As Passed by the House 1
123rd General Assembly 4
Regular Session Sub. H. B. No. 6 5
1999-2000 6
REPRESENTATIVES D.MILLER-SCHULER-DePIERO-OPFER-TRAKAS- 8
FORD-SULLIVAN-GERBERRY-BOYD-JONES-STAPLETON-O'BRIEN- 9
WINKLER-MOTTLEY-SCHUCK-ALLEN-WILLAMOWSKI-JACOBSON- 10
CALLENDER-WOMER BENJAMIN-SALERNO-PETERSON-BUCHY- 11
OLMAN-SYKES-COUGHLIN-KRUPINSKI-FLANNERY-BENDER- 12
DAMSCHRODER-BARNES-VERICH-METELSKY-HOUSEHOLDER- 13
MAIER-TERWILLEGER-LOGAN-BARRETT 14
_________________________________________________________________ 15
A B I L L
To amend sections 1701.48, 1707.01, and 1707.44 of 17
the Revised Code to include electronic 18
transmissions as a method of appointing a voting 19
proxy and to apply the Ohio Securities Law's 21
prohibitions against fraud to the purchase of
securities.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF OHIO: 23
Section 1. That sections 1701.48, 1707.01, and 1707.44 of 25
the Revised Code be amended to read as follows: 26
Sec. 1701.48. (A) A person who is entitled to attend a 35
shareholders' meeting, to vote thereat AT A SHAREHOLDERS' 37
MEETING, or to execute consents, waivers, or releases, may be 38
represented at such THE meeting or vote thereat AT THE MEETING, 41
and MAY execute consents, waivers, and releases, and MAY exercise 43
any of his THE PERSON'S other rights, by proxy or proxies 45
appointed by a writing signed by such THE person OR APPOINTED BY 46
A VERIFIABLE COMMUNICATION AUTHORIZED BY THE PERSON. 47
(B) A ANY TRANSMISSION THAT CREATES A RECORD CAPABLE OF 49
AUTHENTICATION, INCLUDING, BUT NOT LIMITED TO, A telegram or, A 51
cablegram appearing, ELECTRONIC MAIL, OR AN ELECTRONIC, 52
2
TELEPHONIC, OR OTHER TRANSMISSION, THAT APPEARS to have been 53
transmitted by such A person, or a DESCRIBED IN DIVISION (A) OF 55
THIS SECTION, AND THAT APPOINTS A PROXY IS A SUFFICIENT 56
VERIFIABLE COMMUNICATION TO APPOINT A PROXY. A photographic,
photostatic, FACSIMILE TRANSMISSION, or equivalent reproduction 58
of a writing, appointing THAT IS SIGNED BY A PERSON DESCRIBED IN 59
DIVISION (A) OF THIS SECTION AND THAT APPOINTS a proxy is a 60
sufficient writing TO APPOINT A PROXY. 61
(C) No appointment of a proxy is valid after the 63
expiration of eleven months after it is made unless the writing 64
OR VERIFIABLE COMMUNICATION specifies the date on which it is to 66
expire or the length of time it is to continue in force. No 67
proxy appointed for or in connection with the shareholder 68
authorization of a control share acquisition pursuant to section 69
1701.831 of the Revised Code is valid if it provides that it is 70
irrevocable or if it is sought, appointed, and received other 71
than both:
(1) In accordance with all applicable requirements of the 73
law of this state and the law of the United States; 74
(2) Separate and apart from the sale or purchase, contract 76
or tender for sale or purchase, or request or invitation for 77
tender for sale or purchase, of shares of the issuing public 78
corporation. 79
(D) Every appointment of a proxy shall be revocable unless 81
such THAT appointment is coupled with an interest, except that, 82
as provided in division (C) of this section, proxies appointed 84
for or in connection with the shareholder authorization of a 85
control share acquisition pursuant to section 1701.831 of the 86
Revised Code shall be revocable at all times prior to the 87
obtaining of such THAT shareholder authorization, whether or not 88
coupled with an interest. A revocation of a revocable 90
appointment may be made only as provided in this section. 91
Without affecting any vote previously taken, the person 92
appointing a proxy may revoke a revocable appointment by a later 93
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appointment received by the corporation or by giving notice of 94
revocation to the corporation in writing, IN A VERIFIABLE 95
COMMUNICATION, or in open meeting. The presence at a meeting of 96
the person appointing a proxy does not revoke the appointment. 97
(E) A revocable appointment of a proxy is not revoked by 99
the death or incompetency of the maker unless, before the vote is 100
taken or the authority granted is otherwise exercised, written 101
notice of such THE death or incompetency OF THE MAKER is received 103
by the corporation from the executor or administrator of the 104
estate of such THE maker or from the fiduciary having control of 105
the shares in respect of which the proxy was appointed. 107
(F) Unless the writing OR VERIFIABLE COMMUNICATION 109
appointing a proxy otherwise provides: 111
(1) Each proxy has the power of substitution, and, when 113
IF three or more proxies are appointed, a majority of them or of 115
their substitutes may appoint one or more substitutes to act for 116
all;. 117
(2) If more than one proxy is appointed, then (a) with 119
