As Reported by the Senate Judiciary Committee 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, 1707.03, 17
1707.161, 1707.36, and 1707.44 and to enact 18
section 1707.439 of the Revised Code to include
electronic transmissions as a method of 20
appointing a voting proxy, to apply the Ohio 21
Securities Law's prohibitions against fraud to 22
the purchase of securities, and to make other 23
changes in the Ohio Securities Law.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF OHIO: 25
Section 1. That sections 1701.48, 1707.01, 1707.03, 27
1707.161, 1707.36, and 1707.44 be amended and section 1707.439 of 28
the Revised Code be enacted to read as follows: 29
Sec. 1701.48. (A) A person who is entitled to attend a 38
shareholders' meeting, to vote thereat AT A SHAREHOLDERS' 40
MEETING, or to execute consents, waivers, or releases, may be 41
represented at such THE meeting or vote thereat AT THE MEETING, 44
and MAY execute consents, waivers, and releases, and MAY exercise 46
any of his THE PERSON'S other rights, by proxy or proxies 48
appointed by a writing signed by such THE person OR APPOINTED BY 49
A VERIFIABLE COMMUNICATION AUTHORIZED BY THE PERSON. 50
2
(B) A ANY TRANSMISSION THAT CREATES A RECORD CAPABLE OF 52
AUTHENTICATION, INCLUDING, BUT NOT LIMITED TO, A telegram or, A 54
cablegram appearing, ELECTRONIC MAIL, OR AN ELECTRONIC, 55
TELEPHONIC, OR OTHER TRANSMISSION, THAT APPEARS to have been 56
transmitted by such A person, or a DESCRIBED IN DIVISION (A) OF 58
THIS SECTION, AND THAT APPOINTS A PROXY IS A SUFFICIENT 59
VERIFIABLE COMMUNICATION TO APPOINT A PROXY. A photographic,
photostatic, FACSIMILE TRANSMISSION, or equivalent reproduction 61
of a writing, appointing THAT IS SIGNED BY A PERSON DESCRIBED IN 62
DIVISION (A) OF THIS SECTION AND THAT APPOINTS a proxy is a 63
sufficient writing TO APPOINT A PROXY. 64
(C) No appointment of a proxy is valid after the 66
expiration of eleven months after it is made unless the writing 67
OR VERIFIABLE COMMUNICATION specifies the date on which it is to 69
expire or the length of time it is to continue in force. No 70
proxy appointed for or in connection with the shareholder 71
authorization of a control share acquisition pursuant to section 72
1701.831 of the Revised Code is valid if it provides that it is 73
irrevocable or if it is sought, appointed, and received other 74
than both:
(1) In accordance with all applicable requirements of the 76
law of this state and the law of the United States; 77
(2) Separate and apart from the sale or purchase, contract 79
or tender for sale or purchase, or request or invitation for 80
tender for sale or purchase, of shares of the issuing public 81
corporation. 82
(D) Every appointment of a proxy shall be revocable unless 84
such THAT appointment is coupled with an interest, except that, 85
as provided in division (C) of this section, proxies appointed 87
for or in connection with the shareholder authorization of a 88
control share acquisition pursuant to section 1701.831 of the 89
Revised Code shall be revocable at all times prior to the 90
obtaining of such THAT shareholder authorization, whether or not 91
coupled with an interest. A revocation of a revocable 93
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appointment may be made only as provided in this section. 94
Without affecting any vote previously taken, the person 95
appointing a proxy may revoke a revocable appointment by a later 96
appointment received by the corporation or by giving notice of 97
revocation to the corporation in writing, IN A VERIFIABLE 98
COMMUNICATION, or in open meeting. The presence at a meeting of 99
the person appointing a proxy does not revoke the appointment. 100
(E) A revocable appointment of a proxy is not revoked by 102
the death or incompetency of the maker unless, before the vote is 103
taken or the authority granted is otherwise exercised, written 104
notice of such THE death or incompetency OF THE MAKER is received 106
by the corporation from the executor or administrator of the 107
estate of such THE maker or from the fiduciary having control of 108
the shares in respect of which the proxy was appointed. 110
(F) Unless the writing OR VERIFIABLE COMMUNICATION 112
appointing a proxy otherwise provides: 114
(1) Each proxy has the power of substitution, and, when 116
IF three or more proxies are appointed, a majority of them or of 118
their substitutes may appoint one or more substitutes to act for 119
all;. 120
(2) If more than one proxy is appointed, then (a) with 122
respect to voting or executing consents, waivers, or releases, or 123
objections to consents at a shareholders' meeting, a majority of 124
such THE proxies as THAT attend the meeting, or if only one 126
attends then that one, may exercise all the voting and consenting 127
authority thereat AT THE MEETING; and if one or more attend and a 128
majority do not agree on any particular issue, each proxy so 130
attending shall be entitled to exercise such THAT authority with 131
respect to an equal number of shares; (b) with respect to 133
exercising any other authority, a majority may act for all. 134
Sec. 1707.01. As used in this chapter: 143
(A) Whenever the context requires it, "division" or 145
"division of securities" may be read as "director of commerce" or 146
as "commissioner of securities." 147
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(B) "Security" means any certificate or instrument that 149
represents title to or interest in, or is secured by any lien or 150
charge upon, the capital, assets, profits, property, or credit of 151
any person or of any public or governmental body, subdivision, or 152
agency. It includes shares of stock, certificates for shares of 153
stock, membership interests in limited liability companies, 154
voting-trust certificates, warrants and options to purchase 155
securities, subscription rights, interim receipts, interim 156
certificates, promissory notes, all forms of commercial paper, 157
evidences of indebtedness, bonds, debentures, land trust 158
certificates, fee certificates, leasehold certificates, syndicate 159
certificates, endowment certificates, certificates or written 160
instruments in or under profit-sharing or participation 161
agreements or in or under oil, gas, or mining leases, or 162
certificates or written instruments of any interest in or under 163
the same, receipts evidencing preorganization or reorganization 164
subscriptions, preorganization certificates, reorganization 165
certificates, certificates evidencing an interest in any trust or 166
pretended trust, any investment contract, any instrument 167
evidencing a promise or an agreement to pay money, warehouse 168
receipts for intoxicating liquor, and the currency of any 169
government other than those of the United States and Canada, but 170
sections 1707.01 to 1707.45 of the Revised Code do not apply to 171
the sale of real estate. 172
(C)(1) "Sale" has the full meaning of "sale" as applied by 174
or accepted in courts of law or equity, and includes every 175
disposition, or attempt to dispose, of a security or of an 176
interest in a security. "Sale" also includes a contract to sell, 177
an exchange, an attempt to sell, an option of sale, a 178
solicitation of a sale, a solicitation of an offer to buy, a 179
subscription, or an offer to sell, directly or indirectly, by 180
agent, circular, pamphlet, advertisement, or otherwise. 181
(2) "Sell" means any act by which a sale is made. 183
(3) The use of advertisements, circulars, or pamphlets in 185
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connection with the sale of securities in this state exclusively 186
to the purchasers specified in division (D) of section 1707.03 of 187
the Revised Code is not a sale when the advertisements, 188
circulars, and pamphlets describing and offering those securities 189
bear a readily legible legend in substance as follows: "This 190
offer is made on behalf of dealers licensed under sections 191
1707.01 to 1707.45 of the Revised Code, and is confined in this 192
state exclusively to institutional investors and licensed 193
dealers." 194
(4) The offering of securities by any person in 196
conjunction with a licensed dealer by use of advertisement, 197
circular, or pamphlet is not a sale if that person does not 198
otherwise attempt to sell securities in this state. 199
(5) Any security given with, or as a bonus on account of, 201
any purchase of securities is conclusively presumed to constitute 202
a part of the subject of that purchase and has been "sold." 203
(6) "Sale" by an owner, pledgee, or mortgagee, or by a 205
person acting in a representative capacity, includes sale on 206
behalf of such party by an agent, including a licensed dealer or 207
salesperson. 208
(D) "Person," except as otherwise provided in this 210
chapter, means a natural person, firm, partnership, limited 212
partnership, partnership association, syndicate, joint-stock 213
company, unincorporated association, trust or trustee except 214
where the trust was created or the trustee designated by law or 215
judicial authority or by a will, and a corporation or limited 216
liability company organized under the laws of any state, any 217
foreign government, or any political subdivision of a state or 218
foreign government.
