CHAPTER 181
FORMERLY
HOUSE BILL NO. 361
AN ACT TO AMEND CHAPTER 73, TITLE 6, OF THE DELAWARE CODE RELATING TO THE
REGULATION OF SECURITIES, BROKER—DEALERS, INVESTMENT ADVISERS AND AGENTS.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF DELAWARE (three—fifths of all members elected to each House thereof concurring therein):
Section 1. Amend Chapter 73, Title 6, of the Delaware Code by striking subsection 7306(e) in its entirety and by substituting in lieu thereof the following:
"(e) Every person filing a registration statement under this section, or under section 7305, shall pay a filing fee as provided by rule or regulation, but in no case shall the fee be less than $200 or more than $1000. In addition, the Commissioner may require reasonable fees for miscellaneous costs absorbed by the Securities Division for the printing, copying, filing or transcription of other documents."
Section 2. Amend Chapter 73, Title 6, of the Delaware Code by striking subsection 7305(b) in its entirety and substituting in lieu thereof the following:
"(b) A registration statement under this section shall contain the following information and be accompanied by the following documents, in addition to the information specified in subsection 7307(b) of this title and the consent to service of process required by section 7327 of this title, and a filing fee as established by the Commissioner under subsection 7306(e) of this title:
(1) One copy of the latest form of prospectus filed under the Securities Act of 1933, unless the Commissioner requires
additional copies;
(2) If the Commissioner by rule or otherwise requires, a copy of the articles of incorporation and bylaws (or their substantial equivalents) currently in effect, a copy of any agreements with or among underwriters, a copy of any indenture or other instrument governing the issuance of the security to be registered, and a specimen or copy of the security;
(1) If the Commissioner requests, any other information, or copies of other documents, filed under the Securities Act of 1933 or with other States or regulatory agencies;
(2) An undertaking to forward all future amendments to the federal prospectus, other than an amendment which merely delays the effective date of the registration statement, promptly and in any event not later than the first business day after the day they are forwarded to or filed with the Securities and Exchange Commission, whichever first occurs."
Section 3. Amend Chapter 73, Title 6, of the Delaware Code by designating the present text of subsection 7307(f) as subsection 7307(f)(1) and adding the following language as subsection 7307(f)(2):
"(2) The Commissioner may require that registrations of
securities be renewed annually. Where the Commissioner finds that an additional security from the same issuer has different characteristics from the security first registered, such as being a separate portfolio or series of an investment company or mutual fund, the Commissioner may require separate registration and renewal of the additional security."
Section 4. Amend Chapter 73, Title 6, of the Delaware Code by striking 7314(e) in its entirety and substituting in lieu thereof the following:
"(e) The Commissioner may by rule or order require
broker-dealers, investment advisers, and agents, as a prerequisite to registration or otherwise, to post surety bonds in amounts up to $100,000 for a broker-dealer or investment adviser and up to $25,000 per agent, conditioned that the registrant will comply with the provisions of this chapter and the rules, regulations and orders issued pursuant thereto. Any such bond must be drawn in a form acceptable to the Commissioner and so as to cover the original registration and any renewals thereof. Any appropriate deposit of cash or security shall be accepted in lieu of any such bond in the discretion of the Commissioner, who may waive or reduce the bond requirement for particular firms or individuals. The surety may prospectively cancel any such bond upon 30 days written notice to the registrant and to the Commissioner. Liability of the surety on the bond shall mature upon:
(1) A finding in an order by the Commissioner that the registrant has violated the Delaware Securities Act or regulations thereunder, where the order is not stayed by the Commissioner or by order of a court of competent jurisdiction; and
(1) A demand by the Commissioner for payment of the full amount (to the limit of the bond) of any fines, costs or restitution ordered by the Commissioner after a finding against the registrant. The obligation of the surety on such a demand shall exist as to any period covered by the bond regardless of whether the Commissioner's finding is subsequent to cancellation of the bond by the surety."