respect to voting or executing consents, waivers, or releases, or 120
objections to consents at a shareholders' meeting, a majority of 121
such THE proxies as THAT attend the meeting, or if only one 123
attends then that one, may exercise all the voting and consenting 124
authority thereat AT THE MEETING; and if one or more attend and a 125
majority do not agree on any particular issue, each proxy so 127
attending shall be entitled to exercise such THAT authority with 128
respect to an equal number of shares; (b) with respect to 130
exercising any other authority, a majority may act for all. 131
Sec. 1707.01. As used in this chapter: 140
(A) Whenever the context requires it, "division" or 142
"division of securities" may be read as "director of commerce" or 143
as "commissioner of securities." 144
(B) "Security" means any certificate or instrument that 146
represents title to or interest in, or is secured by any lien or 147
charge upon, the capital, assets, profits, property, or credit of 148
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any person or of any public or governmental body, subdivision, or 149
agency. It includes shares of stock, certificates for shares of 150
stock, membership interests in limited liability companies, 151
voting-trust certificates, warrants and options to purchase 152
securities, subscription rights, interim receipts, interim 153
certificates, promissory notes, all forms of commercial paper, 154
evidences of indebtedness, bonds, debentures, land trust 155
certificates, fee certificates, leasehold certificates, syndicate 156
certificates, endowment certificates, certificates or written 157
instruments in or under profit-sharing or participation 158
agreements or in or under oil, gas, or mining leases, or 159
certificates or written instruments of any interest in or under 160
the same, receipts evidencing preorganization or reorganization 161
subscriptions, preorganization certificates, reorganization 162
certificates, certificates evidencing an interest in any trust or 163
pretended trust, any investment contract, any instrument 164
evidencing a promise or an agreement to pay money, warehouse 165
receipts for intoxicating liquor, and the currency of any 166
government other than those of the United States and Canada, but 167
sections 1707.01 to 1707.45 of the Revised Code do not apply to 168
the sale of real estate. 169
(C)(1) "Sale" has the full meaning of "sale" as applied by 171
or accepted in courts of law or equity, and includes every 172
disposition, or attempt to dispose, of a security or of an 173
interest in a security. "Sale" also includes a contract to sell, 174
an exchange, an attempt to sell, an option of sale, a 175
solicitation of a sale, a solicitation of an offer to buy, a 176
subscription, or an offer to sell, directly or indirectly, by 177
agent, circular, pamphlet, advertisement, or otherwise. 178
(2) "Sell" means any act by which a sale is made. 180
(3) The use of advertisements, circulars, or pamphlets in 182
connection with the sale of securities in this state exclusively 183
to the purchasers specified in division (D) of section 1707.03 of 184
the Revised Code is not a sale when the advertisements, 185
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circulars, and pamphlets describing and offering those securities 186
bear a readily legible legend in substance as follows: "This 187
offer is made on behalf of dealers licensed under sections 188
1707.01 to 1707.45 of the Revised Code, and is confined in this 189
state exclusively to institutional investors and licensed 190
dealers." 191
(4) The offering of securities by any person in 193
conjunction with a licensed dealer by use of advertisement, 194
circular, or pamphlet is not a sale if that person does not 195
otherwise attempt to sell securities in this state. 196
(5) Any security given with, or as a bonus on account of, 198
any purchase of securities is conclusively presumed to constitute 199
a part of the subject of that purchase and has been "sold." 200
(6) "Sale" by an owner, pledgee, or mortgagee, or by a 202
person acting in a representative capacity, includes sale on 203
behalf of such party by an agent, including a licensed dealer or 204
salesperson. 205
(D) "Person," except as otherwise provided in this 207
chapter, means a natural person, firm, partnership, limited 209
partnership, partnership association, syndicate, joint-stock 210
company, unincorporated association, trust or trustee except 211
where the trust was created or the trustee designated by law or 212
judicial authority or by a will, and a corporation or limited 213
liability company organized under the laws of any state, any 214
foreign government, or any political subdivision of a state or 215
foreign government.
