New Jersey-2016-S2167-Introduced

An Act concerning violations of the "Uniform Securities Law (1997)" and amending P.L.1967, c.93.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. Section 2 of P.L.1967, c.93 (C.49:3-49) is amended to read as follows:

2. When used in [this act] P.L.1967, c.93 (C.49:3-47 et seq.), unless the context requires otherwise:

(a) "Bureau" means the agency designated in subsection (a) of section 19 of P.L.1967, c.93 (C.49:3-66);

(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 paragraph (1), (2), (3), or (11) of subsection (a) of section 3 of P.L.1967, c.93 (C.49:3-50); (2) effecting transactions exempted by subsection (b) of section 3 of P.L.1967, c.93 (C.49:3-50); (3) 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] (4) a broker-dealer in effecting transactions in this State limited to those transactions described in paragraph (2) of subsection (h) of section 15 of the "Securities Exchange Act of 1934," 15 U.S.C. s.78o(h)(2); or (5) such other persons not otherwise within the intent of this subsection (b), as the bureau chief may by rule or order designate. 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] those persons otherwise comes within this definition. The bureau chief may by rule or order, as to any transaction, waive the requirement of agent registration. The bureau chief may by rule define classes of persons as "agents," if those persons are regulated as "agents" by the Securities and Exchange Commission or any self-regulatory organization established pursuant to the laws of the United States;

(c) "Broker-dealer" means any person engaged in the business of effecting or attempting to effect transactions in securities for the accounts of others or for [his] the broker-dealer's own account. "Broker-dealer" does not include: (1) an agent [,] ; (2) an issuer [,] ; (3) a person who effects transactions in this State exclusively in securities described in paragraphs (1) and (2) of subsection (a) of section 3 of P.L.1967, c.93 (C.49:3-50) [,] ; (4) a bank, savings institution, or trust company [,] ; or (5) a person who effects transactions in this State exclusively with or through (i) the issuers of the securities involved in the transactions, (ii) other broker-dealers, (iii) banks, savings institutions, trust companies, insurance companies, investment companies as defined in the "Investment Company Act of 1940," 15 U.S.C. s.80a-1 et seq., pension or profit-sharing trusts, or other financial institutions or institutional buyers, whether acting for themselves or as trustees or (iv) [such] those other persons not otherwise within the intent of this subsection (c), as the bureau chief may by rule or order designate;

(d) "Capital" [shall mean] means net capital, as defined and adjusted under the formula established by the Securities and Exchange Commission in Rule 15c3-1, 17 C.F.R. s.240.15c3-1, made pursuant to the "Securities Exchange Act of 1934," 15 U.S.C. s.78a et seq., prescribing a minimum permissible ratio of aggregate indebtedness to net capital as such formula presently exists or as it may hereafter be amended;

(e) "Fraud," "deceit," and "defraud" are not limited to common-law fraud or deceit. "Fraud," ["deceit"] "deceit," and "defraud" in addition to the usual construction placed on these terms and accepted in courts of law and equity, shall include the following, provided, however, that any promise, representation, misrepresentation, or omission [be made with knowledge and with intent to deceive or with reckless disregard for the truth and] results in a detriment to the purchaser or client of an investment adviser:

(1) Any misrepresentation by word, conduct or in any manner of any material fact, either present or past, and any omission to disclose any such fact;

(2) Any promise or representation as to the future which is beyond reasonable expectation or is unwarranted by existing circumstances;

(3) The gaining of, or attempt to gain, directly or indirectly, through a trade in any security, a commission, fee or gross profit so large and exorbitant as to be unconscionable, unreasonable or in violation of any law, regulation, rule, order, or decision of the Securities and Exchange Commission, or the bureau chief; or to the extent that [such] the law, regulation, rule, or order directly applies to the person involved, the gaining of, or attempt to gain, directly or indirectly, through a trade in any security, a commission, fee, or gross profit so large and exorbitant as to be in violation of any law, regulation, rule, order, or decision of any other state or Canadian securities administrator, or any self-regulatory organization established pursuant to the laws of the United States;

(4) Generally any course of conduct or business [which is calculated or put forward with intent to deceive] that deceives the public or the purchaser of any security or investment advisory services as to the nature of any transaction or the value of [such] the security;

(5) Any artifice, agreement, device, or scheme to obtain money, profit, or property by any of the means herein set forth or otherwise prohibited by [this act] P.L.1967, c.93 (C.49:3-47 et seq.);

(f) "Guaranteed" means guaranteed as to payment of principal, interest, or dividends;

(g) (1) "Investment adviser" means:

(i) any person who, for direct or indirect 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, selling, or holding securities, or who, for compensation and as a part of a regular business, issues or promulgates analyses or reports concerning securities; and

(ii) any financial planner and other person who provides investment advisory services to others for compensation and as part of a business or who holds himself out as providing investment advisory services to others for compensation.

