ARTICLE 5 – FRAUD AND LIABILITIES

§501.  GENERAL FRAUD.  It is unlawful for a person, in connection with the offer, sale, or purchase of a security, directly or indirectly:

(1) to employ a device, scheme, or artifice to defraud;

(2) to make an untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or

            (3) to engage in an act, practice, or course of business that operates or would operate as a fraud or deceit upon another person.

RCW 21.20.010  Unlawful offers, sales, purchases.

It is unlawful for any person, in connection with the offer, sale or purchase of any security, directly or indirectly:

(1) To employ any device, scheme, or artifice to defraud;

(2) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading; or

(3) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.

§ 34.  GENERAL FRAUD.  It is unlawful for a person, in connection with the offer, sale, or purchase of a security, directly or indirectly:

    (1) To employ a device, scheme, or artifice to defraud;

    (2) To make an untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or

    (3) To engage in an act, practice, or course of business that operates or would operate as a fraud or deceit upon another person.

USA

§502.  PROHIBITED CONDUCT IN PROVIDING INVESTMENT ADVICE.

(a) [Fraud in providing investment advice.]  It is unlawful for a person that advises others for compensation, either directly or indirectly or through publications or writings, as to the value of securities or the advisability of investing in, purchasing, or selling securities or that, for compensation and as part of a regular business, issues or promulgates analyses or reports relating to securities:

(1) to employ a device, scheme, or artifice to defraud another person; or

(2) to engage in an act, practice, or course of business that operates or would operate as a fraud or deceit upon another person.

            (b) [Rules defining fraud.] A rule adopted under this [Act] may define an act, practice, or course of business of an investment adviser or an investment adviser representative, other than a supervised person of a federal covered investment adviser, as fraudulent, deceptive, or manipulative, and prescribe means reasonably designed to prevent investment advisers and investment adviser representatives, other than supervised persons of a federal covered investment adviser, from engaging in acts, practices, and courses of business defined as fraudulent, deceptive, or manipulative.

RCW 21.20.020  Unlawful acts of person advising another.

(1) It is unlawful for any person who receives any consideration from another party primarily for advising the other person as to the value of securities or their purchase or sale, whether through the issuance of analyses or reports or otherwise:

(a) To employ any device, scheme, or artifice to defraud the other person;

(b) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon the other person; or

(c) To engage in any dishonest or unethical practice as the director may define by rule.

This subsection (1) applies whether or not the person is an investment adviser, federal covered adviser, or investment adviser under this chapter or the Investment Advisers Act of 1940.

§ 35.  PROHIBITED CONDUCT IN PROVIDING INVESTMENT ADVICE. 

   (1) Fraud in providing investment advice.  It is unlawful for a person that advises others for compensation, either directly or indirectly or through publications or writings, as to the value of securities or the advisability of investing in, purchasing, or selling securities or that, for compensation and as part of a regular business, issues or promulgates analyses or reports relating to securities:

        (a) To employ a device, scheme, or artifice to defraud another person; or

 (b) To engage in an act, practice, or course of business that operates or would operate as a fraud or deceit upon another person.

   (2) Rules defining fraud.  A rule adopted under this chapter may define an act, practice, or course of business of an investment adviser or an investment adviser representative, other than a supervised person of a federal covered investment adviser, as fraudulent, deceptive, or manipulative, and prescribe means reasonably designed to prevent investment advisers and investment adviser representatives, other than supervised persons of a federal covered investment adviser, from engaging in acts, practices, and courses of business defined as fraudulent, deceptive, or manipulative.

USA

.020(2) It is unlawful for an investment adviser, acting as principal for his or her own account, knowingly to sell any security to or purchase any security from a client, or act as a broker for a person other than such client, knowingly to effect any sale or purchase of any security for the account of such client, without disclosing to such client in writing before the execution of such transaction the capacity in which he or she is acting and obtaining the consent of the client to such transaction.

This subsection (2) does not apply to a transaction with a customer of a broker-dealer if the broker-dealer is not acting as an investment adviser in relation to the transaction.

USA (definition of IA includes “holding out” concept and RCW 21.20.020(2) may be addressed by rule)

            (c) [Rules specifying contents of advisory contract.] A rule adopted under this [Act] may specify the contents of an investment advisory contract entered into, extended, or renewed by an investment adviser.

RCW 21.20.030.  Unlawful acts of investment adviser.

It is unlawful for any investment adviser to enter into, extend, or renew any investment advisory contract unless it provides in writing:
     (1) That the investment adviser shall not be compensated on the basis of a share of capital gains upon or capital appreciation of the funds or any portion of the funds of the client; however, this subsection does not prohibit: (a) An investment advisory contract which provides for compensation based upon the total of a fund averaged over a definite period, or as of definite dates or taken as of a definite date; or (b) performance compensation arrangements permitted under any rule the director may adopt in order to allow performance compensation arrangements permitted under the Investment Advisers Act of 1940 and regulations promulgated by the securities and exchange commission thereunder;
     (2) That no assignment of the contract may be made by the investment adviser without the consent of the other party to the contract; and
     (3) That the investment adviser, if a partnership, shall notify the other party to the contract of any change in the membership of the partnership within a reasonable time after the change.
     "Assignment", as used in subsection (2) of this section, includes any direct or indirect transfer or hypothecation of an investment advisory contract by the assignor or of a controlling block of the assignor's outstanding voting securities by a security holder of the assignor; but, if the investment adviser is a partnership, no assignment of an investment advisory contract is considered to result from the death or withdrawal of a minority of the members of the investment adviser having only a minority interest in the business of the investment adviser, or from the admission to the investment adviser of one or more members who, after admission, will be only a minority of the members and will have only a minority interest in the business.

