*"^''E^-- -I- By-jmmM.MllQT ■J-fee-Gblymbi Olorn^U IGam ^rl|ool ffiibrarg Cornell University Library KF 1434.8.E46 The annotated Blue sky laws of the Unite 3 1924 019 371 834 DATE DUE f\irJ3u™3_J ^WW^W*!^-S*?! te^g QAYLOflD 1 PRINTED IN U.S.A | The original of this book is in the Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/cletails/cu31924019371834 THE ANNOTATED BLUE SKY LAWS OF THE UNITED STATES A complete digest and manual of all the laws of all the states gov- erning the right or license to dispose of stocjts, bonds and other securities under the "Blue Sfcy" or other regulatory laws by corporations, underwriters, bankers, investment hankers, brokers, insurance companies, bond investment companies (sales on the installment plan), dealers and individuals The decisions of the Courts, with the opinions of the attorneys-general of the several states construing the laws relating to the disposal of securities. The rules, regulations and forms of procedure of the department of each state, which supervise the dis- posal of securities. By JOHN M. ELLIOTT (OF THE COLUMBUS. OHIO, BAR; COUNSEL FOR THE DEPARTMENT OF BANKS AND BANKING OF OHIO) Cincinnati THE W. H. ANDERSON CO. Law Book Publishers 1919 COPYRIGHT 1919 BY THE W. H. ANDERSON CO. CINCINNATI. OHIO PREFACE LAWS regulating the issuance of securities, the so-called "Blue Sky Laws", are of very recent origin, and con- stitute an important addition to the statutory law of the United States. These laws were made necessary by the greed, of the unscrupulous promoter, whose activity they are designed to curb. The increasing number of states enacting this type of legis- lation, and the necessity of meeting the varying requirements for the sale of securities within the several states, impressed the author with the need of a work of this character. It. has been the purpose^.i^j^^ajring this work to cover the subject of "Blue Sky Laws" in the most complete manner pos- sible, and to make it useful not only to the members of the bar,, but to the laym.an as well, who may be engaged in the sale of securities. The first part is devoted to a general discussion of the pur- pose, necessity, construction and constitutionality of "Blue Sky" Legislation. In the next part will be found the Statutes of all the States which in any manner govern or relate to the sale of securities, together with the forms prescribed by the several states for use by those seeking the right to sell securities within any particular state. Here will be found also, instructions for applicants for licenses from the various states, together with reports showing the spirit in which these laws are administered. The author deemed it wise to" include the laws governing investment or bond investment companies, which sell securities on the installment plan and also statutes which specifically govern the sale of stock and securities in oil and mining companies. Because of the fact that laws of this kind are new, there is only a small number of reported cases construing them, and the (iii) iv PREFACE leading cases involving the construction of "Blue Sky Laws" will be found printed in full in the last part of this volume. Wher- ever it has been possible to obtain theni, there has also been in- cluded, opinions of the Attorneys General of the various states, construing the statutes, with the hope that they may be found useful in view of the small number of reported cases. Acknowledgment is here made to Judge Patrick A. Berry of the Securities Department of the State of Ohio, and to Her- man R. Tingley of the Columbus, Ohio, Bar, for their coopera- tion and efEcient aid in the preparation of this work. John M. Elliott. Columbus, Ohio. November i, 1919. TABLE OF CONTENTS Chapter 1 — pages Purpose of the Law > x Chapter 2 — Definitions 5 Disposal 5 To Part with' .■.'.'. .'.".'. ..... . . .' 5 Dispose of ■ 5 Dispose 5 Disposed 5 Dealer 6 Investments , 6 Loan 6 Market Value 6 Quasi Public Corporation 7 Quasi Public or Public Service Corporation 7 Sale 7 Security 7 Chapter 3 — Constitutionality 8 Inter-State Commerce 13 Inspection ; 18 Exceptions 18 Standard manuals 18 Members of Stock Exchanges 18 Individual Sales 19 Equal Protection of the Laws ' 21 Arbitrary Powers 23 License 26 Due Process 27 Classification — Exceptions , 30 Statutes, etc Alabama — License for those dealing in Stocks and Bonds 45 Arizona — Investment Company Law Regulation, Inspection, In- vestigation 46 Suggestions for Applicants 56-57 Arizona Corporation Commission General Order No. 61 57-59 Forms ■ 5D-62 (v) vi CONTENTS I Arkansas — pages Blue Sky Law 63-73 Annotations 72 Administration 73 Forms 73-82 /.California — Blue Sky Law '. 83-105 Administration of the Law 105-112 Suggestions for Applicants 112 Forms 112-125 Colorado — Sale of Securities by Insurance Companies 126-127 ;j." ; Formation 126 ''f: ■ Agents' license 127 Penalty for Selling stock without license 127 Connecticut — Sale of Securities 126-134 Annual Reports of Investment Companies 129-130 Annual Returns of Mining and Oil Companies 130 Mortgage and Investment Companies 132-134 Mining and Oil Companies 130-134 Delaware — Foreign Corporations 135-136 Blue Sky Law .7 137-141 Florida — Investment Companies 137-141 Annotations 141 Suggestions to Applicants 141 Forms 142-143 Georgia — Blue Sky Law 144-147 Investment Companies 147-151 Idaho — Blue Sky Law 152-159 Annotations 159^160 Illinois — Blue Sky Law ■ 161-175 Administration 175-218 Indiana — (No Blue Sky Law) Voluntary Associations 219-221 Investment Companies '. 221-223 CONTENTS vii Iowa — paces Blue Sky Law 224-235 Annotations '. 235 Investment Companies 236-239 Annotation 239 Administration 240-248 Forms 240-248 Kansas — Blue Sky Law ; 249-262 Administration 262 Instructions to Applicants 262-264 Forms 264r-273 Kentucky — (No Blue Sky Law) Investment Companies 274-278 Louisiana — Blue Sky Law 279-280 Administration ; 280 Forms 281-282 Maine — Blue Sky Law 283-291 Administration 291 Forms '. 291-295 Maryland — (No Blue Sky Law) Sale of Stock in Insurance Companies 296 Massachusetts — Regulation of Bond and Investment Companies. ; 297-300 Mining Corporations 300-301 Michigan — Blue Sky Law 302-311 Investment Company Law 312-317 Administration 317-331 Instructions 831-332 Forms , 332-352 Minnesota — Blue Sky Law 356-365 Investment Companies 365-366 Insurance Companies 366-371 State Securities Commission 372-373 Administration ■ 373-381 Procedure & Practice 381-391 Forms 391^04 viii CONTENTS Mississippi — pages Blue Sky La^vr 405^12 Administration , 412 Missouri — ■ Blue Sky Law '. . 413-420 Investment Companies 420-421 Annotations 421 Forms 422-428 Montana — Blue Sky Laws 429-437 Investment Companies 430-432 Stock Brokers 432-437 Annotation 437 Opinion of Attorney General 437-438 Instructions to Applicants 438-439 Rulings of Investment Commissioner 439 Addendum to Rules 439 Forms 440-454 Nebraska — Blue Sky Law 455-460 Installment Investment Companies 460-464 Annotation 465-466 Administration 465 Forms 467-475 New Hampshire — i Blue Sky Law 476-480 Administration 480-481 Forms 481^87 New Jersey — Investment Company Law 488 New York — Insurance Law 489-491 Investment Companies 492-501 Annotations 501-605 Forms 506-526 North Carolina — Blue Sky, Law , ' 527-531 Insurance Companies 531-533 Annotations 533 Administration 533-534 Forms 534-535 CONTENTS ix North Dakota — pages Blue Sky Law 536-544 Foreign Corporations 543 Record 543 Service of Summons 543 Failure to Comply with Law 544 Contracts Void 544 Indebtedness Regulated 544r-545 Examination of Finaiicial Condition 545 Banking Board may take charge 545 Penalty for False Report 545 Application Limited 545 Mining Corporations Law 546-548 Mining Corporations Statement 546-547 Record .' , 547-548 Penalty for Violation : . . . , 548 False Statement 548 Administration ., 648 Forms ' 549-557 Ohio — Blue Sky Law 558-568 Annotations 568 Digest of Law 568-579 Bond Investment Companies 580 Annotations *. 580-583 Administration 584r-594 Forms 594-621 Opinions of Attorney General 622-715 Oklahoma — Blue Sky Law 716-724 ■ Oregon — Blue Sky Law 725-734 Requirements of Foreign Corporations 733-734 Annotations .■ 734-785 Forms 735-746 Pennsylvania — Hivi-\ Laws Regulating Insurance .; 747-749 Companies and Corporations holding and dealing in Insurance Stock and Certificates; Regulation of Sale of Stock and Evidences of Indebtedness ; Subscrip- tions, Application, Penalties, Copies of Application and all Advertising Matter to be used with Insurance Com- missioner before sale. X CONTENTS Rhode Island — pages Blue Sky Laws 750-751 South Carolina — Blue Sky Laws 752-760 Annotations '^"^ Instructions to Applicants ; '^61 Forms .". 761-765 South Dakota — Blue Sky Laws 766-776 Annotations 776-777 Administration 777-780 Rules of Securities Commission 781-784 Instructions to Applicants 784-78iV Forms 785-795 Tennessee — Blue Sky Law 796-801 Forms , 802 Texas — Blue Sky Law 806-814 Bond Investment Company Law 814-815 Instructions to Applicants 815 Forms - 816 Utah — Blue Sky Law 838-845 Vermont — Blue Sky Law 846-851 Administration 852-853 Virginia. — -Blue Sky Law 854r-862 Insurance Companies 862-863 West Virginia — Blue Sky Law '. 864-870 Annotations 871 Forms 871-884 WlSCOMSlN — Blue Sky Laws 885-896 Forms 897-906 Wyoming — Blue Sky Law 907-91? CONTENTS xi Opinions of Courts — pages Ala. & N. O. Transp. Co. v. Doyle, 210 Fed. 173 937 Bracey v. Darst, Aud., 218 Fed. 482 971. Caldwell v. Sioux Falls Stock Yards Co., 242 U. S. 559, 61 L. Ed. 493, 37 Sup. Ct. Rep. 224 924 Compton Co. V. Allen, 216 Fed. 537 1017 Edward v. loor (Mich.) 952 Ex parte Taylor, 68 Fla. 61, 66 So. 292 1010 Hall V. Geiger-Jones Co., 242 U. S. 539, 61 L. Ed. 480, 37 Sup. Ct. Rep. 217 913 McKinney v. Watson, 74 Or. 220, 145 Pac. 266 969 Merrick v. Halsey & Co., 242 U. S. 568, 61 L. Ed. 498, 37 Sup. Ct. Rep. 227 929 Nat. Mer. Co. v. Keating, 218 Fed. 477 958 Nat. Mer. Co. v. Watson, 215 Fed. 929 966 Standard Home Co. v. Davis, 217 Fed. 904 993 State V. Agey, 171 N- C. 831, 88 S. E. 727 960 CHAPTER I PURPOSE OF THE LAW The law aims for the establishment of fairness between the vendor and purchaser of certain classes of securities. It is not a new code of ethics or business principles. Fraud and mis- representation in the promotion of corporations and the sale of their securities which these laws are intended to reach have al- ways been condemned by honest business and honest men. There is no need of, nor are, onerous burdens imposed upon honest business. These laws generally require only that cor- porations shall conform to the ordinary decent standards of integrity, such as existed prior to their passage. It is not pur- posed that the state shall attempt to remove or eliminate the ordinary hazards of business or that it shall attempt to limit the right to engage in enterprises which contain a large element of speculation if such are justly and fairly conceived and hon- estly conducted. Thoroughly informed of the hazards, the com- petent should be permitted to determine for themselves the feasibility of investing their money in any lawful venture. The necessity of restrictive means is self-evident. "The intent of the statute is to protect our people, under the police power, from fraud and imposition by irresponsible, non-resident parties. These instances have been so frequent that the United States Post Office Department has estimated that the people of this country have been losing annually more than one hundred millions of dollars by speculative schemes which have no more substantial basis than so many feet of 'blue sky'. "To prevent such an imposition on its people is an essential duty of government. If there is fraud and imposition in a case of this kind the parties imposed on can rarely go to Georgia to hunt up the guilty party, even if to be found there, and undergo the expense incident thereto. Even if this could be done, there would rarely be any assets which could be applied to the demands of the plaintiff. This state has sought to protect its people, not by forbidding such transactions, but ' State V. Agey, 171 N. C. 831, 88 S. E. Rep. 727. (1) 2 PURPOSE OF THE LAW by the very reasonable requirement that when parties, whether in- corporated or not, acting under the authority, actual or merely asserted, of another state, propose to do business within our borders, they must sub- mit their statement of assets and the nature of their business to the insurance commissioner of this state who will issue his license to do busmess here when he 'is satisfied that the company or corporation is safe and solvent and has complied with the laws of this state applicable to fidelity companies and governing their admission and supervision by the insurance department and making it indictable to transact such business in this state until such license has been obtained. This is a reasonable requirement under the police power of this state." "Experience has demonstrated the fact that some of the grossest frauds have been perpetrated on the public by investment companies by extravagant expenditures for salaries, agents' commissions, and other apparently legitimate purposes, through officers who had practically nothing invested in the association and whose character and reputation stamped them as adventurers and cheats. Such regulations are proper and wholesome. The dockets of the national courts have been crowded for the last few years with criminal prosecutions of persons charged with use of mails of the United States in carrying out fraudulent schemes, by so-called investment companies and persons offering allure- ments to get rich quick. But those courts are only clothed with juris- diction to prosecute those who, in carrying out their fraudulent schemes, make use of the mails, and only after the commission of the offense. This necessarily affects only a small portion of those engaged in such schemes, and can in no wise act as a preventative. The state alone can provide for the prevention and punishment of all who com- mit frauds, although the mails are not used for their accomplishment, and enact laws to prevent the commission of these crimes. Legislation to prevent crime is of greater benefit to society than the punishment of the offender after the crime has been committed and the innocent have been made to suffer."" The Postmaster General in his report for 191 3 says, "The stock selling proposition appears to appeal to the public more than any other one fraud scheme conducted and the amount of money taken in by promotors operating this class of schemes is enormous". In the report of the Postmaster General for 1914 it is said, "the conditions of business in this country have been revolutionized in the past few years. The old common law rule of caveat emptor cannot apply to mail order sales. At the present time sales are being made at a great distance from the 'Standard Home Co. v. Davis, 217 Fed. Rep. 904-919, upholding the blue sky law of Arkansas. PURPOSE OF THE LAW 8 purchaser who must pay out his money upon the faith of repre- sentations found in advertisements, catalogs and other hterature with no opportunity to examine the article before purchase." The Attorney General ai Ohio in an opinion says: "The sole purpose of the Blue Sky Law is the protection of the prospective investor. The enactment of such a law in Ohio and other states grew out of pressing necessity. The vulturous tribe, whose mem- bers have come to be known as 'Wallingfords,' had so successfully preyed upon society that the checking of their activities became im- perative. "Men and women, who, by industry, thrift and economy, had been able to accumulate modest amounts of money from time to time, were being continually and continuously fleeced out of their savings through the glowing promises of absolutely safe returns on their investments. "Through the cupidity of men of apparently good standing in various communities, these vultures werfe able not only to find who had saved a little money for a 'rainy day' but to get these same informants to quietly and 'confidentially recommend' their so-called securities in institutions whose statements had been grossly padded and whose dummy directorates consisted of apparently respectable citizens. "The average small investor knows little or nothing about Dunn or Bradstreet and, even if one had thought of getting such a report the local 'capper' who had furnished the 'tip' would have advised against it. "Persons having but a few hundred or a few thousand dollars to invest could not afford to go to the expense of having an independent audit and appraisal made, even if they had thought of such a thing; besides, they were always furnished with expensively printed prospectuses setting forth an alleged impartial audit and appraisal. "Thus the savings of the people were being coaxed from the banks and building and loan associations and exchanged for beautifully en- graved or lithographed certificates of stocks and-ljonds, which soon proved worthless. Many of these investors, in middle life or old age, found themselves destitute not only of worldly goods but of courage to con- tinue the fight. "It was such conditions which I have outlined that led the legis- lative bodies of the various states to take some action. Hence the State of Ohio stepped in and for the protection of its citizens said: "'(1). — That, excepting public service company securities au- thorized by some public service commission, securities purchased in good faith by an underwriter at not less than ninety per cent of the price afterwards to be charged the public, or the securities of a going manufacturing, coal-mining or quarrying concern in this state, the sale of all securities is iprohibited, even by a licensed dealer, untir a certificate has been obtained from the state; that 4 PURPOSE OF THE LAW before such certificate may issue full detailed information con- cerning the institution must be furnished and it must affirmatively appear that the law has been complied with, that the business is not fraudulently conducted, that the issuer or vendor is solvent, and that the disposal is not on grossly unfair terms. Inquisitorial powers are given the "commissioner" to insure his possession of the necessary information, and the right is reserved the state to revoke the certificate. "'(2). — That, with certain exceptions, no person may dispose of securities evidencing title to or interest in property without being first licensed. "'(3). — That, before such license to a dealer in securities may issue : "'(a). — The applicant must furnish full information concerning not only his business, but himself and his agents. "'(b). — The state, however, is not bound to be satisfied with the claims of the applicant in this respect but the legislature went further and placed the positive duty upon the "commissioner" to confirm, by such investigation as may be necessary to establish good repute in business of all concerned; "'(c). — The notice of the application for a license must be pub- lished and no action taken by the "commissioner" until a definite time thereafter has elapsed. "'(d). — If, after all this, the "commissioner" be satis&ed of the good repute in business of the applicant and his agents, a li- cense to sell securities may issue. "'(4). — That any person who, without disclosing that he is to profit thereby, advises or procures any person to purchase any security shall be liable in damages to the person so purchasing such security.' "The controlling purpose of the 'commissioner' should be to protect the investors of the statsl/by .driving out of business every person, firm, or corporation that conducts'i'nie business of selling securities unfairly or' fraudulently, to the end that when the citizens of this state dear with persons or concerns holding a license from your department to sell securities, they may rely upon the truth of the representations made as to existing facts and the promises made as to what shall obtain in the future in concerns whose securities are being offered."