(E)(1) "Dealer," except as otherwise provided in this 220
chapter, means every person, other than a salesperson, who 222
engages or professes to engage, in this state, for either all or
part of the person's time, directly or indirectly, either in the 223
business of the sale of securities for the person's own account, 224
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or in the business of the purchase or sale of securities for the 225
account of others in the reasonable expectation of receiving a 226
commission, fee, or other remuneration as a result of engaging in 227
the purchase and sale of securities. "Dealer" does not mean any 228
of the following:
(a) Any issuer, including any officer, director, employee, 230
or trustee of, or member or manager of, or partner in, or any 231
general partner of, any issuer, that sells, offers for sale, or 233
does any act in furtherance of the sale of a security that 234
represents an economic interest in that issuer, provided no 235
commission, fee, or other similar remuneration is paid to or 236
received by the issuer for the sale; 237
(b) Any licensed attorney, public accountant, or firm of 239
such attorneys or accountants, whose activities are incidental to 240
the practice of the attorney's, accountant's, or firm's 241
profession;
(c) Any person that, for the account of others, engages in 243
the purchase or sale of securities that are issued and 244
outstanding before such purchase and sale, if a majority or more 245
of the equity interest of an issuer is sold in that transaction, 246
and if, in the case of a corporation, the securities sold in that 247
transaction represent a majority or more of the voting power of 248
the corporation in the election of directors; 249
(d) Any person that brings an issuer together with a 251
potential investor and whose compensation is not directly or 252
indirectly based on the sale of any securities by the issuer to 253
the investor; 254
(e) Any bank, savings and loan association, savings bank, 256
or credit union chartered under the laws of the United States or 257
any state thereof OF THE UNITED STATES, provided that all 259
transactions are consummated by or through a person licensed 260
pursuant to section 1707.14 of the Revised Code; 261
(f) Any person that the division of securities by rule 263
exempts from the definition of "dealer" under division (E)(1) of 264
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this section. 265
(2) "Licensed dealer" means a dealer licensed under this 268
chapter.
(F)(1) "Salesman" or "salesperson" means every natural 270
person, other than a dealer, WHO IS employed, authorized, or 273
appointed by a dealer to sell securities within this state. 274
(2) The general partners of a partnership, and the 276
executive officers of a corporation or unincorporated 277
association, licensed as a dealer are not salespersons within the 279
meaning of this definition, nor are such clerical or other
employees of an issuer or dealer as are employed for work to 280
which the sale of securities is secondary and incidental; but the 281
division of securities may require a license from any such 282
partner, executive officer, or employee if it determines that 283
protection of the public necessitates the licensing. 284
(3) "Licensed salesperson" means a salesperson licensed 287
under this chapter.
(G) "Issuer" means every person who has issued, proposes 289
to issue, or issues any security. 290
(H) "Director" means each director or trustee of a 292
corporation, each trustee of a trust, each general partner of a 293
partnership, except a partnership association, each manager of a 294
partnership association, and any person vested with managerial or 295
directory power over an issuer not having a board of directors or 296
trustees. 297
(I) "Incorporator" means any incorporator of a corporation 299
and any organizer of, or any person participating, other than in 300
a representative or professional capacity, in the organization of 301
an unincorporated issuer. 302
(J) "Fraud," "fraudulent," "fraudulent acts," "fraudulent 305
practices," or "fraudulent transactions" means anything 306
recognized on or after July 22, 1929, as such in courts of law or 307
equity; any device, scheme, or artifice to defraud or to obtain 308
money or property by means of any false pretense, representation, 309
8
or promise; any fictitious or pretended purchase or sale of 310
securities; and any act, practice, transaction, or course of 311
business relating to the PURCHASE OR sale of securities that is 312
fraudulent or that has operated or would operate as a fraud upon 314
the SELLER OR purchaser.
(K) Except as otherwise specifically provided, whenever 316
any classification or computation is based upon "par value," as 317
applied to securities without par value, the average of the 318
aggregate consideration received or to be received by the issuer 319
for each class of those securities shall be used as the basis for 320
that classification or computation. 321
(L)(1) "Intangible property" means patents, copyrights, 323
secret processes, formulas, services, good will, promotion and 324
organization fees and expenses, trademarks, trade brands, trade 325
names, licenses, franchises, any other assets treated as 326
intangible according to generally accepted accounting principles, 327
and securities, accounts receivable, or contract rights having no 328
readily determinable value. 329
(2) "Tangible property" means all property other than 331
intangible property and includes securities, accounts receivable, 332
and contract rights, when the securities, accounts receivable, or 333
contract rights have a readily determinable value. 334
(M) "Public utilities" means those utilities defined in 336
sections 4905.02, 4905.03, 4907.02, and 4907.03 of the Revised 337
Code; in the case of a foreign corporation, it means those 338
utilities defined as public utilities by the laws of its 339
domicile; and in the case of any other foreign issuer, it means 340
those utilities defined as public utilities by the laws of the 341
situs of its principal place of business. The term always 342
includes railroads whether or not they are so defined as public 343
utilities. 344
(N) "State" means any state of the United States, any 346
territory or possession of the United States, the District of 347
Columbia, and any province of Canada. 348
9
(O) "Bank" means any bank, trust company, savings and loan 350
association, savings bank, or credit union that is incorporated 352
or organized under the laws of the United States, any state of 353
the United States, Canada, or any province of Canada and that is 354
subject to regulation or supervision by that country, state, or 355
province.
(P) "Include," when used in a definition, does not exclude 357
other things or persons otherwise within the meaning of the term 358
defined. 359
(Q)(1) "Registration by description" means that the 361
requirements of section 1707.08 of the Revised Code have been 362
complied with. 363
(2) "Registration by qualification" means that the 365
requirements of sections 1707.09 and 1707.11 of the Revised Code 366
have been complied with. 367
(3) "Registration by coordination" means that there has 369
been compliance with section 1707.091 of the Revised Code. 370
Reference in this chapter to registration by qualification also 371
shall be deemed to include registration by coordination unless 372
the context otherwise indicates. 373
(R) "Intoxicating liquor" includes all liquids and 375
compounds that contain more than three and two-tenths per cent of 376
alcohol by weight and are fit for use for beverage purposes. 377
(S) "Institutional investor" means any corporation, bank, 379
insurance company, pension fund or pension fund trust, employees' 380
profit-sharing fund or employees' profit-sharing trust, any 381
association engaged, as a substantial part of its business or 382
operations, in purchasing or holding securities, or any trust in 383
respect of which a bank is trustee or cotrustee. "Institutional 384
investor" does not include any business entity formed for the 385
primary purpose of evading sections 1707.01 to 1707.45 of the 386
Revised Code. 387
(T) "Securities Act of 1933," 48 Stat. 74, 15 U.S.C. 77a, 390
"Securities Exchange Act of 1934," 48 Stat. 881, 15 U.S.C. 78a, 392
10
"Internal Revenue Code of 1986," 100 Stat. 2085, 26 U.S.C. 1, 394
"Investment Advisers Act of 1940," 54 Stat. 847, 15 U.S.C. 80b, 396
and "Investment Company Act of 1940," 54 Stat. 789, 15 U.S.C. 80a 398
mean the federal statutes of those names as amended before or 400
after the effective date of this amendment MARCH 18, 1999. 401
(U) "Securities and exchange commission" means the 403
securities and exchange commission established by the Securities 404
Exchange Act of 1934. 405
(V)(1) "Control bid" means the purchase of or offer to 407
purchase any equity security of a subject company from a resident 408
of this state if either of the following applies: 409
(a) After the purchase of that security, the offeror would 411
be directly or indirectly the beneficial owner of more than ten 412
per cent of any class of the issued and outstanding equity 413
securities of the issuer. 414
(b) The offeror is the subject company, there is a pending 416
control bid by a person other than the issuer, and the number of 417
the issued and outstanding shares of the subject company would be 418
reduced by more than ten per cent. 419
(2) For purposes of division (V)(1) of this section, 421
"control bid" does not include any of the following: 422
(a) A bid made by a dealer for the dealer's own account in 424
the ordinary course of business of buying and selling securities; 425
(b) An offer to acquire any equity security solely in 427
exchange for any other security, or the acquisition of any equity 428
security pursuant to an offer, for the sole account of the 429
offeror, in good faith and not for the purpose of avoiding the 430
provisions of this chapter, and not involving any public offering 431
of the other security within the meaning of Section 4 of Title I 432
of the "Securities Act of 1933," 48 Stat. 77, 15 U.S.C.A. 77d(2), 433
as amended; 434
(c) Any other offer to acquire any equity security, or the 436
acquisition of any equity security pursuant to an offer, for the 437
sole account of the offeror, from not more than fifty persons, in 438
11
good faith and not for the purpose of avoiding the provisions of 439
this chapter. 440
(W) "Offeror" means a person who makes, or in any way 442
participates or aids in making, a control bid and includes 443
persons acting jointly or in concert, or who intend to exercise 444
jointly or in concert any voting rights attached to the 445
securities for which the control bid is made and also includes 446
any subject company making a control bid for its own securities. 447
(X)(1) "Investment adviser" means any person who, for 450
compensation, engages in the business of advising others, either 451
directly or through publications or writings, as to the value of 452
securities or as to the advisability of investing in, purchasing, 453
or selling securities, or who, for compensation and as a part of 454
regular business, issues or promulgates analyses or reports 455
concerning securities.