§ 35(3).  Contents of advisory contract.  It is unlawful for any investment adviser to enter into, extend, or renew any investment advisory contract unless it provides in writing:

    (a) That the investment adviser shall not be compensated on the basis of a share of capital gains upon or capital appreciation of the funds or any portion of the funds of the client.  However, this subsection does not prohibit:

        (i) An investment advisory contract which provides for compensation based upon the total of a fund averaged over a definite period, or as of definite dates or taken as of a definite date; or

        (ii) Performance compensation arrangements permitted under any rule the director may adopt in order to allow performance compensation arrangements permitted under the Investment Advisers Act of 1940 and regulations promulgated by the securities and exchange commission thereunder;

    (b) That no assignment of the contract may be made by the investment adviser without the consent of the other party to the contract; and

    (c) That the investment adviser, if a partnership, shall notify the other party to the contract of any change in the membership of the partnership within a reasonable time after the change.

    "Assignment," as used in (b) of this subsection, includes any direct or indirect transfer or hypothecation of an investment advisory contract by the assignor or of a controlling block of the assignor's outstanding voting securities by a security holder of the assignor; but, if the investment adviser is a partnership, no assignment of an investment advisory contract is considered to result from the death or withdrawal of a minority of the members of the investment adviser having only a minority interest in the business of the investment adviser, or from the admission to the investment adviser of one or more members who, after admission, will be only a minority of the members and will have only a minority interest in the business.

    (4) Subsection (1) of this section applies whether or not the person is an investment adviser, federal covered investment adviser, or investment adviser representative under this chapter or the Investment Advisers Act of 1940.

RCW 21.20.030 retained as § 35(3). 

.020(1) This subsection (1) applies whether or not the person is an investment adviser, federal covered adviser, or investment adviser under this chapter or the Investment Advisers Act of 1940.

§ 35(4) Subsection (1) of this section applies whether or not the person is an investment adviser, federal covered investment adviser, or investment adviser representative under this chapter or the Investment Advisers Act of 1940.

RCW 21.20.020(1) “flush” language retained as §35(4).

§503.  EVIDENTIARY BURDEN.

(a) [Civil.] In a civil action or administrative proceeding under this [Act], a person claiming an exemption, exception, preemption, or exclusion has the burden to prove the applicability of the claim.

(b) [Criminal.]  In a criminal proceeding under this [Act], a person claiming an exemption, exception, preemption, or exclusion has the burden of going forward with evidence of the claim.

RCW 21.20.540.  Exemptions, exceptions, and preemptions -- Burden of proof.

In any proceeding under this chapter, the burden of proving an exemption, an exception from a definition, or a preemption of a provision of this chapter is upon the person claiming it.

§ 36.  EVIDENTIARY BURDEN.  (1) Civil.  In a civil action or administrative proceeding under this chapter, a person claiming an exemption, exception, preemption, or exclusion has the burden to prove the applicability of the claim.

    (2) Criminal.  In a criminal proceeding under this chapter, a person claiming an exemption, exception, preemption, or exclusion has the burden of going forward with evidence of the claim.

USA

§504.  FILING OF SALES AND ADVERSTISING LITERATURE.

(a) [Filing requirement.]  Except as otherwise provided in subsection (b), a rule adopted or order issued under this [Act] may require the filing of a prospectus, pamphlet, circular, form letter, advertisement, sales literature, or other advertising record relating to a security or investment advice, addressed or intended for distribution to prospective investors, including clients or prospective clients of a person registered or required to be registered as an investment adviser under this [Act].

            (b) [Excluded communications.] This section does not apply to sales and advertising literature specified in subsection (a) which relates to a federal covered security, a federal covered investment adviser, or a security or transaction exempted by Section 201, 202, or 203 except as required pursuant to Section 201(7).

§ 37.  FILING OF SALES AND ADVERTISING LITERATURE. 

    (1) Filing requirements.  Except as otherwise provided in subsection (2) of this section, a rule adopted or order issued under this chapter may require the filing of a prospectus, pamphlet, circular, form letter, advertisement, sales literature, or other advertising record relating to a security or investment advice, addressed or intended for distribution to prospective investors, including clients or prospective clients of a person registered or required to be registered as an investment adviser under this chapter.

(2) Excluded communications.  This section does not apply to sales or advertising literature specified in subsection (1) of this section which relates to a federal covered security or a federal covered investment adviser.

USA less the exclusions for advertisements or sales literature in connection with any exemption.  This traces current law and would allow the Division to adopt rules that require the filing of advertising or sales literature for certain exempt offerings, such as those under USA § 202(14).

§505.  MISLEADING FILINGS.  It is unlawful for a person to make or cause to be made, in a record that is used in an action or proceeding or filed under this [Act], a statement that, at the time and in the light of the circumstances under which it is made, is false or misleading in a material respect, or, in connection with the statement, to omit to state a material fact necessary to make the statement made, in the light of the circumstances under which it was made, not false or misleading.

RCW 21.20.350  False or misleading statements in filed documents.

It is unlawful for any person to make or cause to be made, in any document filed with the director or in any proceeding under this chapter, any statement which is, at the time and in the light of the circumstances under which it is made, false or misleading in any material respect.

§ 38.  MISLEADING FILINGS.  It is unlawful for a person to make or cause to be made, in a record that is used in an action or proceeding or filed under this chapter, a statement that, at the time and in the light of the circumstances under which it is made, is false or misleading in a material respect, or, in connection with the statement, to omit to state a material fact necessary to make the statement made, in the light of the circumstances under which it was made, not false or misleading.

USA

§506.  MISREPRESENTATIONS CONCERNING REGISTRATION OR EXEMPTION.  The filing of an application for registration, a registration statement, a notice filing under this [Act], the registration of a person, the notice filing by a person, or the registration of a security under this [Act] does not constitute a finding by the administrator that a record filed under this [Act] is true, complete, and not misleading.  The filing or registration or the availability of an exemption, exception, preemption, or exclusion for a security or a transaction does not mean that the administrator has passed upon the merits or qualifications of, or recommended or given approval to, a person, security, or transaction.  It is unlawful to make, or cause to be made, to a purchaser, customer, client, or prospective customer or client a representation inconsistent with this section.

