commodity contract for the purchase of one or more precious metals which requires, and under which the purchaser receives, within twenty-eight calendar days from the payment in good funds of any portion of the purchase price, physical delivery of the quantity of the precious metals purchased by the payment, provided that, for purposes of this paragraph, physical delivery has occurred if, within the twenty-eight-day period, the quantity of precious metals purchased by the payment is delivered, whether in specifically segregated or fungible bulk form, into the possession of a depository, other than the seller, which is either:
(i) A financial institution;
(ii) A depository the warehouse receipts of which are recognized for delivery purposes for any commodity on a contract market designated by the commodity futures trading commission;
(iii) A storage facility licensed or regulated by the United States or any agency thereof; or
(iv) A depository designated by the commissioner; and the depository or other person which itself qualifies as a depository as aforesaid or a qualified seller issues and the purchaser receives, a certificate, document of title, confirmation or other instrument evidencing that the quantity of precious metals has been delivered to the depository and is being and will continue to be held by the depository on the purchaser's behalf, free and clear of all liens and encumbrances, other than liens of the purchaser, tax liens. Liens agreed to by the purchaser, or liens of the depository for fees and expenses, which have previously been disclosed to the purchaser;
(3) A commodity contract solely between persons engaged in producing, processing, using commercially or handling as merchants, each commodity subject thereto, or any by-product thereof; or
(4) A commodity contract under which the offeree or the purchaser is a person referred to in section three of this article, an insurance company, an investment company as defined in the Investment Company Act of 1940, or an employee pension and profit sharing or benefit plan, other than a self-employed individual retirement plan or individual retirement account.
(b) For the purposes of subdivision (2), subsection (a), section four of this article, a qualified seller is a person who:
(1) Is a seller of precious metals and has a tangible net worth of at least five million dollars or has an affiliate who has unconditionally guaranteed the obligations and liabilities of the seller and the affiliate has a tangible net worth of at least five million dollars;
(2) Has stored precious metals with one or more depositories on behalf of customers for at least the previous three years;
(3) Prior to any offer, and annually thereafter, files with the commissioner a sworn notice of intent to act as a qualified seller under subdivision (2), subsection (a), section four of this article, containing:
(A) The seller's name and address, names of its directors, officers, controlling shareholders, partners, principals, and other controlling persons;
(B) The address of its principal place of business, state and date of incorporation or organization, and the name and address of seller's registered agent in this state;
(C) A statement that the seller or a person affiliated with the seller who has guaranteed the obligations and liabilities of the seller has a tangible net worth of at least five million dollars;
(D) Depository information including:
(i) The name and address of the depository or depositories that the seller intends to use;
(ii) The name and address of each and every depository where the seller has stored precious metals on behalf of customers for the previous three years; and
(iii) Independent verification from each and every depository named in subparagraph (ii), paragraph (D) of this subdivision that the seller has in fact stored precious metals on behalf of the seller's customers for the previous three years and a statement of total deposits made during this period.
(E) Financial statements for the seller or the person affiliated with the seller who has guaranteed the obligations and liabilities of the seller for the past three years, audited by an independent certified public accountant, together with the accountant's report;
(F) A statement describing the details of all civil, criminal or administrative proceedings currently pending or adversely resolved against the seller or its directors, officers, controlling shareholders, partners, principals or other controlling persons during the past ten years including:
(i) Civil litigation and administrative proceedings involving securities or commodities violations or fraud;
(ii) Criminal proceedings;
(iii) Denials, suspensions or revocations of securities or commodities, licenses or registrations; and
(iv) Suspensions or expulsions from membership in, or associations with, self-regulatory organizations registered under the Securities Exchange Act of 1934 or the Commodities Exchange Act; or
(v) A statement that there were no such proceedings;
(4) Notifies the commissioner within fifteen days of any material changes in the information provided in the notice of intent; and
(5) Annually furnishes to each purchaser for whom the seller is then storing precious metals, and to the commissioner, a report by an independent certified public accountant of the accountant's examination of the seller's precious metals storage program.
(c) The commissioner may, upon request by the seller, waive any of the exemption requirements in subsection (b) of this section, conditionally or unconditionally.