(2) "Investment adviser" does not mean any of the 458
following:
(a) Any attorney, accountant, engineer, or teacher, whose 461
performance of investment advisory services described in division 463
(X)(1) of this section is solely incidental to the practice of 465
the attorney's, accountant's, engineer's, or teacher's 466
profession; 467
(b) A publisher of any bona fide newspaper, news magazine, 471
or business or financial publication of general and regular 472
circulation;
(c) A person who acts solely as an investment adviser 474
representative; 475
(d) A bank holding company, as defined in the "Bank 477
Holding Company Act of 1956," 70 Stat. 133, 12 U.S.C. 1841, that 479
is not an investment company; 480
(e) A bank, or any receiver, conservator, or other 482
liquidating agent of a bank; 483
(f) Any licensed dealer or licensed salesperson whose 485
performance of investment advisory services described in division 486
12
(X)(1) of this section is solely incidental to the conduct of the 487
dealer's or salesperson's business as a licensed dealer or 488
licensed salesperson and who receives no special compensation for 489
the services;
(g) Any person, the advice, analyses, or reports of which 491
do not relate to securities other than securities that are direct 492
obligations of, or obligations guaranteed as to principal or 493
interest by, the United States, or securities issued or 494
guaranteed by corporations in which the United States has a 495
direct or indirect interest, and that have been designated by the 496
secretary of the treasury as exempt securities as defined in the 497
"Securities Exchange Act of 1934," 48 Stat. 881, 15 U.S.C. 78c; 499
(h) Any person that is excluded from the definition of 501
investment adviser pursuant to section 202(a)(11)(A) to (E) of 504
the "Investment Advisers Act of 1940," 15 U.S.C. 80b-2(a)(11), or 509
that has received an order from the securities and exchange 510
commission under section 202(a)(11)(F) of the "Investment 512
Advisers Act of 1940," 15 U.S.C. 80b-2(a)(11)(F), declaring that 517
the person is not within the intent of section 202(a)(11) of the 518
Investment Advisers Act of 1940. 521
(i) Any other person that the division designates by rule, 523
if the division finds that the designation is necessary or 524
appropriate in the public interest or for the protection of 525
investors or clients and consistent with the purposes fairly 526
intended by the policy and provisions of this chapter.
(Y)(1) "Subject company" means an issuer that satisfies 528
both of the following: 529
(a) Its principal place of business or its principal 531
executive office is located in this state, or it owns or controls 532
assets located within this state that have a fair market value of 533
at least one million dollars. 534
(b) More than ten per cent of its beneficial or record 536
equity security holders are resident in this state, more than ten 537
per cent of its equity securities are owned beneficially or of 538
13
record by residents in this state, or more than one thousand of 539
its beneficial or record equity security holders are resident in 540
this state. 541
(2) The division of securities may adopt rules to 543
establish more specific application of the provisions set forth 544
in division (Y)(1) of this section. Notwithstanding the 545
provisions set forth in division (Y)(1) of this section and any 546
rules adopted under this division, the division, by rule or in an 547
adjudicatory proceeding, may make a determination that an issuer 548
does not constitute a "subject company" under division (Y)(1) of 549
this section if appropriate review of control bids involving the 550
issuer is to be made by any regulatory authority of another 551
jurisdiction. 552
(Z) "Beneficial owner" includes any person who directly or 554
indirectly through any contract, arrangement, understanding, or 555
relationship has or shares, or otherwise has or shares, the power 556
to vote or direct the voting of a security or the power to 557
dispose of, or direct the disposition of, the security. 558
"Beneficial ownership" includes the right, exercisable within 559
sixty days, to acquire any security through the exercise of any 560
option, warrant, or right, the conversion of any convertible 561
security, or otherwise. Any security subject to any such option, 562
warrant, right, or conversion privilege held by any person shall 563
be deemed to be outstanding for the purpose of computing the 564
percentage of outstanding securities of the class owned by that 565
person, but shall not be deemed to be outstanding for the purpose 566
of computing the percentage of the class owned by any other 567
person. A person shall be deemed the beneficial owner of any 568
security beneficially owned by any relative or spouse or relative 569
of the spouse residing in the home of that person, any trust or 570
estate in which that person owns ten per cent or more of the 571
total beneficial interest or serves as trustee or executor, any 572
corporation or entity in which that person owns ten per cent or 573
more of the equity, and any affiliate or associate of that 574
14
person. 575
(AA) "Offeree" means the beneficial or record owner of any 577
security that an offeror acquires or offers to acquire in 578
connection with a control bid. 579
(BB) "Equity security" means any share or similar 581
security, or any security convertible into any such security, or 582
carrying any warrant or right to subscribe to or purchase any 583
such security, or any such warrant or right, or any other 584
security that, for the protection of security holders, is treated 585
as an equity security pursuant to rules of the division of 586
securities. 587
(CC) "Investment company" has the same meaning as in 589
section 3(A) of the "Investment Company Act of 1940," 54 Stat. 590
789, 15 U.S.C. 80a-1 to 80a-52. 591
(DD) "Penny stock" has the same meaning as in section 594
3(A)(51) of the "Securities Exchange Act of 1934," 48 Stat. 881, 595
15 U.S.C. 78a-78jj, and the rules, regulations, and orders issued 596
pursuant to that section. 597
(EE) "Going concern transaction" has the same meaning 600
given that term under the rules or regulations on the securities 601
and exchange commission issued pursuant to section 13(c) of the 602
"Securities Exchange Act of 1934," 48 Stat. 881, 15 U.S.C.
78a-78jj. 603
(FF) "Person acting on behalf of an issuer" means an 606
officer, director, or employee of an issuer.
(GG) "Blank check company," "roll-up transaction," 609
"executive officer of an entity," and "direct participation
program" have the same meanings given those terms by rule or 610
regulation of the securities and exchange commission. 611
(HH) "Forward-looking statement" means any of the 613
following:
(1) A statement containing a projection of revenues, 615
income including income loss, earnings per share including 616
earnings loss per share, capital expenditures, dividends, capital 617
15
structure, or other financial items;
(2) A statement of the plans and objectives of the 619
management of the issuer for future operations, including plans 620
or objectives relating to the products or services of the issuer; 621
(3) A statement of future economic performance, including 623
any statement of that nature contained in a discussion and 624
analysis of financial conditions by the management or in the 625
results of operations included pursuant to the rules and 626
regulations of the securities and exchange commission;
(4) Any disclosed statement of the assumptions underlying 628
or relating to a statement described in division (B)(1), (2), or 630
(3) of section 1707.437 of the Revised Code; 631
(5) Any report issued by an outside reviewer retained by 633
an issuer to the extent that the report relates to a 634
forward-looking statement made by the issuer; 635
(6) A statement containing a projection or estimate of any 637
other items that may be specified by rule or regulation of the 638
securities and exchange commission. 639
(II)(1) "Investment adviser representative" means a 641
supervised person of an investment adviser, provided that the 643
supervised person has more than five clients who are natural 644
persons other than excepted persons defined in division (KK) of 645
this section, and that more than ten per cent of the supervised 646
person's clients are natural persons other than excepted persons
defined in division (KK) of this section. "Investment adviser 647
representative" does not mean any of the following: 648
(a) A supervised person that does not on a regular basis 650
solicit, meet with, or otherwise communicate with clients of the 651
investment adviser;
(b) A supervised person that provides only investment 653
advisory services described in division (X)(1) of this section by 654
means of written materials or oral statements that do not purport 655
to meet the objectives or needs of specific individuals or 656
accounts;
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(c) Any other person that the division designates by rule, 659
if the division finds that the designation is necessary or 660
appropriate in the public interest or for the protection of
investors or clients and is consistent with the provisions fairly 662
intended by the policy and provisions of this chapter. 663
(2) For the purpose of the calculation of clients in 665
division (II)(1) of this section, a natural person and the 667
following persons are deemed a single client: Any minor child of 668
the natural person; any relative, spouse, or relative of the 669
spouse of the natural person who has the same principal residence 670
as the natural person; all accounts of which the natural person 671
or the persons referred to in division (II)(2) of this section 673
are the only primary beneficiaries; and all trusts of which the 674
natural person or persons referred to in division (II)(2) of this 675
section are the only primary beneficiaries. Persons who are not 676
residents of the United States need not be included in the 678
calculation of clients under division (II)(1) of this section. 679
(3) If subsequent to the effective date of this amendment 682
MARCH 18, 1999, amendments are enacted or adopted defining 683
"investment adviser representative" for purposes of the 684
Investment Advisers Act of 1940 or additional rules or 688
regulations are promulgated by the securities and exchange
commission regarding the definition of "investment adviser 689
representative" for purposes of the Investment Advisers Act of 693
1940, the division of securities shall, by rule, adopt the 694
substance of the amendments, rules, or regulations, unless the 695
division finds that the amendments, rules, or regulations are not 696
necessary for the protection of investors or in the public 697
interest.
(JJ) "Supervised person" means a natural person who is any 699
of the following: 700
(1) A partner, officer, or director of an investment 702
adviser, or other person occupying a similar status or performing 703
similar functions with respect to an investment adviser; 704
17
(2) An employee of an investment adviser; 706
(3) A person who provides investment advisory services 708
described in division (X)(1) of this section on behalf of the 709
investment adviser and is subject to the supervision and control 710
of the investment adviser.
(KK) "Excepted person" means a natural person to whom any 712
of the following applies: 713
(1) Immediately after entering into the investment 715
advisory contract with the investment adviser, the person has at 716
least seven hundred fifty thousand dollars under the management 718
of the investment adviser.