(2) "Investment adviser " does not include:

(i) a bank, savings institution, or trust company;

(ii) a lawyer, accountant, engineer, or teacher whose performance of these services is solely incidental to the practice or conduct of the profession and who does not hold himself out as providing investment advisory or financial planning services, and who receives no special compensation for those investment advisory or financial planning services;

(iii) a broker-dealer registered under [this act] P.L.1967, c.93 (C.49:3-47 et seq.);

(iv) a publisher of any bona fide newspaper, news magazine, or business or financial publication of general, regular, and paid circulation;

(v) a person whose advice, analyses, or reports relate only to securities exempted by paragraphs (1) and (2) of subsection (a) of section 3 of P.L.1967, c.93 (C.49:3-50);

(vi) a person whose only clients in this State are other investment advisers, any person that is registered as an "investment adviser" under section 203 of the "Investment Advisers Act of 1940," 15 U.S.C. s.80b-3, or excluded from the definition of an "investment adviser" under paragraph (11) of subsection (a) of section 202 of the "Investment Advisers Act of 1940," 15 U.S.C. s.80b-2(a)(11), broker-dealers, banks, bank holding companies, savings institutions, trust companies, insurance companies, investment companies as defined in the "Investment Company Act of 1940," 15 U.S.C. s.80a-1 et seq.), pension or profit-sharing trusts, or other financial institutions or institutional buyers, whether acting for themselves or as trustees;

(vii) any person that is registered as an "investment adviser" under section 203 of the "Investment Advisers Act of 1940," 15 U.S.C. s.80b-3, or excluded from the definition of an "investment adviser" under paragraph (11) of subsection (a) of section 202 of the "Investment Advisers Act of 1940," 15 U.S.C. s.80b-2(a)(11);

(viii) an investment adviser representative; or

(ix) such other persons not otherwise within the intent of this subsection (g) as the bureau chief may by rule or order designate.

Subject to applicable federal law, the bureau chief may by rule limit the exclusions set out in this paragraph (2), except for those exclusions provided in subparagraph (i) of paragraph (2).

For purposes of [this act] P.L.1967, c.93 (C.49:3-47 et seq.), "investment advisory services" means those services rendered by an "investment adviser" as defined in this subsection;

(h) "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 in oil, gas, or mining titles or leases, there is not considered to be any "issuer";

(i) "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;

(j) (1) "Sale" or "sell" includes every contract of sale of, contract to sell, or disposition of, a security or interest in a security or investment advisory services for value;

(2) "Offer" or "offer to sell" includes every attempt or offer to dispose of, or solicitation of any offer to buy, a security or interest in a security or investment advisory services 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 subsection (j) do not include (i) any bona fide pledge or loan; (ii) 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; (iii) 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 (iv) 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;

(k) "Savings institutions" shall mean any savings and loan association or building and loan association operating pursuant to the "Savings and Loan Act (1963)," P.L.1963, c.144 (C.17:12B-2 et seq.), and any federal savings and loan association and any association or credit union organized under the laws of the United States or of any state whose accounts are insured by a federal corporation or agency;

(l) "Securities Act of 1933," 15 U.S.C. s.77a et seq.; "Securities Exchange Act of 1934," 15 U.S.C. s.78a et seq.; ["Public Utility Holding Company Act of 1935," 15 U.S.C. s.79 et seq.] "Public Utility Holding Company Act of 2005," 42 U.S.C. s.16451 et seq.; "Investment Advisers Act of 1940," 15 U.S.C. s.80b-1 et seq.; "Investment Company Act of 1940," 15 U.S.C. s.80a-1 et seq.; and "Commodity Exchange Act," 7 U.S.C. s.1 et seq. mean the federal statutes of those names;

(m) "Security" means any note; stock; treasury stock; bond; debenture; evidence of indebtedness; certificate of interest or participation in any profit-sharing agreement, including, but not limited to, certificates of interest or participation in real or personal property; collateral-trust certificate; preorganization certificate or subscription; transferable share; investment contract; voting-trust certificate; certificate of deposit for a security; certificate of interest in an oil, gas or mining title or lease; a viatical investment; 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, 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 a fixed or variable number of dollars either in a lump sum or periodically for life or some other specified period;