(d) The commissioner may, by order, deny, suspend, revoke or place limitations on the authority to engage in business as a qualified seller under subdivision (2), subsection (a) of this section if the commissioner finds that the order is in the public interest and that the person, the person's officers, directors, partners, agents, servants or employees, any person occupying a similar status or performing similar functions, any person who directly or indirectly controls or is controlled by the seller, or any of them, the seller's affiliates or subsidiaries:
(1) Has filed a notice of intention under subsection (c) of this section with the commissioner or the designee of the commissioner which was incomplete in any material respect or contained any statement which was, in light of the circumstances under which it was made, false or misleading with respect to any material fact;
(2) Has, within the last ten years, pled guilty or nolo contendere to, or been convicted of any crime indicating a lack of fitness to engage in the investment commodity business;
(3) Has been permanently or temporarily enjoined by any court of competent jurisdiction from engaging in, or continuing, any conduct or practice which injunction indicates a lack of fitness to engage in the investment commodities business;
(4) Is the subject of an order of the commissioner denying, suspending or revoking the person's license as a securities broker-dealer, sales representative or investment advisor;
(5) Is the subject of any of the following orders which are currently effective and which were issued within the last five years:
(A) An order by the securities agency or commissioner of another state, Canadian province or territory, the securities and exchange commission or the commodity futures trading commission, entered after notice and opportunity for hearing, denying, suspending or revoking the person's registration as a futures commission merchant, commodity trading adviser, commodity pool operator, securities broker-dealer, sales representative or investment adviser or the substantial equivalent of those terms;
(B) Suspension or expulsion from membership in, or association with, a self-regulatory organization registered under the Securities Exchange Act of 1934 or the Commodity Exchange Act;
(C) A United States Postal Service fraud order;
(D) A cease and desist order entered after notice and opportunity of hearing by the commissioner or the securities agency or commissioner of any other state, Canadian province or territory, the securities and exchange commission or the commodity futures trading commission;
(E) An order entered by the commodity futures trading commission denying, suspending or revoking registration under the Commodity Exchange Act.
(6) Has engaged in an unethical or dishonest act or practice in the investment commodities or securities business; or
(7) Has failed reasonably to supervise sales representatives or employees.
(e) If the public interest or the protection of investors so requires, the commissioner may, by order, summarily deny or suspend the exemption for a qualified seller. Upon the entry of the order, the commissioner shall promptly notify the person claiming said status that an order has been entered and the reasons therefor and that within thirty days after the receipt of a written request the matter will be set for hearing. The provisions of section ten, article two of this chapter apply with respect to all subsequent proceedings.
(f) If the commissioner finds that any applicant or qualified seller is no longer in existence or has ceased to do business or is subject to an adjudication of mental incompetence or to the control of a committee, conservator or guardian, or cannot be located after reasonable search, the commissioner may, by order, deny or revoke the exemption for a qualified seller.
(g) The commissioner may issue rules or orders prescribing the terms and conditions of all transactions and contracts covered by the provisions of this chapter which are not within the exclusive jurisdiction of the commodity futures trading commission as granted by the Commodity Exchange Act, exempting and conditionally or unconditionally and otherwise implementing the provisions of this chapter for the protection of purchasers and sellers of commodities.
§32B-1-5. Unlawful commodity activities.
(a) No person may engage in a trade or business or otherwise act as a commodity merchant unless the person:
(1) Is registered or temporarily licensed with the commodity futures trading commission for each activity constituting the person as a commodity merchant and the registration or temporary license has not expired, been suspended or revoked; or
(2) Is exempt from the registration by virtue of the Commodity Exchange Act or of a commodity futures trading commission rule.
(b) No board of trade may trade, or provide a place for the trading of, any commodity contract or commodity option required to be traded on or subject to the rules of a contract market designated by the commodity futures trading commission unless the board of trade has been so designated for the commodity contract or commodity option and the designation has not been vacated, suspended or revoked.
§32B-1-6. Fraudulent conduct.
No person may directly or indirectly:
(a) Cheat or defraud or attempt to cheat or defraud any other person or employ any device, scheme or artifice to defraud any other person;
(b) Make any false report, enter any false record or make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading;
(c) Engage in any transaction, act, practice or course of business, including, without limitation, any form of advertising or solicitation, which operates or would operate as a fraud or deceit upon any person; or
(d) Misappropriate or convert the funds, security or property of any other person in or in connection with the purchase or sale of, the offer to sell, the offer to purchase, the offer to enter into or the entry into of, any commodity contract or commodity option subject to the provisions of section two, section three, or subdivisions (2) or (4), subsection (a), section four of this article.
§32B-1-7. Liability of principals, controlling persons and other.

(a) The act, omission or failure of any official, agent or other person acting for any individual, association, partnership, corporation or trust within the scope of his employment or office is the act, omission or failure of the individual, association, partnership, corporation or trust, as well as of the official, agent or other person.