^ ' Opinions Ohio Attorney General, 1915, Vol. Ill, 2074. See post A CHAPTER II Dealer- DEFINITIONS One who divides, distributes or delivers. A negotiator, an agent. One who does business; a trader, a trafficker especially one who makes a business of buying and selling goods espec- ially as distinguished from a manufacturer, without altering their condition as a dealer in dry goods; a dealer in stocks; a retail dealer. — Webster. Disposal — Disposal is a word of broad significance and is thus de- fined by Webster: To determine the faith, of; to. exercise control over; to fix the condition, application, employment, etc., of ; to direct or assign for a use ; to exercise finally one's power of control over ; to pass over into the control of some- one else; to alienate; to bestow; to part with; to get rid of, as to dispose of a house, or dispose of one's time. In Comp. Laws, c, 32 Sec, 28 prohibiting the fraudulent sale, transfer, secretion, or disposal of property with intent to defraud creditors, "disposal" means to pass the property over into the control of another, to part with it, or get rid of it, to exercise finally one's power of control over it. Herold v. State, 21 Neb. 50-51, 31 N. W. 258, 261. "Dispose of" means "to alienate, to effectually transfer" U. S. V. Hacker, 73 Federal 292, 294. "Dispose" as used in a statute punishing the disposal of forged paper, means to transfer Xo any person, to put into the hands of another, or to. put away by any means. People V. Rathbun, 21 Wend.' (N. Y.) 509-52^. (5) 6 DEFINITIONS In Revised Statute 1879 — Section 398, autliorizing an at- tachment when the defendant has fraudulently concealed, re- moved, or disposed of his property or effects, so as to hinder or delay his creditors, "disposed" covers all such alienations of property as may be made . in ways not otherwise pointed out in the statute; for example, such as pledges, gifts, pawns, bailments, and other transfers and alienations as may be ef- fected by mere delivery and without the use of any writing or assignment or conveyance. Bullene v. Smith, 73 Mo. 151, 161. Investment — The placing out of money in the purchase of property, se- curities, etc. ; to lay out money in business with the view of ob- taining an income or profit; to convert into some form .of wealth other than money, usually of more or less permanent form and as a means of obtaining income or profit as to invest money in bank stock. — Webster's Diet. Loan — Money furnished to another for temporary use on condi- tion that it be returned in a specified time. — Webster's Diet. Market Value — The price at which the owner of the goods, or the producer, holds them for sale; the price at which they are freely offered in the market to all the world; such prices as dealers in the goods are willing to receive and purchasers are made to pay when the goods are bought and sold in the ordinary course of trade. Cliquots Champagne. 3 Wall 114: 18 L. Ed. lib, Muser v. Magone 155 U. S. 240, 39 L. Ed. 135, 15 Sup. Ct. Rep 77. Sale — A sale, in the ordinary sense of the word, is a transfer of property from bne person to another for a fixed price in money or its equivalent. Five Per Cent Cases. 110 U. S. 471, 28 L. Ed. 198 4 Sup Ct. Rep. 210. DEFINITIONS 1 Quasi-public corporation is a private corporation which has accepted from the state the grant of a franchise or contract involving the performance of public duties. City of Danville v. Danville Water Co. 180 111. 235, 54 N. E. 224. A quasi-public or public service corporation, is one, private in its ownership but having a franchise from the state to pro- vide for a necessity or convenience of the general public. Security — -.^ That which secures or makes safe; protection'; guard; defense. Something given, deposited or pledged, to make se- cure, or certain; the fulfillment of an obligation, the payment of a debt, etc. ; property given or serving to render secure the enjoyment- or enforcement of a right; surety; pledge; as the security is poor. An evidence of debt or of property as a bond, stock certifi- cate, or other instrument ; a document giving the holder the ^ right to demand and receive property not in his possession. — Webster's Diet. CHAPTER III CONSTITUTIONALITY Almost from the dates of their enactment the constitu- tionality of the laws regulating the disposal of securities has been assailed. These attacks have generally been based on the grounds that they are violative of the commerce clauscrofthe federal constitution; that they deprive one of prope^y with- out due process of law ; that they deny the equal protection of the laws; that they delegate legislative and judicial power to an executive officer; that they are laws of a general nature but do not operate uniformly, that they are not within the police power of the state being unnecessary for the protection of health, safety morals or the welfare of the people ; or that they grant to citizens of one state rights, privileges or immunities not granted to the citizens of another state. ^ Modern conditions have become so complex that it is nof only impracticable but even impossible for the investor to in- vestigate the merits if any of many of the securities and espec- ially those of the alluring character to control which the regu- latory or the Blue Sky Laws were enacted, which are offered to, him. The doctrine of caveat emptor can no longer apply, nor should it. He who offers his "wares" to the public should do so in good faith. "Time was when a man saw to it that his neighbor did not cheat him, later he saw to it that he did not cheat his neigh- bor and when he reached the latter period he had exchanged ■his wheelbarrow for a chariot in the sun". Instead of throttling it should stimulate business, the investor will know when an ' Geiger-Jones vs. Turner, U. S. District Court of Ohio, 230 Fed 233. Standard Home Co. vs. Davis, U. S. District Court of Arkansas 217 Fed., 904. Ex parte Taylor, Supreme Court of Florida, 68 Fla., 61, 66 Sou 292. Compton vs. Allen, U. S. District Court of Iowa, 216 Fed., 537. (8) CONSTITUTIONALITY 9 offer of securities is made that the state has scrutinized and will continue to scrutinize such security. Against that conservatism of mind which puts to question every new ac^ of regulating legislation, and regards the legis- lation invalid or dangerous until it has become familiar, govern- ment — state and national — has pressed on in the general welfare ; and our reports are full of cases wherein instance after instance the exercise of regulation was resisted and yet sustained against attacks asserted to be justified by the Con- stitution of the United States. The dread of the moment hav- ing passed, no one is now heard to say that rights were re- strained or their constitutional guaranties impaired. - The act must be sustained unless it can be clearly shown to be in conflict with some constitutional provision. The ques- tion as to its wisdom was for the determination of the I^egis- lature; with that the court is not concerned. If the .power under the federal Constitution to enact it is absent, it is unim- portant how wise, necessary or beneficent it may be, for it is then necessarily void because in conflict with the organic law of the Jand. ^ If there are separate and independent unconstitutional pro- visions in the statute, which may be rejected, and the rest of the act be permitted to stand and have effect according to the legislative intent, the valid portions must be upheld. But if an unconstitutional element pervades the entire statute as an in- herent and essential part, it must fail as an entirety. In Such a case it does not avail that the officer charged with the execu- tion of the law may not enforce it according to its terms, but only as --he- may deem wise and expedient. Assent cannot be given, under such circumstances to the proposition that, al- though a statute may authorize the accomplishing of an un- - "Gertrian AUiSnce. Insurance Co. vs. Lewis, 233 U. S., 389-409, 58: L. ed.. lOli, 34 Sup. Rep., 612. '."Geieer- Tones Co. v; Turner, 230- Federal, 233, citing: , (Rail and River' Coal' Co.- V. Yaple (D. C) 214 Fed., 273. 2'79, 280; Alabama aad N. O. Transp. Co. v. Doyle (-D.-C.) 210 Fed. -176: Bracey v. Darst CD. C.) 218 Fed. 4§'l. 492 ; Board of H^lth v. Greenville, 86 Ohio St. 1, 20,- 98. N. E. 1019, Ann. Cas. 1913D, 52j-.State v. Toledo, 48 Ohio St.. 112, 132;-13S;. 2f!-N. ft.. 1(^1. n L. R. A. 799.') 10 CONSTITUTIONALITY constitutional purpose, it must, nevertheless, be presumed that it will, in fact, only be used to accomplish what can be done in accordance with the Constitution. * It is a well-settled rule of law that a statutp will not be declared unconstitutional at the instance of one not affected by it. » Where the party attacking the constitutionality of a statute has not suffered, the court will not speculate whether others may suffer. " Aside from this^ the fact that national banks are excluded from the provisions of the act does not affect its validity. Na- tional banks, being creatures of the national government, are not subject to control or regulations concerning the manage- ment of their business by the states. '^ The fact that some reasonable exceptions are made does not make the act unconstitutional. ° Legislation may recognize degrees of evil without being arbitrarily unreasonable, or in conflict with the equal protec- tion provision of the fourteenth amendment to the Constitu- tion. " * Geiger- Jones Co. v. Turner, 230 Fed. 233 citing : Taylor v. Com- missioners, 23 Ohio St. 22, 33, 34; Alabama and N. O. Transp. Co. v. Doyle (D. C.) 210 Fed. 181; Bracey v. Darst (D. C.) 218 Fed. 491, 492 ; People v. Warden, 144 N. Y. 529, 539, 39 N. E. 686, 27 L. R. A. 718. 'Williams v. Walsh, 222 U. S. 415, 423, 56 L. ed. 253, 82 Sup Ct. Rep. 137; Murphy v. California, 225 U. S. 623, 56 L. Ed. 1229, 32 Sup. Ct. Rep. 697; 41 L. R. A. (N. S.) 153; Rosenthal v. New York, 226 U. S. 260, 271, 57 L. Ed. 212, 33 Sup. Ct. Rep. 27 Ann. Cas. 1914B, 71 ; Missouri, K. and T. R. R. Co. v. Cade, 233 U. S. 642, 650, 58 L. Ed. 1135, 34 Sup. Ct. Rep 678. 'Collins V. Texas, 223 U. S. 288, 295, 56 L. ed. 439, 32 Sup. Ct. Rep. 286. 'McCkllan v. Chipman, 164 U. S. 347, 41 L. ed. 461, 17 Sup. Ct. Rep. 85; Easton v. Iowa, 188 U. S. 220. 47 L. Ed. 452, 23 Sup Ct Ren 288; Abilene Nat. Bank v. Dolley, 228 U. S. 1, 67 L. Ed. 707 33' Suo Ct. Rep. 409; affirming 179 Fed. 461, 102 C. C. A. 607 32 L. R. A. (N! S.) 1065. 'Standard Home Co. v. Davis, U. S. District Court E. D. Atk. 217 ' Mutual Loan Co. v. Martell, 222 U. S. 225, 50 L. ed. 175, 32 Sup. Ct. Rep. 74. • f Also citing: Ozan Lumber Co. v. Union Bank 207 U S 251 &]-iiT,: mil- sVct^i^t ^ ^- ""''■ ^- -'^-^^ ^07 u. s: CONSTITUTIONALITY 11 It is the duty of the courts to endeavor to carry out the intention and policy of the Legislature, and that therefore they will not declare a statute unconstitutional in whole or in part where it is reasonably susceptible of a construction giving it eifect in all its parts. But it is well settled that courts must confine themselves to the construction of the law as it is, and not attempt to supply defective legislation, or otherwise amend or change the law under the guise of construction. The wisdom or want of wisdom displayed in the act is not a question for the courts, nor are the motives of the Legislature in including or omitting certain provisions. The legislative intention, how- ever, must be the intention, as expressed in the statute itself, and it only must be given effect by the courts, otherwise they would be assuming legislative authority. For courts to violate this rule and assume legislative functions justly merits the severest condemnation. In the interpretation of statutes, words in common use are to be construed in their natural, plain, and ordinary signification. It is a well-settled rule that, so long as the language used is unambiguous, a departure from its natural meaning is not justified by any consideration of its consequence, or of public policy; and it is the plain duty of the court to give it force and effect. A statute cannot in plain, common unambiguous words say one thing and be held to mean another thing. Authority for these principles will be found in the hun- dreds of cases cited in 36 Cyc. 1102'et seq. But, in this con- nection while the courts should be, and are, quick and ready to uphold legislative enactments, and where the meanings are doubtful, to solve all such doubts- in favor of their validity, they have to recognize a higher and more solemn obligation to uphold and maintain the Constitution, federal and state, upon which our government rests. These Constitutions emanate from the people themselves and are existent by virtue, of their solemn approval. Legislative acts entitled as they are to all presumptions in their favor, originate and become existent by the approval of changing bodies of meh, ' comparatively small in number. Where therefore legislative acts plainly violate the true meaning and effective force of constitutional provisions, 12 CONSTITUTIONALITY courts should be far more prompt and active to prevent per- nicious results therefrom, by declaring them invalid, than by specious interpretation, strive to uphold them in spite of such constitutional inhibitions. This I think is all that the Legislature of West Virginia has undertaken to do. The validity of similar legislation has been so often sustained that citation of authority seems hardly necessary. On the same principle rests the regulation of rail- roads by commissions, the inspection of meat, the condemnation of impure food, examination and inspection of cattle and fer- tilizers, examination and regulation of insurance companies, and their contracts; the inspection and regulation of markets and mines, and the regulation of the business of labor agents, and ,6i certain classes of banks. The police power of a state ex- tends to all regulations of its internal commerce designed to promote the public convenience or to prevent imposition oi fraud, as well as those designed to promote public health, pub- lic morals or public safety; and this, too, though the regula- tions described may incidentally afifect interstate commerce, provided Cotigress has not acted in the particular matter. ^° There are reasonable grounds for excepting national banks. The same rule applies to the objection that, while the act applies to stocks, bonds, and other securities, it is not ap- plicable to the bonds ' of the United States, nor to municipal bonds of the state of Arkansas. It is unnecessary to state reasons why this is not an unreasonable classification. They are apparent. Nor is it material, so far as the rights of the '"Bracey v. Darst, 218 Fed. 482, citing: Savage v. Jones, State Chemist of Indiana, 225 U. S. 501, 56 L. Ed. 1182, 32 Sup. Ct. Rep. 715, Lemieux v. Young, Trustee, 211 U. S. 489, 53 L. Ed. 295, 29 Sup. Ct. Rep. 174; Booth v. Illinois, 184 U. S. 425, 46 L. Ed. 623, 22 Sup. Ct. Rep. 425; Chicaeo, etc., Ry. Co. v. Drainage Commissioners 200 U S 562, 50 L. ed. 596, 26 Sup. Ct. Rep. 341; 4 Ann. Cas. 1175; Wilmington Star Minin? Co. v. Fulton, 205 U. S. 60, 51 L. Ed. 708. 27 Sup. Ct Rep 412; Bacon v. Walker, 204 U. S. 311, 51 L. Ed. 499, 27 Sup. Ct.' Rep 289; Williams v. Fears, 179 U. S. 270, 45 L. Ed. 186, 21 Sup. Ct Rep 128; Broadnax v. State .of Missouri, 219 U. S. 285, 55 L. Ed 219 31 Sup. Ct. Rep. 238 ; Natal v. Louisiana, 139 U. S. 621, 35 L. Ed 288, 11 Sup. Ct. Rep. 636; Slauahter House Cases, 16 Wall 36, 21 L. E 394- Assaria State Bank v. DoUey, 219 U. S. 121. 55 L. Ed. 123, 31 Sup Ct' Rep. 189; Simpson v. Kennedy, 230 U. S. 352, 57 L. ed. 1511, 33 Sun' Ct. Rep. 729, 48 I.. R. A. (N. S.) 1151. P' CONSTITUTIONALITY 13 plaintiff are concerned, whether that provision of the statute which prohibits the sale of stocks, bonds, or other securities unless the company issuing them is solvent, is constitutional or not, as the complainant specifically alleges that it is a solvent corporation and can therefore satisfy the bank commissioner of that fact. That the act denies to persons the right to purchase stocks, bonds, or other securities of an investment company when, in the opinion of the bank commissioner, such purchase would result in a loss to purchasers, certainly cannot affect the plain- tiff, who does not engage in the purchase of stocks or bonds, and does not claim to be authorized to do so by its charter. Is the act violative of the commerce clause of the national Constitution because it imposes a burden upon interstate com- merce? Unless the business of the plaintiff, as set out in its complaint shows that it is engaged in interstate commerce, it is, for the reasons before stated, in no position to question the constitutionality of the act. The allegations in the bill, as set- out in the statement of facts, show the complainant is not en- gaged in the sale of stocks, bonds, or other securities, as were the complainants in Alabama, etc.. Transportation Co. v. Doyle (D. C.) 2IO Fed. 173 (construing the Michigan "blue sky" statute), and in William R. Compton Co. v. Allen, 216 Fed. 537, decided by the District Court of the U. S. for the Southern District of Iowa (involving the Iowa statute). ^^ Interstate Commerce The next contention of appellees is that the law under re- view is a burden on interstate commerce, and therefore contra- venes the commerce clause of the Constitution of the United States. There is no doubt of the supremacy, of the National power over interstate commerce. Its inaction, it is true, may imply prohibition of state legislation but it may imply permis- sion of such legislation. In other words, the burden of the legislation, if it be a burden, may be indirect and valid in the absence of the assertion of the National power. So much is "Standard Home v. Davis, 217 Fed. 904. 