RCW 21.20.360  Filing, registration, statement, exemption not conclusive as to truth or completeness -- Unlawful representations.

Neither the fact that an application for registration under RCW 21.20.050, a registration statement under RCW 21.20.180 or 21.20.210 has been filed, nor the fact that a person or security if [is] effectively registered, constitutes a finding by the director that any document filed under this chapter is true, complete, and not misleading. Neither any such fact nor the fact that an exemption or exception is available for a security or a transaction means that the director has passed in any way upon the merits of [or] qualifications of, or recommended or given approval to, any person, security, or transaction. It is unlawful to make, or cause to be made, to any prospective purchaser, customer, or client any representation inconsistent with this section.

§ 39.  MISREPRESENTATIONS CONCERNING REGISTRATION OR EXEMPTION.  The filing of an application for registration, a registration statement, a notice filing under this chapter, the registration of a person, the notice filing by a person, or the registration of a security under this chapter does not constitute a finding by the director that a record filed under this chapter is true, complete, and not misleading.  The filing or registration or the availability of an exemption, exception, preemption, or exclusion for a security or a transaction does not mean that the director has passed upon the merits or qualifications of, or recommended or given approval to, a person, security, or transaction.  It is unlawful to make, or cause to be made, to a purchaser, customer, client, or prospective customer or client a representation inconsistent with this section.

USA

§507.  QUALIFIED IMMUNITY.  A broker-dealer, agent, investment adviser, federal covered investment adviser, or investment adviser representative is not liable to another broker-dealer, agent, investment adviser, federal covered investment adviser, or investment adviser representative for defamation relating to a statement that is contained in a record required by the administrator, or designee of the administrator, the Securities and Exchange Commission, or a self-regulatory organization, unless the person knew, or should have known at the time that the statement was made, that it was false in a material respect or the person acted in reckless disregard of the statement’s truth or falsity.

RCW 4.24.510.  Communication to government agency or self-regulatory organization -- Immunity from civil liability.

A person who communicates a complaint or information to any branch or agency of federal, state, or local government, or to any self-regulatory organization that regulates persons involved in the securities or futures business and that has been delegated authority by a federal, state, or local government agency and is subject to oversight by the delegating agency, is immune from civil liability for claims based upon the communication to the agency or organization regarding any matter reasonably of concern to that agency or organization. A person prevailing upon the defense provided for in this section is entitled to recover expenses and reasonable attorneys' fees incurred in establishing the defense and in addition shall receive statutory damages of ten thousand dollars. Statutory damages may be denied if the court finds that the complaint or information was communicated in bad faith.

§ 40.  IMMUNITY.  A "person" under RCW 4.24.510 includes a broker-dealer, sales agent, investment adviser, federal covered investment adviser, or investment adviser representative.

Division draft incorporates by reference RCW 4.24.510, which addresses immunity for securities industry complaints and reports.  

§508.  CRIMINAL PENALTIES.  (a) [Criminal penalties.]  A person that willfully violates this [Act], or a rule adopted or order issued under this [Act], except Section 504 [filing of sales literature] or the notice filing requirements of Section 302 [federal covered securities] or 405 [federal covered advisers], or that willfully violates Section 505 [false filing] knowing the statement made to be false or misleading in a material respect, upon conviction, shall be fined not more than $[___] or imprisoned not more than [___] years, or both.  An individual convicted of violating a rule or order under this [Act] may be fined, but may not be imprisoned, if the individual did not have knowledge of the rule or order.

RCW 21.20.400.  Penalty for violation of chapter -- Limitation of actions. 

(1) Any person who willfully violates any provision of this chapter except RCW 21.20.350, or who willfully violates any rule or order under this chapter, or who willfully violates RCW 21.20.350 knowing the statement made to be false or misleading in any material respect, is guilty of a class B felony and shall upon conviction be fined not more than five thousand dollars or imprisoned not more than ten years, or both; but no person may be imprisoned for the violation of any rule or order if that person proves that he or she had no knowledge of the rule or order.

§ 41.  CRIMINAL PENALTIES.  (1) Criminal penalties.  (a) A person that willfully violates this chapter, or a rule adopted or order issued under this chapter, except section 37 of this act or the notice filing requirements of section 14 or 25 of this act, or that willfully violates section 38 of this act knowing the statement made to be false or misleading in a material respect, is guilty of a class B felony punishable under RCW 9A.20.021.  An individual convicted of violating a rule or order under this chapter may be fined, but may not be imprisoned, if the individual did not have knowledge of the rule or order.

USA with additional language to maintain current RCW scheme, making a criminal violation a class B felony.

(2) Any person who knowingly alters, destroys, shreds, mutilates, or conceals a record, document, or other object, or attempts to do so, with the intent to impair the object's integrity or availability for use in an official proceeding under this chapter, is guilty of a class B felony punishable under RCW 9A.20.021(1)(b) or punishable by a fine of not more than five hundred thousand dollars, or both. The fines paid under this subsection shall be deposited into the securities prosecution fund.

§ 41(1)(b).  Any person who knowingly alters, destroys, shreds, mutilates, or conceals a record, document, or other object, or attempts to do so, with the intent to impair the record's, document's, or object's integrity or availability for use in an official proceeding under this chapter, is guilty of a class B felony punishable by confinement under RCW 9A.20.021 or punishable by a fine of not more than five hundred thousand dollars, or both.  The fines paid under this subsection shall be deposited into the securities prosecution fund.

RCW 21.20.400(2) retained.

(b) [Criminal reference not required.]  The [Attorney General or the proper prosecuting attorney] with or without a reference from the administrator, may institute criminal proceedings under this [Act].

RCW 21.20.410  Attorney general, prosecuting attorney may institute criminal proceeding -- Referral of evidence by director.