(b) Every person who directly or indirectly controls another person liable under any provision of this chapter, every partner, officer or director of the other person, every person occupying a similar status or performing similar functions, every employee of the other person who materially aids in the violation is also liable jointly and severally with and to the same extent as the other person, unless the person who is also liable by virtue of this provision sustains the burden of proof that he or she did not know, and in exercise of reasonable care could not have known, of the existence of the facts by reason of which the liability is alleged to exist.
§32B-1-8. Securities laws unaffected.
Nothing in this chapter impairs, derogates or otherwise affects the authority or powers of the commissioner under article one, chapter thirty-two of this code, or the application of any provision thereof to any person or transaction subject thereto.
§32B-1-9. Purpose.
This chapter shall be construed and implemented to effectuate its general purpose to protect investors, to prevent and prosecute illegal and fraudulent schemes involving commodity contracts and to maximize coordination with federal and other states' laws and the administration and enforcement thereof. This chapter is not intended to create any rights or remedies upon which actions may be brought by private persons against persons who violate the provisions of this chapter.
ARTICLE 2. ADMINISTRATION AND ENFORCEMENT.
§32B-2-1. Investigations.
(a) The commissioner may make investigations, within or without this state, as it finds necessary or appropriate to:
(1) Determine whether any person has violated, or is about to violate, any provision of this chapter or any rule or order of the commissioner; or
(2) Aid in enforcement of this chapter.
(b) The commissioner may publish information concerning any violation of this chapter or any rule or order of the commissioner.
(c) For purposes of any investigation or proceeding under this chapter, the commissioner or any officer or employee designated by rule or order, may administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence, and require the production of any books, papers, correspondence, memoranda, agreements or other documents or records which the commissioner finds to be relevant or material to the inquiry.
(d) (1) If a person does not give testimony or produce the documents required by the commissioner or a designated employee pursuant to an administrative subpoena, the commissioner or designated employee may apply for a court order compelling compliance with the subpoena or the giving of the required testimony.
(2) The request for order of compliance may be addressed to either:
(i) The Kanawha County circuit court or the circuit court for the respective judicial circuit where service may be obtained on the person refusing to testify or produce, if the person is within this state; or
(ii) The appropriate court of the state having jurisdiction over the person refusing to testify or produce, if the person is outside this state.
§32B-2-2. Enforcement of chapter.
(a) If the commissioner believes, whether or not based upon an investigation conducted under section one of this article, that any person has engaged or is about to engage in any act or practice constituting a violation of any provision of this chapter or any rule or order hereunder, the commissioner may:
(1) Issue a cease and desist order;
(2) Issue an order imposing a civil penalty in amount which may not exceed ten thousand dollars for any single violation or one hundred thousand dollars for multiple violations in a single proceeding or a series of related proceedings;
(3) Initiate any of the actions specified in subsection (b) of this section; or
(4) Take disciplinary action against a licensed person as specified in section eight, article three of this chapter;
(b) The commissioner may institute any of the following actions in the appropriate courts of this state, or in the appropriate courts of another state, in addition to any legal or equitable remedies otherwise available:
(1) A declaratory judgment;
(2) An action for a prohibitory or mandatory injunction to enjoin the violation and to ensure compliance with this chapter or any rule or order of the commissioner;
(3) An action for disgorgement; or
(4) An action for appointment of a receiver or conservator for the defendant or the defendant's assets; or
(5) An action to enjoin permanently any person from acting as a commodity broker-dealer or a commodity sales representative, as defined in subsections (a) or (b), section one of article three of this chapter.
§32B-2-3. Power of court to grant relief.
(a) (1) Upon a proper showing by the commissioner that a person has violated, or is about to violate, any provision of this chapter or any rule or order of the commissioner, the circuit court may grant appropriate legal or equitable remedies.
(2) Upon showing of violation of this chapter or a rule or order of the commissioner, the court, in addition to traditional legal and equitable remedies, including temporary restraining orders, permanent or temporary prohibitory or mandatory injunctions, and writs of prohibition or mandamus, may grant the following special remedies:
(i) Imposition of a civil penalty in amount which may not exceed ten thousand dollars for any single violation or one hundred thousand dollars for multiple violations in a single proceeding or a series of related proceedings;
(ii) Disgorgement;
(iii) Declaratory judgment;
(iv) Restitution to investors wishing restitution; and
(v) Appointment of a receiver or conservator for the defendant or the defendant's assets; and
(vi) An injunction permanently enjoining the defendant or defendants from acting as a commodity broker-dealer or a commodity sales representative, as defined in subsections (a) and (b), section one, article three of this chapter.