(E)(1) "Dealer," except as otherwise provided in this 217
chapter, means every person, other than a salesperson, who 219
engages or professes to engage, in this state, for either all or
part of the person's time, directly or indirectly, either in the 220
business of the sale of securities for the person's own account, 221
or in the business of the purchase or sale of securities for the 222
account of others in the reasonable expectation of receiving a 223
commission, fee, or other remuneration as a result of engaging in 224
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the purchase and sale of securities. "Dealer" does not mean any 225
of the following:
(a) Any issuer, including any officer, director, employee, 227
or trustee of, or member or manager of, or partner in, or any 228
general partner of, any issuer, that sells, offers for sale, or 230
does any act in furtherance of the sale of a security that 231
represents an economic interest in that issuer, provided no 232
commission, fee, or other similar remuneration is paid to or 233
received by the issuer for the sale; 234
(b) Any licensed attorney, public accountant, or firm of 236
such attorneys or accountants, whose activities are incidental to 237
the practice of the attorney's, accountant's, or firm's 238
profession;
(c) Any person that, for the account of others, engages in 240
the purchase or sale of securities that are issued and 241
outstanding before such purchase and sale, if a majority or more 242
of the equity interest of an issuer is sold in that transaction, 243
and if, in the case of a corporation, the securities sold in that 244
transaction represent a majority or more of the voting power of 245
the corporation in the election of directors; 246
(d) Any person that brings an issuer together with a 248
potential investor and whose compensation is not directly or 249
indirectly based on the sale of any securities by the issuer to 250
the investor; 251
(e) Any bank, savings and loan association, savings bank, 253
or credit union chartered under the laws of the United States or 254
any state thereof OF THE UNITED STATES, provided that all 256
transactions are consummated by or through a person licensed 257
pursuant to section 1707.14 of the Revised Code; 258
(f) Any person that the division of securities by rule 260
exempts from the definition of "dealer" under division (E)(1) of 261
this section. 262
(2) "Licensed dealer" means a dealer licensed under this 265
chapter.
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(F)(1) "Salesman" or "salesperson" means every natural 267
person, other than a dealer, WHO IS employed, authorized, or 270
appointed by a dealer to sell securities within this state. 271
(2) The general partners of a partnership, and the 273
executive officers of a corporation or unincorporated 274
association, licensed as a dealer are not salespersons within the 276
meaning of this definition, nor are such clerical or other
employees of an issuer or dealer as are employed for work to 277
which the sale of securities is secondary and incidental; but the 278
division of securities may require a license from any such 279
partner, executive officer, or employee if it determines that 280
protection of the public necessitates the licensing. 281
(3) "Licensed salesperson" means a salesperson licensed 284
under this chapter.
(G) "Issuer" means every person who has issued, proposes 286
to issue, or issues any security. 287
(H) "Director" means each director or trustee of a 289
corporation, each trustee of a trust, each general partner of a 290
partnership, except a partnership association, each manager of a 291
partnership association, and any person vested with managerial or 292
directory power over an issuer not having a board of directors or 293
trustees. 294
(I) "Incorporator" means any incorporator of a corporation 296
and any organizer of, or any person participating, other than in 297
a representative or professional capacity, in the organization of 298
an unincorporated issuer. 299
(J) "Fraud," "fraudulent," "fraudulent acts," "fraudulent 302
practices," or "fraudulent transactions" means anything 303
recognized on or after July 22, 1929, as such in courts of law or 304
equity; any device, scheme, or artifice to defraud or to obtain 305
money or property by means of any false pretense, representation, 306
or promise; any fictitious or pretended purchase or sale of 307
securities; and any act, practice, transaction, or course of 308
business relating to the PURCHASE OR sale of securities that is 309
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fraudulent or that has operated or would operate as a fraud upon 311
the SELLER OR purchaser.
(K) Except as otherwise specifically provided, whenever 313
any classification or computation is based upon "par value," as 314
applied to securities without par value, the average of the 315
aggregate consideration received or to be received by the issuer 316
for each class of those securities shall be used as the basis for 317
that classification or computation. 318
(L)(1) "Intangible property" means patents, copyrights, 320
secret processes, formulas, services, good will, promotion and 321
organization fees and expenses, trademarks, trade brands, trade 322
names, licenses, franchises, any other assets treated as 323
intangible according to generally accepted accounting principles, 324
and securities, accounts receivable, or contract rights having no 325
readily determinable value. 326
(2) "Tangible property" means all property other than 328
intangible property and includes securities, accounts receivable, 329
and contract rights, when the securities, accounts receivable, or 330
contract rights have a readily determinable value. 331
(M) "Public utilities" means those utilities defined in 333
sections 4905.02, 4905.03, 4907.02, and 4907.03 of the Revised 334
Code; in the case of a foreign corporation, it means those 335
utilities defined as public utilities by the laws of its 336
domicile; and in the case of any other foreign issuer, it means 337
those utilities defined as public utilities by the laws of the 338
situs of its principal place of business. The term always 339
includes railroads whether or not they are so defined as public 340
utilities. 341
(N) "State" means any state of the United States, any 343
territory or possession of the United States, the District of 344
Columbia, and any province of Canada. 345
(O) "Bank" means any bank, trust company, savings and loan 347
association, savings bank, or credit union that is incorporated 349
or organized under the laws of the United States, any state of 350
9
the United States, Canada, or any province of Canada and that is 351
subject to regulation or supervision by that country, state, or 352
province.