(n) "State" means any state, territory, or possession of the United States, as well as the District of Columbia and Puerto Rico;

(o) "Nonissuer" means secondary trading not involving the issuer of the securities or any person in a control relationship with the issuer;

(p) "Accredited investor" means any person who is an "accredited investor" as defined by paragraph (15) of subsection [(15)] (a) of section 2 of the "Securities Act of 1933," 15 U.S.C. s.77b(a)(15), and 17 C.F.R. s.230.215 and 17 C.F.R. s.230.501 or any successor rule promulgated pursuant to that act.

The bureau chief may by rule [,] or order, waive or modify the conditions in this subsection (p) and shall interpret and apply this subsection (p) so as to effectuate greater uniformity and coordination in federal-state securities registration exemptions;

(q) "Direct participation security" means a security which provides for flow-through tax consequences (tax shelter), regardless of the structure of the legal entity or vehicle for distribution, including, but not limited to, a security representing an interest in gas, oil, real estate, agricultural property, cattle, a condominium, a Subchapter S corporation, a limited liability company and all other securities of a similar nature, regardless of the industry represented by the security, or any combination thereof. Excluded from this definition are real estate investment trusts, tax qualified pension and profit-sharing plans pursuant to sections 401 and 403(a) of the Internal Revenue Code of 1986, 26 U.S.C. ss.401 and 403(a), and individual retirement plans under section 408 of the Internal Revenue Code of 1986, 26 U.S.C. s.408, tax sheltered annuities pursuant to the provisions of section 403(b) of the Internal Revenue Code of 1986, 26 U.S.C. s.403(b), and any company including separate accounts registered pursuant to the "Investment Company Act of [1940;"] 1940," 15 U.S.C. s.80a-1 et seq.;

(r) "Blind pool" means an offering of securities in which, as to [65%] 65 percent or more of the proceeds of the offering, the prospectus discloses no specific purpose to which the proceeds of the offering will be put, or the prospectus discloses no specific assets to be purchased, projects to be undertaken, or business to be conducted, except for:

(1) an offering of securities to provide working capital for an operating company (as opposed to a development stage company);

(2) an offering of securities by an investment company registered under the "Investment Company Act of 1940," 15 U.S.C. s.80a-1 et seq., including a business development company; or

(3) an offering of securities by a small business investment company licensed by the United States Small Business Administration or a business development company within the meaning of the "Investment Advisers Act of [1940;"] 1940," 15 U.S.C. s.80b-1 et seq.;

(s) "Investment adviser representative" means any person, including, but not limited to, a partner, officer, or director, 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 registered under [this act] P.L.1967, c.93 (C.49:3-47 et seq.), or who has a place of business located in this State and is employed by or associated with a person registered or required to be registered as an investment adviser under section 203 of the "Investment Advisers Act of 1940," 15 U.S.C. s.80b-3; and who does any of the following:

(1) makes any recommendations or otherwise renders advice regarding securities if the person has direct advisory client contact;

(2) manages accounts or portfolios of clients;

(3) determines recommendations or advice regarding securities;

(4) solicits, offers or negotiates for the sale of or sells investment advisory services; or

(5) directly supervises any investment adviser representative or the supervisors of those investment adviser representatives. "Investment adviser representative" does not include a broker-dealer or an agent;

(t) "Institutional buyer" includes, but is not limited to, a "qualified institutional buyer" as defined in SEC Rule 144A, 17 C.F.R. s.230.144A;

(u) ["Willful" or "willfully" means a person who acts intentionally in the sense that the person is aware of what he is doing;] (Deleted by amendment, P.L. , c. ) (pending before the Legislature as this bill)

(v) "Federal covered security" means any security described as a covered security in subsection (b) of section 18 of the "Securities Act of 1933," 15 U.S.C. s.77r(b);

(w) "Viatical investment" means the contractual right to receive any portion of the death benefit or ownership of a life insurance policy or certificate, for consideration that is less than the expected death benefit of the life insurance policy or certificate. Viatical investment does not include:

(1) any transaction between a viator and a viatical settlement provider as defined by the "Viatical Settlements Act", P.L.2005, c.229 (C.17B:30B-1 et al.);