(3) Appropriate remedies when the defendant is shown only about to violate this chapter or a rule or order of the commissioner is limited to:
(i) A temporary restraining order;
(ii) A temporary or permanent injunction;
(iii) A writ of prohibition or mandamus; or
(iv) An order appointing a receiver or conservator for the defendant or the defendant's assets.
(b) The court may not require the commissioner to post a bond in any official action under this chapter.
(c) (1) Upon a proper showing by the commissioner or securities or commodity agency of another state that a person, other than a government or governmental agency or instrumentality, has violated, or is about to violate, any provision of the commodity code of that state or any rule or order of the commissioner or securities or commodity agency of that state, the circuit court may grant appropriate legal and equitable remedies.
(2) Upon showing of a violation of the securities or commodity act of the foreign state or a rule or order of the commissioner or securities or commodity agency of the foreign state, the court, in addition to traditional legal or equitable remedies including temporary restraining orders, permanent or temporary prohibitory or mandatory injunctions and writs of prohibition or mandamus, may grant the following special remedies:
(i) Disgorgement; and
(ii) Appointment of a receiver, conservator or ancillary receiver or conservator for the defendant or the defendant's assets located in this state.
(3) Appropriate remedies when the defendant is shown only about to violate the securities or commodity act of the foreign state or a rule or order of the commissioner or securities or commodity agency of the foreign state is limited to:
(i) A temporary restraining order;
(ii) A temporary or permanent injunction;
(iii) A writ of prohibition or mandamus; or
(iv) An order appointing a receiver, conservator or ancillary receiver or conservator for the defendant or the defendant's assets located in this state.
§32B-2-4. Criminal penalties.
(a) Any person who willfully violates any provision of this chapter or any rule or order of the commissioner under this chapter is guilty of a felony and, upon conviction, shall be fined not more than twenty thousand dollars, or imprisoned more than ten years, or both fined and imprisoned, for each violation.
(b) Any person convicted of violating a rule or order under this chapter may be fined, but may not be imprisoned, if the person proves he or she had no knowledge of the rule or order.
(c) The commissioner may refer the evidence as is available concerning violations of this chapter or any rule or order of the commissioner to the United States district attorney or the attorney general for the state of West Virginia, who may, with or without a reference from the commissioner, institute the appropriate criminal proceedings under this chapter.
§32B-2-5. Administration of chapter.
(a) This chapter shall be administered by the auditor of the state of West Virginia.
(b) Neither the commissioner nor any employees of the commissioner may use any information which is filed with or obtained by the commissioner which is not public information for personal gain or benefit, nor may the commissioner nor any employees of the commissioner conduct any securities or commodity dealings whatsoever based upon any such information, even though public, if there has not been a sufficient period of time for the securities or commodity markets to assimilate the information.
(c) (1) Except as provided in subdivision (2) of this subsection, all information collected, assembled or maintained by the commissioner is public information and is available for the examination by the public as provided in article one, chapter twenty-nine-b of this code.
(2) The following are exceptions to subdivision (1) of this subsection and are confidential:
(A) Information obtained in private investigations pursuant to section one of this article;
(B) Information made exempt from disclosure under the provisions of article one, chapter twenty-nine-b of this code; and
(C) Information obtained from federal agencies which may not be disclosed under federal law.
(3) The commissioner in its discretion may disclose any information made confidential under paragraph (A), subdivision (2) of this subsection to persons identified in subsection (a), section six of this article.
(4) No provision of this chapter either creates or derogates any privilege which exists at common law, by statute or otherwise when any documentary or other evidence is sought under subpoena directed to the commissioner or any employee of the commissioner.
§32B-2-6. Cooperation with other agencies.
(a) To encourage uniform application and interpretation of this chapter and securities regulation and enforcement in general, the commissioner and the employees of the commissioner may cooperate, including bearing the expense of the cooperation, with the securities agencies or commissioner of another jurisdiction, Canadian province or territory or other agencies administering this chapter, the commodity futures trading commission, the securities and exchange commission, any self- regulatory organization established under the Commodity Exchange Act or the Securities Exchange Act of 1934, any national or international organization of commodities or securities officials or agencies, and any governmental law-enforcement agency.
(b) The cooperation authorized by subsection (a) of this section includes, but need not be limited to, the following:
(1) Making joint examinations or investigations;
(2) Holding joint administrative hearings;
(3) Filing and prosecuting joint litigation;
(4) Sharing and exchanging personnel;
(5) Sharing and exchanging information and documents;
(6) Formulating and adopting mutual regulations, statements of policy, guidelines, proposed statutory changes and releases; and
(7) Issuing and enforcing subpoenas at the request of the agency administering this chapter in another jurisdiction, the securities agency of another jurisdiction, the commodity futures trading commission or the securities and exchange commission if the information sought would also be subject to lawful subpoena for conduct occurring in this state.