14 CONSTITUTIONALITY a truism; there can only be controversy about its application. The language of the statute is : "Except as otherwise provided in this act, no dealer shall, within this state, dispose" of certain securities "issued or executed by any private or quasi-public corporation, co-partnership or association (except corporations not for profit) . . . without first being licensed so to do as hereinafter provided." The provisions of the law, it will ' be observed, apply to dispositions of securities within the State and while information of those issued in other states and foreign countries is required to be filed (Sec. 6373-9), they are only affected by the require- ment of a license of one who deals in them within the State. Upon their transportation into the State there is no impediment — no regulation of them or interference with them after they get there. There is the exactioci only that he who disposes of them there shall be licensed to do so and this only that they may not appear in false character and impose an appearance of a value which they may not possess — and this certainly is only an indirect burden upon them as objects of interstate commerce, if they may be regarded as such. It is a police regulation strictly, not affecting them until there is an attempt to make disposition of them within the State. To give them more im- munity than this is to give them more immunity than more tangible articles are given, they having no exemption from regu- lations the purpose of which is to prevent fraud or deception. Such regulations affect interstate commerce in them only in- cidentally. We might, indeed, ask, When do the designated securities cease migration in interstate commerce and settle to the juris- diction of the State? Material things, choses in possession, pass out of interstate commerce when they emerge from the original package. Do choses in action have a longer immunity? It is to be remembered that though they may differ in manner of transfer, they are in the same form in the hands of the pur- chaser as they are in the hands of the seller, and in the hands of both as they are brought into the State. We ask again, Do they never pass out of interstate commerce? Have they always the freedom of the State? Is there no point of time at which CONSTITUTIONALITY 15 the State can expose the evil that they may mask? Is anything more necessary for the supremacy of the national power than that they be kept free when in actual transportation, subjected to the jurisdiction of the State only when they are attempted to be sold to the individual purchaser? The questions are per- tinent, the answer to them one way or the other, of consequence ; but we may pass them, for regarding the securities as still in interstate commerce after their transportation to the State is ended and they have reached the hands of dealers in them, their interstate character is only incidentally affected by the statute. "The contention of the plaintiff in error is that the statute con- travenes the Federal Constitution in that the legislature Has undertaken to pass a law beyond the power of the state, because of the exclusive control of Congress over commerce among the states, under the Federal Constitution. "That Congress has the exclusive power to regulate interstate commerce is beyond question, and when that authority is exerted by the state, even in the just exercise of the police power, it may not interfere with the supreme authority of Congress over the sub- ject; while this is true, this court from the beginning has recog- nized that there may be legitimate action by the state in the mat- ter of local regulation, which the state may take until Congress exercises its authority upon the subject." "The limitations upon the police power are hard to define, and its far-reaching scope has been recognized in many decisions of this court. At an early day it was held to embrace every law or statute which con- cerns the whole or any part of the people, whether it related to their rights or duties, whether it respected them as men or citizens of the state, whether in their public or private relations, whether it related to the rights of persons or property of the public or any individual in the state. New York v. Miln, 11 Pet. 102, 139. The police power, in its Hatch v. Reardon, 204 U. S. 152, 51 L. ed. 415, 27 Sup. Ct. Rep. 188; Ware & Leland v. Mobile County, 209 U. S. 405; Engel v. O'Malley, 219 U. S. 128, 55 L. ed. 128, 31 Sup. Ct. Rep. 190 ; Brodnax v. Mi=souri, Id. 285, 55 L. ed. 219, 31 Sup. Ct. Rep. 238; Banker Bros. v. Pennsylvah-'a, 2,22 U. S. 210, 56 L. ed. 168, 32 Sup. Ct. Rep. 38; Savage v. Jones, 225 U. S. 501, 56 L/ed. 118-2, 32 Sup. Ct. Rep. 715 ^Standard Stock Food Co. v. Wright, Id. 540, 56 L. ed. 1197. 32 Sup! Ct. Rep. 784 ; Trading Stamp Cases, supra. Tanner v. Little, 2«> U. S. 869, 6,0 L. ed. 691, 36 Sup. Ct. Rep. 379. With these casfes International Text Book Co., v. Pigg, 217 U. S. 91, 54 L. ed. 678, 30 Sup. Ct. Rep. 481 ; Buck Stove & Range Co. V. Vickers, 226 U. S. .206, 57 L. ed. 189, 33 .Sup. Ct. Rep. 41, and the Lottery Cases, 188 U. S. 821, 47 L. ed. 492, 23 Sup. Ct. Rep. 321, are not in discordance. 16 CONSTITUTIONALITY broadest sense, includes all legislation and almost every function of civil government. Barbier v. Connolly, 113 U. S. 27. * * * " "The power of the state to prescribe regulations which shall prevent the production within its 'borders of impure foods, unfit for use, and such articles as would spread disease and pestilence, is well established. Such articles, it has been declared by this court, are not the legitimate subject of trade or commerce, nor within the protection of the co>mmerce clause of the constitution." Sligh V. Kirkwood, 237 U. S. 52; 59 L. ed. 835, 35 Sup. Ct. Rep. 501. "That the grant of commercial power to congress did not forbid the states from passing certain laws regulating pilotage, that the grant of the power tto congress to regulate commerce included various sub- jects and that upon some of these subjects the rule should be uniform, but upon others there should be different rules' in different states. This ruling was affirmed in Ex Parte McNeil, 13 Wall. 236, where Mr. Justice Swayne said (p. 240) : 'In the complex system of policy which pre- vailed in this country, the powers of government may be divided into four classes. . 1. Those which belorig exclusively to the states. 2. Those which belong exclusively to the national government. 3. Those which may be exercised concurrently and independently by both. 4. Those which may be exercised by the states, but only until congress shall see fit to act upon the subject. The authority of the state then retires and lies in abeyance until the occasion for its exercise shall recur. =f * * The commercial power lodged by the constitution in congress is, in part, of this character. Some of the rules prescribed in the exercise of that power must, from the very nature of things, be uniform throughout the country. To that extent the power itself must, necessarily, be exclusive; * * * other powers may well vary with the varying circumstances of different localities. In the latter contingency 'the states may prescribe the rules to be observed until congress shall supersede them." "The grant of commercial power to congress does not contain any terms which expressly exclude the states from exercising' an authority over its subject matter. If they are excluded it must be because the nature of the power, thus granted to congress, requires that a similar authority should not exist in the states." Cooley V. Board of Wardens oi Philadelphia, 12 How 299 ■ 13 L. ed. 996. « "A statute of a state, by which peddlers of goods, going from place to t)lace within the state to sell them, are required, under a penalty, to take out and pay for licenses, and which makes nb discriminatitsn be- CONSTITUTIONALITY 17 tween residents or products of the state and those of other states, is not, as to peddlers of goods previously sent to them by manufacturers in other states, repugnant to the grant by the constitution to congress of the power to regulate commerce among the several states." Emert v. Missouri, 156 U. S. 296; 39 L. ed. 430, 15 Sup. Ct. Rep. 367. "Legislative classification may rest on narrow distinctions. Legisla- tion is addressed to the evils as they may appear and even degrees of evil may determine its exercise." German Alliance Ins. Co. v. Lewis, 233 U. S. 389; 58 L. ed. 1011, 34 Sup. Ct. Rep. 612. "That inspection laws may have remote and considerable influence on commerce will not be denied, but that the power to regulate com-, merce is the source from which the right to pass them is derived cannot ' be admitted. * * * Tbey form a portion of that immense mass of legislation which embraces everything within the territory of the state and not surrendered to the general government, all of which can be most advantageously exercised by the states themselves. Inspection laws, quarantine laws and health laws of every description, etc., are com-- ponent parts of the mass. No direct general power over these subjects is granted to Congress, and consequently they remain subjects of state legislation." Gibbons v. Ogden, 9 Wheat. 1 and 203 ; 6 L. ed. 23. "In this day of multiplied means of intercourse between the states there is scarcely any contract which cannot in a limited or remote degree be said to affect interstate commerce. But it is only direct interferences, with the freedom of such commerce that bring the case within the ex- clusive domain of federal legislation." Field V. -Barber, 194 U. S. 618-623; 48 L. ed. 1142, 24 Sup. Ct. Rep. 784. "It has repeatedly been declared by this court that as to. those subjects which require a general system of uniformity of regulatibfi, the power of congress is exclusive. In other matters, admitting of diversity of tfeatment according to special requirements of local condi- tions, the states may act within their respective jurisdictions until con- gress sees fit to act." Minnesota Rate Cases (Simpson v. Shepard), 230 U. S. 352-399; 57 L. ed. 1511, 33 Sup. Ct. Rep. 729, modifying 184 Fed. 765. 18 CONSTITUTIONALITY Inspection The Federal Constitution itself evidently contemplated and by implication gave to the state the power of inspection. A part of Section lo is illuminating: "No state shall, without the consent of the Congress, lay any Im- posts or Duties on Imports or Exports, except what may be absolutely necessary for executing its inspection laws; and the net Produce of all Duties and Imposts, laid by any state on Imports or Exports, shall be for the Use of the Treasury of the United States ; and all such laws shall be subject to the Revision and Control of the Congress." Here is a recognition of the power of a state under its police powers to enact proper inspection laws, and this though even such laws might affect interstate commerce. The last clause of the section above quoted reserving to the congress the right to revise or control such laws or to enact uniform regulations gov- erning the subject. Thus far the congress has not done so and hence the power lies with the states. In substiance, effect and practical operation, Blue Sky laws are inspection laws. An act must be judged by its substantial provisions, regardless of its designation or title, and it must be held to be what it is though designated otherwise. Exceptions Standard Manuals From standard and well recognized manuals of information concerning securities, the investor may obtain such data as de- sired and if such manuals are approved by the authorities ad- ministerihg the Blue Sky laws securities listed in such manuals should be excepted from the Blue Sky provision. Members of Stock Exchanges Members of regularly established stock exchanges who con- duct an established and lawfully conducted place of business, open for public patronage, where the compensation for the sales or purchases of securities for their customers is standardized and usually a fraction of one per cent of the par value of the CONSTITUTIONALITY 19 securities are properly exempted from regulatory provisions concerning the securities listed on the exchange of which they are members. Individual Sales Nor is evil to be found in the case of an individual making a single and isolated sale of his own property in good faith. The difference between such sales and those made by a pro- moter or dealer is too apparent to require discussion. Where a sale was made to one person of more than fifty per cent of an issue of corporate bonds there is a manifest con- clusion that no evil attached to such transaction as such pur- chaser should make his own investigation and such person could not then dispose of such securities except and in the manner provided by law. Police Power The purpose of the Blue Sky Laws is the prevention of fraud as set out in a former chapter (see ante page). It may be contended that there is often fraud in such transactions is insufficient ground to justify supervision and control over all transactions regardless of their nature, whether good or bad. The purpose of a republican form of government is to insure to the individual life, liberty and the pursuit of happiness. This does not contemplate that the individual shall have untrammeled liberty to do as he pleases ; the rights of the individual are limited by the rights of others and the public welfare. Hence it follows that there must be certain restrictions upon the rights of in- dividuals, certain duties owing by the government to all of its subjects and certain duties which its subjects owe to each other. Public welfare or the rights of others becomes the limita- tion of action of individual freedom. We can prescribe laws when such are for the public welfare even though such laws circumscribe the freedom of contract. The state may scrutinize classes of transactions where it is known that while such transac- tions as a class are honestly conducted, yet in which it is known also that fraud is found. The state cannot prohibit the honest transaction,- yet it can subject it to such degree of control as 20 CONSTITUTIONALITY may be necessary to ascertain that it is not of a fraudulent character. That fraud is known in the subjects covered by the Blue Sky Laws is too well known to call for discussion and quite as apparent is the fact that it can be controlled or at least minimized by such laws only. Under many decisions a legislature has a right to classify transactions and the fact that in classes enumerated may be honest enterprises, does not so long as the same class covers dishonest enterprises, militate against the power of the legis- lature in the premises. The widest latitude of freedom, consistent with the purpose, should be granted. Legitirfiate enterprise should not be hindered except in so far as may be necessary and if in the same class honest transac- tion may be made, this fact does not render the law void. Honest business must bear some burdens in order that dis- honest business may be regulated or entirely prohibited. Laws are unnecessary to regulate or punish those who do not need regulation or deserve punishment but the laws which regulate evils are applicable alike to all within the class covered by them. "The right of state legislatures or municipalities acting under state authority to regulate trades and callings in the exercise of the police power is too well settled to require any extended discussion. In Gund- ling V. Chicago, 177 U. S. 183, 44 L. ed. 725, 20 Sup. Ct. Rep. 633, the doctrine was stated by this court as follows : 'Regulations respecting the pursuit of a lawful trade or business are of very frequent occurrence in the various cities of the country and what such regulations shall be and to what particular trade, business or occupation they shall apply are questions for the state to determine and their determination comes within the proper exercise of the police power by the state unless the regulations are so utterly unreasonable and ex- travagant in their nature and purpose that the property and personal rights of the citizens are unnecessarily and in a manner wholly arbitrary interfered with or destroyetl without due process of law, they do not ex- tend beyond the power of the state to pass and they form no subject for federal interference.' " Schmidinser v. Chicago, 226 U. S. 578 : 57 L. ed. 364, 33 Suo Ct. Rep. 182. CONSTITUTIONALITY 21 "Even if the provisions before us should seem to us not to have been justified by the circumstances locally existing in California at the time when it was passed, it is shown by its adoption to have expressed a deep-seated conviction on the part of the people conceiaied as to what that policy required. Such a deep-seated conviction is entitled to great respect. ("If the state, thinks that an admitted, evil cannot be prevented ex- cept by prohibiting a calling or transaction not ni itself necessarily ob- jectionable, the courts cannot interfere), unless, in looking at the sub- stance of the matter, they can see that it 'is a clear, unmistakable in- fringement of rights secured by the fundamental law.'" Otis v. Parker, 187 U. S. 606 ; 47 L. ed. 323, 23 Sup. Ct. Rep: 168. "But no refinement of reason is necessary to demonstrate the broad power of the legislature over the transactions of men. There are many lawful restrictions upon liberty of contract and business." Rast V. Van Deman, 240 U. S. 342-365 ; 60 L. ed. 679, 36 Sup. Ct. Rep. 370, reversing 214 Fed. 827. "A wide range of discretion, therefore, is. necessary in legislation to make it practical, and we have often said that the courts cannot be made a refuge from ill-advised, unjust or oppressive laws." District