(2) The investment adviser reasonably believes either of 720
the following at the time the investment advisory contract is 721
entered into with the person:
(a) The person has a net worth, together with assets held 724
jointly with a spouse, of more than one million five hundred 725
thousand dollars.
(b) The person is a qualified purchaser as defined in 728
division (LL) of this section. 729
(3) Immediately prior to entering into an investment 731
advisory contract with the investment adviser, the person is 732
either of the following: 733
(a) An executive officer, director, trustee, general 736
partner, or person serving in a similar capacity, of the 737
investment adviser;
(b) An employee of the investment adviser, other than an 740
employee performing solely clerical, secretarial, or 741
administrative functions or duties for the investment adviser, 742
which employee, in connection with the employee's regular 743
functions or duties, participates in the investment activities of 744
the investment adviser, provided that, for at least twelve 745
months, the employee has been performing such nonclerical, 746
nonsecretarial, or nonadministrative functions or duties for or 747
on behalf of the investment adviser or performing substantially 748
18
similar functions or duties for or on behalf of another company. 749
If subsequent to the effective date of this amendment MARCH 752
18, 1999, amendments are enacted or adopted defining "excepted 753
person" for purposes of the Investment Advisers Act of 1940 or 756
additional rules or regulations are promulgated by the securities 757
and exchange commission regarding the definition of "excepted 758
person" for purposes of the Investment Advisers Act of 1940, the 761
division of securities shall, by rule, adopt the substance of the 762
amendments, rules, or regulations, unless the division finds that 764
the amendments, rules, or regulations are not necessary for the 765
protection of investors or in the public interest.
(LL)(1) "Qualified purchaser" means either of the 768
following:
(a) A natural person who owns not less than five million 771
dollars in investments as defined by rule by the division of 772
securities;
(b) A natural person, acting for the person's own account 775
or accounts of other qualified purchasers, who in the aggregate 776
owns and invests on a discretionary basis, not less than 777
twenty-five million dollars in investments as defined by rule by 778
the division of securities. 779
(2) If subsequent to the effective date of this amendment 782
MARCH 18, 1999, amendments are enacted or adopted defining 783
"qualified purchaser" for purposes of the Investment Advisers Act 787
of 1940 or additional rules or regulations are promulgated by the 788
securities and exchange commission regarding the definition of 789
"qualified purchaser" for purposes of the Investment Advisers Act 792
of 1940, the division of securities shall, by rule, adopt the 793
amendments, rules, or regulations, unless the division finds that 794
the amendments, rules, or regulations are not necessary for the 795
protection of investors or in the public interest. 796
(MM)(1) "PURCHASE" HAS THE FULL MEANING OF "PURCHASE" AS 798
APPLIED BY OR ACCEPTED IN COURTS OF LAW OR EQUITY AND INCLUDES 799
EVERY ACQUISITION OF, OR ATTEMPT TO ACQUIRE, A SECURITY OR AN 800
19
INTEREST IN A SECURITY. "PURCHASE" ALSO INCLUDES A CONTRACT TO 801
PURCHASE, AN EXCHANGE, AN ATTEMPT TO PURCHASE, AN OPTION TO 802
PURCHASE, A SOLICITATION OF A PURCHASE, A SOLICITATION OF AN 803
OFFER TO SELL, A SUBSCRIPTION, OR AN OFFER TO PURCHASE, DIRECTLY 804
OR INDIRECTLY, BY AGENT, CIRCULAR, PAMPHLET, ADVERTISEMENT, OR
OTHERWISE. 805
(2) "PURCHASE" MEANS ANY ACT BY WHICH A PURCHASE IS MADE. 807
(3) ANY SECURITY GIVEN WITH, OR AS A BONUS ON ACCOUNT OF, 809
ANY PURCHASE OF SECURITIES IS CONCLUSIVELY PRESUMED TO CONSTITUTE 810
A PART OF THE SUBJECT OF THAT PURCHASE. 811
Sec. 1707.03. (A) As used in this section, "exempt" means 820
that, except in the case of securities the right to buy, sell, or 821
deal in which has been suspended or revoked under an existing 822
order of the division of securities under section 1707.13 of the 823
Revised Code or under a cease and desist order under division (H) 824
of section 1707.23 of the Revised Code, transactions in 825
securities may be carried on and completed without compliance 826
with sections 1707.08 to 1707.11 of the Revised Code. 827
(B) A sale of securities made by or on behalf of a bona 829
fide owner, neither the issuer nor a dealer, is exempt if the 830
sale is made in good faith and not for the purpose of avoiding 831
this chapter and is not made in the course of repeated and 832
successive transactions of a similar character. Any sale of 833
securities over a stock exchange that is lawfully conducted in 834
this state and regularly open for public patronage and that has 835
been established and operated for a period of at least five years 836
prior to the sale at a commission not exceeding the commission 837
regularly charged in such transactions also is exempt. 838
(C) The sale of securities by executors, administrators, 840
receivers, trustees, or anyone acting in a fiduciary capacity is 841
exempt, where such relationship was created by law, by a will, or 842
by judicial authority, and where such sales are subject to 843
approval by, or are made in pursuance to authority granted by, 844
any court of competent jurisdiction or are otherwise authorized 845
20
and lawfully made by such fiduciary. 846
(D) A sale to the issuer, to a dealer, or to an 848
institutional investor is exempt. 849
(E) A sale in good faith, and not for the purpose of 851
avoiding this chapter, by a pledgee of a security pledged for a 852
bona fide debt is exempt. 853
(F) The sale at public auction by a corporation of shares 855
of its stock because of delinquency in payment for the shares is 856
exempt. 857
(G)(1) The giving of any conversion right with, or on 859
account of the purchase of, any security that is exempt, is the 860
subject matter of an exempt transaction, has been registered by 861
description, by coordination, or by qualification, or is the 862
subject matter of a transaction that has been registered by 863
description is exempt. 864
(2) The giving of any subscription right, warrant, or 866
option to purchase a security or right to receive a security upon 867
exchange, which security is exempt at the time the right, 868
warrant, or option to purchase or right to receive is given, is 869
the subject matter of an exempt transaction, is registered by 870
description, by coordination, or by qualification, or is the 871
subject matter of a transaction that has been registered by 872
description is exempt. 873
(3) The giving of any subscription right or any warrant or 875
option to purchase a security, which right, warrant, or option 876
expressly provides that it shall not be exercisable except for a 877
security that at the time of the exercise is exempt, is the 878
subject matter of an exempt transaction, is registered by 879
description, by coordination, or by qualification, or at such 880
time is the subject matter of a transaction that has been 881
registered by description is exempt. 882
(H) The sale of notes, bonds, or other evidences of 884
indebtedness that are secured by a mortgage lien upon real 885
estate, leasehold estate other than oil, gas, or mining 886
21
leasehold, or tangible personal property, or which evidence of 887
indebtedness is due under or based upon a conditional-sale 888
contract, if all such notes, bonds, or other evidences of 889
indebtedness are sold to a single purchaser at a single sale, is 890
exempt. 891
(I) The delivery of securities by the issuer on the 893
exercise of conversion rights, the sale of securities by the 894
issuer on exercise of subscription rights or of warrants or 895
options to purchase securities, the delivery of voting-trust 896
certificates for securities deposited under a voting-trust 897
agreement, the delivery of deposited securities on surrender of 898
voting-trust certificates, and the delivery of final certificates 899
on surrender of interim certificates are exempt; but the sale of 900
securities on exercise of subscription rights, warrants, or 901
options is not an exempt transaction unless those rights, 902
warrants, or options when granted were the subject matter of an 903
exempt transaction under division (G) of this section or were 904
registered by description, by coordination, or by qualification. 905
(J) The sale of securities by a bank, savings and loan 907
association, savings bank, or credit union organized under the 908
laws of the United States or of this state is exempt if at a 909
profit to that seller of not more than two per cent of the total 910
sale price of the securities. 911
(K)(1) The distribution by a corporation of its securities 913
to its security holders as a share dividend or other distribution 914
out of earnings or surplus is exempt. 915
(2) The exchange or distribution by the issuer of any of 917
its securities or of the securities of any of the issuer's wholly 918
owned subsidiaries exclusively with or to its existing security 919
holders, if no commission or other remuneration is given directly 920
or indirectly for soliciting the exchange, is exempt. 921
(3) The sale of preorganization subscriptions for shares 923
of stock of a corporation prior to the incorporation of the 924
corporation is exempt, when the sale is evidenced by a written 925
22
agreement, no remuneration is given, or promised, directly or 926
indirectly, for or in connection with the sale of those 927
securities, and no consideration is received, directly or 928
indirectly, by any person from the purchasers of those securities 929
until registration by qualification, by coordination, or by 930
description of those securities is made under this chapter. 931
(L) The issuance of securities in exchange for one or more 933
bona fide outstanding securities, claims, or property interests, 934
not including securities sold for a consideration payable in 935
whole or in part in cash, under a plan of reorganization, 936
recapitalization, or refinancing approved by a court pursuant to 937