(2) any transfer of ownership or beneficial interest in a life insurance policy from a viatical settlement provider to another viatical settlement provider as defined in the "Viatical Settlements Act", P.L.2005, c.229 (C.17B:30B-1 et al.) or to any legal entity formed solely for the purpose of holding ownership or beneficial interest in a life insurance policy or policies;

(3) the bona fide assignment of a life insurance policy to a bank, savings bank, savings and loan association, credit union, or other licensed lending institution as collateral for a loan;

(4) the exercise of accelerated benefits pursuant to the terms of a life insurance policy issued in accordance with the provisions of Title 17B of the New Jersey Statutes; or

(5) a loan by a life insurance company pursuant to the terms of the life insurance contract;

(x) "Internet site operator" means a business entity organized under the laws of this State and authorized to do business in this State which makes available to the public through an Internet website any offering pursuant to the exemption in paragraph (14) of subsection (b) of section 3 of P.L.1967, c.93 (C.49:3-50). "Internet site operator" shall not include a broker-dealer.

(cf: P.L.2015, c.128, s.8)

2. Section 23 of P.L.1967, c.93 (C.49:3-70) is amended to read as follows:

23. (a) Any person who [knowingly] violates any provision of [this act] P.L.1967, c.93 (C.49:3-47 et seq.), except section 7 or 13 of P.L.1967, c.93 (C.49:3-54 or C.49:3-60), or who [knowingly] violates any rule or order under [this act] P.L.1967, c.93 (C.49:3-47 et seq.), or who [willfully] violates section 7 of P.L.1967, c.93 (C.49:3-54) [, knowing the statement made to be false or misleading in any material respect,] shall be guilty of a second or third degree crime, depending upon the amount of the loss as provided in subsection (d) of this section.

(b) Any person who [recklessly] violates subsection (a), (b), or (c) of section 5 or paragraph (1) or (2) of subsection (a) or subsection (f) of section 6 of P.L.1967, c.93 (C.49:3-52 or 49:3-53) or section 6 of [this act] P.L.1967, c.93 (C.49:3-47 et seq.), shall be guilty of a crime of the fourth degree.

(c) [For purposes of this section, "knowingly" and "recklessly" shall have the respective meanings ascribed to them in subsection (b) of N.J.S.2C:2-2] (Deleted by amendment, P.L. , c. ) (pending before the Legislature as this bill)

(d) If the total value of all money or anything else of value paid by or lost by victims of the violations of [this act] P.L.1967, c.93 (C.49:3-47 et seq.), resulting from the same device, scheme or artifice, from the same untrue statement of a material fact or failure to state a material fact, from the same act, practice, or course of business, or from any other fraud involving any security is:

(1) less than $75,000, or if no monetary value can be placed upon the loss or if no person pays or loses anything of monetary value, the offender is guilty of a crime of the third degree;

(2) $75,000 or more, the offender is guilty of a crime of the second degree;

(e) No person may be imprisoned for the violation of any rule or order if [he] the person proves that [he] the person had no knowledge of the rule or order.

(f) An indictment or information returned under [this act] P.L.1967, c.93 (C.49:3-47 et seq.) shall be subject to the limitations of N.J.S.2C:1-6. A violation is committed when every element occurs or at the time when the course of conduct or the actor's complicity therein is terminated.

(g) Nothing in [this act] P.L.1967, c.93 (C.49:3-47 et seq.) shall limit the power of this State to prosecute a person for conduct constituting a crime under any other law.

(cf: P.L.1997, c.276, s.28)

3. Section 24 of P.L.1967, c.93 (C.49:3-71) is amended to read as follows:

24. (a) Any person who

(1) Offers, sells or purchases a security in violation of subsection (b) of section 8, subsection (a) of section 9 or section 13 of P.L.1967, c.93 (C.49:3-55, 49:3-56, or 49:3-60), or

(2) Offers, sells or purchases a security by means of any untrue statement of material fact or any omission 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 (the buyer not knowing of the untruth or omission), or

(3) offers, sells or purchases a security by employing any device, scheme, or artifice to defraud, or

(4) offers, sells or purchases a security by engaging in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person, or

(5) engages in the business of advising others, for compensation, 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 (i) in [willful] violation of [this act] P.L.1967, c.93 (C.49:3-47 et seq.) or of any rule or order promulgated pursuant to [this act] P.L.1967, c.93 (C.49:3-47 et seq.), or (ii) employs any device, scheme, or artifice to defraud the other person or engages in any act, practice, or course of business or conduct which operates or would operate as a fraud or deceit on the other person, is liable as set forth in subsection (c) of this section;