of Columbia v. Brooke, 214 U. S. 138-150; 53 L. ed. 941, 29 Sup. Ct. Rep. 560, reversing 29 App. D. C. 563. Equal Protection of the Laws Discriminations are asserfed against the statute which ex- tend, it is contended, to denying appellees the equal protection of the laws. Counsel enumerates them as follows : "Prominent among such discriminations are between the cases where more or less than fifty per cent, of an issue of bonds is in- cluded in the sale to one person ; between securities which have and which have not been authorized by the public service c5m- niission of this' state ; between the securities issued by a. bank, trust company, a building and loan association organized under the laws of this state and those which are not; between an owner who sells his securities in a single transaction and one who disposes of them; in -successive transactions; between a bank or trust company who sells at a commission of not more than two per cent, and one which sells at a 22 CONSTITUTIONALITY higher commission; against securities when any part of the proceeds to be derived from the sale are to be applied in payment for patents, services, good will or for property not located in this state; in provid- ing for such delays in the issuance of a license and in the subsequent conduct of business thereunder as to substantially hinder, and in many cases naturally arising, to utterly prevent sales ; in discriminating be- tween securities which have and which have not been published in regular market reports; between sales where in a single transaction the sale is for five thousand dollars or more; in discriminations against securities issued by taxing subdivisions of other states; between securities upon which there has and has not been a default as to principal or interest; against securities which have not from time to time for six months been published in the regular market reports or the news columns of a daily newspaper of general circulation in the state; where the securities are or are not of manufacturing or transportation companies in the hands of bona fide purchasers prior to March 1st, 1914, where such companies were, on that date and shall be at the time of the proposed sale, going concerns; between cases where the information contemplated is or is not contained in a standard manual of information approved by the commissioner; where the disposal is or is not made for a commission of less than one per cent, of the par value thereof by a licensee who is a member of a regularly organized and recognized stock exchange and who has an established and lawfully conducted business in this state regularly open for public patronage as such; between cases in which the vendor proposes to sell securities for which he has and those for which he has not paid ninety per cent, of the price at which they are to be sold by him; where the securities are or are not those of a common carrier or of a company organized under the laws of this state and en- gaged principally in the business of manufacturing, transportation, etc., and the whole or a part of the property upon which such securities are predicated are located within this state." We cannot give separate attention to the asserted discrimi- nations. It is enough to say that they are within the power of classification which a State has. A State "may direct its law against what it deems the evil as it actually exists without cov- ering the whole field of possible abuses, and it may do so none the less that the forbidden act does not differ in kind from those that are allowed. . . . If a class is deemed to present a conspicuous example of what the legislature seeks lo prevent, the Fourteenth Amendment allows it to be dealt with although otherwise and merely logically not distinguishable from others not embraced in the law." Central Lumber Co. v. South Dakota, 226 U. S. 157, 160; 57 L. ed. 164, 33 Sup. Ct. Rep. 66, affirm- CONSTITUTIONALITY 23 ing 24 S. D. 136, 42 L. R. A. (N. S.) 804. The cases were cited from which those propositions were deduced. To the same effect is Armour & Co. v. North Dakota, 240 U. S. 517; 60L. ed. 771, 36 Sup. Ct. Rep. 440, affirming L. R. A. 1916 E. 380. Hall V. Geiger- Jones, et al, 242 U. S. 539; 61 L. ed. 480, 37 Sup. Ct. Rep. 217, reversing 230 Federal 233. Arbitrary Powers The basis of these contentions is that the law confers arbi- trary power upon the commissioner. In considering the conten- tions we must keep in mind that the law is addressed to a com- plex situation. Its purpose is, as we have seen, to give a basis for judgment of the securities offered the purchasing public; assure credit where it is deserved and confidence to investment and trading; prevent deception and save credulity and ignorance from imposition, as far as this can be done by the approved reputation of the seller of the securities and authoritative in- formation. It may, however, be said that character establishes itself and neither needs nor can be compelled to accept the stamp of gov- ernment, and it is asserted that the "normal investment business of the country" and its "individual transactions" are not subject to "executive control", the broad contention being made that as such business cannot be prohibited it cannot be regulated. This, indeed, is the basic principle of the opposition to the. statute. It is expressed in many ways, and the various provisions of the statute — those that are explicit in direction to the commissioner and those that commit discretion to him — are said to so burden and complicate "normal business as to make it difficult if not impossible to carry it on in a normal way, if at all." As broadly made, we cannot assent to these propositions. The reason and extent of the law we have indicated and the control to which individual transactions are subjected, and we think both are within the competency of the State. It is to be remembered that the value of securities consists in what they represent, and to determine such value is a complex problem even to the most skillful and informed. 24 constitutionality; We have very lately decided a case upon the principle of the power of the State to prevent frauds and impositions. Hutchin- son Ice Cream Co. et al. y. Iowa. The principle applies as well to securities as to material products, the provisions of the law necessarily varying with the objects. As to material products the purpose may be accomplished by a re- quirement of inherent purity. The intangibility of securities, they being representatives or purporting to be representatives of something else, of property, it may be, in distant states and countries, schemes of plausible pretensions, requires a difference of provision and the integrity of the securities can' only be as- sured by the probity of the dealers in them and the information which may be given of them. This assurance the State has deemed necessary for its welfare to require; and the require- ment is not unreasonable or inappropriate. It extends to the general market something of the safeguards that are given to trading upon the exchanges and stock boards of the country, safeguards that experience has adopted as advantageous. In- convenience may be caused and supervision and surveillance, but this must yield to the public welfare ; and against counsel's alarm of consequences, we set the judgment of the State. Hall V. Geiger-Jones Co., 242 U. S. 539 ; 61 L. ed. 480, 37 Sup, Ct. Rep. 217, reversing 230 Federal 233. We turn back, therefore, to consider the more specific ob- jections to the law. The "basis of them is, as we have seen,, the power conferred upon the commissioner, which is asserted to be arbitrary. The objection is somewhat difficult to handle. It centers in the provision that requires the commissioner, as a condition of a license, "to be satisfied of the good repute in business of such applicant and named agents," and in the power given him to revoke the license or refuse to renew it upon ascer- taining that the licensee "is of bad business repute, has violated any provision of the act or has engaged or is about to engage, under favor of such license, in illegitimate business or fraud- ulent transactions." It is especially objected that as to these re- quireinents no standard is given to guide or determine the dici-' sion of the commissioner. Therefore, it 'js, contended, that the CONSTITUTIONALITY 25 discretion "thus vested in the commissioner leaves " 'room for the play and action of purely personal and arbitrary power.' " We are a little surprised that it should be implied that there is anything recondite in a business reputation or its existence as a fact which should require much investigation. If in special cases there may be controversy, those cases the statute takes care of ; an adverse judgment by the commissioner is review- able by the courts. Section 6373-8. So also as to the other judgments. Besides it is certainly apparent that if the conditions are within the power of the state to impose, they can only be ascer- tained by an executive officer. Reputation and character are quite tangible attributes, but there can be no legislative defini- tion of them that can autoniatically attach to or identify in- dividuals possessing them, and necessarily the aid of some executive agency must be invoked. The contention of appellees would take from government one of its most essential instru- mentalities, of which the various national and state commissions are instances. But the contention may be answered by authority. In Gundling v. Chicago, 177 U. S. 183; 44 L. ed. 725, 20 Sup. Ct. Rep 633, an ordinance of the city of Chicago was passed on which required a license of dealers in cigarettes and as ?. condition of the license that the applicant, if a single individual, all of the members of the iirm, if a co-partnership, and any per- son or persons in charge of the business, if a corporation, should be of good character and reputation, and the duty was delegated to the mayor of the city to determine the existence of the con- ditions. The ordinance was sustained. To this case may be added Red "C" Oil Co. v. North Carolina, 222 U. S. 380, 394; 56 L. ed. 240, 32 Sup. Ct. Rep. 152, and cases cited; Mutual Film Co. V. Ohio Industrial Commission, 236 U. S. 230; 59 L. ed. 561, 35 Sup. Ct. Rep. 393; Brazee v. Michigan, 241 U. S. 340, 341 ; 60 L. ed. 1034, 36 Sup. Ct. Rep. 561. See also Reetz V. Michigan, 188 U. S. 505; 47 L. ed. 563, 23 Sup. Ct. Rep. 390; Lieberman v. Van De Carr, 199 U. S. 552; 50 L. ed. 305, 26 Sup..Ct. Rep. 144. The discretion of the commissioner is qualified by his duty, and besides, as we have seen, the statute gives judicial review 26 CONSTITUTIONALITY of his action. Pending such review we must accord to the com- missioner a proper sense of duty and the presumption that the functions entrusted to him will be executed in the public interest, not wantonly or arbitrarily to deny a license to or take one away from a reputable dealer (Plymouth Coal Co. v. Pennsylvania, 232 U. S. 531, 545; 58 L. ed. 713, 34 Sup. Ct. Rep. 359;) and, as we have said, in cases where there can be a dispute of fact, the statute provides for judicial review, and we see no legal ob- jection to the designation of a particular court for such review. We are not disposed to give serious attention to the con- tention that while the statute in form prohibits sales "it at the same time necessarily prevents purchases, and thereby shields contemplated purchasers from loss of property by the exercise of their own "defective judgment," and puts them as well as the sellers under guardianship. If we may suppose that such purchasers would assert a liberty to form a "defective judgment" and resent means of information as a limitation of their free- dom, we must wait until they themselves appear to do so. Be- sides, there are examples in legislation of unsolicited protection, and there is much in the business we are considering which urges to an imitation of the examples. It is not wise to put out of view the tendencies of the business and that it tempts to and facilitates^ speculative judgments, if the purpose be trading, im- provident judgments, if the purpose be investment. Whatever detriment may come from such judgments the law may be powerless to prevent ; but against counterfeits of value the law can give protection, and such is the purpose of the statute under review. It must be judged of upon that consideration, not upon the assertion of an absolute liberty of conduct which does not exist. Hall V. Geiger-Jones et. al., 242 U. S. 539; 61 L. ed. 480, 37 Sup. Ct. Rep. 217, reversing 230 Federal 233. License An occupational tax may be levied by the states, the Fourteenth Amendment to the Federal Constitution notwith- standing, though such articles or property may have come into the state as interstate commerce. CONSTITUTIONALITY 27 "The license charge exacted is sought to be maintained as a tax upon a calling. It was held to be such a tax Ipy the Supreme Court of the state. * * * The general power of the state to impose taxes in the, way of licenses upon all pursuits and occupations within its limits is admitted." Welton V. Missouri, 91 U. S. 275 ; 23 L. ed. 347, reversing 55 Mo. 258. Due Process "It is too late to argue that due process of law is denied -whenever the disposition of property is affected by the order of an executive de- partment. Many, if not most, of the matters presented to these depart- ments require for their proper solution the judgment or discretion of the head of the department, and in many cases, notably those connected with the disposition of the public lands, the action of the department is accepted as final by the courts, and even when involving questions of law this action is attended by a strong presumption of its correctness. That due process of law does not necessarily require the interference of the judicial power as laid down in many cases and by many eminent writers upon the subject of constitutional limitations." Public Clearing House v. Coyne, 194 U. S. 497 ; 48 L. ed. 1092, 24 Sup. Ct. Rep. 789. "Any legal proceeding enforced by public authority, whether sanc- tioned by age and custom, or newly devised in the discretion of the legislative power, in furtherance of the general public good, which re- gards and preserves the principles of liberty and justice, must be held to be due process of law." Hurtado v. California, 110 U. S. 516; 28 L. ed. 232, 4 Sup. Ct. Rep. 111. "It is objected in the present case that the board of registra- tion is given authority to exercise judicial powers without any ap- peal from its decision, inasmuch as it may refuse a certificate of registration if it shall find that no sufficient proof is presented that the applicant had been 'legally registered under act No. 167 of 1883.' That, it is contended, is the determination of a legal question which no tribunal other than a regularly organized court can be empowered to decide. * * * Indeed, it not infrequently happens that a full discharge of their duties compels boards, or officers of a purely ministerial character, to consider and deterrhine questions of a legal nature. Due process is not necessarily judicial process. Murray's Lessee v. Hoboken Land & Improvement Co., 18 How. 272 ; 15 L. ed. 372; Davidson v. New Orleans, 96 U. S. 97 ; 24 L. ed. 616; 28 CONSTITUTIONALITY Ex Parte Wall, 107 U. S. 265-289; 27 L. ed. 552, 2 Sup. Ct. Rep. 569; Dreyer \. Illinois, 187 U. S. 71-83; 47 L. ed. 79, 23 Sup. Ct Rep. 28; People V. Hasbrouck, 11 Utah, 291; 39 Pac. 918. In the last case this very question was presented, and in the opinion, on page 305, it was said : " 'The objection that the statute attempts to confer judicial power on the board is not well founded. Many executive officers, even those who are spoken of as purely ministerial officers, act judicially in the determination of facts in the -performance of their official duties. + * * ' " "Neither is the right of appeal essential to due process of law. In nearly every state are statutes giving, in criminal cases of a minor nature, a single trial, without any right of review. For nearly a century trials under the federal practice for even the gravest offenses ended in the trial court, except in cases where two judges were present and certi- fied a question of law to this court. -In civil cases a common rule is that the amount in controversy limits the entire litigation to one court, yet there was never any serious question that in these cases due process „of law was granted." "It is further insisted that it is essential to a judicial or quasi- judicial proceeding that it should give a person accused or interested the benefit of a hearing, and that there is in this statute no special pro- vision for notice, or hearing, or authority to summon witnesses or to compel them to testify." Reelz V. Michigan, 188 U. S. 505; 47 L. ed. 568, 23 Sup. Ct Rep. 390. It is within the power of government to restrain some in- dividuals from all contracts as well as all individuals from some contracts ; and indeed it may restrain all engaged in any employ- ment from an\- contract in the course of that employment which is against public policy. The possession of this power by the government in no manner conflicts with the proposition that, generally speaking, every citizen has a right to freely contract for the price of his labor, services or property.^ Freedom of contract is a qualified and not an absolute right. There is no absolute freedom to do as one wills or to contract as one chooses. The guaranty of liberty does not withdraw from legislative supervision that wide department of activity which consists in the making of contracts, or deny to government the power to provide restrictive safeguards. Liberty implies the 'Frisbie V. U. S., 157 U. S. 165; 39 L. ed. 15, Sup. Ct Rep. 586. CONSTITUTIONALITY 29 absence of arbitrary restraint, not immunity from reasonable regulations and prohibitions imposed in the interest of the com- munity.^ To be able to find fault with a law is not to demonstrate its invalidity. It may seem unjust and oppressive, yet be free from judicial interference. The problems of government are practical ones, and may justify, if they do not require, rough accommodations, — illogical, it may be, and unscientific, but even such criticisms should not be hastily expressed. What is best is not always discernable. The wisdom of any choice may be disputed or condemned. Mere errors of judgment are not subject to judicial review. It is only palpably arbitrary ex- ercises which can be declared void under the Fourteenth Amend- ment.