(P) "Include," when used in a definition, does not exclude 354
other things or persons otherwise within the meaning of the term 355
defined. 356
(Q)(1) "Registration by description" means that the 358
requirements of section 1707.08 of the Revised Code have been 359
complied with. 360
(2) "Registration by qualification" means that the 362
requirements of sections 1707.09 and 1707.11 of the Revised Code 363
have been complied with. 364
(3) "Registration by coordination" means that there has 366
been compliance with section 1707.091 of the Revised Code. 367
Reference in this chapter to registration by qualification also 368
shall be deemed to include registration by coordination unless 369
the context otherwise indicates. 370
(R) "Intoxicating liquor" includes all liquids and 372
compounds that contain more than three and two-tenths per cent of 373
alcohol by weight and are fit for use for beverage purposes. 374
(S) "Institutional investor" means any corporation, bank, 376
insurance company, pension fund or pension fund trust, employees' 377
profit-sharing fund or employees' profit-sharing trust, any 378
association engaged, as a substantial part of its business or 379
operations, in purchasing or holding securities, or any trust in 380
respect of which a bank is trustee or cotrustee. "Institutional 381
investor" does not include any business entity formed for the 382
primary purpose of evading sections 1707.01 to 1707.45 of the 383
Revised Code. 384
(T) "Securities Act of 1933," 48 Stat. 74, 15 U.S.C. 77a, 387
"Securities Exchange Act of 1934," 48 Stat. 881, 15 U.S.C. 78a, 389
"Internal Revenue Code of 1986," 100 Stat. 2085, 26 U.S.C. 1, 391
"Investment Advisers Act of 1940," 54 Stat. 847, 15 U.S.C. 80b, 393
and "Investment Company Act of 1940," 54 Stat. 789, 15 U.S.C. 80a 395
10
mean the federal statutes of those names as amended before or 397
after the effective date of this amendment MARCH 18, 1999. 398
(U) "Securities and exchange commission" means the 400
securities and exchange commission established by the Securities 401
Exchange Act of 1934. 402
(V)(1) "Control bid" means the purchase of or offer to 404
purchase any equity security of a subject company from a resident 405
of this state if either of the following applies: 406
(a) After the purchase of that security, the offeror would 408
be directly or indirectly the beneficial owner of more than ten 409
per cent of any class of the issued and outstanding equity 410
securities of the issuer. 411
(b) The offeror is the subject company, there is a pending 413
control bid by a person other than the issuer, and the number of 414
the issued and outstanding shares of the subject company would be 415
reduced by more than ten per cent. 416
(2) For purposes of division (V)(1) of this section, 418
"control bid" does not include any of the following: 419
(a) A bid made by a dealer for the dealer's own account in 421
the ordinary course of business of buying and selling securities; 422
(b) An offer to acquire any equity security solely in 424
exchange for any other security, or the acquisition of any equity 425
security pursuant to an offer, for the sole account of the 426
offeror, in good faith and not for the purpose of avoiding the 427
provisions of this chapter, and not involving any public offering 428
of the other security within the meaning of Section 4 of Title I 429
of the "Securities Act of 1933," 48 Stat. 77, 15 U.S.C.A. 77d(2), 430
as amended; 431
(c) Any other offer to acquire any equity security, or the 433
acquisition of any equity security pursuant to an offer, for the 434
sole account of the offeror, from not more than fifty persons, in 435
good faith and not for the purpose of avoiding the provisions of 436
this chapter. 437
(W) "Offeror" means a person who makes, or in any way 439
11
participates or aids in making, a control bid and includes 440
persons acting jointly or in concert, or who intend to exercise 441
jointly or in concert any voting rights attached to the 442
securities for which the control bid is made and also includes 443
any subject company making a control bid for its own securities. 444
(X)(1) "Investment adviser" means any person who, for 447
compensation, engages in the business of advising others, either 448
directly or through publications or writings, as to the value of 449
securities or as to the advisability of investing in, purchasing, 450
or selling securities, or who, for compensation and as a part of 451
regular business, issues or promulgates analyses or reports 452
concerning securities.
(2) "Investment adviser" does not mean any of the 455
following:
(a) Any attorney, accountant, engineer, or teacher, whose 458
performance of investment advisory services described in division 460
(X)(1) of this section is solely incidental to the practice of 462
the attorney's, accountant's, engineer's, or teacher's 463
profession; 464
(b) A publisher of any bona fide newspaper, news magazine, 468
or business or financial publication of general and regular 469
circulation;
(c) A person who acts solely as an investment adviser 471
representative; 472
(d) A bank holding company, as defined in the "Bank 474
Holding Company Act of 1956," 70 Stat. 133, 12 U.S.C. 1841, that 476
is not an investment company; 477
(e) A bank, or any receiver, conservator, or other 479
liquidating agent of a bank; 480
(f) Any licensed dealer or licensed salesperson whose 482
performance of investment advisory services described in division 483
(X)(1) of this section is solely incidental to the conduct of the 484
dealer's or salesperson's business as a licensed dealer or 485
licensed salesperson and who receives no special compensation for 486
12
the services;
(g) Any person, the advice, analyses, or reports of which 488
do not relate to securities other than securities that are direct 489
obligations of, or obligations guaranteed as to principal or 490
interest by, the United States, or securities issued or 491
guaranteed by corporations in which the United States has a 492
direct or indirect interest, and that have been designated by the 493
secretary of the treasury as exempt securities as defined in the 494
"Securities Exchange Act of 1934," 48 Stat. 881, 15 U.S.C. 78c; 496
(h) Any person that is excluded from the definition of 498
investment adviser pursuant to section 202(a)(11)(A) to (E) of 501
the "Investment Advisers Act of 1940," 15 U.S.C. 80b-2(a)(11), or 506
that has received an order from the securities and exchange 507
commission under section 202(a)(11)(F) of the "Investment 509
Advisers Act of 1940," 15 U.S.C. 80b-2(a)(11)(F), declaring that 514
the person is not within the intent of section 202(a)(11) of the 515
Investment Advisers Act of 1940. 518
(i) Any other person that the division designates by rule, 520
if the division finds that the designation is necessary or 521
appropriate in the public interest or for the protection of 522
investors or clients and consistent with the purposes fairly 523
intended by the policy and provisions of this chapter.