the Bankruptcy Act of the United States or to any other federal 938
act giving any federal court jurisdiction over such plan of 939
reorganization, or under a plan of reorganization approved by a 940
court of competent jurisdiction of any state of the United States 941
is exempt. As used in this division, "reorganization," 942
"recapitalization," and "refinancing" have the same meanings as 943
in section 1707.04 of the Revised Code. 944
(M) A sale by a licensed dealer, acting either as 946
principal or as agent, of securities issued and outstanding 947
before the sale is exempt, unless the sale is of one or more of 948
the following: 949
(1) Securities constituting the whole or a part of an 951
unsold allotment to or subscription by a dealer as an underwriter 952
or other participant in the distribution of those securities by 953
the issuer, whether that distribution is direct or through an 954
underwriter, provided that, if the issuer is such by reason of 955
owning one-fourth or more of those securities, the dealer has 957
knowledge of this fact or reasonable cause to believe this fact; 959
(2) Any class of shares issued by a corporation when the 961
number of beneficial owners of that class is less than 962
twenty-five, with the record owner of securities being deemed the 963
beneficial owner for this purpose, in the absence of actual 964
knowledge to the contrary; 965
23
(3) Securities that within one year were purchased outside 967
this state or within one year were transported into this state, 968
if the dealer has knowledge or reasonable cause to believe, 969
before the sale of those securities, that within one year they 970
were purchased outside this state or within one year were 971
transported into this state; but such a sale of those securities 972
is exempt if any of the following occurs: 973
(a) A recognized securities manual contains the names of 975
the issuer's officers and directors, a balance sheet of the 976
issuer as of a date within eighteen months, and a profit and loss 977
statement for either the fiscal year preceding that date or the 978
most recent year of operations; 979
(b) Those securities, or securities of the same class, 981
were registered within one year on the basis provided in section 982
1707.05 of the Revised Code, or within one year were qualified 983
under section 1707.09 or 1707.091 of the Revised Code, and that 984
registration or qualification is in full force and effect; 985
(c) Those securities at the time of sale could be 987
registered on the basis provided in section 1707.05 of the 988
Revised Code; 989
(d) The sale is made by a licensed dealer on behalf of the 991
bona fide owner of those securities in accordance with division 992
(B) of this section; 993
(e) Those securities were transported into Ohio in a 995
transaction of the type described in division (L), (K), or (I) of 996
this section, or in a transaction registered under division (A) 997
of section 1707.06 of the Revised Code. 998
(N) For the purpose of this division and division (M) of 1,000
this section, "underwriter" means any person who has purchased 1,001
from an issuer with a view to, or sells for an issuer in 1,002
connection with, the distribution of any security, or who 1,003
participates directly or indirectly in any such undertaking or in 1,004
the underwriting thereof, but "underwriter" does not include a 1,005
person whose interest is limited to a discount, commission, or 1,006
24
profit from the underwriter or from a dealer that is not in 1,007
excess of the customary distributors' or sellers' discount, 1,008
commission, or profit; and "issuer" includes any person or any 1,009
group of persons acting in concert in the sale of such 1,010
securities, owning beneficially one-fourth or more of the 1,011
outstanding securities of the class involved in the transactions 1,012
in question, with the record owner of securities being deemed the 1,013
beneficial owner for this purpose, in the absence of actual 1,014
knowledge to the contrary. 1,015
(O)(1) The sale of any equity security is exempt if all 1,017
the following conditions are satisfied: 1,018
(a) The sale is by the issuer of the security. 1,020
(b) The total number of purchasers in this state of all 1,022
securities issued or sold by the issuer in reliance upon this 1,023
exemption during the period of one year ending with the date of 1,024
the sale does not exceed ten. A sale of securities registered 1,025
under this chapter or sold pursuant to an exemption under this 1,026
chapter other than this exemption shall not be integrated with a 1,027
sale pursuant to this exemption in computing the number of 1,028
purchasers under this exemption. 1,029
(c) No advertisement, article, notice, or other 1,031
communication published in any newspaper, magazine, or similar 1,032
medium or broadcast over television or radio is used in 1,033
connection with the sale, but the use of an offering circular or 1,034
other communication delivered by the issuer to selected 1,035
individuals does not destroy this exemption. 1,036
(d) The issuer reasonably believes after reasonable 1,038
investigation that the purchaser is purchasing for investment. 1,039
(e) The aggregate commission, discount, and other 1,041
remuneration, excluding legal, accounting, and printing fees, 1,042
paid or given directly or indirectly does not exceed ten per cent 1,043
of the initial offering price. 1,044
(f) Any such commission, discount, or other remuneration 1,046
for sales in this state is paid or given only to dealers or 1,047
25
salespersons registered pursuant to this chapter. 1,048
(2) For the purposes of division (O)(1) of this section, 1,050
each of the following is deemed to be a single purchaser of a 1,051
security: husband and wife, a child and its parent or guardian 1,052
when the parent or guardian holds the security for the benefit of 1,053
the child, a corporation, a limited liability company, a 1,054
partnership, an association or other unincorporated entity, a 1,055
joint-stock company, or a trust, but only if the corporation, 1,056
limited liability company, partnership, association, entity, 1,057
joint-stock company, or trust was not formed for the purpose of 1,058
purchasing the security. 1,059
(3) As used in division (O)(1) of this section, "equity 1,061
security" means any stock or similar security of a corporation or 1,062
any membership interest in a limited liability company; or any 1,063
security convertible, with or without consideration, into such a 1,064
security, or carrying any warrant or right to subscribe to or 1,065
purchase such a security; or any such warrant or right; or any 1,066
other security that the division considers necessary or 1,067
appropriate, by such rules as it may prescribe in the public 1,068
interest or for the protection of investors, to treat as an 1,069
equity security. 1,070
(P) The sale of securities representing interests in or 1,072
under profit-sharing or participation agreements relating to oil 1,073
or gas wells located in this state, or representing interests in 1,074
or under oil or gas leases of real estate situated in this state, 1,075
is exempt if the securities are issued by an individual, 1,076
partnership, limited partnership, partnership association, 1,077
syndicate, pool, trust or trust fund, or other unincorporated 1,078
association and if each of the following conditions is complied 1,079
with: 1,080
(1) The beneficial owners of the securities do not, and 1,082
will not after the sale, exceed five natural persons; 1,083
(2) The securities constitute or represent interests in 1,085
not more than one oil or gas well; 1,086
26
(3) A certificate or other instrument in writing is 1,088
furnished to each purchaser of the securities at or before the 1,089
consummation of the sale, disclosing the maximum commission, 1,090
compensation for services, cost of lease, and expenses with 1,091
respect to the sale of such interests and with respect to the 1,092
promotion, development, and management of the oil or gas well, 1,093
and the total of that commission, compensation, costs, and 1,094
expenses does not exceed twenty-five per cent of the aggregate 1,095
interests in the oil or gas well, exclusive of any landowner's 1,096
rental or royalty; 1,097
(4) The sale is made in good faith and not for the purpose 1,099
of avoiding this chapter. 1,100
(Q) The sale of any security is exempt if all of the 1,102
following conditions are satisfied: 1,103
(1) The provisions of section 5 of the Securities Act of 1,105
1933 do not apply to the sale by reason of an exemption under 1,106
section 4 (2) of that act. 1,107
(2) The aggregate commission, discount, and other 1,109
remuneration, excluding legal, accounting, and printing fees, 1,110
paid or given directly or indirectly does not exceed ten per cent 1,111
of the initial offering price. 1,112
(3) Any such commission, discount, or other remuneration 1,114
for sales in this state is paid or given only to dealers or 1,115
salespersons registered under this chapter. 1,116
(4) The issuer or dealer files with the division of 1,118
securities, not later than sixty days after the sale, a report 1,119
setting forth the name and address of the issuer, the total 1,120
amount of the securities sold under this division, the number of 1,121
persons to whom the securities were sold, the price at which the 1,122
securities were sold, and the commissions or discounts paid or 1,123
given. 1,124
(5) The issuer pays a filing fee of one hundred dollars 1,126
for the first filing and fifty dollars for every subsequent 1,127
filing during each calendar year. 1,128
27
(R) A sale of a money order, travelers' check, or other 1,130
instrument for the transmission of money by a person qualified to 1,131
engage in such business under section 1109.60 or Chapter 1315. of 1,133
the Revised Code is exempt. 1,134
(S) A sale by a licensed dealer of securities that are in 1,136
the process of registration under the Securities Act of 1933, 1,137
unless exempt under that act, and that are in the process of 1,139
registration, if registration is required under this chapter, is 1,140
exempt, provided that no sale of that nature shall be consummated 1,141
prior to the registration by description or qualification of the 1,142
securities.