(b) (1) If any claim is brought for violation of paragraph (2), (3), (4) or (5) of subsection (a) of this section, the person who bought the security or received the investment advice shall sustain the burden of proof that the seller or giver of investment advice [knew of the untruth or omission and intended to deceive] deceived the buyer or recipient of investment advice and that the buyer or recipient of investment advice has suffered a financial detriment;

(2) If any claim is brought for violation of paragraph (2), (3), (4) or (5) of subsection (a) of this section involving a purchase of securities by others or investment advice as to the selling of securities, the person who sold the security or who received the investment advice to sell the security shall sustain the burden of proof that that person suffered a net loss with respect to that sale or investment advice taking into account all transactions by that person in the same security or any security convertible into that security within one year before or after the sale or advice which is the basis of the claim;

(c) Any person who offered, sold, or purchased a security or engaged in the business of giving investment advice to a person in violation of paragraph (1), (2), (3), (4) or (5) of subsection (a) of this section is liable to that person, who may bring an action either at law or in equity to recover the consideration paid for the security or the investment advice and any loss due to the advice, together with interest set at the rate established for interest on judgments for the same period by the Rules Governing the Courts of the State of New Jersey from the date of payment of the consideration for the investment advice or security, and costs, less the amount of any income received on the security, upon the tender of the security and any income received from the investment advice or on the security, or for damages if he no longer owns the security. Damages are the amount that would be recoverable upon a tender less the value of the security when the buyer disposed of it and interest at the rate established for interest on judgments for the same period by the Rules Governing the Courts of the State of New Jersey from the date of disposition;

(d) Every person who directly or indirectly controls a seller liable under subsection (a) of this section, every partner, officer, or director of such a seller, or investment adviser, every person occupying a similar status or performing similar functions, every employee of such a seller or investment adviser who materially aids in the sale or in the conduct giving rise to the liability, and every broker-dealer, investment adviser, investment adviser representative or agent who materially aids in the sale or conduct are also liable jointly and severally with and to the same extent as the seller or investment adviser, unless the nonseller who is so liable sustains the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of the existence of the facts under paragraphs (1) through (5) of subsection (a) of this section which give rise to liability. There is contribution as in cases of contract among the several persons so liable;

(e) Any tender specified in this section may be made at any time before entry of judgment;

(f) Every cause of action under [this act] P.L.1967, c.93 (C.49:3-47 et seq.) survives the death of any person who might have been a plaintiff or defendant;

(g) [No] A person [may] shall not bring an action under this section more than two years after the contract of sale or the rendering of the investment advice, or more than two years after the time when the person aggrieved knew or should have known of the existence of [his] the cause of action, whichever is later. [No] A person [may] shall not bring an action under this section (1) if the buyer received a written offer, before suit and at a time when he owned the security, to refund the consideration paid, together with interest at the rate established for interest on judgments for the same period by the Rules Governing the Courts of the State of New Jersey at the time the offer was made, from the date of payment, less the amount of any income received on the security, and he failed to accept the offer within 30 days of its receipt, or (2) if the buyer received such an offer before suit and at a time when [he] the buyer did not own the security, unless [he] the buyer rejected the offer in writing within 30 days of its receipt;

(h) [No] A person who has made or engaged in the performance of any contract in violation of any provision of [this act] P.L.1967, c.93 (C.49:3-47 et seq.) or any rule or order hereunder, or who has acquired any purported right under any such contract with knowledge of the facts by reason of which its making or performance was in violation, [may] shall not base any suit on the contract;

(i) Any condition, stipulation or provision binding any person acquiring any security or receiving investment advice to waive compliance with any provision of [this act] P.L.1967, c.93 (C.49:3-47 et seq.) or any rule or order hereunder is void;

(j) The rights and remedies provided by [this act] P.L.1967, c.93 (C.49:3-47 et seq.) are in addition to any other rights or remedies that may exist at law or in equity, but [this act] P.L.1967, c.93 (C.49:3-47 et seq.) does not create any cause of action not specified in this section or subsection (e) of section 10 of P.L.1967, c.93 (C.49:3-57).

(cf: P.L.1997, c.276, s.30)

4. This act shall take effect immediately.

STATEMENT

This bill removes the requirement from the "Uniform Securities Law (1997)" that a violation is required to be committed knowingly or recklessly in order to be subject to civil or criminal punishment.