Section 5. Amend Chapter 73, Title 6, of the Delaware Code by striking subsection 7316(a)(6) in its entirety and adding in lieu thereof the following:
"(6) Is the subject of an order entered within the past 10 years by the securities administrator of any other State or by the Securities and Exchange Commission either ordering the person to cease and desist from engaging in or continuing any conduct or practice involving any aspect of the securities business, or suspending, denying or revoking registration as a broker-dealer, investment adviser or agent, or the substantial equivalent of those terms as defined in this chapter; or is suspended or expelled from a national securities exchange or national securities association registered under the Securities Exchange Act of 1934 either by action of a national securities exchange or national securities association, the effect of which action has not been stayed by administrative or judicial order; or is the subject of a United States Post Office fraud order; or
Section 6. Amend Chapter 73, Title 6, of the Delaware Code by changing the period at the end of subsection 7316(a)(12) to a semicolon followed by the word "or" and by adding to subsection 7316(a) the following:
"(13) Has within the past 10 years been a partner, officer, director, controlling person, or any person occupying a similar status or performing similar functions, in a broker-dealer or investment adviser whose registration in this State or any State, or with the Securities and Exchange Commission, has been revoked for disciplinary reasons, or whose membership in a national securities exchange or national securities association has been terminated for disciplinary reasons."
Section 7. Amend Chapter 73, Title 6, of the Delaware Code by striking subsection 7316(a)(11) in its entirety and adding in lieu thereof the following:
"(11) Has failed to pay the proper filing fee, but the Commissioner shall vacate any denial or suspension order when the deficiency has been corrected; or"
"(7) Has engaged in dishonest or unethical practices within or outside this State; or"
Section 9. Amend Chapter 73, Title 6, of the Delaware Code by striking subsection 7316(a)(10) in its entirety and adding in lieu thereof the following:
"(10) Has failed reasonably to supervise his agents if he is a broker-dealer or investment adviser, or an agent with supervisory responsibilities, and the Commissioner may infer such failure from an agent's violations; or"
Section 10. Amend Chapter 73, Title 6, of the Delaware Code by adding the following sentence to the
end
of subsection 7316(f): "The Commissioner or his designee shall control the procedures and the conduct of the parties at the hearing."
Section 11. Amend Chapter 73, Title 6, of the Delaware Code by changing the term "30 days" as it appears twice in the first
sentence
of subsection 7316(e) to "90 days"; and by striking the third sentence of subsection 7316(e) and adding in lieu thereof the following: If no proceeding is pending or instituted a withdrawal automatically becomes effective, but the Commissioner may nevertheless institute a revocation or suspension proceeding, and impose fines, costs and restitution, within two years after withdrawal becomes effective and enter a revocation or suspension as of the last date on which registration was effective."
Section 12. Amend Chapter 73, Title 6, of the Delaware Code by striking the first sentence of subsection 7309(c) and adding in lieu thereof the following" The Commissioner may be rule or order deny or revoke any exemption in subsection (a)(9) or (11) or in subsection (b), either generally or with respect to a specific security or transaction."
Section 13. Amend Chapter 73, Title 6, of the Delaware Code by striking the term "30 days"
Section 14. Amend Chapter 73, Title 6, of the Delaware Code by striking subsection 7313(d) in its entirety and adding in lieu thereof the following:
"(d) Every registration of an agent expires when the agent terminates his connection with a broker-dealer or investment adviser registered under this chapter or with an issuer, though the person may still be subject to disciplinary action by the Commissioner under subsection 7316(e). When such a person who is currently registered as an agent under this chapter begins a connection with another broker-dealer, investment adviser or issuer, he shall file an application for initial registration as provided in subsection 7314(a) of this title and shall pay a filing fee prescribed by subsection 7314(b) of this title. Unless the Commissioner takes action under section 7316 or section 7315 of this title, the said agent registration shall become effective 90 days after receipt of a complete application by the Commissioner (or by his designee) and shall continue in effect until it expires under the provisions of subsection (c) hereof, or under the provisions of this subsection, whichever would earlier occur. The Commissioner shall be empowered to waive the 90 day period at his discretion."