^ It has been held that the right to make contracts is emr braced in the conception of liberty as guaranteed by the con- stitution. The liberty mentioned in that amendment means not only the right of the citizen to be free from the mere physical restraint of his person, as by incarceration, but the term is deemed to embrace the right of the citizen to be free in the en- joyment of all his faculties ; to be free to use them in all law- ful ways ; to live and work where he will ; to earn his livelihood or avocation, and for that purpose to enter into all contracts, which may be proper, necessary and essential to his carrying oui to a successful conclusion the purposes above mentioned.^ The legislature being familiar with local conditions, is primarily, the judge of the necessity of such enactments. The mer* fact that a court may differ with a legislature in its views of public policy^ or that judges may hold views inconsistent with the propriety of the legislation in question, affords no ground for judicial = Crowley v. Christensen, 137 U. S. 89; 34 L. ed. 620, 11 Slip. Ct. Rep. 13. Jacobson v. Mass., 197 U. S. 11 ; 49 L. ed. 643, 25 Sup. Ct. Rep. 358. 'Metropolis Theatre Co. v. Chicago, 228 U. S. 61-69; 57 L. ed. 730, 33 Sup. Ct. Rep. 441. ' Allgeyer v. Louisiana, 165 U. S. 578 ; 41 L. ed. 382, 17 Sup. Ct. Rep, 427. Adair v. U. S., 208 U. S. 161 ; 52 L. ed. 436, 28 Sup. Ct. Rep. 277. C. B. & Q. R. R. V. McGuire, 219 U, S. 567 ; 55 L, ed. 328, 31 Sup. Ct. Rep. 259, 80 CONSTITUTIONALITY interference, unless the act in question is unmistakably and palpably in excess of legislative power.^ Classification. Exceptions The purpose of the laws is toi protect the public from fraud. To accomplish which it is not necessary to make them applicable to all classes of stocks, bonds and other securities nor to all classes of persons. There are, as there should be, exceptions. The evil aimed at does not exist in those securities listed and sold on regularly organized stock exchanges for these should not and usually are not so listed until a rigorous examination has been made to ascertain the actual condition surrounding the issuer and the securities issued. Nor does evil usually exist in cases where there have been actual sales of securities from time to time for a reasonable time and which sales have been published in the market reports of a paper of general circulation in the com- munity. It is unquestioned that, in proving the fact of market .value, accredited price-current lists and market reports, including those published in trade journals or newspapers which are accepted as trustworthy, are admissible in evidence.^ In the case of Rast v. Van Deman & Lewis Co., 240 U. S. 342-357; 60 L. ed. 679, 36 Sup. Ct. Rep. 370, reversing Van Deman v. Rast, 214 Fed. 827, Mr. Justice McKenna said : "it is established that a distinction in legislation is not arbitrary if any state of facts reasonably can be conceived that would sustain it, and the existence of that state of facts at the time the law was enacted must be assumed. Lindslev v. Natural Carbonic Gas Co., 220 U. S. 61-78, 55 L. ed. 369, 31 Sup. Ct. Rep. 337. It makes no difference that the facts may be disputed or their effect opposed by argument and opinion of serious streneth. It is not within the competency of the courts to arbitrate in such contrariety. C. B. & Q. R. Co. v. McGuire, 219 U. S. 549, 55 L. ed. 328, 31 Sup. Ct. Rep. 259, German Alliance Ins. Co! v. 'McLean v. Ark., 211 U, S. 539; 53 L. ed. 315, 29 Sup. Ct. Rep. 206. r. r.^";,?,'?'^ ^- ^"' Virgmia, 238 U. S. 202; 59 L. ed. 1272, 35 Sup Ct. Rep. 795. ^ CONSTITUTIONALITY 81 Lewis, 233 U. S. 389; 58 L. ed. 1011, 34 Sup. Ct. Rep. 612, Price v. Illinois, 238 U. S. 446, 59 L. ed. 1400, 35 Sup. Ct. Rep. 892. 'It is the duty and function of the legislature to discern and correct evils, and by evils we do not mean some definite injury but obstacles to a greater public welfare.' Eubank v. Richmond, 226 U. S. 137, 57 L. ed. 156, 33 Sup. Ct. Rep. 76, reversing Eubank v. Richmond, 110 Va. 749, 67 S. E. 376 ; Sligh v. Kirkwood, 287 U. S. 62-59, 59 L. ed. 835, 35 Sup. Ct. Rep. 501, and we repeat 'it may make discriminations if founded on distinc- tions that we cannot pronounce unreasonable and purely arbitrary.' Quong Wing v. Kirkendall, 223 U. S. 59 ; 56 L. ed. 350, 32 Sup. Ct. Rep. 192, affirming 39 Montana 64, 101 Pac. 250, and the cases cited above." "The subject matter, like the rest of the criminal law, is under the control of the legislature of South Dakota, by virtue of its general powers, unless the statute conflicts, as alleged, with the constitution of the United States. The grounds on which it is said to do so are that it denies the equal protection of the laws, but it affects the conduct of only a particular class, — those selling goods in two places in the state, ^- and is intended for the protection of only a particular class, — regular established dealers ; and also because it unreasonably limits the liberty of people to make such bargains as they like. "On the first of these points it is said that an indefensible classifi- cation may be disguised in the form of a description of the acts con- stituting the offense, and it is urged that to punish selling goods in one place lower than at another in effect is to select the class of dealers that have two places of business for a special liability, and in real fact is a blow aimed at those who have several lumber yards along a line of railroad, in the interest of independent dealers. All competition, it is added, imports an attempt to destroy or prevent the competition of rivals, and there is no difference in principle between the traders at a single place. The premises may be conceded without accepting the conclusion that this is an unconstitutional discrimination. If the legislature shares the now prevailing belief as to what is public policy, and finds that a particular instrument of trade war is being used against that policy in certain cases, it may direct its law against what it deems the evil as it actually exists without covering the whole field of possible abuses, and it may do so none the less that the forbidden act does not differ in kind from those that are allowed. Lindsley v. Natural Carbonic Gas Co., 220 U. S. 61 ; 55 L. ed. 369, 31 Sup. Ct. Rep. 337 : Missouri P. & R. Co. v. Mackey, 127 U. S. 205; 32 L. ed. 107, 8 Sup. Ct. Rep, 1 161." Central Lumber Co. v. South Dakota, 226 U. S. 157; 57 L. ed. 164, 33 Sup. Ct. Rep. 66. "It applies alike to sewing machines manufactured in the state and put of it. The exaction is not an unusual one. The state putting all 32 CONSTITUTIONALITY such machines on the same footing with respect to the tax complained of had an unquestionable right to impose the burden. Machine Co. v. Gage, 100 U. S. 676-679; 25 L. ed. 754, 756. "Again it is argued that the statute makes unconstitutional dis- criminations by excepting the classes mentioned in paragraph 29d above, especially those in whose business the average amount of each sum re- ceived is not less than five hundred dollars and those who give bonds of one hundred thousand or fifty thousand. But the former of these exceptions has the manifest purpose to confine the law as nearly as may be to the class thought by the legislature to need protection, and the latter merely substitutes a different form of security, as it well may. 'Legislation which regulates business may well make distinctions depend- ing upon the degree of evil,' Heath v. Worst, 207 U. S. 356-356 ; 52 L. ed. 236, 28 Sup. Ct. Rep. 114. It is true, no doubt, that where size is not an index to an admitted evil the legislature cannot discriminate be- tween -great and small. But in this case size is an index." Engel v. O'Malley, 219 U. S. 128-137; 55 L. ed. 128, 31 Sup. Ct. Rep. 190. "Other criticisms are made of the law to display what is alleged to be its lack of uniformity. For instance, a supposition is made of tenants in common, some of whom are residents and others are non- residents, and the possible difficulties that may arise from such owner- ship under the act; and it is asked that if the property belongs to resident minors or insane persons or persons under legal disability, can the act be enforced against them or against their property? To these sup- positions and questions we answ^er that it will be time enough to reply when a case arises in w^hich they are presented and to de- termine then the operation of the act upon the persons enumerated." District of Columbia v. Brooke, 214 U. S. 138; 53 L. ed. 941 29 Sup. Ct. Rep. 560. Reversing 29 App. D. C. 563. A variety of classifications were also sustained in the fol- lowing cases : Postal Tel. Co. v. Charleston, 153 U. S. 692; 38 L. ed. 871, 14 Sup Ct. Rep. 1094. Pacific Express Co. v. Seibert, 142 U. S. 339; 35 L. ed. 1035, 12 Sup. Ct. Rep. 250. Charlotte, Columbia & Augusta R. R. v. Gibbs, 142 U. S. 386; 35 L. ed. 1051, 12 Sup. Ct. Rep. 255. Central Loan & Trust Co. v. Campbell, 173 U. S. 84 ; 43 L. ed. 643, 19 Sup. Ct. Rep 346. Reversing 5 o. k. 396, 49 Pac. 48. CONSTITUTIONALITY 33 Clark V. Kansas City, 176 U. S. 114; 44 L. ed. 392, 20 Sup. Ct. Rep. 284. Erb V. Morasch, 177 U. S. 584 ; 44 L. ed. 897, 20 Sup. Ct. Rep. 819. Gundling v. Chicago, 177 U. S. 183 ; 44 L. ed. 725, 20 Sup. Ct. Rep. 683. Am. Sug. Refining Co. v. La., 179 U. S. 89; 45 L. ed. 102, 21 Sup. Ct. Rep. 43. Williams V. Fears, 179 U. S. 270 ; 45 L. ed. 186, 21 Sup. Ct. Rep. 128. Clark V. TitusviUe, 184 U. S. 329'; 46 L. ed. 569, 22 Sup Ct. Rep. 382. Consolidated Coal Co. v. 111., 186 U. S. 203 ; 46 L. ed. 872, 22 Sup. Ct. Rep. 616. Fidelity Mut. Life Asso. v. Mettler, 185 U. S. 308; 46 L. ed. 922, 22 Sup. Ct. Rep. 662. Travelers Ins. Co. v. Conn., 185 U. S. 864; 46 L. ed. 949, 22 Sup. Ct. Rep. 673. Farmers & M. Ins. Co. v. Dobney, 189 U. S. 301; 47 L. ed. 821, 23 Sup. Ct. Rep. 565. Cin. St. Ry. Co. v. Snell, 193 U. S. 30; 48 L. ed. 604, 24 Sup. Ct. Rep. 391. Rippey v. Texas, 193 U. S. 504 ; 48 L. ed. 767, 24 Sup. Ct. Rep. 516. M. K. & T. Ry. Co. v. May, 194 U. S. 267; 48 L. ed. 971, 24 Sup. Ct. Rep. 638. Savannah T. & I. v. Savannah, 198 U. S. 392 ; 49- L. ed. 1097, 25 Sup. Ct. Rep. 690. Minnesota Iron Co. v. Kline, 199 U. S. 593; 50 L. ed. 322, 26 Sup. Ct. Rep. 159. Bacon v. Walker, 204 U. S. 311 ; 51 L. ed. 499, 27 Sup. Ct. Rep. 289. Wilmington S. Mining Co. v. Fulton, 205 U. S. 60; 51 L. ed. 708, 27 Sup. Ct. Rep. 412. Ozan Lumber Co. v. Union County Nat. Bank, 207 U. S. 251; 52 L. ed. 195, 28 Sup. Ct. Rep. 89. McLean v. Arkansas, 211 U. S. 589; 53 L. ed. 815, 29 Sup. Ct. Rep. 206. Williams v. Arkansas, 217 U. S. 79; 54 L. ed. 678, 30 Sup. Ct. Rep. 493. Southwestern Oil Co. v. Texas, 217 U. S. 114; 54 L. ed. 688, 30 Sup. Ct. Rep. 496. Western Union Tel. Co. v. Commercial Milling Co., 218 U. S. 406; 54 L. ed. 1088, 81 Sup. Ct. Rep. 59. Broadnax v. Missouri, 219 U. S. 285; 55 L. ed. 219, 31 Sup. Ct. Rep. 238. C. R. I. & P. Ry. v. Arkansas, 219 U. S. 458 ; 55 L. ed. 290, 81 Sup. Ct. Rep. 275. 3 34 CONSTITUTIONALITY Mutual Loan Co. v. Martell, 222 U. S. 225; 66 L. ed. 175, 32 Sup. Ct. Rep. 74. Quong Wing v. Kirkendall, 223 U. S. 59; 56 L. ed. 350, 32 Sup. Ct. Rep. 192. Murphy v. California, 225 U. S. 623; 56 L. ed. 1229, 32 Sup. Ct. Rep. 697. Barrett v. Indiana, 229 U. S. 26 ; 57 L. ed. 1050, 33 Sup. Ct. Rep. 692. Metropolis Theater Co. v. Chicago, 228 U. S. 61; 57 L. ed. 730, 33 Sup. Ct. Rep. 441. Central Lumber Co. v. South Dakota, 226 U. S. 157, -57 L. ed. 164, 33 Sup. Ct. Rep. 66. Clement Nat. Bank v. Vermont, 231 U. S. 120; 58 L. ed. 147, 34 Sup. Ct. Rep. 31. Sturgiss & Burn Mfg. Co. v. Beauchamp, 231 U. S. 320, 58 L. ed. 245, 34 Sup. Ct. Rep. 60. Patsone v. Pennsylvania, 232 U. S. 138, 58 L. ed. 539, 34 Sup. Ct. Rep. 281. Farmers & Mechanics Sav. Bank v. Minnesota, 232 U. S. 516, 58 L. ed. 706, 34 Sup. Ct. Rep. 364, reversing 114 Minn. 95, 130 N. W. 445, 851. O. R. & W. Ry. Co. V. Dittey, 232 U. S. 576, 58 L. ed. 737, 34 Sup. Ct. Rep. 372. Baccus V. Louisiana, 232 U. S. 334, 58 L. ed. 627, 34 Sup. Ct. Rep. 439. Singer Sewing Machine Co. v. Brickell, 233 U. S. 304, 58 L. ed. 974, 34 Sup. Ct. Rep. 493. Erie R .R. Co. v. Williams, 233 U. S. 685, 58 L. ed. 1155, 34 Sup. Ct. Rep. 761. International Harvester Co. v. Missouri, 234 U. S. 199, 58 L. ed. 1276, 34 Sup. Ct. Rep. 869. Keokee Con. Coke Co. v. Taylor, 234 U. S. 224, 68 L. ed. 1288, 34 Sup. Ct. Rep. 856. Atlantic C. L. R. R. v. Georia, 234 U. S. 280, 68 L. ed. 1312, 34 Sup. Ct. Rep. 829. The following interesting, valuable and detailed opinion delivered to the Investment Bankers Association of America, by its counsel, Reed & McCook of New York, in reply to a re- quest for advice as to the effect of the decision of the United States Supreme Court handed down on January 22nd, 191 7, ( ), upholding the validity of the Blue Sky Laws of Ohio, Michigan and South Dakota, on the conduct of normal business of members of the Association, through the courtesy of said association and its counsel is presented in full : CONSTITUTIONALITY 35 There were three opinions handed down, the first in the Ohio case, the second in the South Dakota case and the third in the Michigan case, this being the order in which the original appeals went on the calendar of the Court. The Blue-Sky laws of the three States named wei'e upheld. They do not, it is now finally held, violate the Federal Constitution. The general principle that the business of dealing in securities may be made the subject of a discretionary executive license- by the State without violating the Federal Constitution, is clearly established by the decisions, as is also the proposition that without violating that Constitution the conduct of this business may be subjected to some, if not a complete, control by a State executive. Certain specific provisions of these laws were adverted to in the opinions and may therefore be said to have been specifically sustained by the Court, although it cannot be said that the Court made its opinions either clear or specific in meeting the specific objections to the laws. In the Ohio opinion the Court did not dwell on the discretionary control over transactions, but emphasized and upheld the power to li- cense and the requirement of information from the dealer. It also mentioned and in effect upheld the requirement of the filing of a writ- ten statement "irrevocably consenting to be sued in a particular county and * * * consenting to service upon the sheriff of that county," adding later that "the statute provides for judicial review, and we see no' legal objection to the designation of a particular court for such re- view." The objection urged by us was not, in fact, to "the designation of a particular court," but to the compulsory designation of the sheriiT as the agent of the applicant for service. In the South Dakota opinion, the Court also mentions the require- ment of "irrevocable consent to suits against it by service of summons upon the public examiner," and the authority "to make an appraisal of the property of the applicant at the expense of the applicant." It also mentions in this opinion the requirement that "if the commission finds * * * * that the securities * * * offered for sale would in its opinion work a fraud upon the purchaser, the commission shall notify the company * * * and it shall be unlawful for the company to sell such securities and they shall not be sold in the State. * * * It is unlawful for a dealer* or investment company to sell or offer for sale securities other than those approved by the Commission or to transact business on any other plan than that set forth in the statement and papers required to be filed with the commission, or to circulate advertise- ments or other documents in the State differing in any way from the copy filed with the commission; or until the same have been approved by the commission." The Court, without discussing these provisions, then refers forward, so to speak, to the Michigan opinion by "reserving to the Michigan case our reply to the more specific objections," and prac- tically on the statement of facts, upholds the South Dakota Act. 36 CONSTITUTIONALITY In the Michigan decision the statement of the case recites that the principal parties are dealers and non-residents, seeking broadly to restrain the enforcement of the law. The Court opens its opinion with the statement that "the statute of Michigan is the same as the statutes of South Dakota and Ohio" — it is almost the same as that of South Dakota, but quite different from that of Ohio — and adds "our reply to the attacks made upon it might be rested upon our discussions of those statutes," although in the Ohio opinion it had dwelt chiefly with the matter of license and with the interstate commerce question, and in the South Dakota opinion it had described but not discussed the statute. The Court then says : "But in the present case, as we have said elsewhere, the arguments, while fundamentally the same, are in some respects more circumstantial. AH the supposed consequences of the law are dilated upon — wherein, as it is contended, it meddles with or burdens a business asserted to be legitimate, wherein it prohibits or gives power to an executive officer to arbitrarily prohibit such business, and wherein it confuses legislative and executive powers, and in these ways and other ways, as it is further contended, transgresses the Constitution of the United States. Many cases are cited to support the contentions and publicists are avouched to the same end." The Court then disposes briefly and not specifically of various con- tentions. It states, however, with a finality that is impressive that with respect to the expediency and character of such legislation "the judg- ment is for the State to make, and in the belief of evils and the neces- sity for their remedy and the manner of their remedy, the State has determined that the business of dealing in securities shall have ad- ministrative supervision, and twenty-six States have expressed like judgment." The Court further emphasizes the possibly burdensome eflfect of the law, and the fact that the policy of the statute was not for it to determine, adding in a dictum that may well become classic: "It costs something to be governed." As an instance of the inadequacy of the opinions in failing to dis- cuss the important objections or to give us a constructive view- of the statutes, the Court refers to a minor contention on our part that the statute in part was directed "to prevent