(Y)(1) "Subject company" means an issuer that satisfies 525
both of the following: 526
(a) Its principal place of business or its principal 528
executive office is located in this state, or it owns or controls 529
assets located within this state that have a fair market value of 530
at least one million dollars. 531
(b) More than ten per cent of its beneficial or record 533
equity security holders are resident in this state, more than ten 534
per cent of its equity securities are owned beneficially or of 535
record by residents in this state, or more than one thousand of 536
its beneficial or record equity security holders are resident in 537
this state. 538
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(2) The division of securities may adopt rules to 540
establish more specific application of the provisions set forth 541
in division (Y)(1) of this section. Notwithstanding the 542
provisions set forth in division (Y)(1) of this section and any 543
rules adopted under this division, the division, by rule or in an 544
adjudicatory proceeding, may make a determination that an issuer 545
does not constitute a "subject company" under division (Y)(1) of 546
this section if appropriate review of control bids involving the 547
issuer is to be made by any regulatory authority of another 548
jurisdiction. 549
(Z) "Beneficial owner" includes any person who directly or 551
indirectly through any contract, arrangement, understanding, or 552
relationship has or shares, or otherwise has or shares, the power 553
to vote or direct the voting of a security or the power to 554
dispose of, or direct the disposition of, the security. 555
"Beneficial ownership" includes the right, exercisable within 556
sixty days, to acquire any security through the exercise of any 557
option, warrant, or right, the conversion of any convertible 558
security, or otherwise. Any security subject to any such option, 559
warrant, right, or conversion privilege held by any person shall 560
be deemed to be outstanding for the purpose of computing the 561
percentage of outstanding securities of the class owned by that 562
person, but shall not be deemed to be outstanding for the purpose 563
of computing the percentage of the class owned by any other 564
person. A person shall be deemed the beneficial owner of any 565
security beneficially owned by any relative or spouse or relative 566
of the spouse residing in the home of that person, any trust or 567
estate in which that person owns ten per cent or more of the 568
total beneficial interest or serves as trustee or executor, any 569
corporation or entity in which that person owns ten per cent or 570
more of the equity, and any affiliate or associate of that 571
person. 572
(AA) "Offeree" means the beneficial or record owner of any 574
security that an offeror acquires or offers to acquire in 575
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connection with a control bid. 576
(BB) "Equity security" means any share or similar 578
security, or any security convertible into any such security, or 579
carrying any warrant or right to subscribe to or purchase any 580
such security, or any such warrant or right, or any other 581
security that, for the protection of security holders, is treated 582
as an equity security pursuant to rules of the division of 583
securities. 584
(CC) "Investment company" has the same meaning as in 586
section 3(A) of the "Investment Company Act of 1940," 54 Stat. 587
789, 15 U.S.C. 80a-1 to 80a-52. 588
(DD) "Penny stock" has the same meaning as in section 591
3(A)(51) of the "Securities Exchange Act of 1934," 48 Stat. 881, 592
15 U.S.C. 78a-78jj, and the rules, regulations, and orders issued 593
pursuant to that section. 594
(EE) "Going concern transaction" has the same meaning 597
given that term under the rules or regulations on the securities 598
and exchange commission issued pursuant to section 13(c) of the 599
"Securities Exchange Act of 1934," 48 Stat. 881, 15 U.S.C.
78a-78jj. 600
(FF) "Person acting on behalf of an issuer" means an 603
officer, director, or employee of an issuer.