(T) The execution by a licensed dealer of orders for the 1,144
purchase of any security is exempt, provided that the dealer acts 1,145
only as agent for the purchaser, has made no solicitation of the 1,146
order to purchase the security, has no interest in the 1,147
distribution of the security, and delivers to the purchaser 1,148
written confirmation of the transaction that clearly itemizes his 1,149
commission. "Solicitation," as used in this division, means 1,150
solicitation of the order for the specific security purchased and 1,151
does not include general solicitations or advertisements of any 1,152
kind. 1,153
(U) The sale insofar as the security holders of a person 1,155
are concerned, where, pursuant to statutory provisions of the 1,156
jurisdiction under which that person is organized or pursuant to 1,157
provisions contained in its articles of incorporation, 1,158
certificate of incorporation, partnership agreement, declaration 1,159
of trust, trust indenture, or similar controlling instrument, 1,160
there is submitted to the security holders, for their vote or 1,161
consent, (1) a plan or agreement for a reclassification of 1,162
securities of that person that involves the substitution of a 1,163
security of that person for another security of that person, (2) 1,164
a plan or agreement of merger or consolidation or a similar plan 1,165
or agreement of acquisition in which the securities of that 1,166
person held by the security holders will become or be exchanged 1,167
28
for securities of any other person, or (3) a plan or agreement 1,168
for a combination as defined in division (Q) of section 1701.01 1,169
of the Revised Code or a similar plan or agreement for the 1,170
transfer of assets of that person to another person in 1,171
consideration of the issuance of securities of any person, is 1,172
exempt if, with respect to any of the foregoing transactions, 1,173
either of the following conditions is satisfied: 1,174
(a) The securities to be issued to the security holders 1,176
are effectively registered under sections 6 to 8 of the 1,177
Securities Act of 1933 and offered and sold in compliance with 1,178
section 5 of that act; 1,179
(b) At least twenty days prior to the date on which a 1,181
meeting of the security holders is held or the earliest date on 1,182
which corporate action may be taken when no meeting is held, 1,183
there is submitted to the security holders, by that person, or by 1,184
the person whose securities are to be issued in the transaction, 1,185
information substantially equivalent to the information that 1,186
would be required to be included in a proxy statement or 1,187
information statement prepared by or on behalf of the management 1,188
of an issuer subject to section 14(a) or 14(c) of the Securities 1,190
Exchange Act of 1934.
(V) The sale of any security is exempt if the division by 1,192
rule finds that registration is not necessary or appropriate in 1,193
the public interest or for the protection of investors. 1,194
(W) Any offer or sale of securities made in reliance on 1,196
the exemptions provided by Rule 505 of Regulation D made pursuant 1,197
to the Securities Act of 1933 and the conditions and definitions 1,198
provided by Rules 501 to 503 thereunder is exempt if the offer or 1,199
sale satisfies all of the following conditions: 1,200
(1) No commission or other remuneration is given, directly 1,202
or indirectly, to any person for soliciting or selling to any 1,203
person in this state in reliance on the exemption under this 1,204
division, except to dealers licensed in this state. 1,205
(2)(a) Unless the cause for disqualification is waived 1,207
29
under division (W)(2)(b) of this section, no exemption under this 1,208
section is available for the securities of an issuer unless the 1,209
issuer did not know and in the exercise of reasonable care could 1,210
not have known that any of the following applies to any of the 1,211
persons described in Rule 262(a) to (c) of Regulation A under the 1,213
Securities Act of 1933: 1,214
(i) The person has filed an application for registration 1,216
or qualification that is the subject of an effective order 1,217
entered against the issuer, its officers, directors, general 1,218
partners, controlling persons or affiliates thereof, pursuant to 1,219
the law of any state within five years before the filing of a 1,220
notice required under division (W)(3) of this section denying 1,221
effectiveness to, or suspending or revoking the effectiveness of, 1,222
the registration statement. 1,223
(ii) The person has been convicted of any offense in 1,225
connection with the offer, sale, or purchase of any security or 1,226
franchise, or any felony involving fraud or deceit, including, 1,227
but not limited to, forgery, embezzlement, fraud, theft, or 1,228
conspiracy to defraud. 1,229
(iii) The person is subject to an effective administrative 1,231
order or judgment that was entered by a state securities 1,232
administrator within five years before the filing of a notice 1,233
required under division (W)(3) of this section and that 1,234
prohibits, denies, or revokes the use of any exemption from 1,235
securities registration, prohibits the transaction of business by 1,236
the person as a dealer, or is based on fraud, deceit, an untrue 1,237
statement of a material fact, or an omission to state a material 1,238
fact. 1,239
(iv) The person is subject to any order, judgment, or 1,241
decree of any court entered within five years before the filing 1,242
of a notice required under division (W)(3) of this section, 1,243
temporarily, preliminarily, or permanently restraining or 1,244
enjoining the person from engaging in or continuing any conduct 1,245
or practice in connection with the offer, sale, or purchase of 1,246
30
any security, or the making of any false filing with any state. 1,247
(b)(i) Any disqualification under this division involving 1,249
a dealer may be waived if the dealer is or continues to be 1,250
licensed in this state as a dealer after notifying the 1,251
commissioner of the act or event causing disqualification. 1,252
(ii) The commissioner may waive any disqualification under 1,254
this paragraph upon a showing of good cause that it is not 1,255
necessary under the circumstances that use of the exemption be 1,256
denied. 1,257
(3) Not later than five business days before the earlier 1,259
of the date on which the first use of an offering document or the 1,260
first sale is made in this state in reliance on the exemption 1,261
under this division, there is filed with the commissioner a 1,262
notice comprised of offering material in compliance with the 1,263
requirements of Rule 502 of Regulation D under the Securities Act 1,264
of 1933 and a fee of one hundred dollars. Material amendments to 1,265
the offering document shall be filed with the commissioner not 1,266
later than the date of their first use in this state. 1,267
(4) The aggregate commission, discount, and other 1,269
remuneration paid or given, directly or indirectly, does not 1,270
exceed twelve per cent of the initial offering price, excluding 1,271
legal, accounting, and printing fees. 1,272
(X) Any offer or sale of securities made in reliance on 1,275
the exemption provided in Rule 506 of Regulation D under the 1,278
Securities Act of 1933, and in accordance with Rules 501 to 503 1,281
of Regulation D under the Securities Act of 1933, is exempt 1,285
provided that all of the following apply: 1,286
(1) The issuer makes a notice filing with the division on 1,288
form D of the securities and exchange commission within fifteen 1,290
days of the first sale in this state; 1,291
(2) Any commission, discount, or other remuneration for 1,293
sales of securities in this state is paid or given only to 1,294
dealers or salespersons licensed under this chapter; 1,295
(3) The issuer pays a filing fee of one hundred dollars to 1,297
31
the division; however, no filing fee shall be required to file 1,298
amendments to the form D of the securities and exchange 1,300
commission.
(Y) The offer or sale of securities BY AN ISSUER is exempt 1,302
provided that all of the following apply: 1,303
(1) The sale of securities is made only to persons who 1,305
are, or who the issuer reasonably believes are, accredited 1,306
investors as defined in Rule 501 of Regulation D under the 1,307
Securities Act of 1933. 1,308
(2) The issuer reasonably believes that all purchasers are 1,310
purchasing for investment and not with a view to or for sale in 1,311
connection with a distribution of the security. Any resale of a 1,312
security sold in reliance on this exemption within twelve months 1,313
of sale shall be presumed to be with a view to distribution and 1,314
not for investment, except a resale to which any of the following 1,316
applies:
(a) The resale is pursuant to a registration statement 1,319
effective under section 1707.09 or 1707.091 of the Revised Code. 1,321
(b) The resale is to an accredited investor, as defined in 1,324
Rule 501 of Regulation D under the Securities Act of 1933. 1,328
(c) The resale is to an institutional investor pursuant to 1,331
the exemptions under division (B) or (D) of this section. 1,333
(3) The exemption under this division is not available to 1,335
an issuer that is in the development stage and that either has no 1,337
specific business plan or purpose or has indicated that its
business plan is to engage in a merger or acquisition with an 1,338
unidentified company or companies, or other entities or persons. 1,340
(4) The exemption under this division is not available to 1,342
an issuer, if the issuer, any of the issuer's predecessors, any 1,343
affiliated issuer, any of the issuer's directors, officers, 1,344
general partners, or beneficial owners of ten per cent or more of 1,346
any class of its equity securities, any of the issuer's promoters 1,347
presently connected with the issuer in any capacity, any 1,348
underwriter of the securities to be offered, or any partner,
32
director, or officer of such underwriter: 1,349
(a) Within the past five years, has filed a registration 1,352
statement that is the subject of a currently effective 1,353
registration stop order entered by any state securities 1,354
administrator or the securities and exchange commission; 1,355
(b) Within the past five years, has been convicted of any 1,358
criminal offense in connection with the offer, purchase, or sale 1,359
of any security, or involving fraud or deceit; 1,360
(c) Is currently subject to any state or federal 1,363
administrative enforcement order or judgment, entered within the 1,364
past five years, finding fraud or deceit in connection with the 1,365
purchase or sale of any security;
(d) Is currently subject to any order, judgment, or decree 1,368
of any court of competent jurisdiction, entered within the past 1,369
five years, that temporarily, preliminarily, or permanently 1,370
restrains or enjoins the party from engaging in or continuing to 1,371
engage in any conduct or practice involving fraud or deceit in 1,372
connection with the purchase or sale of any security. 1,373
(5) Division (Y)(4) of this section is inapplicable if any 1,376
of the following applies: 1,377
(a) The party subject to the disqualification is licensed 1,380
or registered to conduct securities business in the state in 1,381
which the order, judgment, or decree creating the 1,382
disqualification was entered against the party described in 1,383
division (Y)(4) of this section. 1,384
(b) Before the first offer is made under this exemption, 1,388
the state securities administrator, or the court or regulatory 1,389
authority that entered the order, judgment, or decree, waives the 1,390
disqualification.