financial loss," and adds "nor can we assent to the contention that such purpose must be inferred from Section 8 or other provisions which point, it is said, to the prob- ability of financial loss, not fraud. The Act must be considered from its declared purpose and as a whole, not from detached portions which can be easily overwhelmed when assigned a false character." This is the only reference in the opinion to Section 8, which has seemed to all of us plainly unconstitutional on much more serious grounds than those to which the Court adverts. CONSTITUTIONALITy 37 The Court also refers to the so-called manual exemption feature of the Act and again disposes of the question by mentioning what was really a minor and argumentative contention upon our part which it characterizes as an intimation "that in the flexibility of what is con- sidered their subterfuge a vicious character is not only given to the Act, but constituted its inducement, and therefore brings the Act down with it, for without it, it is insisted, the statute would not have been enacted. We cannot agree, either to the characterization of the provision or its effect. The first would attribute a sinister purpose to the legis- lation of which there is no indication, the second would give too much importance to a subordinate provision, one that is only ancillary or con- venient to the main purpose." Here also the Court does not state our major objection to the provision, which was," the complete delegation of power in the com- mission to grant exemption from the Act and the power at will to sus- pend and prohibit the sale of any securities listed in the manuals with- out any notice or hearing whatever except assumedly to the original issuer of the securities. We enclose you the opinions in the three cases herewith. As these opinions will no doubt be published for the information of members, we feel that in justice to Mr. Wickersham and ourselves we should mention one other point in which the Court has seemed in some way to erroneously interpret our brief. The Court says that "counsel * * * quotes the Banking Commissioner of the State of Kansas for the statement that the Blue-Sky law of that State had saved the people of the State $6,000,000 since its enactment, and that between 1,400 and 1,500 companies had been investigated by the department and less than 400' of the number granted permits to sell securities in the State." Our brief contained a long -extract from a review of the Blue-Sky legisla- tion in Kansas made by the Under Secretary of State of Canada, in which Secretary Mulvey quoted the statement of Mr. Dolley, referring in 1912 to the 1911 Act that "I estimate that it has saved the people of this State at least six million dollars since its enactment," and that 1,400 to 1,500 cases have been investigated by the department. Mr. Mulvey completely refuted the latter statement and made it clear, we had thought beyond argument, that all of Mr. DoUey's figures were unworthy of credence. Inadvertences, such as this, are, however, hardly avoidable in deal- ing with statutes so complicated as those before the Court. The net result is not changed and the decision and opinion have undoubtedly been fully considered by the Court and express its final position, not only as to these statutes, but probably as to a great many similar statutes, actual and possible. "The most important conclusion which can be drawn with reason- able certainty from the opinions is that no typical Blue-Sky law, as ap- 38 CONSTITUTIONALITY plied to the business of dealing in securities, violates the Federal Con- stitution, either the Fourteenth Amendment or the interstate commerce clause." As a corollary to this, it should be emphasized that the Court has not in fact decided the important question as to whether or not these laws violate the prohibitions of the State Constitution, particularly that against a delegation of legislative power. It has held that the statutes do not necessarily deprive the dealer of his liberty or property with- out due process of law, nor deny him the equal protection of the laws, also that they do not offend against the interstate commerce clause. Mr. Reed has discussed this question with Mr. Wickersham and we are authorized to say that he agrees with us in this conclusion. So far, then, and as a practical matter, the dealer can find no further relief in the Federal Courts against the operation of these laws, unless in a particular case he can plead an actual deprivation without due process of his liberty or property, such as an arbitrary and unwar- ranted act of an official plainly unjustified by the law itself. He may still appeal to the State Courts against the law itself. He can no longer appeal to the Federal Court. We have read and re-read these decisions in the effort tp get Some light as to their effect on normal inter-State transactions by mail, by telephone and by agents, and also with a view to their effect on the laws of other States differing in many respects both from the Ohio statute and from .the so-called Attorneys-General Act adopted in Mich- igan, South Dakota, Arkansas and South Carolina. Can the dealer in New York or Chicago appeal to the Federal Court against an attempt to prevent an offering by mail, telephone or telegraph or by advertisement in a paper published in Ohio or Mich- igan? Can he be punished for making such an offering without prior authority from the State? The opinions contain no direct answer in words to these questions, but it is difficult to escape the conclusion that the decision does in effect answer them in the negative. The firm of Remick, Hodges and Com- pany intervened in the Michigan suit, and the facts with respect to their intervention are correctly set forth as follows in the Court's state- ment of facts preceding the opinion of Mr. Justice McKenna in the Michigan case: "There was a partnership under the name of Remick, Hodges & Co., Remick and Hodges being residents of New York and March a resident of New Jersey, having their office at the City of New York and engaged in buying and selling stocks, bonds and other securities. Their business is known as investment banking and is carried on in New York and by their agents there and elsewhere and by mail with various corporations, associations and persons throughout the United States and in the State of Michigan. They own many of such securi- CONSTITUTIONALITY 39 ties Which they have offered and are offering for sale, and desire to continue to offer to their customers in the State of Michigan. They have no place of business in the State and are not at the present time sending agents into the State, but are endeavoring to sell securities there; but the volume of such business is not sufficient to justify them to attempt to comply with the statute of the State and the statute, if en- forced against them, will have the effect of preventing them from mak- ing any further offers in the State and from attempting to establish or develop any business therein, and they are excluded thereby from inter- State commerce in such securities which they have heretofore enjoyed." While the fact is not very clearly stated' by the Court that Remick, Hodges & Company were seeking to do business by mail, it stated that they had "no place of business in the State and are not at the present time sending agents into the State, but are endeavoring to sell securi- ties there." It seems to follow that they were doing business exclusively by mail, telegraph or telephone, and yet as against their prayer seeking to restrain the threatened enforcement of the law against them, the statute was upheld. And yet nowhere in the Michigan opinion itself does the Court further advert to the situation as to Remick, Hodges & Company, or say specifically that the statute does or does not apply to them. It re- verses the decree below, restraining the State officials from enforcing the law against them, and thereby, it would seem, upholds the State officials in their alleged effort to enforce the law against Remick, Hodges & Company. The purpose of the intervention of Remick, Hodges & Company in what was for your Association a test suit, was to obtain an answer to this question. This answer we must get from the decision. It is not found in the opinion. In the Ohio opinion, where the Court deals with the general con- tention that the laws violate the inter-State commerce clause, it con- tents itself with the following inconclusive view of the statute : "The language of the statute is 'Except as otherwise provided in his Act, no dealer shall, within this State, dispose of certain securities 'issued or executed by any private or quasi-public corporation, co- partnership or association (except corporations not for profit) * * * without first being licensed to do so as hereafter provided.' The pro- visions of the law, it will be observed, apply to dispositions of securities within the State and while information of those issued in other States and foreign countries is required to be filed (Sec. 6373-9 J^they are only affected by the requirement of a license of one who deals in them . ■mthdn the State. Upon their transportation into the State there is no impediment — no regulation of them or interference with them after they get there. There is the exaction only that he who disposes of them there shall be licensed to do so and this only that they may not 40 CONSTITUTIONALITY appear in false character and impose an appearance of value which they may not possess — and this certainly is only an indirect burden upon them as objects of inter-State commerce, if they may be regarded as such." It will be noted that the Court itself italicizes the words "within the State" and again italicizes the word "ipithin," and yet gives us no defini- tion of what is. meant by these words as applied to offerings or sales made from without but communicated and in legal effect concluded "within the State." The only safe interpretation to put upon this phase of the opinion is that the State may prohibit and make criminal a pafticular act, i. e., an offering or sale, effected "within the State," whether or not it is initiated outside the State. In other words, to put the most extreme case, if a dealer in Chicago telephones an investor in Grand Rapids and offers him a security, without being licensed in Michigan, he violates the Michigan law and is — apparently — not protected by the Federal Con- stitution. This accords with the writer's former opinion (I. B. A. of A. Bulletin of July 31, 1915), in which he said: "Without exhaustively examining the preliminary question we think there can be no doubt about the fact that a person out of the State who by direct Act commits a crime within the State, is indictaible and pun- ishable within the State where the crime is committed (Wharton on Criminal Law, Section 324 and cases cited). "Nor does the fact that the crime involves the use of the mail take it out of the jurisdiction of the State. In other words, there is no privilege of crime involved in the use of the mail. (In re Palliser, 186 U. S. 257). "Our conclusion on this point, therefore, is that if the Blue Sky laws were constitutional in their entirety and as they seem to be con- strued by the State officials, the offering of securities by mail or by telegraph, or even by telephone, from outside the State would constitute a violation of the law and be indictable and punishable as such in the State." Except as quoted above, the Court does not even mention, plainly it does not decide, the much-mooted point as to whether or not stocks and bonds are articles of inter-State commerce. We only know that the statutes in question do not violate the inter-State commerce clause. The conclusion above stated necessarily applies to advertisements in papers published in the Blue-Sky States, the papers being in legal effect a medium through which the offering is made to the investor. It would seem to apply though with manifest difficulties in its application, to advertisements in papers or magazines published in other States and circulating in the Blue-Sky State. We say "with manifest difficulties in its application," because in a criminal prosecution it would, we hope. CONSTITUTIONALITY 41 be impossible to convict a dealer for an advertisement in a Springfield, Illinois, paper, a few copies of which, without his knowledge or intent, found their way into Iowa. On the other hand, an advertisement in a Chicago paper made with knowledge of its wide circulation in Michigan, Wisconsin or Iowa, would seem to constitute an intended offering of the security in those States, as would also an advertisement in a national magazine known to circulate in all or most of the States. Some question has been raised as to what constitutes an offering. There is no doubt plenty of room for fine distinctions on this point; for instance, that a mere advertisement without naming a price, or stating that "application will be considered," might be said not to "offer" the securities. But bearing in mind the class of offerings at which Blue- Sky laws are directed, a class with which the investment dealer must now consider himself identified, and is legally j identified by the highest Court in the land, it is evident that any communication, by advertisement or otherwise, designed as a "'bait" to the unsuspecting victim, is within the intent of the law. As it is necessary so to construe the law as to reach the real Blue-Sky merchant, this construction must apply to the investment dealer if and when any present State commission or future court and jury want to bring him within it. We wish to emphasize this point as necessarily bearin^f on the future construction of these laws. It would be manifestly desirable and within the legislative intent to prevent a "get-rich-quick" scheme being advertised through the country by newspapers or magazines passing from one State to another, and whatever beneficial construction is proper as applied to such schemes must apply to all advertisements of securities, except in the few States that have attempted somewhat ineffectively (i. e., Kansas, North Dakota and West Virginia 1915 Acts) to distinguish between "speculative" and other securities. As applied to the newspaper, it is not, of course, the transportation between the States that is prohibited, but simply the act of offering the security in the Blue-Sky State. This is effected by the sale or display of the advertisement in the State, regardless of where it originated, and of this prohibited act the dealer and presumably the publisher, knowing of the advertisement and of the fact that it is to appear in that State, are guilty. We have tried to state clearly, to emphasize but not to magnify, the effect of these Blue-Sky decisions. They constitute the future law of the Federal Courts, and are, of course, final on the question of inter- State commerce. An offering or sale in any State, however made, is sub- ject to the law of that State, regardless of the State where it originated. What that law may 'be, whether the statute is constitutional, and, if so, its construction, is for the courts of the State. We might add, as conveying some possible comfort, that the in- conclusive character of the written opinions may leave the way open. 42 CONSTITUTIONALITY so to speak, in a possibly extreme future case of the law's enforcement, for the Court to limit its application. We should also repeat, for such comfort as it may carry, what the writer said in the opinion of his former firm (I. B. A. of A. Bulletin of July 31, 1915) : "On this question we should also add, parenthetically, that, under the peculiar language of our Federal Constitution and statute, a person outside of the State who commits a crime within the State cannot be extradited for the purpose of prosecution and punishment within the State where the crime is committed. Only 'a person charged with crime who shall Hee from justice' is subject to extradition. (Wharton on Criminal Law and Procedure, Ninth edition. Section 31; Jones v. Leonard, 50 Iowa 106; Hyatt v. People, 188 U. S. 691, Affirming 172 N. Y. 176 ; Ex-parte Hoffstot, 180 Federal 240, Affirmed 218 U. S. 665. "This does not, of course, mean that such a person cannot be in- dicted in the State where the offense is committed, nor that if he comes into the State he cannot be arrested there and punished." This does, we believe, cover the general situation concerning which you have requested our present opinion. On any single question, or on a special state of facts, it would be possible to amplify our opinion and to deal more specifically and perhaps conclusively with the point pre- sented. You have asked us to outline some practical suggestions to members. In considering the question of a particular dealer offering or selling securities in a particular State, the dealer's attorney should: 1. Examine the statute of the State; these have been published in the I. B. A. of A. Bulletin. 2. Ascertain if the securities in question are within the statute. 3. Ascertain if the dealer is within the statute. 4. If within the statute, get the rulings and, so far as possible, the views of the State commission or official as to the course to be taken by the dealer under the statute. 5. Advise compliance with rulings, views and wishes of. the State commission or official and get his approval of the securities. 6. Otherwise advise dealer that It is against the law to offer securities in the State either by agent, mail, telegraph or telephone, unless an injunction can be obtained from a State Court to protect the particular offering. 7. Bear in mind in all cases the fact that neither the State' com- mission's rulings or views, nor even a temporary injunction, can change the law as applied to a possible future situation where investors have suffered loss and penal or civil proceedings are brought against the , dealer. 