(GG) "Blank check company," "roll-up transaction," 606
"executive officer of an entity," and "direct participation
program" have the same meanings given those terms by rule or 607
regulation of the securities and exchange commission. 608
(HH) "Forward-looking statement" means any of the 610
following:
(1) A statement containing a projection of revenues, 612
income including income loss, earnings per share including 613
earnings loss per share, capital expenditures, dividends, capital 614
structure, or other financial items;
(2) A statement of the plans and objectives of the 616
management of the issuer for future operations, including plans 617
15
or objectives relating to the products or services of the issuer; 618
(3) A statement of future economic performance, including 620
any statement of that nature contained in a discussion and 621
analysis of financial conditions by the management or in the 622
results of operations included pursuant to the rules and 623
regulations of the securities and exchange commission;
(4) Any disclosed statement of the assumptions underlying 625
or relating to a statement described in division (B)(1), (2), or 627
(3) of section 1707.437 of the Revised Code; 628
(5) Any report issued by an outside reviewer retained by 630
an issuer to the extent that the report relates to a 631
forward-looking statement made by the issuer; 632
(6) A statement containing a projection or estimate of any 634
other items that may be specified by rule or regulation of the 635
securities and exchange commission. 636
(II)(1) "Investment adviser representative" means a 638
supervised person of an investment adviser, provided that the 640
supervised person has more than five clients who are natural 641
persons other than excepted persons defined in division (KK) of 642
this section, and that more than ten per cent of the supervised 643
person's clients are natural persons other than excepted persons
defined in division (KK) of this section. "Investment adviser 644
representative" does not mean any of the following: 645
(a) A supervised person that does not on a regular basis 647
solicit, meet with, or otherwise communicate with clients of the 648
investment adviser;
(b) A supervised person that provides only investment 650
advisory services described in division (X)(1) of this section by 651
means of written materials or oral statements that do not purport 652
to meet the objectives or needs of specific individuals or 653
accounts;
(c) Any other person that the division designates by rule, 656
if the division finds that the designation is necessary or 657
appropriate in the public interest or for the protection of
16
investors or clients and is consistent with the provisions fairly 659
intended by the policy and provisions of this chapter. 660
(2) For the purpose of the calculation of clients in 662
division (II)(1) of this section, a natural person and the 664
following persons are deemed a single client: Any minor child of 665
the natural person; any relative, spouse, or relative of the 666
spouse of the natural person who has the same principal residence 667
as the natural person; all accounts of which the natural person 668
or the persons referred to in division (II)(2) of this section 670
are the only primary beneficiaries; and all trusts of which the 671
natural person or persons referred to in division (II)(2) of this 672
section are the only primary beneficiaries. Persons who are not 673
residents of the United States need not be included in the 675
calculation of clients under division (II)(1) of this section. 676
(3) If subsequent to the effective date of this amendment 679
MARCH 18, 1999, amendments are enacted or adopted defining 680
"investment adviser representative" for purposes of the 681
Investment Advisers Act of 1940 or additional rules or 685
regulations are promulgated by the securities and exchange
commission regarding the definition of "investment adviser 686
representative" for purposes of the Investment Advisers Act of 690
1940, the division of securities shall, by rule, adopt the 691
substance of the amendments, rules, or regulations, unless the 692
division finds that the amendments, rules, or regulations are not 693
necessary for the protection of investors or in the public 694
interest.
(JJ) "Supervised person" means a natural person who is any 696
of the following: 697
(1) A partner, officer, or director of an investment 699
adviser, or other person occupying a similar status or performing 700
similar functions with respect to an investment adviser; 701
(2) An employee of an investment adviser; 703
(3) A person who provides investment advisory services 705
described in division (X)(1) of this section on behalf of the 706
17
investment adviser and is subject to the supervision and control 707
of the investment adviser.
(KK) "Excepted person" means a natural person to whom any 709
of the following applies: 710
(1) Immediately after entering into the investment 712
advisory contract with the investment adviser, the person has at 713
least seven hundred fifty thousand dollars under the management 715
of the investment adviser.
(2) The investment adviser reasonably believes either of 717
the following at the time the investment advisory contract is 718
entered into with the person:
(a) The person has a net worth, together with assets held 721
jointly with a spouse, of more than one million five hundred 722
thousand dollars.
(b) The person is a qualified purchaser as defined in 725
division (LL) of this section. 726
(3) Immediately prior to entering into an investment 728
advisory contract with the investment adviser, the person is 729
either of the following: 730
(a) An executive officer, director, trustee, general 733
partner, or person serving in a similar capacity, of the 734
investment adviser;
(b) An employee of the investment adviser, other than an 737
employee performing solely clerical, secretarial, or 738
administrative functions or duties for the investment adviser, 739
which employee, in connection with the employee's regular 740
functions or duties, participates in the investment activities of 741
the investment adviser, provided that, for at least twelve 742
months, the employee has been performing such nonclerical, 743
nonsecretarial, or nonadministrative functions or duties for or 744
on behalf of the investment adviser or performing substantially 745
similar functions or duties for or on behalf of another company. 746
If subsequent to the effective date of this amendment MARCH 749
18, 1999, amendments are enacted or adopted defining "excepted 750
18
person" for purposes of the Investment Advisers Act of 1940 or 753
additional rules or regulations are promulgated by the securities 754
and exchange commission regarding the definition of "excepted 755
person" for purposes of the Investment Advisers Act of 1940, the 758
division of securities shall, by rule, adopt the substance of the 759
amendments, rules, or regulations, unless the division finds that 761
the amendments, rules, or regulations are not necessary for the 762
protection of investors or in the public interest.