(1) The director may refer such evidence as may be available concerning violations of this chapter or of any rule or order hereunder to the attorney general or the proper prosecuting attorney, who may in his or her discretion, with or without such a reference, institute the appropriate criminal proceedings under this chapter.

(2) The director may render such assistance as the prosecuting attorney requests regarding a reference.

§ 41(2).  Criminal reference not required.  The director may refer such evidence as may be available concerning violations of this chapter or of any rule or order under this chapter to the attorney general or the proper prosecuting attorney, who may in his or her discretion, with or without a reference from the director, institute criminal proceedings under this chapter.  The director may render such assistance as the attorney general or prosecuting attorney requests regarding a reference.

RCW 21.20.410 largely retained, which affirmatively states that the Division can refer and assist in criminal securities matters.

(c) [No limitation on other criminal enforcement.] This [Act] does not limit the power of this State to punish a person for conduct that constitutes a crime under other laws of this State.

RCW 21.20.420  Criminal punishment, chapter not exclusive.

Nothing in this chapter limits the power of the state to punish any person for any conduct which constitutes a crime by statute or at common law.

§ 41(3).  No limitation on other criminal enforcement.  This chapter does not limit the power of this state to punish a person for conduct that constitutes a crime under other laws of this state.

USA

RCW 21.20.400(1) No indictment or information may be returned under this chapter more than five years after the alleged violation.

§ 41(4).  Statute of limitations.  No indictment or information may be returned under this chapter more than:

    (a) Five years after the violation; or

    (b) Three years after the actual discovery of the violation;

whichever date of limitation is later.

RCW 21.20.400(1) criminal statute of limitations retained.

§509.  CIVIL LIABILITY.  (a) [Securities Litigation Uniform Standards Act.]  Enforcement of civil liability under this section is subject to the Securities Litigation Uniform Standards Act of 1998.

RCW 21.20.430  Civil liabilities -- Survival, limitation of actions -- Waiver of chapter void -- Scienter.

§ 42.  CIVIL LIABILITY.  (1) Securities Litigation Uniform Standards Act.  Enforcement of civil liability under this section is subject to the Securities Litigation Uniform Standards Act of 1998.

USA

(b) [Liability of seller to purchaser.]  A person is liable to the purchaser if the person sells a security in violation of Section 301 or, by means of an untrue statement of a material fact or an omission to state a material fact necessary in order to make the statement made, in light of the circumstances under which it is made, not misleading, the purchaser not knowing the untruth or omission and the seller not sustaining the burden of proof that the seller did not know and, in the exercise of reasonable care, could not have known of the untruth or omission.  An action under this subsection is governed by the following:

(1) The purchaser may maintain an action to recover the consideration paid for the security, less the amount of any income received on the security, and interest [at the legal rate of interest] from the date of the purchase, costs, and reasonable attorneys’ fees determined by the court, upon the tender of the security, or for actual damages as provided in paragraph (3).

(2) The tender referred to in paragraph (1) may be made any time before entry of judgment.  Tender requires only notice in a record of ownership of the security and willingness to exchange the security for the amount specified.  A purchaser that no longer owns the security may recover actual damages as provided in paragraph (3).

(3) Actual damages in an action arising under this subsection are the amount that would be recoverable upon a tender less the value of the security when the purchaser disposed of it, and interest  [at the legal rate of interest] from the date of the purchase,  costs, and reasonable attorneys’ fees determined by the court.

(1) Any person, who offers or sells a security in violation of any provisions of RCW 21.20.010, 21.20.140 (1) or (2), or 21.20.180 through 21.20.230, is liable to the person buying the security from him or her, who may sue either at law or in equity to recover the consideration paid for the security, together with interest at eight percent per annum from the date of payment, costs, and reasonable attorneys' fees, less the amount of any income received on the security, upon the tender of the security, or for damages if he or she no longer owns the security. Damages are the amount that would be recoverable upon a tender less (a) the value of the security when the buyer disposed of it and (b) interest at eight percent per annum from the date

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

§ 42(2).  Liability of seller to purchaser.  (a) A person is liable to the purchaser if the person sells a security in violation of:

            (i) Section 13 (2) or (3) of this act; or

            (ii) Section 34 of this act, the purchaser not knowing the untruth or omission or violation and the seller not sustaining the burden of proof that the seller did not know and, in the exercise of reasonable care, could not have known of the untruth or omission or violation.

    (b) An action under (a) of this subsection is governed by the following:

            (i) The purchaser may maintain an action to recover the consideration paid for the security, less the amount of any income received on the security, and interest at eight percent per annum from the date of the purchase, costs, and reasonable attorneys' fees determined by the court, upon the tender of the security, or for actual damages as provided in (b)(iii) of this subsection;

            (ii) The tender referred to in (b)(i) of this subsection may be made any time before entry of judgment.  Tender requires only notice in a record of ownership of the security and willingness to exchange the security for the amount specified.  A purchaser that no longer owns the security may recover actual damages as provided in (b)(iii) of this subsection; and

(iii) Actual damages in an action arising under this subsection are the amount that would be recoverable upon a tender less the value of the security when the purchaser disposed of it, and interest at eight percent per annum from the date of the purchase, costs, and reasonable attorneys' fees determined by the court.

USA with additions to retain existing civil liability under RCW 21.20.430(1).

(c) [Liability of purchaser to seller.]  A person is liable to the seller if the person buys a security by means of an untrue statement of a material fact or omission to state a material fact necessary in order to make the statement made, in light of the circumstances under which it is made, not misleading, the seller not knowing of the untruth or omission, and the purchaser not sustaining the burden of proof that the purchaser did not know, and in the exercise of reasonable care, could not have known of the untruth or omission.  An action under this subsection is governed by the following:

(1) The seller may maintain an action to recover the security, and any income received on the security, costs, and reasonable attorneys’ fees determined by the court, upon the tender of the purchase price, or for actual damages as provided in paragraph (3).