§32B-2-7. General authority to adopt rules, forms and orders.
(a) In addition to specific authority granted elsewhere in this chapter, the commissioner may make, amend and rescind rules, forms and orders as are necessary to carry out the provisions of this chapter. The rules or forms shall include, but need not be limited to, rules defining any terms, whether or not used in this chapter, insofar as the definitions are not inconsistent with the provisions of this chapter. For the purpose of rules or forms, the commissioner may classify commodities and commodity contracts, persons and matters within the commissioner's jurisdiction.
(b) Unless specifically provided in this chapter, no rule, form or order may be adopted, amended or rescinded unless the commissioner finds that the action is:
(1) Necessary or appropriate in the public interest or for the protection of investors; and
(2) Consistent with the purposes fairly intended by the policy and provisions of this chapter.
(c) All rules and forms of the commissioner shall be published.
(d) No provision of this chapter imposing any liability applies to any act done or omitted in good faith in conformity with a rule, order or form adopted by the commissioner, notwithstanding that the rule, order or form may later be amended or rescinded or be determined by judicial or other authority to be invalid for any reason.
§32B-2-8. Consent to service of process.
When a person, including a nonresident of this state, engages in conduct prohibited or made actionable by the chapter or any rule or order of the commissioner, the engaging in the conduct is considered the appointment of the commissioner as the person's attorney to receive service of any lawful process in a noncriminal proceeding against the person, a successor or personal representative, which grows out of that conduct and which is brought under the chapter or any rule or order of the commissioner with the same force and validity as if served personally.
§32B-2-9. Scope of the chapter.
(a) Sections two, five and six of article one of this chapter, apply to persons who sell or offer to sell when:
(1) An offer to sell is made in this state; or
(2) An offer to buy is made and accepted in this state.
(b) Sections two, five and six of article one of this chapter, apply to persons who buy or offer to buy when:
(1) An offer to buy is made in this state; or
(2) An offer to sell is made and accepted in this state.
(c) For the purpose of this section, an offer to sell or to buy is made in this state, whether or not either party is then present in this state, when the offer:
(1) Originates from this state; or
(2) Is directed by the offeror to this state and received at the place to which it is directed or at any post office in this state in the case of a mailed offer.
(d) For the purpose of this section, an offer to buy or to sell is accepted in this state when acceptance:
(1) Is communicated to the offeror in this state; and
(2) Has not previously been communicated to the offeror, orally or in writing, outside this state; and acceptance is communicated to the offeror in this state, whether or not either party is then present in this state, when the offeree directs it to the offeror in this state, reasonably believing the offeror to be in this state and it is received at the place to which it is directed or at any post office in this state in the case of a mailed acceptance.
(e) An offer to sell or to buy is not made in this state when:
(1) The publisher circulates or there is circulated on his behalf in this state any bona fide newspaper or other publication of general, regular and paid circulation which is not published in this state, or which is published in this state but has had more than two thirds of its circulation outside this state during the past twelve months; or
(2) A radio or television program originating outside this state is received in this state.
§32B-2-10. Procedure for entry of an order.
(a) The commissioner shall commence an administrative proceeding under this chapter, by entering either a notice of intent to do a contemplated act or a summary order. The notice of intent or summary order may be entered without notice, without opportunity for hearing, and need not be supported by findings of fact or conclusions of law, but shall be in writing.
(b) Upon entry of a notice of intent or summary order, the commissioner shall promptly notify all interested parties that the notice or summary order has been entered and the reasons therefor. If the proceeding is pursuant to a notice of intent, the commissioner shall inform all interested parties of the date, time and place set for the hearing on the notice. If the proceeding is pursuant to a summary order, the commissioner shall inform all interested parties that they have thirty business days from the entry of the order to file a written request for a hearing on the matter with the commissioner and that the hearing will be scheduled to commence within thirty business days after the receipt of the written request.
(c) If the proceeding is pursuant to a summary order, the commissioner, whether or not a written request for a hearing is received from any interested party, may set the matter down for hearing on the commissioner's own motion.
(d) If no hearing is requested and none is ordered by the commissioner, the summary order will automatically become a final order after thirty business days.
(e) 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.
(f) No final order or order after hearing may be returned without:
(1) Appropriate notice to all interested persons;
(2) Opportunity for hearing by all interested persons; and
(3) Entry of written findings of fact and conclusions of law.