8. Subject to the above precautions, leave the practical question to the dealer whose course will be guided largely by the extent and char-. CONSTITUTIONALITY 43 acter of his offering. The statutes were not intended to burden normal legitimate business and (except under special circumstances involving probable or actual loss to investors) are not apt to be fully enforced against legitimate enterprises. The question has been asked wfhether it is possible to limit the effect of an advertisement by inserting a provision to the effect that it is not intended as an offering in any State where the laws prohibit such offering. Without examining this question fully at this time, we would say that it could do no harm and might well do good on a particular offering advertised in papers and magazines circulating in Blue-Sky States to add a statement substantially as follows : "We neither offer nor sell securities in any State, the offering or sale of which by us is prohibited by law in that State." The use of this statement in circular offerings might also have some weight as evidenfcing the intent of the dealer not to violate the law, although the fact that the circular is actually mailed into the State would overcome the effect of the statement. Apparently it will be advisable for dealers to revise their mailing lists with a view to the varying pro- visions of the State laws. You have also asked us for our general comment on the effect of these decisions on State legislation of this general character. Reading, so to speak, between the lines of the Court's opinion, we believe that it represents a general policy or viewpoint with regard to State legislation of this character, and that nothing that could have been done or urged in support of our position against these or any similar statutes would have had any effect. The unanimity of the lower Courts represented what was formerly, we believe, the consensus of judicial and legal opinion on this whole subject. The highest Court has now spoken. It will no longer apparently interpret the Fourteenth Amendment as synonymous with the political principles thought to be imbedded in our institutions. Legislation violative of these principles is not as such apt to be overthrown in the Federal Courts, though individual acts of op- pression under color of the general power may, and we think will, find protection in those courts, that is, in the lower Federal Courts, in cases in which the right of appeal to the Supreme Court is not given. The legislatures must take upon themselves what at least the Federal courts have discarded, the burden of placing essential political limits on hasty and improvident legislation. This burden is so important that it seems within reason to suggest the need of some adequate machinery in the legislatures themselves, a committee, so to speak, on fundamental prin- ciples, which will make it possible to effect needed reforms without de- stroying fundamental political safeguards. We believe that the State courts will assume a part of this burden. They are the final arbiters of their own constitutional provisions. These provisions are in some respects more restrictive of State legislation than the Federal Constitution, and 44 CONSTITUTIONALITY as they are self-imposed limitations imposed by the people of each State on their own legislature, might well be given a more beneficial efifect than is now given to the Federal Constitution as a limitation superim- posed upon the States. These Blue-Sky decisions strengthen the im- pression previously created that the highest Court has come to feel that it cannot rightly fulfill its own larger usefulness if under the Fourteenth Amendment it is to examine and review the great mass of paternalistic statutes recently adopted and still being adopted by many or all of the forty-eight States. Very truly yours, Reed & McCook. New York City, 1918. ALABAMA 45 ALABAMA STATUTES The State of Alabama has no Blue Sky Law or Blue Sky Department but the following statute provides for a license for those dealing in stocks and bonds. Laws of 1915, Act 469, provides that: Sec. 1. That every person, firm, company, corporation or associa- tion engaged in any business, vocation, occupation, calling or profession hereinafter enumerated, or who shall exercise any privilege hereinafter described for which a license or privilege tax is required, shall first procure a license, and shall pay for the same, or shall pay for the ex- ercise of such privilege, the amounts hereinafter provided. * * * Sec. 101. Each person dealing in stocks and bonds, fifty dollars. 46 ARIZONA ARIZONA STATUTES Investment Company Law TITLE 9. CHAPTER 9 Revised Statutes of Arizona, 1913, Civil Code AN ACT To provide for the regulation and supervision of investment com- panies, and the inspection and investigation of property, books, papers, business, methods, and affairs, of any corporation whose stock shall be offered for sale to. the public, and pro- viding penalties for the violation thereof, with an emergency clause. P. 2259. Every corporation, every co-partnership or company and every association (other than State and National banks, and corpora- tions not organized for pecuniary profit) organized, or which shall be organized, in this State, whether incorporated or unincorporated, which shall sell or negotiate for the sale of any stock, bonds, or other securi- ties of any kind or character other than bonds of the United States, the State of Arizona bonds, or bonds of some county, city, town or school district therein, to any person or persons in the State of Arizona, other than those specifically exempted herein, shall be known for the purposes of this Chapter as a domestic investment company. Every such investment company organized in any other state, or government, or or- ganized under the laws of any other state or government, shall be known for the purposes of this Chapter as a foreign investment company. P. 2260. Before offering for sale, or attempting to sell, any stocks, bonds, or other securities of any kind or character other than those specifically exempted in the preceding section, to any person or persons, or transacting business of any kind whatever in this State, excepting that of preparing the instruments hereinafter required, every such in- vestment company, domestic or foreign, shall file in the office of the Corporation Commission of this State the following instruments, to-wit: A statement showing in full detail the plan upon which it proposes to transact business ; a copy of all contracts, bonds, or other instruments which it proposes to make with, or to sell to, its subscribers; a state- ment which shall show the name and location of the investment com- pany, and an itemized account of its actual financial condition, and the amount of the property owned by it, and its liabilities, and such other information touching its affairs as the Corporation Commission may re- quire. ARIZONA 47 If such investment company be a co-partnership or an unincor- porated association, it shall also file with the Corporation Commission a copy of its articles of co-partnership and all such other papers per- taining to its organization as may be required by the Corporation Com- mission. AH such investment companies shall also file in the office of the Corporation Commission such other instruments and documents as may be required by the general laws of this State appertaining to corpora- tions, both foreign and domestic, and such other papers and documents as the Corporation Commission may require. P. 2261. All of the above described instruments shall be verified by the oath of a member of the co-partnership or company, if it be a co-partnership or company; or by the oath of a duly authorized officer, if it be an incorporated or unincorporated association. All such papers, however, as are recorded or are on file in any public office, shall be further certified to by the officer of whose records or archives they form a part, as being correct copies of such records or archives. P. 2262. Every foreign investment company shall also file its writ- ten consent, irrevocable, in the office of the Corporation Commission, that actions may be commenced against it, in the proper court of any county of this State in which the cause of action may arise or in which the plaintiff may reside, by a service of process upon an agent, at- torney, or other person designated by such company, and residing within this State, and stipulating and agreeing that such service of process on the person so designated shall be taken and held in all courts, to be as valid and binding as if due service had been made upon the company itself, according to the laws of this or any other State, and such instru- ments shall be authenticated by the seal of such foreign investment com- pany and by the signature of a member of such co-partnership or com- pany, if it be a co-partnership or company, or by the signature of the president and secretary of the incorporated or unincorporated associa- tion, if it be an incorporated or unincorporated association, and shall be accompanied by a duly certified copy of the order or resolution of the board of directors, trustees, or managers, of the corporation authoriz-^ ing the said secretary and president to execute the same. P. 2263. It shall be the duty of the Corporation Commission to examine the statements and documents so filed, and if said Corporation Commission shall deem it advisable it shall make, or have made, a de- tailed examination of such investment company's affairs ; such examina- tion shall be at the expense of such investment company, as hereinafter provided; and if it finds that said investment company is solvent, that its articles of incorporation or association, its constitution and by-laws, its proposed plan of business and proposed contract contains and pro- vides for a fair, just and equitable plan for the transaction of business, and in its judgment promises a fair return on stocks, bonds, or other 48 ARIZONA securities, by it offered for sale, the Corporation Commission shall issue to such investment company a statement, reciting that such company has complied with the provisions of this Chapter, that detailed informa- tion in regard to the company and its securities is on file in the office of the Corporation Commission for public inspection and information, that such investment company is permitted to do business in this State, and such statement shall also recite in bold type that the Corporation Commission in no wise recommends the stock, bonds or other securities to be offered for sale by such investment company. But if said Corpora- tion Commission advises that such articles of incorporation or associa- tion, charter, constitution and by-laws, plan of business or proposed con- tract contain any provisions that are unfair, unjust, inequitable or op- pressive to any class of contributors, or if it decides from its examina- tion of the affairs of said investment company that the said investment- company is not solvent and does not intend to do a fair and honest busi- ness, and in its judgment does not promise a fair return on the stocks, bonds or other securities by said investment company offered for sale, then the Corporation Commission shall notify such investment in writ- ing of its findings, and it shall be unlawful for such company to do any further business in the State until it shall so change its constitution and by-laws, articles of incorporation or association, its proposed plan of business, and proposed contract, and its general financial condition, in such manner as to satisfy the Corporation Commission that it is solvent, and its articles of incorporation or association, its constitution and by- laws, its proposed plan of business, and proposed contract, provide for a fair, just and equitable plan for the transaction of business and does, in the judgment of the Corporation Commission promise a fair return on stocks, bonds, or other securities by such investment company offered for sale; provided, that all expenses paid or incurred and all fees or charges received or collected for any examination made under the pro- visions of this section of this Chapter shall be reported in detail by the Corporation Commission and a full report and record thereof made in detail. All fees collected by. the Corporation Commission under the provisions of this Chapter shall be paid into the State Treasury in the same manner as is provided by the general laws for the payment into the State Treasury of all fees collected by the Corporation Commission. Paragraph 2263 was amended so that for the last sentence of Para- graph 2263 "All fees collected by the Corporation Commission under the provisions of this Chapter shall be paid into the State Treasury in the same manner as is provided by the general laws fo- the pay- ment into the State Treasury of all fees collected by the Corporation Commission" there is substituted the following: ARIZONA 49 The Commission shall charge and collect the following fees : 1. For filing any application for a permit to issue securities, Ten Dollars, plus One twentieth of one per cent of the value of the securities sought to be issued up to and including Fifty Thousand Dollars ; One twenty-fifth of one per cent of such amount in excess of Fifty Thousand Dollars and not exceeding One Hundred Thousand Do'lars. One fiftieth of one per cent of such amount in excess of One Hun- dred Thousand Dollars and not exceeding Five Hundred Thousand Dollars; and One one-hundredth of one per cent of such amount in excess of Five Hundred Thousand Dollars. The value of such securities shall be deemed to be their par or face value, if they have a par or face value; otherwise the price at which the company proposes to sell or issue the same, or the value, as alleged in the application of the consideration (if other than money) to be re- ceived in exchange therefor, 2. For filing any application for a permit or other authority to make dividends, create debts, or to divide, withdraw, increase, reduce or pay to the stockholders, or any of them, the capital sto k, or any part thereof, the same amount that would otherwise be chargeable or collectable if such application were for a permit to issue securities. PROVIDED, that in any such case the value shall be determined by the amount of dividends made, debts created, or capital stock di- vided, withdrawn, increased, reduced or paid. All fees collected by the Corporation Commission under the pro- visions of this Chapter shall be paid into the State Treasury and credited to the "Corporation Commission Investment Company Fund" and such part thereof as may be necessary to be -used by the Commis- sion in carrying out the provision of this Act, shall be paid by the State Treasurer upon warrant drawn by the State Auditor on such fund from time to time in favor of the Commission for the amounts expended under its direction. (Amendment of 1919). Approved March 20, 1919. P. 2264. It shall be unlawful for any investment company, either as principal or agent, to transact any business, in form or character similar to that set forth in Section 1 of this Chapter except as is pro- vided in Section 2 of this Chapter, until it shall have filed the papers and instruments hereinbefore provided for. No amendment of the charter, articles of incorporation, constitution, and by-lavrs, of any such investment company shall become operative until a copy of the same has been filed with and approved by the Corporation Commission as provided in regard to the original filing and approval of charters, articles of in- corporation, constitutions, and. by-laws, nor shall it be lawful for any such investment company to transact business on any other plan than 4 50 ARIZONA that set forth in the statements required to be filed by Section 2 of this Chapter, until a written statement showing in full detail the proposed new plan of transacting business and a copy of the proposed new con- tract shall have been filed with the Corporation Commission, in like man- ner as provided in regard to the original plan of business and proposed contract, and the consent of the Corporation Commission obtained as to making such proposed new plan of transacting business. P. 2265. Any investment company may appoint one or more agents, but no such agent shall do any business for said investment com- pany in this State until he shall first register with the Ciorporation Com- mission as agent for such investment company, and for each of such registrations there shall be paid to the Corporation Commission the sum of One Dollar ($1.00). Such registration shall entitle such agent to represent said invest- ment company as its agent until the first day of July following, unless said authority shall be sooner revoked by the Corporation Commission for cause appearing to it sufficient. Every investment company, domestic or foreign, shall file at the close of business on the first day of July of each year, and at such other times as required by the Corporation Com- mission, a statement verified by the oath of the co-partnership or com- pany, if it be a co-partnership or company, or by the oath of a duly authorized officer, if it be an incorporated or unincorporated association, setting forth in such form as may be prescribed by the Corporation Com- mission, it (its) financial condition and the amount of its assets and liabilities, and furnishing such other information concerning its affairs, as said Corporation Commission may require. Any investment com- pany failing to file its report at the close of business on the first day of July of each year within ten (10) days of that date, or failing to file any other or special report herein required within thirty (30) days after receipt of request or requisition therefor, shall forfeit its right to do business in this State. Paragraph 2265, Title 9, Chapter IX, Revised Statutes of Arizona, 1913, was amended by adding thereto the following: P. 2265 (a) No company, broker, or agent, or any other person, shall issue, circulate, or publish any advertisement, pamphlet, prospectus, or circular concerning any security sold or offered for sale by it, unless the name of the company, broker, agent, or person issuing, circulating or publishing the same shall be subscribed thereto, and a true copy thereof shall have been first filed in the office of the Corporation Commission, or deposited in a United States post office, properly enclosed in a sealed envelope, addressed to the Commission at Phoenix, Arizona, with the postage duly prepaid thereon; nor shaU any company, broker, or agent, or any other person, issue, circulate, or publish any such advertisement, pamphlet, prospectus, or circular after notice in writing given to it by the Corporation Commission, that in its opinion, the same contains any ARIZONA 51 statement- that is false or misleading or otherwise likely to dedeive a reader thereof. (Amendment of 1919). \ Approved March 17, 1919. ' i P. 2266. The general accounts of every investment coriipany; do- mestic or foreign, doing business in this State, shall be