Senate Bill No. 520
(By Senators Wooton and Helmick)
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[Introduced March 19, 2001; referred to the Committee on the
Judiciary.]
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A BILL to amend and reenact sections four hundred one and four
hundred seven, article four, chapter thirty-two of the code of
West Virginia, one thousand nine hundred thirty-one, as
amended, all relating to the enforcement of the securities
laws of the state of West Virginia by including the investment
vehicle known as viaticals in the definition of a security
subject to regulation under this
chapter; providing for sworn
officer status for investigators of the securities commission
so that they can legally cooperate with other law-enforcement
agencies to protect the citizens of West Virginia; making the
civil and criminal investigations of the securities commission
exempt from requirements of article nine-a, chapter six of said code and chapter twenty-nine-b of said code; and
providing expressly that although the staff of the securities
commission shall be considered law-enforcement officers, they
shall not be allowed to carry guns or other firearms.
Be it enacted by the Legislature of West Virginia:
That sections four hundred one and four hundred seven, article
four, chapter thirty-two of the code of West Virginia, one thousand
nine hundred thirty-one, as amended, be amended and reenacted, all
to read as follows:
ARTICLE 4. GENERAL PROVISIONS.
§32-4-401. Definitions.
When used in this chapter, unless the context otherwise
requires:
(a) "Commissioner" means the auditor of the state of West
Virginia.
(b) "Agent" means any individual other than a broker-dealer
who represents a broker-dealer or issuer in effecting or attempting
to effect purchases or sales of securities. "Agent" does not
include an individual who represents an issuer in: (1) Effecting
transactions in a security exempted by subdivision (1), (2), (3),
(10) or (11), subsection (a), section four hundred two of this
article; (2) effecting transactions exempted by subsection (b), section four hundred two of this article; (3) effecting
transactions in a covered security as described in section 18(b)(3)
and section 18(b)(4)(d) of the Securities Act of 1933; (4)
effecting transactions with existing employees, partners or
directors of the issuer if no commission or other remuneration is
paid or given, directly or indirectly, for soliciting any person in
this state; or (5) effecting transactions in this state limited to
those transactions described in section 15(h)(2) of the Securities
Exchange Act of 1934. A partner, officer or director of a
broker-dealer or issuer or a person occupying a similar status or
performing similar functions is an agent only if he or she
otherwise comes within this definition.
(c) "Broker-dealer" means any person engaged in the business
of effecting transactions in securities for the account of others
or for his or her own account. "Broker-dealer" does not include:
(1) An agent; (2) an issuer; (3) a bank, savings institution or
trust company; or (4) a person who has no place of business in this
state if: (A) He or she effects transactions in this state
exclusively with or through: (i) The issuers of the securities
involved in the transactions; (ii) other broker-dealers; or (iii)
banks, savings institutions, trust companies, insurance companies, investment companies as defined in the Investment Company Act of
1940, pension or profit-sharing trusts or other financial
institutions or institutional buyers, whether acting for themselves
or as trustees; or (B) during any period of twelve consecutive
months he or she does not direct more than fifteen offers to sell
or buy into this state in any manner to persons other than those
specified in subparagraph (A), paragraph (4), subdivision (c) of
this subsection, whether or not the offeror or any of the offerees
is then present in this state.
(d) "Fraud," "deceit" and "defraud" are not limited to
common-law deceit.
(e) "Guaranteed" means guaranteed as to payment of principal,
interest or dividends.
(f) "Federal covered adviser" means a person who is: (1)
Registered under section 203 of the Investment Advisers Act of
1940; or (2) is excluded from the definition of "investment
advisor" under section two hundred two-a (11) of the Investment
Advisers Act of 1940.
(g) "Investment adviser" means any person who, for
compensation, engages in the business of advising others, either
directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing or
selling securities, or who, for compensation and as a part of a
regular business, issues or promulgates analyses or reports
concerning securities. "Investment adviser" also includes
financial planners and other persons who, as an integral component
of other financially related services, provide the foregoing
investment advisory services to others for compensation and as part
of a business or who hold themselves out as providing the foregoing
investment advisory services to others for compensation.
"Investment adviser" does not include: (1) A bank, savings
institution or trust company; (2) a lawyer, accountant, engineer or
teacher whose performance of those services is solely incidental to
the practice of his or her profession; (3) a broker-dealer whose
performance of these services is solely incidental to the conduct
of his or her business as a broker-dealer and who receives no
special compensation for them; (4) a publisher, employee or
columnist of a newspaper, news magazine or business or financial
publication or an owner, operator, producer or employee of a cable,
radio or television network, station or production facility if, in
either case, the financial or business news published or
disseminated is made available to the general public and the content does not consist of rendering advice on the basis of the
specific investment situation of each client; (5) a person whose
advice, analyses or reports relate only to securities exempted by
subdivision (1), subsection (a), section four hundred two of this
article; (6) a person who has no place of business in this state
if: (A) His or her only clients in this state are other investment
advisers, broker-dealers, banks, savings institutions, trust
companies, insurance companies, investment companies as defined in
the Investment Company Act of 1940, pension or profit-sharing
trusts or other financial institutions or institutional buyers,
whether acting for themselves or as trustees; or (B) during any
period of twelve consecutive months he or she does not have more
than five clients who are residents of this state other than those
specified in subparagraph (A), paragraph (6), subdivision (g) of
this subsection, whether or not he or she or any of the persons to
whom the communications are directed is then present in this state;
(7) an investment adviser representative; (8) a "federal covered
adviser"; or (9) such other persons not within the intent of this
paragraph as the commissioner may by rule or order designate.