Section 15. Amend Chapter 73, Title 6, of the Delaware Code by striking the next to last sentence in subsection 7314(a)(1) and adding in lieu thereof the following: "If no denial order is in effect and no proceeding is pending under section 7316, registration becomes effective at noon of the 90th day after a complete application is filed."
Section 16. Amend Chapter 73, Title 6, of the Delaware Code by striking the title "Sales and Purchases" of section 7303 and adding in lieu thereof the following: "fraud".
Section 17. Amend Chapter 73, Title 6, of the Delaware Code by striking section 7301 in its entirety and adding in lieu thereof the following:
"Section 7301. Short Title; Purpose
(a) This chapter shall be known and may be cited as the "Delaware Securities Act."
(b) The purpose of the Delaware Securities Act is to prevent the public from being victimized by unscrupulous or overreaching broker-dealers, investment advisers or agents in the context of selling securities or giving investment advice, as well as to remedy any harm caused by securities law violations. This prophylactic and remedial purpose shall be deemed of paramount importance in the interpretation of the provisions of this Act and particularly in any Judicial review of sanctions or penalties imposed by the Securities Commissioner and of motions or requests by persons affected to stay such sanctions or penalties."
Section 18. Amend Chapter 73, Title 6, of the Delaware Code by adding a subsection 7302(a)(15) to section 7302, to read as follows:
"(15) "Public Interest" means that it shall appear to the
Commissioner that the action taken or sanction imposed will further the purpose of the Delaware Securities Act."
Section 19. Amend Chapter 73, Title 6, of the Delaware Code by striking section 7322 in its entirety and adding in lieu thereof the following:
"Section 7322. Criminal Penalties
(a) Fraud of $50,000 or more; Class E Felony.
Any person who willfully violates section 7303 of this chapter, thereby causing any investor or investors to lose $50,000 or more, shall upon conviction be fined not more than $200,000 or imprisoned not more than 5 years at Level V incarceration, or both, per violation.
(b) Fraud of $10,000 or more; Class F Felony.
Any person who willfully violates section 7303 of this chapter, thereby causing any investor or investors to lose $10,000 or more, though less than $50,000, shall upon conviction be fined not more than $100,000 or imprisoned not more than 3 years at Level V incarceration, or both, per violation.
(c) Other Violations; Class G Felony.
Any person who willfully violates any provision of this chapter, and whose offense is not covered by subsections (a) or (b) above, shall upon conviction be fined not more than $100,000 or imprisoned not more than 2 years at Level V incarceration, or both, per violation.
(d) No indictment or information may be returned under this chapter more than 5 years after the alleged violation. The Superior Court shall have
exclusive jurisdiction of any criminal violations of this chapter.
(e) In addition to the penalties stated above, restitution to any investor or investors may be ordered. Nothing in this chapter limits the power of the State to punish any person for any conduct which otherwise constitutes a crime by statute."
Section 20. Amend Chapter 73, Title 6, of the Delaware Code by adding the following sentence to the end of subsection 7319(b): "The Commissioner's authority to subpoena witnesses and documents outside the State shall exist to the maximum extent permissible under federal constitutional law."
Section 21. Amend Chapter 73, Title 6, of the Delaware Code by striking the semicolon at the end of subsection 7302(a)(6)(b). and adding in lieu thereof the following: "and who receives no special compensation for them;"
Section 22. Amend Chapter 73, Title 6, of the Delaware Code by striking the term "2 years" in the first sentence of subsection 7323(e) and adding in lieu thereof the term "3 years".
Section 23. Amend Chapter 73, Title 6, of the Delaware Code by adding a new section 7330, to read as follows:
"Section 7330. Statute of Limitations.
(a) In any administrative, civil or criminal action brought by the
Commissioner seeking registration suspension or revocation, fines, costs, restitution or imprisonment, no more than 5 years shall have passed from the date of the violation to the date of the initiation of the proceeding.
(a) This 5-year limit shall not apply to registration denial proceedings."
Section 24. Amend Chapter 73, Title 6, of the Delaware Code by adding a new sentence to the end of subsection 7326(a), to read as follows: "Other than filing fees, the Commissioner may waive document filing requirements."
