CHAPTER 5. FRAUD AND LIABILITIES
IC 23-19-5
Chapter 5. Fraud and Liabilities
IC 23-19-5-1
Fraudulent or deceitful acts
Sec. 1. 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 statement
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.
As added by P.L.27-2007, SEC.23.
IC 23-19-5-2
Unlawful practices; investment advisers and investment adviser
representatives; investment advisory contract
Sec. 2. (a) 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, or that receives compensation to solicit, offer,
or negotiate for the sale of or for selling investment advice:
(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) A rule adopted under this article 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.
(c) A rule adopted under this article may specify the contents of
an investment advisory contract entered into, extended, or renewed
by an investment adviser.
As added by P.L.27-2007, SEC.23.
IC 23-19-5-3
Evidentiary burden
Sec. 3. (a) In a civil action or administrative proceeding under this
article, a person claiming an exemption, exception, preemption, or
exclusion has the burden to prove the applicability of the claim.
(b) In a criminal proceeding under this article, a person claiming
an exemption, exception, preemption, or exclusion has the burden of
going forward with evidence of the claim.
As added by P.L.27-2007, SEC.23.
IC 23-19-5-4
Sales and advertising literature filing
Sec. 4. (a) Except as otherwise provided in subsection (b), a rule
adopted or order issued under this article may require the filing of a
prospectus, a pamphlet, a circular, a form letter, an 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 article.
(b) This section does not apply to sales and advertising literature
specified in subsection (a) that relates to a federal covered security,
a federal covered investment adviser, or a security or transaction
exempted by IC 23-19-2-1, IC 23-19-2-2, or IC 23-19-2-3 except as
required under IC 23-19-2-1(7).
As added by P.L.27-2007, SEC.23.
IC 23-19-5-5
Filing false or misleading statements
Sec. 5. 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
article, 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.
As added by P.L.27-2007, SEC.23.
IC 23-19-5-6
Filings related to fact of registration; unlawful act
Sec. 6. The filing of an application for registration, a registration
statement, a notice filing under this article, the registration of a
person, the notice filing by a person, or the registration of a security
under this article does not constitute a finding by the commissioner
that a record filed under this article 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 commissioner 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 purchaser,
customer, or client a representation inconsistent with this section.
As added by P.L.27-2007, SEC.23.
IC 23-19-5-7
Qualified immunity
Sec. 7. 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 commissioner or designee of the commissioner, 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.
As added by P.L.27-2007, SEC.23.
IC 23-19-5-8
Violations; felony; assistance in prosecution
Sec. 8. (a) A person who knowingly violates this article, or a rule
adopted under this article, except section 4 of this chapter or the
notice filing requirements of IC 23-19-3-2 or IC 23-19-4-5, commits
a Class C felony.
(b) A person who knowingly violates section 1 of this chapter
commits a Class B felony if the person harmed, defrauded, misled,
or deceived by the violation is at least sixty (60) years of age.
(c) A person who knowingly violates section 1 of this chapter:
(1) while using or taking advantage of; or
(2) in connection with;
a relationship that is based on religious affiliation or worship
commits a Class B felony.
(d) It is the duty of a prosecuting attorney, as well as of the
attorney general, to assist the commissioner upon the commissioner's
request in the prosecution to final judgment of a violation of the
penal provisions of this article. If the commissioner determines that
an action based on the securities division's investigations is
meritorious:
(1) the commissioner or a designee empowered by the
commissioner shall refer the facts drawn from the investigation
to the prosecuting attorney of the judicial circuit in which the
crime may have been committed;
(2) the commissioner and the securities division shall assist the
prosecuting attorney in prosecuting an action under this section,
which may include a securities division attorney serving as a
special deputy prosecutor appointed by the prosecuting
attorney;
(3) a prosecuting attorney to whom facts concerning fraud are
referred under subdivision (1) may refer the matter to the
attorney general;
(4) if a matter has been referred to the attorney general under
subdivision (3), the attorney general may:
(A) file an information in a court with jurisdiction over the
matter in the county in which the offense is alleged to have
been committed; and
(B) prosecute the alleged offense; and
(5) if a matter has been referred to the attorney general under
subdivision (3), the commissioner and the securities division
shall assist the attorney general in prosecuting an action under
this section, which may include a securities division attorney
serving as a special deputy attorney general appointed by the
attorney general.
(e) This article does not limit the power of this state to punish a
person for conduct that constitutes a crime under other laws of this
state.
As added by P.L.27-2007, SEC.23. Amended by P.L.156-2009,
SEC.23.