(2) The tender referred to in paragraph (1) may be made any time before entry of judgment.  Tender requires only notice in a record of the present ability to pay the amount tendered and willingness to take delivery of the security for the amount specified.  If the purchaser no longer owns the security, the seller may recover actual damages as provided in paragraph (3).

(3) Actual damages in an action arising under this subsection are the difference between the price at which the security was sold and the value the security would have had at the time of the sale in the absence of the purchaser’s conduct causing liability, and interest  [at the legal rate of interest] from the date of the sale of the security, costs, and reasonable attorneys’ fees determined by the court.

(2) Any person who buys a security in violation of the provisions of RCW 21.20.010 is liable to the person selling the security to him or her, who may sue either at law or in equity to recover the security, together with any income received on the security, upon tender of the consideration received, costs, and reasonable attorneys' fees, or if the security cannot be recovered, for damages. Damages are the value of the security when the buyer disposed of it, and any income received on the security, less the consideration received for the security, plus interest at eight percent per annum from the date of disposition, costs, and reasonable attorneys' fees.

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

§ 42(3).  Liability of purchaser to seller.  (a) A person is liable to the seller if the person buys a security in violation of section 34 of this act, the seller not knowing of the untruth or omission or violation, and the purchaser not sustaining the burden of proof that the purchaser did not know and, in the exercise of reasonable care, could not have known of the untruth or omission or violation.

    (b) An action under this subsection is governed by the following:

         (i) The seller may maintain an action to recover the security, and any income received on the security, costs, and reasonable attorneys' fees determined by the court, upon the tender of the purchase price, or for actual damages as provided in (b)(iii) of this subsection;

        (ii) The tender referred to in (b)(i) of this subsection may be made any time before entry of judgment.  Tender requires only notice in a record of the present ability to pay the amount tendered and willingness to take delivery of the security for the amount specified.  If the purchaser no longer owns the security, the seller may recover actual damages as provided in (b)(iii) of this subsection; and

  (iii) Actual damages in an action arising under this subsection are the difference between the price at which the security was sold and the value the security would have had at the time of the sale in the absence of the purchaser's conduct causing liability, and interest at eight percent per annum from the date of the sale of the security, costs, and reasonable attorneys' fees determined by the court.

USA with additional language to reach any USA § 501 anti-fraud violation.

(d) [Liability of unregistered broker-dealer and agent.]  A person acting as a broker-dealer or agent that sells or buys a security in violation of Section 401(a), 402(a), or 506 is liable to the customer.  The customer, if a purchaser, may maintain an action for recovery of actual damages as specified in subsections (b)(1) through (3), or, if a seller, for a remedy as specified in subsections (c)(1) through (3).

§ 42(4).  Liability of unregistered broker-dealer and sales agent.  A person acting as a broker-dealer or sales agent that sells or buys a security in violation of section 21(1), 22(1), or 39 of this act is liable to the customer.  The customer, if a purchaser, may maintain an action for recovery of actual damages as specified in subsection (2)(b) of this section, or, if a seller, for a remedy as specified in subsection (3)(b) of this section.

USA.

(e) [Liability of unregistered investment adviser and investment adviser representative.]  A person acting as an investment adviser or investment adviser representative that provides investment advice for compensation in violation of Section 403(a), 404(a), or 506 is liable to the client.  The client may maintain an action to recover the consideration paid for the advice, interest  [at the legal rate of interest] from the date of payment, costs, and reasonable attorneys’ fees determined by the court.

(f) [Liability for investment advice.]  A person that receives directly or indirectly any consideration for providing investment advice to another person and that employs a device, scheme, or artifice to defraud the other person or engages in an act, practice, or course of business that operates or would operate as a fraud or deceit on the other person, is liable to the other person.   An action under this subsection is governed by the following:

(1) The person defrauded may maintain an action to recover the consideration paid for the advice and the amount of any actual damages caused by the fraudulent conduct, interest  [at the legal rate of interest] from the date of the fraudulent conduct, costs, and reasonable attorneys’ fees determined by the court, less the amount of any income received as a result of the fraudulent conduct.

(2) This subsection does not apply to a broker-dealer or its agents if the investment advice provided is solely incidental to transacting business as a broker-dealer and no special compensation is received for the investment advice.

§ 42

  (5) Liability of unregistered investment adviser and investment adviser representative.  A person acting as an investment adviser or investment adviser representative that provides investment advice for compensation in violation of section 23(1), 24(1), or 39 of this act is liable to the client.  The client may maintain an action to recover the consideration paid for the advice, interest at eight percent per annum from the date of payment, costs, and reasonable attorneys' fees determined by the court.

  (6) Liability for investment advice.  A person that receives directly or indirectly any consideration for providing investment advice to another person and that employs a device, scheme, or artifice to defraud the other person or engages in an act, practice, or course of business that operates or would operate as a fraud or deceit on the other person is liable to the other person.  An action under this subsection is governed by the following:

     (a) The person defrauded may maintain an action to recover the consideration paid for the advice and the amount of any actual damages caused by the fraudulent conduct, interest at eight percent per annum from the date of the fraudulent conduct, costs, and reasonable attorneys' fees determined by the court, less the amount of any income received as a result of the fraudulent conduct; and

     (b) This subsection does not apply to a broker-dealer or its sales agents if the investment advice provided is solely incidental to transacting business as a broker-dealer and no special compensation is received for the investment advice.