Section 25. Amend Chapter 73, Title 6, of the Delaware Code by striking subsection 7316(a)(8) in its entirety and adding in lieu thereof the following:
"(8) Is insolvent, either in the sense that his liabilities exceed his assets or in the sense that he cannot meet his obligations as they mature; or"
Section 26. Amend Chapter 73, Title 6, of the Delaware Code by designating the present text of subsection 7317(a)(2):
"(2) It is unlawful for an investment adviser, as defined in this chapter, in connection with giving investment advice or otherwise acting as an investment adviser, to make any untrue statement of fact that a reasonable client or prospective client would deem material or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances Under which they are made, not misleading."
Section 27. Amend Chapter 73, Title 6, of the Delaware Code by striking subsection 7302(a)(3)c. in its entirety and by adding in lieu thereof the following:
"c. A bank, savings institution, or trust company that does not
solicit securities clients or engage in retail securities business (other than as trustee);"
Section 28. Amend Chapter 73, Title 6, of the Delaware Code by adding to the end of subsection 7314(d) the following sentence: "The Commissioner may increase or reduce the net capital requirement for broker-dealers to conform to the rules of the Securities and Exchange Commission or the National Association of Securities Dealers, Inc."
Section 29. Amend Chapter 73, Title 6, of the Delaware Code by striking the third clause of subsection 7302(a)(11)d. in its entirety and by adding in lieu thereof the following: "any act incident to a vote by stockholders or approval pursuant to Section 228 of Title 8 without a meeting, pursuant to the certificate of incorporation or the provisions of this title, on a merger, consolidation, reclassification of securities, dissolution or sale of corporate assets in consideration of the issuance of securities, dissolution, or sale of corporate assets of another corporation;"
Section 30. Amend Chapter 73, Title 6, of the Delaware Code by striking the title of Section 7325 in its entirety and by adding in lieu thereof: "Administration of chapter; remedial powers"; also, by adding the following sentence to the end of subsection 7325(b): "Any person, whether registered or not, who willfully violates any provision of this chapter, or who aids and abets any person who willfully violates any provision of this chapter, may be fined in accordance with subsection 7316(g) and ordered to pay restitution and costs (or to rescind the transaction or transactions and pay costs) if the Commissioner finds it in the public interest, and may be criminally prosecuted under section 7322."
Section 31. Amend Chapter 73, Title 6 of the Delaware Code by striking section 7324 in its entirety and adding in lieu thereof the following:
"Section 7324. Judicial Review. -
(a) Any person aggrieved by an order of the Commissioner may obtain a review of the order in the Court of Chancery by first paying the costs of transcribing the record and, upon completion of the record transcription, by filing in court, within 60 days after the entry of the order, a written complaint praying that the order be modified or set aside in whole or in part. A copy of the complaint shall be forthwith served upon the
Commissioner, and thereupon the Commissioner shall certify and file within 20 days in court a copy of the filing and evidence upon which the order was entered. If, however, the complainant fails to pay the costs of
transcription or the transcription is not completed, the Commissioner shall notify the Court and receive additional time in which to file and certify the record. A continued failure by a complainant to pay the costs of
transcription shall result in dismissal of the complaint without any need for the Commissioner to file the record in court.
(b) When the record has been filed and certified by the Commissioner, the Court of Chancery has exclusive jurisdiction to affirm, modify, enforce or set aside the order, in whole or in part. The findings of the
Commissioner as to the facts, if supported by material and substantial evidence, are conclusive. If, within 20 days of the filing of the record by the Commissioner, either party applies to the Court for leave to adduce material 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, the Court may order the additional evidence to be taken before the Commissioner and to be adduced upon the hearing in such manner and upon such conditions as the Court considers proper.
(c) The commencement of the proceedings under subsection (a) does not, unless specifically ordered by the Court, operate as a stay of the Commissioner's order."
Section 32. This Bill shall be referred to as the "Securities Act
Amendments of 1991."
Section 33. The provisions in this Bill shall become effective 30 days
after it has been signed into law by the Governor.
Approved July 17, 1991.