(g) Every hearing in an administrative proceeding under this chapter shall be public unless the commissioner grants a request joined in by all the respondents that the hearing be conducted privately.
§32B-2-11. Judicial review of orders.
(a) Any person aggrieved by a final order of the commissioner may obtain a review of the order in the Kanawha County circuit court by filing in court, within sixty days after the entry of the order a written petition praying that the order be modified or set aside, in whole or in part. A copy of the petition for review shall be served upon the commissioner.
(b) Upon the filing of a petition for review, except where the taking of additional evidence is ordered by the court pursuant to subsection (e) or (f) of this section, the court has exclusive jurisdiction of the matter, and the commissioner may not modify or set aside the order, in whole or part.
(c) The filing of a petition for review under subsection (a) of this section, does not, unless specifically ordered by the court, operate as a stay of the commissioner's order, and the commissioner may enforce or ask the court to enforce the order pending the outcome of the review proceedings.
(d) Upon receipt of the petition for review, the commissioner shall certify and file in the court a copy of the order and the transcript or record of the evidence upon which it was based. If the order became final by operation of law under subsection (d), section ten of this article, the commissioner shall certify and file in court the summary order and evidence of its service upon the parties to it and an affidavit certifying that no hearing has been held and the order became final pursuant to subsection (d), section ten of this article.
(e) If either the aggrieved party or the commissioner applies to the court for leave to adduce additional evidence, and shows to the satisfaction of the court, that there were reasonable grounds for failure to adduce the evidence in the hearing before the commissioner or other good cause, the court may order the additional evidence to be taken by the commissioner under conditions as the court considers proper.
(f) If new evidence is ordered taken by the court, the commissioner may modify the findings and order by reason of the additional evidence and shall file in the court the additional evidence together with any modified or new findings or order.
(g) The court shall review the petition based upon the original record before the commissioner as amended under subsections (e) and (f) of this section. The findings of the commissioner as to the facts, if supported by competent, material and substantive evidence, are conclusive. Based upon this review, the court may affirm, modify, enforce or set aside the order, in whole or in part.
(h) The judgment of the court is subject to review by the West Virginia supreme court of appeals.
§32B-2-12. Pleading exemptions.
It is not necessary to negative any of the exemptions of this chapter in any complaint, information or indictment or any writ or proceeding brought under this chapter. The burden of proof of any exemption is upon the party claiming the exemption.
§32B-2-13. Affirmative defense.
It is a defense in any complaint, information, indictment, any writ or proceeding brought under this chapter alleging a violation of section two, article one of this chapter based solely on the failure in an individual case to make physical delivery within the applicable time period under subsection (e), section one or subdivision (2), subsection (a), section four of article one of this chapter if:
(1) Failure to make physical delivery was due solely to factors beyond the control of the seller, the seller's officers, directors, partners, agents, servants or employees, every person occupying a similar status or performing similar functions, every person who directly or indirectly controls or is controlled by the seller or any of them, the seller's affiliates, subsidiaries or successors; and
(2) Physical delivery was completed within a reasonable time under the applicable circumstances.
ARTICLE 3. REGISTRATION.
§32B-3-1. Definitions and application.
(a) Commodity broker-dealer means any person engaged in the business of effecting transactions in commodity contracts or commodity options, as defined in section one, article one of this chapter, for the account of others or for the person's own account.
(b) Commodity sales representative means any person authorized to act and acting for a commodity broker-dealer in effecting or attempting to effect a transaction in a commodity contract or a commodity option.
(c) The application for licensing shall contain the information as the commissioner determines, by rule, is necessary or appropriate to facilitate the administration of this chapter.
§32B-3-2. Fees.
(a) An applicant for licensing shall pay a registration fee as follows:
(1) Commodity broker-dealer, two hundred fifty dollars and for each branch office, fifty dollars; and
(2) Commodity sales representative, eighty dollars.
(b) Except in any year in which a licensing fee is paid, an applicant shall pay an annual fee as follows:
(1) A commodity broker-dealer, seventy-five dollars and for each branch office in this state, thirty dollars; and
(2) Commodity sales representative, fifteen dollars.
(c) For purposes of this section, a branch office means each office of a commodity broker-dealer in this state, other than the principal office in this state of the commodity broker-dealer, from which one or more commodity sales representatives transact business.
(d) If an application is denied or withdrawn or the license is terminated by revocation, cancellation or withdrawal, the commissioner shall retain the fee paid.
§32B-3-3. Examinations.