USA

(g) [Joint and several liability.]  The following persons are liable jointly and severally with and to the same extent as persons liable under subsections (b) through (f):

(1) a person that directly or indirectly controls a person liable under subsections (b) through (f), unless the controlling person sustains the burden of proof that the person did not know, and in the exercise of reasonable care could not have known, of the existence of conduct by reason of which the liability is alleged to exist;

(2) an individual who is a managing partner, executive officer, or director of a person liable under subsections (b) through (f), including an individual having a similar status or performing similar functions, unless the individual sustains the burden of proof that the individual did not know and, in the exercise of reasonable care could not have known, of the existence of conduct by reason of which the liability is alleged to exist;

(3) an individual who is an employee of or associated with a person liable under subsections (b) through (f) and who materially aids the conduct giving rise to the liability, unless the individual sustains the burden of proof that the individual did not know and, in the exercise of reasonable care could not have known, of the existence of conduct by reason of which the liability is alleged to exist; and

(4) a person that is a broker-dealer, agent, investment adviser, or investment adviser representative that materially aids the conduct giving rise to the liability under subsections (b) through (f), unless the person sustains the burden of proof that the person did not know and, in the exercise of reasonable care could not have known, of the existence of conduct by reason of which liability is alleged to exist.

(3) Every person who directly or indirectly controls a seller or buyer liable under subsection (1) or (2) above, every partner, officer, director or person who occupies a similar status or performs a similar function of such seller or buyer, every employee of such a seller or buyer who materially aids in the transaction, and every broker-dealer, salesperson, or person exempt under the provisions of RCW 21.20.040 who materially aids in the transaction is also liable jointly and severally with and to the same extent as the seller or buyer, unless such person sustains the burden of proof that he or she did not know, and in the exercise of reasonable care could not have known, of the existence of the facts by reason of which the liability is alleged to exist. There is contribution as in cases of contract among the several persons so liable.

§ 42(7).  Joint and several liability.  The following persons are liable jointly and severally with and to the same extent as persons liable under subsections (2) through (6) of this section:

     (a) A person that directly or indirectly controls a person liable under subsections (2) through (6) of this section, unless the controlling person sustains the burden of proof that the person did not know and, in the exercise of reasonable care, could not have known of the existence of conduct by reason of which the liability is alleged to exist;

     (b) An individual who is a managing partner, executive officer, or director of a person liable under subsections (2) through (6) of this section, including an individual having a similar status or performing similar functions, unless the individual sustains the burden of proof that the individual did not know and, in the exercise of reasonable care, could not have known of the existence of conduct by reason of which the liability is alleged to exist;

(c) An individual who is an employee of or associated with a person liable under subsections (2) through (6) of this section, and who materially aids the conduct giving rise to the liability, unless the individual sustains the burden of proof that the individual did not know and, in the exercise of reasonable care, could not have known of the existence of conduct by reason of which the liability is alleged to exist; and

(d) A person that is a broker-dealer, sales agent, investment adviser, or investment adviser representative that materially aids the conduct giving rise to the liability under subsections (2) through (6) of this section, unless the person sustains the burden of proof that the person did not know and, in the exercise of reasonable care, could not have known of the existence of conduct by reason of which liability is alleged to exist.

USA

(h) [Right of contribution.]  A person liable under this section has a right of contribution as in cases of contract against any other person liable under this section for the same conduct.

See last sentence of RCW 21.20.430(3) (“There is contribution as in cases of contract among the several persons so liable.”).

§ 42(8).  Right of contribution.  A person liable under this section has a right of contribution as in cases of contract against any other person liable under this section for the same conduct.

USA

(i) [Survival of cause of action.]  A cause of action under this section survives the death of an individual who might have been a plaintiff or defendant.

(4)(a) Every cause of action under this statute survives the death of any person who might have been a plaintiff or defendant.

§ 42(9).  Survival of cause of action.  A cause of action under this section survives the death of an individual who might have been a plaintiff or defendant.

USA

(j) [Statute of limitations.]  A person may not obtain relief:

(1) under subsection (b) for violation of Section 301, or under subsection (d) or (e), unless the action is instituted within one year after the violation occurred; or

(2) under subsection (b), other than for violation of Section 301, or under subsection (c) or (f), unless the action is instituted within the earlier of two years after discovery of the facts constituting the violation or five years after the violation.

(b) No person may sue under this section more than three years after the contract of sale for any violation of the provisions of RCW 21.20.140 (1) or (2) or 21.20.180 through 21.20.230, or more than three years after a violation of the provisions of RCW 21.20.010, either was discovered by such person or would have been discovered by him or her in the exercise of reasonable care.  …

§ 42(10).  Statute of limitations.  A person may not obtain relief:

    (a) Under subsection (2) of this section for violation of section 13 (2) or (3) of this act, or under subsection (4) or (5) of this section, unless the action is instituted within three years after the violation occurred; or

(b) Under subsection (2) of this section, other than for violation of section 13 of this act, or under subsection (3) or (6) of this section, unless the action is instituted within the three years after the facts constituting the violation were either discovered by such person or would have been discovered by him or her in the exercise of reasonable care.

USA approach, but the current three year limitations provision is retained along with the current constructive notice provision, consistent with RCW 21.20.430(4)(b).

(k) [No enforcement of violative contract.]  A person that has made, or has engaged in the performance of, a contract in violation of this [Act] or a rule adopted or order issued under this [Act], or that has acquired a purported right under the contract with knowledge of conduct by reason of which its making or performance was in violation of this [Act], may not base an action on the contract.

(5) No person who has made or engaged in the performance of any contract in violation of any provision of this chapter or any rule or order hereunder, or who has acquired any purported right under any such contract with knowledge of the facts by reason of which its making or performance was in violation, may base any suit on the contract….

§ 42(11)(a).  No enforcement of violative contract.  A person that has made, or has engaged in the performance of, a contract in violation of this chapter or a rule adopted or order issued under this chapter, or that has acquired a purported right under the contract with knowledge of conduct by reason of which its making or performance was in violation of this chapter, may not base an action on the contract.

USA

RCW 21.20.135  License as salesperson or broker-dealer prerequisite to suit for commission.

No suit or action shall be brought for the collection of a commission for the sale of a security, as defined within this chapter without alleging and proving that the plaintiff was a duly licensed salesperson for an issuer or a broker-dealer, or exempt under the provisions of RCW 21.20.040, or a duly licensed broker-dealer in this state or another state at the time the alleged cause of action arose.