(LL)(1) "Qualified purchaser" means either of the 765
following:
(a) A natural person who owns not less than five million 768
dollars in investments as defined by rule by the division of 769
securities;
(b) A natural person, acting for the person's own account 772
or accounts of other qualified purchasers, who in the aggregate 773
owns and invests on a discretionary basis, not less than 774
twenty-five million dollars in investments as defined by rule by 775
the division of securities. 776
(2) If subsequent to the effective date of this amendment 779
MARCH 18, 1999, amendments are enacted or adopted defining 780
"qualified purchaser" for purposes of the Investment Advisers Act 784
of 1940 or additional rules or regulations are promulgated by the 785
securities and exchange commission regarding the definition of 786
"qualified purchaser" for purposes of the Investment Advisers Act 789
of 1940, the division of securities shall, by rule, adopt the 790
amendments, rules, or regulations, unless the division finds that 791
the amendments, rules, or regulations are not necessary for the 792
protection of investors or in the public interest. 793
(MM)(1) "PURCHASE" HAS THE FULL MEANING OF "PURCHASE" AS 795
APPLIED BY OR ACCEPTED IN COURTS OF LAW OR EQUITY AND INCLUDES 796
EVERY ACQUISITION OF, OR ATTEMPT TO ACQUIRE, A SECURITY OR AN 797
INTEREST IN A SECURITY. "PURCHASE" ALSO INCLUDES A CONTRACT TO 798
PURCHASE, AN EXCHANGE, AN ATTEMPT TO PURCHASE, AN OPTION TO 799
PURCHASE, A SOLICITATION OF A PURCHASE, A SOLICITATION OF AN 800
19
OFFER TO SELL, A SUBSCRIPTION, OR AN OFFER TO PURCHASE, DIRECTLY 801
OR INDIRECTLY, BY AGENT, CIRCULAR, PAMPHLET, ADVERTISEMENT, OR
OTHERWISE. 802
(2) "PURCHASE" MEANS ANY ACT BY WHICH A PURCHASE IS MADE. 804
(3) ANY SECURITY GIVEN WITH, OR AS A BONUS ON ACCOUNT OF, 806
ANY PURCHASE OF SECURITIES IS CONCLUSIVELY PRESUMED TO CONSTITUTE 807
A PART OF THE SUBJECT OF THAT PURCHASE. 808
Sec. 1707.44. (A)(1) No person shall engage in any act or 817
practice that violates division (A), (B), or (C) of section 819
1707.14 of the Revised Code, and no salesperson shall sell 820
securities in this state without being licensed pursuant to 821
section 1707.16 of the Revised Code.
(2) No person shall engage in any act or practice that 823
violates division (A) of section 1707.141 or section 1707.161 of 824
the Revised Code.
(B) No person shall knowingly make or cause to be made any 826
false representation concerning a material and relevant fact, in 827
any oral statement or in any prospectus, circular, description, 828
application, or written statement, for any of the following 829
purposes: 830
(1) Complying with this chapter, in regard to registering 832
securities by description; 833
(2) Securing the qualification of any securities under 835
this chapter; 836
(3) Procuring the licensing of any dealer, salesperson, 839
investment adviser, or investment adviser representative under 841
this chapter;
(4) Selling any securities in this state; 843
(5) Advising for compensation, as to the value of 845
securities or as to the advisability of investing in, purchasing, 846
or selling securities.
(C) No person shall knowingly and intentionally sell, 848
cause to be sold, offer for sale, or cause to be offered for 849
sale, any security which comes under any of the following 850
20
descriptions: 851
(1) Is not exempt under section 1707.02 of the Revised 853
Code, nor the subject matter of one of the transactions exempted 854
in sections 1707.03, 1707.04, and 1707.34 of the Revised Code, 855
has not been registered by description, coordination, or 856
qualification, and is not the subject matter of a transaction 857
that has been registered by description; 858
(2) The prescribed fees for registering by description, by 860
coordination, or by qualification have not been paid in respect 861
to such security; 862
(3) Such person has been notified by the division, or has 864
knowledge of the notice, that the right to buy, sell, or deal in 866
such security has been suspended or revoked, or that the 867
registration by description, by coordination, or by qualification 868
under which it may be sold has been suspended or revoked; 869
(4) The offer or sale is accompanied by a statement that 871
the security offered or sold has been or is to be in any manner 872
indorsed by the division. 873
(D) No person who is an officer, director, or trustee of, 875
or a dealer for, any issuer, and who knows such issuer to be 876
insolvent in that the liabilities of such THE issuer exceed its 877
assets, shall sell any securities of or for any such issuer, 878
without disclosing the fact of the insolvency to the purchaser. 880
(E) No person with intent to aid in the sale of any 882
securities on behalf of the issuer, shall knowingly make any 883
representation not authorized by such issuer or at material 884
variance with statements and documents filed with the division by 885
such issuer. 886
(F) No person, with intent to deceive, shall sell, cause 888
to be sold, offer for sale, or cause to be offered for sale, any 889
securities of an insolvent issuer, with knowledge that such 890
issuer is insolvent in that the liabilities of such THE issuer 891
exceed its assets, taken at their fair market value. 893
(G) No person in PURCHASING OR selling securities shall 895
21
knowingly engage in any act or practice which THAT is, in this 897