(a) The commissioner may, by rule or order, impose an examination requirement upon an applicant applying for licensing under this chapter or any class of applicants.
(b) Any examination required may be administered by the commissioner or designee of the commissioner. Examinations may be oral, written or both, and may differ for each class of applicants.
(c) The commissioner may, by order, waive any examination requirement imposed pursuant to subsection (a) of this section, as to any applicant, if the commissioner determines that the examination is not necessary for the protection of investors.
§32B-3-4. Licensing.
(a) Unless a proceeding under section eight has been instituted, the license of any commodity broker-dealer or commodity sales representative becomes effective thirty days after an application for licensing and the last of any additional information requested by the commissioner or the commissioner's designee has been filed and provided that all examination requirements imposed pursuant to section three of this article, have been satisfied. The commissioner may, by order, authorize an earlier effective date of licensing.
(b) The license of a commodity broker-dealer or commodity sales representative expires on the thirty-first day of December of the year for which issued or at an other time as the commissioner may by rule prescribe.
(c) The license of a commodity sales representative is only effective with respect to transactions effected as an employee or otherwise on behalf of the commodity broker-dealer for whom the commodity sales representative is licensed.
(d) No person may at any one time act as a commodity sales representative for more than one commodity broker-dealer, except: (1) Where the commodity broker-dealers for whom the commodity sales representative will act are affiliated by direct or indirect common control, a commodity sales representative may represent each of those organizations; or
(2) Where the commissioner, by rule or order, authorizes multiple licenses as consistent with the public interest and protection of investors.
(e) When a commodity sales representative begins or terminates association with a commodity broker-dealer, or begins or terminates activities which make that person a commodity sales representative, the commodity sales representative and the former commodity broker-dealer on whose behalf the commodity sales representative was acting may notify promptly the commissioner or his or her designee.
(f) If the commissioner determines, by rule, that one or more classifications of licenses as a commodity broker-dealer or commodity sales representative which are subject to limitations and conditions on the nature of the activities which may be conducted by those persons are consistent with the public interest and the protection of investors, the commissioner may authorize the licensing of persons subject to specific limitations and conditions.
§32B-3-5. Annual report and fee.
For so long as a commodity broker-dealer or commodity sales representative is licensed under this chapter, the dealer or representative shall file an annual report, together with the fee specified in subsection (b), section two of this article, with the commissioner or the designee of the commissioner, at a time and including that information as the commissioner determines, by rule or order, is necessary or appropriate.
§32B-3-6. Postlicensing requirements.
(a) (1) The commissioner may, by rule, require a licensed commodity broker-dealer to maintain: (i) Minimum net capital; and (ii) a prescribed ratio between net capital and aggregate indebtedness.
The minimum net capital and net capital-to-aggregate- indebtedness ratio may vary with type or class of commodity broker-dealer.
(2) If a licensed commodity broker-dealer believes, or has reasonable cause to believe, that any requirement imposed on it under this subsection is not being met, it shall promptly notify the commissioner of its current financial condition.
(b) The commissioner may, by rule, require the furnishing of fidelity bonds from commodity broker-dealers.
(c) A licensed commodity broker-dealer shall file financial and other reports as the commissioner determines, by rule, are necessary or appropriate.
(d) (1) All licensed commodity broker-dealers or commodity sales representatives shall make and maintain records as the commissioner determines, by rule, are necessary or appropriate.
(2) Required records may be maintained in computer or microform format or any other form of data storage if the records are readily accessible to the commissioner.
(3) Required records shall be preserved for five years unless the commissioner, by rule, specifies either a longer or shorter period for a particular type or class of records.
(e) If the information contained in any document filed with the commissioner or the commissioner's designee pursuant to this section or section one of this article, except for those documents which the commissioner, by rule or order, may exclude from this requirement, is or becomes inaccurate or incomplete in any material respect, the licensed person shall promptly file a correcting amendment, unless notification of the correction has been given under subsection (e), section four of this article.
§32B-3-7. Inspection power.
(a) The commissioner, without prior notice, may examine the records and require copies of the records which a licensed commodity broker-dealer or commodity sales representative is required to make and maintain under subsection (d), section six, of this article, within or without this state in a manner reasonable under the circumstances. Commodity broker-dealers and commodity sales representatives shall make their records available to the commissioner in a readable form.
(b) The commissioner may copy records or require a licensed person to copy records and provide the copies to the commissioner in a manner reasonable under the circumstances.
(c) The commissioner may impose reasonable fees for conducting an examination pursuant to this section.
§32B-3-8. Grounds for denial, revocation, suspension, cancellation and withdrawal.