§ 42(11)(b).  No suit or action may be brought for the collection of a commission for the sale of a security, as defined within this chapter, without alleging and proving that the plaintiff was a duly registered sales agent for an issuer or a broker-dealer, or exempt under section 22(2)of this act, or a duly registered broker-dealer, or exempt under section 21(2) of this act in this state or another state at the time the alleged cause of action arose.

RCW 21.20.135 is retained.

(l) [No contractual waiver.]  A condition, stipulation, or provision binding a person purchasing or selling a security or receiving investment advice to waive compliance with this [Act] or a rule adopted or order issued under this [Act] is void.

.430(5)……Any condition, stipulation, or provision binding any person acquiring any security to waive compliance with any provision of this chapter or any rule or order hereunder is void.

§ 42(12).  No contractual waiver.  A condition, stipulation, or provision binding a person purchasing or selling a security or receiving investment advice to waive compliance with this chapter or a rule adopted or order issued under this chapter is void.

USA

(m) [Survival of other rights or remedies.]  The rights and remedies provided by this [Act] are in addition to any other rights or remedies that may exist, but this [Act] does not create a cause of action not specified in this section or Section 411(e).

§ 42(13).  Survival of other rights or remedies.  The rights and remedies provided by this chapter are in addition to any other rights or remedies that may exist, but this chapter does not create a cause of action not specified in this section, section 31(5) of this act, or section 70 of this act.

USA with additional language to retain the current cause of action against debenture companies under RCW 21.20.745.

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(7) Notwithstanding subsections (1) through (6) of this section, if an initial offer or sale of securities that are exempt from registration under RCW 21.20.310 is made by this state or its agencies, political subdivisions, municipal or quasi-municipal corporations, or other instrumentality of one or more of the foregoing and is in violation of RCW 21.20.010(2), and any such issuer, member of the governing body, committee member, public officer, director, employee, or agent of such issuer acting on its behalf, or person in control of such issuer, member of the governing body, committee member, public officer, director, employee, or agent of such person acting on its behalf, materially aids in the offer or sale, such person is liable to the purchaser of the security only if the purchaser establishes scienter on the part of the defendant. The word "employee" or the word "agent," as such words are used in this subsection, do not include a bond counsel or an underwriter. Under no circumstances whatsoever shall this subsection be applied to require purchasers to establish scienter on the part of bond counsels or underwriters. The provisions of this subsection are retroactive and apply to any action commenced but not final before July 27, 1985. In addition, the provisions of this subsection apply to any action commenced on or after July 27, 1985.

            Notwithstanding subsections (2), (3), and (7) through (13) of this section, if an initial offer or sale of securities that are exempt from registration under section 8 of this act is made by this state or its agencies, political subdivisions, municipal or quasi-municipal corporations, or other instrumentality of one or more of the foregoing in this subsection, and is in violation of section 34(2) of this act, and any such issuer, member of the governing body, committee member, public officer, director, employee, or agent of such issuer acting on its behalf, or person in control of such issuer, member of the governing body, committee member, public officer, director, employee, or agent of such person acting on its behalf, materially aids in the offer or sale, such person is liable to the purchaser of the security only if the purchaser establishes scienter on the part of the defendant.  The word "employee" or the word "agent," as such words are used in this subsection, do not include a bond counsel or an underwriter.  Under no circumstances whatsoever shall this subsection be applied to require purchasers to establish scienter on the part of bond counsels or underwriters.  The provisions of this subsection are retroactive and apply to any action commenced but not final before July 27, 1985.  In addition, the provisions of this subsection apply to any action commenced on or after July 27, 1985.

RCW 21.20.430(7) retained.

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RCW 21.20.435  Assurance of discontinuance of violations -- Acceptance -- Filing.

In the enforcement of this chapter, the director may accept an assurance of discontinuance of violations of the provisions of this chapter from any person deemed by the director to be in violation hereof. Any such assurance shall be in writing, may state that the person giving such assurance does not admit to any violation of this chapter, and shall be filed with and subject to the approval of the superior court of the county in which the alleged violator resides or has his or her principal place of business, or in Thurston county. Proof of failure to comply with the assurance of discontinuance shall be prima facie evidence of a violation of this chapter.

USA (eliminating RCW 21.20.435).

§510.  RESCISSION OFFERS.  tc \l2 "SECTION 510.  RESCISSION OFFERS.  A purchaser, seller, or recipient of investment advice may not maintain an action under Section 509 if:

(1) The purchaser, seller, or recipient of investment advice receives in a record, before the action is instituted:

(A) an offer stating the respect in which liability under Section 509 may have arisen and fairly advising the purchaser, seller, or recipient of   investment advice of that person’s rights in connection with the offer, and any financial or other information necessary to correct all material misrepresentations or omissions in the information that was required by this [Act] to be furnished to that person at the time of the purchase, sale, or investment advice;

(B) if the basis for relief under this section may have been a violation of Section 509(b), an offer to repurchase the security for cash, payable on delivery of the security, equal to the consideration paid, and interest [at the legal rate of interest] from the date of the purchase, less the amount of any income received on the security, or, if the purchaser no longer owns the security, an offer to pay the purchaser upon acceptance of the offer damages in an amount that would be recoverable upon a tender, less the value of the security when the purchaser disposed of it, and interest [at the legal rate of interest] from the date of the purchase in cash equal to the damages computed in the manner provided in this subsection;

(C) if the basis for relief under this section may have been a violation of Section 509(c), an offer to tender the security, on payment by the seller of an amount equal to the purchase price paid, less income received on the security by the purchaser and interest [at the legal rate of interest] from the date of the sale; or if the purchaser no longer owns the security, an offer to pay the seller upon acceptance of the offer, in cash, damages in the amount of the difference between the price at which the security was purchased and the value  the security would have had at the time of the purchase in the absence of the purchaser’s conduct that may have caused liability and interest [at the legal rate of interest] from the date of the sale;