(c) The issuer did not know and, in the exercise of 1,393
reasonable care based on reasonable investigation, could not have 1,394
known that a disqualification from the exemption existed under 1,395
division (Y)(4) of this section. 1,396
(6) A general announcement of the proposed offering may be 1,398
33
made by any means; however, the general announcement shall 1,399
include only the following information, unless additional 1,400
information is specifically permitted by the division by rule: 1,402
(a) The name, address, and telephone number of the issuer 1,405
of the securities;
(b) The name, a brief description, and price of any 1,408
security to be issued;
(c) A brief description of the business of the issuer; 1,411
(d) The type, number, and aggregate amount of securities 1,414
being offered;
(e) The name, address, and telephone number of the person 1,417
to contact for additional information; and
(f) A statement indicating all of the following: 1,420
(i) Sales will only be made to accredited investors as 1,423
defined in Rule 501 of Regulation D under the Securities Act of 1,428
1933;
(ii) No money or other consideration is being solicited or 1,431
will be accepted by way of this general announcement; 1,432
(iii) The securities have not been registered with or 1,435
approved by any state securities administrator or the securities 1,436
and exchange commission and are being offered and sold pursuant 1,437
to an exemption from registration. 1,438
(7) The issuer, in connection with an offer, may provide 1,440
information in addition to the general announcement described in 1,441
division (Y)(6) of this section, provided that either of the 1,443
following applies:
(a) The information is delivered through an electronic 1,446
database that is restricted to persons that are accredited 1,447
investors as defined in Rule 501 of Regulation D under the 1,450
Securities Act of 1933. 1,452
(b) The information is delivered after the issuer 1,455
reasonably believes that the prospective purchaser is an 1,456
accredited investor as defined in Rule 501 of Regulation D under 1,459
the Securities Act of 1933. 1,461
34
(8) No telephone solicitation shall be done, unless prior 1,463
to placing the telephone call, the issuer reasonably believes 1,464
that the prospective purchaser to be solicited is an accredited 1,465
investor as defined in Rule 501 of Regulation D under the 1,468
Securities Act of 1933. 1,470
(9) Dissemination of the general announcement described in 1,472
division (Y)(6) of this section to persons that are not 1,474
accredited investors, as defined in Rule 501 of Regulation D 1,477
under the Securities Act of 1933, does not disqualify the issuer 1,480
from claiming an exemption under this division. 1,481
(10) The issuer shall file with the division notice of the 1,483
offering of securities within fifteen days after notice of the 1,484
offering is made to the public or a general announcement is made 1,485
to the public in this state. The filing shall be on forms 1,486
adopted by the division and shall include a copy of the general 1,487
announcement, if one is made regarding the proposed offering, and 1,489
copies of any offering materials, circulars, or prospectuses. A 1,490
filing fee of one hundred dollars also shall be included. 1,491
Sec. 1707.161. (A) Subject to division (F) of this 1,500
section, no person shall act as an investment adviser 1,501
representative, unless one of the following applies: 1,502
(1) The person is licensed as an investment adviser 1,504
representative by the division of securities. 1,505
(2) The person is a natural person who is licensed as an 1,507
investment adviser by the division, and does not act as an 1,508
investment adviser representative for another investment adviser; 1,509
however, a natural person who is licensed as an investment 1,511
adviser by the division may act as an investment adviser 1,512
representative for another investment adviser if the natural 1,513
person also is licensed by the division, OR IS PROPERLY EXCEPTED 1,514
FROM LICENSURE, as an investment adviser representative of the 1,515
other investment adviser.
(3) The person is employed by or associated with an 1,517
investment adviser registered under section 203 of the 1,518
35
"Investment Advisers Act of 1940," 15 U.S.C. 80b-3, and does not 1,520
have a place of business in this state. 1,521
(4) The person is employed by or associated with an 1,523
investment adviser that is exempted EXCEPTED from licensure 1,524
pursuant to division (A)(3) or (4) of section 1707.141 of the 1,526
Revised Code OR EXCEPTED FROM NOTICE FILING PURSUANT TO DIVISION 1,527
(B)(3) OF SECTION 1707.141 OF THE REVISED CODE.
(B)(1) No investment adviser representative required to be 1,529
licensed under this section shall act as an investment adviser 1,530
representative for more than two investment advisers. An 1,531
investment adviser representative that acts as an investment 1,532
adviser representative for two investment advisers shall do so 1,533
only after the occurrence of both of the following: 1,534
(a) Being properly licensed, or properly excepted from 1,537
licensure under this section, as an investment adviser 1,538
representative for both investment advisers; 1,539
(b) Complying with the requirements set forth in rules 1,542
adopted by the division regarding consent of both investment 1,543
advisers and notice.
(2) Nothing in this section shall be construed to prohibit 1,545
a natural person from being licensed by the division as both an 1,548
investment adviser and an investment adviser representative. 1,549
(3) Nothing is IN this section shall be construed to 1,551
prohibit a natural person from being licensed by the division as 1,552
both a salesperson and an investment adviser representative. 1,554
(4) NOTHING IN THIS SECTION SHALL BE CONSTRUED TO PROHIBIT 1,556
A NATURAL PERSON FROM BEING LICENSED BY THE DIVISION AS BOTH A 1,557
DEALER AND AN INVESTMENT ADVISER REPRESENTATIVE. 1,558
(C) An investment adviser representative's license issued 1,560
under this section shall not be effective during any period when 1,561
the investment adviser representative is not employed by or 1,562
associated with an investment adviser that is licensed by the 1,563
division or that is in compliance with the notice filing 1,564
requirements of division (B) of section 1707.141 of the Revised 1,565
36
Code. Notice of the commencement and termination of the 1,566
employment or association of an investment adviser representative 1,568
licensed under this section shall be given to the division within 1,569
thirty days after the commencement or termination by either of
the following: 1,570
(1) The investment adviser, in the case of an investment 1,572
adviser representative licensed under this section and employed 1,573
by or associated with, or formerly employed by or associated 1,575
with, an investment adviser licensed under section 1707.141 of 1,576
the Revised Code;
(2) The investment adviser representative, in the case of 1,578
an investment adviser representative licensed under this section 1,579
and employed by or associated with, or formerly employed by or 1,581
associated with, an investment adviser that is subject to the
notice filings requirements of division (B) of section 1707.141 1,583
of the Revised Code.
(D)(1) Application for an investment adviser 1,585
representative license shall be made in accordance with this 1,586
section and by filing with the division the information, 1,587
materials, and forms specified in rules adopted by the division. 1,588
(2) The division shall by rule require an applicant to 1,590
pass an examination designated by the division or achieve a 1,591
specified professional designation.
(3) Prior to issuing the investment adviser representative 1,594
license, the division may require the applicant to reimburse the 1,595
division for the actual expenses incurred in investigating the 1,596
applicant. An itemized statement of any such expenses that the 1,598
applicant is required to pay shall be furnished to the applicant
by the division. 1,599
(E) If the division finds that the applicant is of good 1,601
business repute, appears to be qualified to act as an investment 1,602
adviser representative, and has complied with sections 1707.01 to 1,604
1707.45 of the Revised Code and the rules adopted under those 1,605
sections by the division, the division, upon payment of the fees 1,606
37
prescribed by division (B) of section 1707.17 of the Revised 1,607
Code, shall issue to the applicant a license authorizing the 1,608
applicant to act as an investment adviser representative for the 1,609
investment adviser, or investment advisers that are under common 1,610
ownership or control, named in the application.
(F) On the effective date of this section MARCH 18, 1999, 1,613
a person required to be licensed as an investment adviser 1,614
representative pursuant to this section has until no later than 1,615
December 31, 1999, to be licensed as an investment adviser 1,616
representative by the division of securities. However, a person 1,617
required to be licensed by the division as an investment adviser 1,618
representative by no later than December 31, 1999, may be 1,620
licensed as an investment adviser representative by the division 1,621
on the effective date of this section MARCH 18, 1999, and prior 1,622
to December 31, 1999. 1,623
Sec. 1707.36. (A) There is hereby created in the division 1,632
of securities a position to be known as attorney-inspector, which 1,633
shall be held only by an attorney at law. The duties of this 1,634
position are to investigate and report upon all complaints and 1,635
alleged violations of this chapter or rules adopted under this 1,636
chapter by the division and to represent the division in 1,637
prosecutions AND OTHER MATTERS arising from such complaints and 1,638
alleged violations.