(h) "Investment adviser representative" means any partner,
officer, director of or a person occupying a similar status or performing similar functions or other individual, except clerical
or ministerial personnel, who is employed by or associated with an
investment adviser that is registered or required to be registered
under this chapter or who has a place of business located in this
state and is employed by or associated with a federal covered
adviser; and including clerical or ministerial personnel, who does
any of the following: (1) Makes any recommendations or otherwise
renders advice regarding securities; (2) manages accounts or
portfolios of clients; (3) determines which recommendation or
advice regarding securities should be given; (4) solicits, offers
or negotiates for the sale of or sells investment advisory services
unless such person is registered as an agent pursuant to this
article; or (5) supervises employees who perform any of the
foregoing unless such person is registered as an agent pursuant to
this article.
(i) "Issuer" means any person who issues or proposes to issue
any security, except that: (1) With respect to certificates of
deposit, voting-trust certificates or collateral-trust
certificates, or with respect to certificates of interest or shares
in an unincorporated investment trust not having a board of
directors or persons performing similar functions or of the fixed, restricted management or unit type, the term "issuer" means the
person or persons performing the acts and assuming the duties of
depositor or manager pursuant to the provisions of the trust or
other agreement or instrument under which the security is issued;
and (2) with respect to certificates of interest or participation
in oil, gas or mining titles or leases or in payments out of
production under such titles or leases, there is not considered to
be any "issuer".
(j) "Nonissuer" means not, directly or indirectly, for the
benefit of the issuer.
(k) "Person" means an individual, a corporation, a
partnership, an 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.
(l) (1) "Sale" or "sell" includes every contract of sale of,
contract to sell or disposition of a security or interest in a
security for value;
(2) "Offer" or "offer to sell" includes every attempt or offer
to dispose of or solicitation of an offer to buy a security or
interest in a security for value;
(3) Any security given or delivered with, or as a bonus on
account of, any purchase of securities or any other thing is
considered to constitute part of the subject of the purchase and to
have been offered and sold for value;
(4) A purported gift of assessable stock is considered to
involve an offer and sale;
(5) Every sale or offer of a warrant or right to purchase or
subscribe to another security of the same or another issuer, as
well as every sale or offer of a security which gives the holder a
present or future right or privilege to convert into another
security of the same or another issuer, is considered to include an
offer of the other security;
(6) The terms defined in this subdivision do not include: (A)
Any bona fide pledge or loan; (B) any stock dividend, whether the
corporation distributing the dividend is the issuer of the stock or
not, if nothing of value is given by stockholders for the dividend
other than the surrender of a right to a cash or property dividend
when each stockholder may elect to take the dividend in cash or
property or in stock; (C) any act incident to a class vote by
stockholders, pursuant to the certificate of incorporation or the
applicable corporation statute, on a merger, consolidation, reclassification of securities or sale of corporate assets in
consideration of the issuance of securities of another corporation;
or (D) any act incident to a judicially approved reorganization in
which a security is issued in exchange for one or more outstanding
securities, claims or property interests, or partly in such
exchange and partly for cash.
(m) "Securities Act of 1933", "Securities Exchange Act of
1934", "Public Utility Holding Company Act of 1935" and "Investment
Company Act of 1940" mean the federal statutes of those names as
amended before the effective date of this chapter. The National
Securities Markets Improvement Act of 1996 ("NSMIA") means the
federal statute which makes certain amendments to the Securities
Act of 1933, the Securities Exchange Act of 1934, the Investment
Company Act of 1940 and the Investment Advisers Act of 1940.
(n) "Security" means any note; stock; treasury stock; bond;
debenture; evidence of indebtedness; certificate of interest or
participation in any profit-sharing agreement; collateral-trust
certificate; preorganization certificate or subscription;
transferable share; investment contract; voting-trust certificate;
certificate of deposit for a security; viatical settlement
contract; certificate of interest or participation in an oil, gas, or mining title or lease or in payments out of production under
such a title or lease; or, in general, any interest or instrument
commonly known as a "security" or any certificate of interest or
participation in, temporary or interim certificate for, receipt
for, guarantee of or warrant or right to subscribe to or purchase,
any of the foregoing. "Security" does not include any insurance or
endowment policy or annuity contract under which an insurance
company promises to pay money either in a lump sum or periodically
for life or some other specified period: Provided, That the
insurance instrument, policy, annuity contract or promise to pay is
not an instrument commonly called a viatical or otherwise known in
which there is an agreement for the purchase, sale, assignment,
transfer devise or bequest of any portion of a death benefit or
ownership of a life insurance policy or certificate that is less
than the expected death benefit of the life insurance policy or
certificate.