chapter, declared illegal, defined as fraudulent, or prohibited. 900
(H) No licensed dealer shall refuse to buy from, sell to, 902
or trade with any person because the person appears on a 903
blacklist issued by, or is being boycotted by, any foreign 904
corporate or governmental entity, nor sell any securities of or 905
for any issuer who is known in relation to the issuance or sale 906
of such securities to have engaged in such practices. 907
(I) No dealer in securities, knowing that the dealer's 909
liabilities exceed the reasonable value of the dealer's assets, 911
shall accept money or securities, except in payment of or as 912
security for an existing debt, from a customer who is ignorant of 913
the dealer's insolvency, and thereby cause the customer to lose 916
any part of the customer's securities or the value thereof OF 917
THOSE SECURITIES, by doing either of the following without the 918
customer's consent:
(1) Pledging, selling, or otherwise disposing of such 920
securities, when the dealer has no lien on or any special 922
property in such securities;
(2) Pledging such securities for more than the amount due, 924
or otherwise disposing of such securities for the dealer's own 926
benefit, when the dealer has a lien or indebtedness on such 927
securities. 928
It is an affirmative defense to a charge under this 930
division that, at the time the securities involved were pledged, 931
sold, or disposed of, the dealer had in the dealer's possession 933
or control, and available for delivery, securities of the same 934
kinds and in amounts sufficient to satisfy all customers entitled 935
thereto TO THE SECURITIES, upon demand and tender of any amount 936
due thereon ON THE SECURITIES. 937
(J) No person, with purpose to deceive, shall make, issue, 939
publish, or cause to be made, issued, or published any statement 940
or advertisement as to the value of securities, or as to alleged 941
facts affecting the value of securities, or as to the financial 942
22
condition of any issuer of securities, when the person knows that 945
such statement or advertisement is false in any material respect. 946
(K) No person, with purpose to deceive, shall make, 948
record, or publish or cause to be made, recorded, or published, a 949
report of any transaction in securities which is false in any 950
material respect. 951
(L) No dealer shall engage in any act that violates the 953
provisions of section 15(c) or 15(g) of the "Securities Exchange 954
Act of 1934," 48 Stat. 881, 15 U.S.C.A. 78o(c) or (g), or any 955
rule or regulation promulgated by the securities and exchange 956
commission thereunder. If, subsequent to October 11, 1994, 957
additional amendments to section 15(c) or 15(g) are adopted, or 958
additional rules or regulations are promulgated pursuant to such 959
sections, the division of securities shall, by rule, adopt the 960
amendments, rules, or regulations, unless the division finds that 961
the amendments, rules, or regulations are not necessary for the 962
protection of investors or in the public interest.
(M)(1) No investment adviser or investment adviser 964
representative shall do any of the following: 965
(a) Employ any device, scheme, or artifice to defraud any 968
person;
(b) Engage in any act, practice, or course of business 970
that operates or would operate as a fraud or deceit upon any 971
person; 972
(c) In acting as principal for the investment adviser's or 974
investment adviser representative's own account, knowingly sell 975
any security to or purchase any security from a client, or in 976
acting as salesperson for a person other than such client, 977
knowingly effect any sale or purchase of any security for the 978
account of such client, without disclosing to the client in 979
writing before the completion of the transaction the capacity in 980
which the investment adviser or investment adviser representative 982
is acting and obtaining the consent of the client to the 983
transaction. Division (M)(1)(c) of this section does not apply 985
23
to any investment adviser registered with the securities and 986
exchange commission under section 203 of the "Investment Advisers 988
Act of 1940," 15 U.S.C. 80b-3, or to any transaction with a 991
customer of a licensed dealer or salesperson if the licensed 992
dealer or salesperson is not acting as an investment adviser or 993
investment adviser representative in relation to the transaction. 994
(d) Engage in any act, practice, or course of business 997
that is fraudulent, deceptive, or manipulative. The division of 998
securities may adopt rules reasonably designed to prevent such 999
acts, practices, or courses of business as are fraudulent, 1,000
deceptive, or manipulative.
(2) No investment adviser or investment adviser 1,002
representative licensed or required to be licensed under this 1,003
chapter shall take or have custody of any securities or funds of 1,004
any person, except as provided in rules adopted by the division. 1,005
(3) In the solicitation of clients or prospective clients, 1,007
no person shall make any untrue statement of a material fact or 1,008
omit to state a material fact necessary in order to make the 1,009
statements made not misleading in light of the circumstances 1,010
under which the statements were made. 1,011
Section 2. That existing sections 1701.48, 1707.01, and 1,013
1707.44 of the Revised Code are hereby repealed. 1,015