IC 23-19-5-9
Civil liability; defense; rights and remedies; joint and several
liability; right of contribution; statute of limitations; contractual
waivers void
Sec. 9. (a) A person is liable to the purchaser if the person sells a
security in violation of this article, including a violation of
IC 23-19-4-12(d)(9) or IC 23-19-4-12(d)(13). It is a defense if the
person selling the security sustains the burden of proof that either the
person did not know, and in the exercise of reasonable care could not
have known, of the violation or the purchaser knowingly participated
in the violation. 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 greater of
eight percent (8%) per annum or the rate provided for in the
security from the date of the purchase, costs, and reasonable
attorney's fees determined by the court or arbitrator, upon the
tender of the security, or for actual damages as provided in
subdivision (3).
(2) The tender referred to in subdivision (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 subdivision (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 greater of eight percent (8%) per annum or the
rate provided for in the security from the date of the purchase,
costs, and reasonable attorneys' fees determined by the court or
arbitrator.
(b) A person is liable to the seller if the person buys a security in
violation of this article, including a violation of IC 23-19-4-12(d)(9)
or IC 23-19-4-12(d)(13). It is a defense if the person purchasing the
security sustains the burden of proof that either the person did not
know, and in the exercise of reasonable care could not have known,
of the conduct constituting the violation or the seller knowingly
participated in the violation. 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
attorney's fees determined by the court or arbitrator, upon the
tender of the purchase price, or for actual damages as provided
in subdivision (3).
(2) The tender referred to in subdivision (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 subdivision
(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 greater of eight percent (8%) per annum or
the rate provided for in the security from the date of the sale of
the security, costs, and reasonable attorney's fees determined by
the court or arbitrator.
(c) A person acting as an investment adviser or investment adviser
representative that provides investment advice for compensation in
violation of this article is liable to the client. An action under this
subsection shall be governed by the following:
(1) For a violation of section 1 or 2 of this chapter, the client
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 greater of eight percent (8%)
per annum or the rate provided for in the security from the date
of the fraudulent conduct, costs, and reasonable attorney's fees
determined by the court less the amount of any income received
as a result of the fraudulent conduct.
(2) For a violation of any other section of this article, the client
may maintain an action to recover the consideration paid for the
advice, interest at the greater of eight percent (8%) per annum
or the rate provided for in the security from the date of
payment, costs, and reasonable attorney's fees determined by
the court or arbitrator.
(3) 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.
(d) The following persons are liable jointly and severally with and
to the same extent as persons liable under subsections (a) through
(c):
(1) A person that directly or indirectly controls a person liable
under subsections (a) and (b), unless the controlling person
sustains the burden of proof that the controlling person did not
know, and in the exercise of reasonable care could not have
known, of the existence of the 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 (a) through (c),
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 (a) through (c) 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.
(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 (a) through
(c), 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.
(e) 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.
(f) A cause of action under this section survives the death of an
individual who might have been a plaintiff or defendant.
(g) Action under this section shall be commenced within three (3)
years after discovery by the person bringing the action of a violation
of this article, and not afterwards.
(h) A person that has made, or has engaged in the performance of,
a contract in violation of this article or a rule adopted or order issued
under this article, 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 article, may not base an
action on the contract.
(i) A condition, stipulation, or provision binding a person
purchasing or selling a security or receiving investment advice to
waive compliance with this article or a rule adopted or order issued
under this article is void.
(j) The rights and remedies provided by this article are in addition
to any other rights or remedies that may exist.
As added by P.L.27-2007, SEC.23.
IC 23-19-5-10
Rescission offers
Sec. 10. A purchaser, seller, or recipient of investment advice may
not maintain an action under section 9 of this chapter 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 9 of this chapter 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 article 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 described in section 9(a) of this chapter, an offer to
repurchase the security for cash, payable on delivery of the
security, equal to the consideration paid, and interest at the
rate of eight percent (8%) 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 the rate of eight percent (8%)
per annum from the date of the purchase in cash equal to the
damages computed in the manner provided in this clause;
(C) if the basis for relief under this section may have been a
violation described in section 9(b) of this chapter, 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 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 rate of eight percent (8%) per
annum from the date of the sale; or
(D) if the basis for relief under this section may have been a
violation described in section 9(c) of this chapter, an offer to
reimburse in cash the consideration paid for the advice and
interest from the date of payment;
(2) the offer under subdivision (1) states that it must be
accepted by the purchaser, seller, or recipient of investment
advice within thirty (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 (3) days, that the
commissioner, by order, specifies;
(3) the offeror has the present ability to pay the amount offered
or to tender the security under subdivision (1);
(4) the offer under subdivision (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 subdivision (1) in a record within the
period specified under subdivision (2) is paid in accordance
with the terms of the offer.
As added by P.L.27-2007, SEC.23.