(o) "Federal covered security" means any security that is a
covered security under section 18(b) of the Securities Act of 1933,
as amended by the National Securities Markets Improvement Act of
1996, or rules promulgated thereunder.
(p) "State" means any state, territory or possession of the United States, the District of Columbia and Puerto Rico.
§32-4-407. Sworn investigator, investigations and subpoenas.
(a) Sworn Investigators. -
(1) The commissioner may appoint special investigators to aid
in investigations conducted pursuant to the West Virginia
securities act. The special investigators shall have authority to
serve subpoenas and all other process and store evidence in a
manner consistent with the requirements of the law of the state of
West Virginia.
(2) Not withstanding any other provision of the code to the
contrary, the commissioner, deputy commissioner or commissioners if
any, and investigators of the West Virginia securities commission
shall be sworn officers of the law. The commissioner, deputy
commissioners and each investigator, prior to entering upon the
discharge of his or her duties, shall before any judicial officer
recognized under section seven, article eight of the constitution
of the state of West Virginia, one thousand nine hundred sixty-six,
as amended, take and subscribe to an oath which shall be in form
and effect as follows, to wit:
State of West Virginia
County of ..........................., to wit: I, ...............,
do solemnly swear that I will support the Constitution of the
United States, the Constitution of the State of West Virginia, and
I will honestly and faithfully perform the duties imposed upon me
under the provisions of law as a member of the securities
commission of West Virginia to the best of my skill and judgment.
(Signed)...........................
Taken, subscribed and sworn to before me, this ......... day of
...............2001.
(3) The oaths of the commissioner, deputy commissioner or
commissioners and investigators of the West Virginia securities
commission shall be filed and preserved in the office of the state
auditor.
(b) Investigations and subpoenas. -
(a) (1) The commissioner in his or her discretion: (1) May
make such public or private investigations within or outside of
this state as he or she deems necessary to determine whether any
person has violated or is about to violate any provision of this
chapter or any rule or order hereunder, or to aid in the
enforcement of this chapter or in the prescribing of rules and
forms hereunder; (2) may require or permit any person to file a
statement in writing, under oath or otherwise as the commissioner determines, as to all the facts and circumstances concerning the
matter to be investigated, and (3) may publish information
concerning any violation of this chapter or any rule or order
hereunder.
(b) (2) For the purpose of any investigation or proceeding
under this chapter, the commissioner or any officer, agent or
employee designated by him or her 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 deems relevant or material to the inquiry.
(c) (3) In case of contumacy by, or refusal to obey a subpoena
issued to, any person, the circuit court of Kanawha County, upon
application by the commissioner, may issue to the person an order
requiring him or her to appear before the commissioner, or the
officer designated by him or her, there to produce documentary
evidence if so ordered or to give evidence touching the matter
under investigation or in question. Failure to obey the order of
the court may be punished by the court as a contempt of court.
(d) (4) No person is excused from attending and testifying or
from producing any document or record before the commissioner, or in obedience to the subpoena of the commissioner or any officer
designated by him or her, or in any proceeding instituted by the
commissioner, on the ground that the testimony or evidence
(documentary or otherwise) required of him or her may tend to
incriminate him or her or subject him or her to a penalty or
forfeiture; but no individual may be prosecuted or subjected to any
penalty or forfeiture for or on account of any transaction, matter
or thing concerning which he or she is compelled, after claiming
his or her privilege against self-incrimination to testify or
produce evidence (documentary or otherwise), except that the
individual testifying is not exempt from prosecution and punishment
for perjury or contempt committed in testifying.
(5) Civil and criminal investigations undertaken by the West
Virginia securities commission shall be exempt from the
requirements of article nine-a, chapter six of this code and
chapter twenty-nine-b of this code.
(6) Nothing in this article or chapter may be construed to
allow the staff of the West Virginia securities commission employed
by the state auditor to carry or use any kind of hand gun or other
firearm in the discharge of their duties under this article.
(7) Nothing in this chapter limits the power of the state to punish any person for any conduct which constitutes a crime by
statute or at common law.
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(NOTE: The purpose of this bill is to allow the West Virginia
securities commission to cooperate with other law-enforcement
agencies without jeopardizing the investigative privilege of other
law-enforcement agencies so that the citizens of West Virginia may
reap the full benefits of protection by all law-enforcement
agencies serving this state and nation by conferring upon the
commissioner and his or her investigatory staff the status of sworn
officers with investigatory privileges and to enable the commission
to regulate the offering and sales of viatical settlement
contracts. This bill does not enable, allow, imply or provide for
the carrying of a gun or any other firearm by staff of the West
Virginia securities commission employed by the state auditor.
The bill exempts investigation by the Securities Commission
from open governmental proceedings requirements of §6-9A-1 et al.,
and from freedom of information disclosures of §29B-1-1 et al.
Strike-throughs indicate language that would be stricken from
the present law, and underscoring indicates new language that would
be added.
)