The office of the attorney-inspector is hereby designated a 1,641
criminal justice agency in investigating reported violations of 1,642
law relating to securities and investment advice, and as such is 1,643
authorized by this state to apply for access to the computerized 1,644
databases administered by the national crime information center 1,645
or the law enforcement automated data system in Ohio, and to 1,646
other computerized databases administered for the purpose of 1,647
making criminal justice information accessible to state criminal 1,648
justice agencies. 1,649
(B) There is hereby created in the division of securities 1,651
two positions to be known as control-bid attorneys, which shall 1,652
38
be held only by attorneys at law. The duties of these positions 1,653
are to investigate and report upon all matters relating to 1,654
control-bids and related matters and to represent the division in 1,655
the regulatory matters arising under the Ohio control-bid law. 1,656
(C) The attorney-inspector and each control-bid attorney 1,658
shall be paid at a rate not less than pay range 47 set out in 1,659
schedule E-2 of section 124.152 of the Revised Code, to be paid 1,660
as other operating expenses of the division. 1,661
Sec. 1707.439. AS USED IN SECTIONS 1707.432 THROUGH 1,663
1707.439 OF THE REVISED CODE, "PRIVATE CIVIL ACTION" SHALL NOT 1,664
INCLUDE AN ACTION FOR RESCISSION PURSUANT TO SECTION 1707.43 OF 1,665
THE REVISED CODE.
Sec. 1707.44. (A)(1) No person shall engage in any act or 1,674
practice that violates division (A), (B), or (C) of section 1,676
1707.14 of the Revised Code, and no salesperson shall sell 1,677
securities in this state without being licensed pursuant to 1,678
section 1707.16 of the Revised Code.
(2) No person shall engage in any act or practice that 1,680
violates division (A) of section 1707.141 or section 1707.161 of 1,681
the Revised Code.
(B) No person shall knowingly make or cause to be made any 1,683
false representation concerning a material and relevant fact, in 1,684
any oral statement or in any prospectus, circular, description, 1,685
application, or written statement, for any of the following 1,686
purposes: 1,687
(1) Complying with this chapter, in regard to registering 1,689
securities by description; 1,690
(2) Securing the qualification of any securities under 1,692
this chapter; 1,693
(3) Procuring the licensing of any dealer, salesperson, 1,696
investment adviser, or investment adviser representative under 1,698
this chapter;
(4) Selling any securities in this state; 1,700
(5) Advising for compensation, as to the value of 1,702
39
securities or as to the advisability of investing in, purchasing, 1,703
or selling securities.
(C) No person shall knowingly and intentionally sell, 1,705
cause to be sold, offer for sale, or cause to be offered for 1,706
sale, any security which comes under any of the following 1,707
descriptions: 1,708
(1) Is not exempt under section 1707.02 of the Revised 1,710
Code, nor the subject matter of one of the transactions exempted 1,711
in sections 1707.03, 1707.04, and 1707.34 of the Revised Code, 1,712
has not been registered by description, coordination, or 1,713
qualification, and is not the subject matter of a transaction 1,714
that has been registered by description; 1,715
(2) The prescribed fees for registering by description, by 1,717
coordination, or by qualification have not been paid in respect 1,718
to such security; 1,719
(3) Such person has been notified by the division, or has 1,721
knowledge of the notice, that the right to buy, sell, or deal in 1,723
such security has been suspended or revoked, or that the 1,724
registration by description, by coordination, or by qualification 1,725
under which it may be sold has been suspended or revoked; 1,726
(4) The offer or sale is accompanied by a statement that 1,728
the security offered or sold has been or is to be in any manner 1,729
indorsed by the division. 1,730
(D) No person who is an officer, director, or trustee of, 1,732
or a dealer for, any issuer, and who knows such issuer to be 1,733
insolvent in that the liabilities of such THE issuer exceed its 1,734
assets, shall sell any securities of or for any such issuer, 1,735
without disclosing the fact of the insolvency to the purchaser. 1,737
(E) No person with intent to aid in the sale of any 1,739
securities on behalf of the issuer, shall knowingly make any 1,740
representation not authorized by such issuer or at material 1,741
variance with statements and documents filed with the division by 1,742
such issuer. 1,743
(F) No person, with intent to deceive, shall sell, cause 1,745
40
to be sold, offer for sale, or cause to be offered for sale, any 1,746
securities of an insolvent issuer, with knowledge that such 1,747
issuer is insolvent in that the liabilities of such THE issuer 1,748
exceed its assets, taken at their fair market value. 1,750
(G) No person in PURCHASING OR selling securities shall 1,752
knowingly engage in any act or practice which THAT is, in this 1,754
chapter, declared illegal, defined as fraudulent, or prohibited. 1,757
(H) No licensed dealer shall refuse to buy from, sell to, 1,759
or trade with any person because the person appears on a 1,760
blacklist issued by, or is being boycotted by, any foreign 1,761
corporate or governmental entity, nor sell any securities of or 1,762
for any issuer who is known in relation to the issuance or sale 1,763
of such securities to have engaged in such practices. 1,764
(I) No dealer in securities, knowing that the dealer's 1,766
liabilities exceed the reasonable value of the dealer's assets, 1,768
shall accept money or securities, except in payment of or as 1,769
security for an existing debt, from a customer who is ignorant of 1,770
the dealer's insolvency, and thereby cause the customer to lose 1,773
any part of the customer's securities or the value thereof OF 1,774
THOSE SECURITIES, by doing either of the following without the 1,775
customer's consent:
(1) Pledging, selling, or otherwise disposing of such 1,777
securities, when the dealer has no lien on or any special 1,779
property in such securities;
(2) Pledging such securities for more than the amount due, 1,781
or otherwise disposing of such securities for the dealer's own 1,783
benefit, when the dealer has a lien or indebtedness on such 1,784
securities. 1,785
It is an affirmative defense to a charge under this 1,787
division that, at the time the securities involved were pledged, 1,788
sold, or disposed of, the dealer had in the dealer's possession 1,790
or control, and available for delivery, securities of the same 1,791
kinds and in amounts sufficient to satisfy all customers entitled 1,792
thereto TO THE SECURITIES, upon demand and tender of any amount 1,793
41
due thereon ON THE SECURITIES. 1,794
(J) No person, with purpose to deceive, shall make, issue, 1,796
publish, or cause to be made, issued, or published any statement 1,797
or advertisement as to the value of securities, or as to alleged 1,798
facts affecting the value of securities, or as to the financial 1,799
condition of any issuer of securities, when the person knows that 1,802
such statement or advertisement is false in any material respect. 1,803
(K) No person, with purpose to deceive, shall make, 1,805
record, or publish or cause to be made, recorded, or published, a 1,806
report of any transaction in securities which is false in any 1,807
material respect. 1,808
(L) No dealer shall engage in any act that violates the 1,810
provisions of section 15(c) or 15(g) of the "Securities Exchange 1,811
Act of 1934," 48 Stat. 881, 15 U.S.C.A. 78o(c) or (g), or any 1,812
rule or regulation promulgated by the securities and exchange 1,813
commission thereunder. If, subsequent to October 11, 1994, 1,814
additional amendments to section 15(c) or 15(g) are adopted, or 1,815
additional rules or regulations are promulgated pursuant to such 1,816
sections, the division of securities shall, by rule, adopt the 1,817
amendments, rules, or regulations, unless the division finds that 1,818
the amendments, rules, or regulations are not necessary for the 1,819
protection of investors or in the public interest.
(M)(1) No investment adviser or investment adviser 1,821
representative shall do any of the following: 1,822
(a) Employ any device, scheme, or artifice to defraud any 1,825
person;
(b) Engage in any act, practice, or course of business 1,827
that operates or would operate as a fraud or deceit upon any 1,828
person; 1,829
(c) In acting as principal for the investment adviser's or 1,831
investment adviser representative's own account, knowingly sell 1,832
any security to or purchase any security from a client, or in 1,833
acting as salesperson for a person other than such client, 1,834
knowingly effect any sale or purchase of any security for the 1,835
42
account of such client, without disclosing to the client in 1,836
writing before the completion of the transaction the capacity in 1,837
which the investment adviser or investment adviser representative 1,839
is acting and obtaining the consent of the client to the 1,840
transaction. Division (M)(1)(c) of this section does not apply 1,842
to any investment adviser registered with the securities and 1,843
exchange commission under section 203 of the "Investment Advisers 1,845
Act of 1940," 15 U.S.C. 80b-3, or to any transaction with a 1,848
customer of a licensed dealer or salesperson if the licensed 1,849
dealer or salesperson is not acting as an investment adviser or 1,850
investment adviser representative in relation to the transaction. 1,851
(d) Engage in any act, practice, or course of business 1,854
that is fraudulent, deceptive, or manipulative. The division of 1,855
securities may adopt rules reasonably designed to prevent such 1,856
acts, practices, or courses of business as are fraudulent, 1,857
deceptive, or manipulative.
(2) No investment adviser or investment adviser 1,859
representative licensed or required to be licensed under this 1,860
chapter shall take or have custody of any securities or funds of 1,861
any person, except as provided in rules adopted by the division. 1,862
(3) In the solicitation of clients or prospective clients, 1,864
no person shall make any untrue statement of a material fact or 1,865
omit to state a material fact necessary in order to make the 1,866
statements made not misleading in light of the circumstances 1,867
under which the statements were made. 1,868
Section 2. That existing sections 1701.48, 1707.01, 1,870
1707.03, 1707.161, 1707.36, and 1707.44 of the Revised Code are 1,872
hereby repealed. 1,873