(a) The commissioner may, by order, deny, suspend or revoke any license, limit the activities which an applicant or licensed person may perform in this state, censure any applicant or licensed person, or bar any applicant or licensed person from association with a licensed commodity broker-dealer, if the commissioner finds that:
(1) The order is in the public interest; and
(2) That the applicant or licensed person or, in the case of a commodity broker-dealer, any partner, officer or director, any person occupying a similar status or performing similar functions, or any person directly or indirectly controlling the commodity broker-dealer:
(A) Has filed an application for licensing with the commissioner or the designee of the commissioner which, as of its effective date, or as of any date after filing in the case of an order denying effectiveness, was incomplete in any material respect or contained any statement which was, in light of the circumstances under which it was made, false or misleading with respect to any material fact;
(B)(i) Has violated or failed to comply with a provision of this chapter, a predecessor act or a rule or order under this chapter or a predecessor act; or (ii) is the subject of an adjudication or determination within the last five years by a securities agency or commissioner or court of competent jurisdiction that the person has willfully violated the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Advisers Act of 1940, the Investment Company Act of 1940, or the Commodity Exchange Act or the securities or commodity law of any other state, but only if the acts constituting the violation of that state's law would constitute a violation of this chapter had the acts taken place in this state;
(C) Has, within the last ten years, pled guilty or nolo contendere to, or been convicted of any crime indicating a lack of fitness to engage in the investment commodity business;
(D) Is permanently or temporarily enjoined by any court of competent jurisdiction from engaging in, or continuing, any conduct or practice which injunction indicates a lack of fitness to engage in the investment commodities business;
(E) Is subject of an order of the commissioner denying, suspending or revoking the person's license as a commodity or securities broker-dealer, sales representative or investment adviser;
(F) Is the subject of any of the following orders which are currently effective and which were issued within the last five years:
(i) An order by the securities agency or commissioner of another state, Canadian province or territory or the securities and exchange commission, entered after notice and opportunity for hearing, denying, suspending or revoking the person's license as a commodities or securities broker-dealer, sales representative or investment adviser or the substantial equivalent of those terms;
(ii) A suspension or expulsion from membership in or association with a self-regulatory organization registered under the Securities and Exchange Act of 1934 or the Commodity Exchange Act;
(iii) A United States postal service fraud order;
(iv) A cease and desist order entered after notice and opportunity for hearing by the commissioner or the securities agency or commissioner of any other state, Canadian province or territory, the securities and exchange commission or the commodity futures trading commission; or
(v) An order entered by the commodity futures trading commission denying, suspending or revoking registration under the Commodity Exchange Act;
(G) Is engaged in an unethical or dishonest conduct or practice in the investment commodities or securities business;
(H) Is insolvent, either in the sense that liabilities exceed assets, or in the sense that obligations cannot be met as they mature;
(I) Is not qualified on the basis of the factors as training, experience and knowledge of the securities business, which determination is governed and limited by the provisions of subsection (b) of this section;
(J) Has failed reasonably to supervise sales representatives or employees; or
(K) Has failed to pay the proper filing fee within thirty days after being notified by the commissioner of the deficiency, but the commissioner shall vacate any order under this subparagraph when the deficiency has been corrected.
(b) If the public interest or the protection of investors requires, the commissioner may, by order, summarily suspend a license or postpone the effective date of a license. Upon the entry of the order the commissioner shall promptly notify the applicant or licensed person, as well as the commodity broker- dealer with whom the person is or will be associated if the applicant or licensed person is a commodity sales representative, that an order has been entered and of the reasons therefor and that within thirty days after the receipt of a written request the matter will be set down for hearing. The provisions of section ten, article two of this chapter apply with respect to all subsequent proceedings.
(c) If the commissioner finds that any applicant or licensed person is no longer in existence or has ceased to do business as a commodity broker-dealer or commodity sales representative, or is subject to an adjudication of mental incompetence or to the control of a committee, conservator or guardian, or cannot be located after reasonable search, the commissioner may, by order, cancel the application or license.
(d) The commissioner may not institute a suspension or revocation proceeding on the basis of a fact or transaction disclosed in the license application unless the proceeding is instituted within the next ninety days following issuance of the license.




NOTE: The purpose of this bill is to enact enabling legislation, pursuant to the requirements of federal law, to enable the West Virginia Division of Securities to register and license commodities broker dealers and others in the trade and to investigate and take authorized action against violators of state and federal commodities laws.

This chapter is new; therefore, strike-throughs and underscoring have been omitted.