(D) if the basis for relief under this section may have been a violation of Section 509(d); and if the customer is a purchaser, an offer to pay as specified in subparagraph (B); or, if the customer is a seller, an offer to tender or to pay as specified in subparagraph (C);

(E) if the basis for relief under this section may have been a violation of Section 509(e), an offer to reimburse in cash the consideration paid for the advice and interest  [at the legal rate of interest] from the date of payment; or

(F) if the basis for relief under this section may have been a violation of Section 509(f), an offer to reimburse in cash the consideration paid for the advice, the amount of any actual damages that may have been caused by the conduct, and interest  [at the legal rate of interest] from the date of the violation causing the loss;

(2) the offer under paragraph 1 states that it must be accepted by the purchaser, seller, or recipient of investment advice within 30 days after the date of its receipt by the purchaser, seller, or recipient of investment advice or any shorter period, of not less than three days, that the administrator, by order, specifies;

(3) the offeror has the present ability to pay the amount offered or to tender the security under paragraph (1);

(4) the offer under paragraph (1) is delivered to the purchaser, seller, or recipient of investment advice, or sent in a manner that ensures receipt by the purchaser, seller, or recipient of investment advice; and

(5) the purchaser, seller, or recipient of investment advice that accepts the offer under paragraph (1) in a record within the period specified under paragraph (2) is paid in accordance with the terms of the offer.

RCW 21.20.430(4)(b)  … No person may sue under this section if the buyer or seller receives a written rescission offer, which has been passed upon by the director before suit and at a time when he or she owned the security, to refund the consideration paid together with interest at eight percent per annum from the date of payment, less the amount of any income received on the security in the case of a buyer, or plus the amount of income received on the security in the case of a seller.

§43.  RESCISSION OFFERS.  A purchaser, seller, or recipient of investment advice may not maintain an action under section 42 of this act if:

   (1) The purchaser, seller, or recipient of investment advice receives in a record, before the action is instituted:

        (a) An offer stating the respect in which liability under section 42 of this act may have arisen and fairly advising the purchaser, seller, or recipient of investment advice of that person's rights in connection with the offer, and any financial or other information necessary to correct all material misrepresentations or omissions in the information that was required by this chapter to be furnished to that person at the time of the purchase, sale, or investment advice; and

        (b) If the basis for relief under this section may have been a violation of section 42(2) of this act, an offer to repurchase the security for cash, payable on delivery of the security, equal to the consideration paid, and interest at eight percent per annum from the date of the purchase, less the amount of any income received on the security, or, if the purchaser no longer owns the security, an offer to pay the purchaser upon acceptance of the offer damages in an amount that would be recoverable upon a tender, less the value of the security when the purchaser disposed of it, and interest at eight percent per annum from the date of the purchase in cash equal to the damages computed in the manner provided in this subsection; or

        (c) If the basis for relief under this section may have been a violation of section 42(3) of this act, an offer to tender the security, on payment by the seller of an amount equal to the purchase price paid, less income received on the security by the purchaser and interest at eight percent per annum from the date of the sale; or if the purchaser no longer owns the security, an offer to pay the seller upon acceptance of the offer, in cash, damages in the amount of the difference between the price at which the security was purchased and the value the security would have had at the time of the purchase in the absence of the purchaser's conduct that may have caused liability and interest at eight percent per annum from the date of the sale; or

        (d) If the basis for relief under this section may have been a violation of section 42(4) of this act; and if the customer is a purchaser, an offer to pay as specified in (b) of this subsection; or, if the customer is a seller, an offer to tender or to pay as specified in (c) of this subsection; or

        (e) If the basis for relief under this section may have been a violation of section 42(5) of this act, an offer to reimburse in cash the consideration paid for the advice and interest at eight percent per annum from the date of payment; or

        (f) If the basis for relief under this section may have been a violation of section 42(6) of this act, an offer to reimburse in cash the consideration paid for the advice, the amount of any actual damages that may have been caused by the conduct, and interest at eight percent per annum from the date of the violation causing the loss;

   (2) The offer under subsection (1) of this section states that it must be accepted by the purchaser, seller, or recipient of investment advice within thirty days after the date of its receipt by the purchaser, seller, or recipient of investment advice or any shorter period, of not less than three days, that the director, by order or otherwise, specifies;

   (3) The offeror has, in a separate account, cash on hand or other liquid assets sufficient to pay the amount offered or the present ability to tender the security under subsection (1) of this section, unless:

        (a) The filing made pursuant to subsection (6) of this section is made at least ten business days before the offering; and

        (b) The offer is passed upon by the director;

   (4) The offer under subsection (1) of this section is delivered to the purchaser, seller, or recipient of investment advice, or sent in a manner that ensures receipt by the purchaser, seller, or recipient of investment advice;

   (5) The purchaser, seller, or recipient of investment advice that accepts the offer under subsection (1) of this section in a record within the period specified under subsection (2) of this section is paid in accordance with the terms of the offer; and

   (6) The offer is filed with the director on or before the offering is made and conforms in form and content with a rule prescribed by the director.  If the basis for relief under this section may have been a violation of section 13 of this act, the director may require that a filing under this subsection be accompanied by the fee that would have been paid had the offering that is the subject of the potential violation been made in compliance with section 13 of this act.

USA with the following additions:

Conjuctions to clarify requirements.

Cash or other liquid assets standard is used for the ability to fund rescission liability.  Availability of such assets affects the filing requirements.

USA optional paragraph (6), requiring a filing, is included, with additional language addressing the time for filing and applicable fees. 

When the offeror does not have cash or other liquid assets, the Director must pass upon the rescission offer.

§ 44.  Sections 34 through 43 of this act are each added to chapter 21.20A RCW (created in section 115 of this act) and codified with the subchapter heading of "Fraud and Liabilities."

Code Reviser Instructions