kept, in such man- ner and form as may be prescribed by the Corporation Commission and all books, papers, business, methods, and affairs of such investment com- pany shall be at all times subject to inspection and investigation by said Corporation Commission, any member of said Commission, or any person thereto by said Commission authorized and designated for the purpose of enforcing the provisions of this Chapter. The Corporation Com- mission and the several members thereof, shall have the power of a court of general jurisdiction to enforce the attendance of witnesses and production of evidence by subpoena, attachment, and punishment, which said power shall extend throughout the State. Said Commission shall have power to take testimony under deposition either within or without the State. P. 2267. The Corporation Commission shall have general super- vision and control, as provided by this Chapter over any and all invest- ment companies, domestic or foreign, doing business in this State, and all such investment companies shall be subject to examination by the Corporation Commission, or its duly authorized agent, at any time the Corporation Commission may deem it necessary, and such investment company shall pay a fee for each of such examinations of not to exceed Ten Dollars ($10.00) for each day or fraction thereof plus the actual traveling and hotel expenses of said Commission, or any member thereof, or agent thereof, that it, or he, is absent from the Capitol Building for the purpose of making such examination and the failure or refusal of any investment company to pay such fees upon the demand of the Cor- poration Commission, any Commissioner, or deputy or agent thereof, while making such examination, shall work a forfeiture of its right to do business in this State. P. 2268. Whenever it shall appear to the Corporation Commission that the assets of any investment company doing business in this State are impaired to the extent that such assets do not equal its liabilities, or that it is conducting its business in any unsafe, inequitable, or unau- thorized manner, or is jeopardizing the interest of its stockholders or investors in stocks, bonds, or other securities, by it offered for sale, or whenever any investment company shall fail or refuse to file any papers, statements, or documents, required by this Chapter without giving satis- factory reasons therefor that may be deemed sufficient by the Corpora- tion Commission, said Corporation Commission shall at once communicate such facts to the Attorney General of the State who shall thereupon apply to the Supreme Court or to the superior court of the county where such investment company is located or is doing business, or to a judge of either of said courts for the appointment of a receiver to take charge 52 ARIZONA of an4 wind up the business of such investment company, ancf if such fact or facts be made to appear it shall be sufficient evidence to authorize the appointment of a receiver and the making of such orders and decrees in such cases as' equity may require. P. 2269. Any jferson who shall knowingly or wiKulIy subscribe to, or make,' or cause to be made, any false statements or false entry in any book of such investment company, or exhibit any false papers with the intention of deceiving the Corporation Commission, or any Com- missioner, or person authorized to examine into the affairs of such in- vestment company, or shall make, or publish any false statement of the financial condition of such investment company, of the stocks, bonds, or other securities by it offered for sale, shall be deemed guilty of a felony, and upon conviction thereof shall be fined not less than Two Hundred Dollars ($200.00) nor more than Five Hundred Dollars ($500.00), and shall be imprisoned for not less than one (1) year nor more than ten (10) years in the State prison. P. 2270. Any person or persons, agent or agents, who shall sell, or attempt to sell, any stocks, bonds, or other securities of any invest- ment company, domestic or foreign, or the stocks, bonds or other se- curities by it oiiered for sale, who have not complied with the provisions of this Chapter or any investment company, domestic or foreign, which shall do any business or offer or attempt to do any business, except as provided in Sec. 2 of this Chapter, which shall not have complied with the provisions of this Chapter, or any agent who shall do or attempt to do any business for any investment company, domestic or foreign, in this State, which agent is not at the time duly registered and has not fully complied with the provisions of this Chapter, shall be deemed guilty of a misdemeanor, and upon conviction thereof shall be fined for each offense not less than One Hundred Dollars ($100.00) nor more than Five Hun- dred Dollars ($500.00), or by imprisonment in the county jail for not more than six (6) months, or by both such fine and imprisonment. P. 2271. Repealed 1919. P. 2272. Whereas, the Constitution of the State of Arizona pro- vides that the Corporation Commission, and the several members thereof, shall have power to inspect and investigate the property, books, papers, ' business, methods, and affairs of any corporation whose stock shall be offered for sale to the public, and, Whereas, it is necessary that a law be immediately enacted to carry into effect this provision of the Constitution, and, Whereas, an immediate operation of the provisions of this Act are necessary for the public safety, an emergency is hereby declared, and this Act shall take effect and be in force from and after its passage and approval by the Governor, and is hereby exempt from the provisions of the referendum clause of the Constitution. Approved May 18, 1912. ARIZONA 53 Investment Company Law LAWS 1917, CHAPTER 30 AN ACT To provide for the regulation, supervision and control of the busi- ness of buying and selling securities and commodities by brokers on or through exchanges or boards of trade or other public markets; to provide for the licensing of brokers; to define and prohibit bucketing; and fixing penalties. Be it enacted by the Legislature of the State of Arizona: Section 1. The following words used in this act shall, unless a different meaning is plainly required by the context, have the following meanings : "Peirson" shall mean an individual, partnership, corporation or as- sociation, whether acting in his, their or its own right or as the officer, agent, servant, employe, correspondent or representative of another. "Contract" shall mean any agreement, trade, contract, or transaction. "Securities" shall mean all evidence of debt or property and options for the purchase or sale thereof, shares in any corporation or association, \ bonds, scrip, rights, choses in action, and other evidences of debt or property and options for the purchase or sale •thereof. "Commodities" shall mean any personal property other than se- curities. "Broker'' shall mean every person who buys or sells or contracts to buy or sell, as agent for or representative of or for or on account of another, any security or commodity on or through any exchange or board of trade or other public market.- "Bucketing" shall mean (a) The making of or offering to make any contract respecting the purchase or sale of any securities or com- modities, wherein both parties thereto intend, or the broker intends, that such contract shall be, or may be, terminated, closed, or settled according to or on the basis of the public market quotations of prices made on any board of trade or exchange upon which said securities or com- modities are dealt in and without a bona fide purchase or sale of the same; or (b) the making or offering to make any contract respecting the purchase or sale of any securities or commodities, wherein both parties thereto intend, or the broker intends, that such contract shall be, or may be deemed terminated, closed, or settled when such public market quota- tions of prices for the securities or commodities named in such contract shall reach a certain figure without a bona fide purchase or sale of the same; or-(c) the making of or offering to make any contract respecting the purchase or sale of any securities or commodities, wherein both 54 ARIZONA parties, thereto do not intend, or the broker does not intend, the actual or bona fide receipt or delivery of such securities or commodities, but do intend,' or the broker does intend, a settlement of such contract based upon the differences in such public market quotations of prices at which said securities or commodities are or are asserted to be bought and sold. SiCTipN 2. Within thirty days after this act takes effect every per- son doing business as a broker shall file with the secretary of state a statement in writing, under oath, which shall contain, in such form as the secretary of state shall prescribe, (a) the name and post office address of the broker; (b) if the broker be a copartnership or unincorporated association, the name and post office addresses of all the members thereof, and if the broker be a corporation, the names and post ofiBce addresses of all officers and directors thereof; (c) the location of the office or principal place of business of the broker in Arizona; (d) an application on behalf of the broker for a license to do business under the provisions of this act. Section 3. At the time of presenting such statement and applica- tions for filing the broker shall: (1) Pay to the secretary of state the sum of two hundred dollars as a license fee for the calendar year, and a license fee of two hundred dollars shall be paid before the license shall be issued for any calendar year thereafter. Such fees shall be turned in to the state treasury as general funds of the state. (2) Deliver to the secretary of state a good and sufficient bond for five thousand dollars, payable to the state of Arizona, to be executed by said applicant together with a surety company or two good and sufficient sureties, and to be approved both as to form and sureties by the secretary of state. Said bond shall be conditioned upon the faithful compliance with the provisions of law by said applicant, and provide that upon failure to so comply, the applicant shall be liable to any and all persons who may suffer loss by' reason thereof. Section 4. Upon payment of such license fee, the secretary of state shall file such statement and application and shall issue a license, under the seal of the state, reciting that the broker is licensed to do business under the provisions of this act during the fiscal year for which such license is issued. Said license shall at all times be publicly dis- played by the broker at his said office or place of business. Section 5. All brokers' licenses issued under the provisions of this act shall expire at the end of the fiscal year for which the same are issued and may be renewed only upon filing the statement and applica- tion and payment of the license fee required for the granting of an original license. Section 6. Every broker licensed under the provisions of this act shall keep at his said office or principal place of business true and com- plete books of account showing all of the broker's assets, liabilities, transactions and business. ARIZONA 55 Section 7. The State Bank Examiner shall have power to prescribe the manner and ^ form in which every licensed broker's books of account shall be kept and to examine the same at all times and to require the broker and his agents and employes to produce for his examination all other papers and records relating to the broker's transactions and busi- ness and, in general, shall have the same powers of examination and regulation of the transactions and business of licensed brokers as he has with respect to banks and other financial institutions of this state. Section 8. If at any time, upon examination, it shall appear to the satisfaction of the Bank Examiner that any licensed broker is insolvent, or is doing business in violation of any of the provisions of this act he may by order, suspend the license of said broker until such insolvency be cured or such unlawful practices shall cease, as the case may be. During such suspension it shall be unlawful for the broker to do any business under said license, except under the supervision of and to the extent permitted by said State Bank Examiner. Section 9. Every licensed broker shall, within twenty-four hours after demand, furnish to any customer or principal for whom such broker has executed any order for the purchase or sale of any securities or commodities, either for immediate or future delivery, a written state- ment showing the time when, the place where and the price at which the same were bought or sold. Section 10. Any person who shall make any bucketing contract shall be guilty, of a felony and upon conviction thereof shall, if a cor- poration, be punished by a fine of not less than five hundred dollars nor more than five thousand dollars for each oflfense, and all other per- sons so convicted shall for each offense be punished by a fine of not less than five hundred dollars nor more than five thousand dollars, or by imprisonment in the state prison for not more than five years, or both such fine and imprisonment. Section 11. Any person who shall communicate, receive, exhibit or display in any manner any statement of quotations of prices of any securities or commodities, with, intent to make or offer to make, or to aid in making or offering to make, any bucketing contract, shall be guilty of a felony and upon conviction thereof, shall be subjected to the penalties provided in section 10 of this act. Section 12. Any person who shall willfully violate any of the provisions of this act other than those mentioned in sections 10 and 11 relating to bucketing contracts, shall be guilty of a misdemeanor and upon conviction thereof shall, if a corporation, be punished by a fine of not less than one hundred dollars nor more than two thousand dollars for each offense, and all other persons so convicted shall for each offense be punished by a fine of not less than five hundred dollars nor more than five thousand dollars or by imprisonment in the county jail for not more than one year, or by both such fine and imprisonment. Approved March 8, 1917. 56 ARIZONA Suggestions For Applicants In making application for permission to sell securities, follow pro- cedure indicated in Paragraph 2260, Chapter 9, Title 9, Revised Statutes of Arizona, 1913. A copy of Articles of Incorporation need not be filed. Among matters which should be recited in, or accompany the ap- plication are: 1. State correct, full name of the company. 2. Date of incorporation. State in which incorporated. 3. Amount of capital stock, total number of shares, par value, and whether common or preferred or both. 4. If a mining company give names of properties, mining district, county and state in which located. Also attach to application a verified copy of deed showing ownership. 5. If an engineering report has been made, attach a copy to appli- cation. If no report has been made, so state. 6. Submit list showing in detail the exact ownership of the total capital stock on the date application is made, also amount of stock held in treasury of company. 7. If any options or contracts have been given on stock, attach correct copy to application. Also attach a copy of all contracts or agree- ments that have been entered into, that relate to the affairs of the company. If there are none in existence and none contemplated, so state. 8. Give correct list of securities that have been previously issued and consideration received for each issue. If none, so state. 9. Give the amount and kind of securities proposed to be issued, and the price, par value or otherwise, at which it is desired to sell same. In this clause set a definite price at which stock is to be sold. 10. State the brokerage or commission paid on previous sales and proposed to be paid on future sales, and the facts showing the necessity for the payment of such commission or brokerage on future sales. 11. Give a condensed statement of the liabilities and assets and a full trial balance sheet of same date. 12. State the amount of money actually required for the develop- ment of the enterprise, so far as can be anticipated, segregating the same into the necessary items of expenditure. 13. Give a general statement of the nature and plans of applicant's bt!isiness. 14. Give names and addresses of ofiScers and directors, showing the investment of each in the company, and statement of business experience of those who will be actively in charge, together with salaries paid or to be paid officers. If no salaries are paid or to be paid, so state. 15. Where patents for inventions are involved, submit a copy of the file wrapper of the proceedings in the patent office, as far as they have proceeded, with reference to all similar patents. ARIZONA 57 16. Companies whose assets consist of, or include real estate, such as mining, oil, commercial, ranch and similar companies, should submit evidence of ownership or of interest in such property. Full description and location of all property and equipment should be submitted. 17. All applications for oil or mining companies should be filed in duplicate. 18. Attach a blank certificate of the stock or other security proposed to be sold, together with a true copy of subscription blank, and all other blanks used in connection with the sale of stock or securities. 19. Attach a true and complete copy of the company's by-laws. 20. Attach company's written, irrevocable consent for service of process, as provided in Section 4, Chapter 69, Laws of the First State Legislature of Arizona, approved May 18, 1912. 21. Attach a certified copy of the resolution passed by board of directors authorizing the execution of the blank designated under Clause No. 14. 22. Attach to application an exempliiied copy of company's Articles of Incorporation. (Answers to Nos. 19, 20 and 21 required only of foreign cpr- porations). 23. Give five references as to President and five as to Secretary of Company. If a going concern, give five references as to company. 24. State principal place of business of corporation, also name and address of person to whom all correspondence may be addressed. A fee of Twenty Dollars must accompany all applications. NOTE — In making out application, number the various state- ments of facts as called for. The application and all accompanying data must be properly verified under oath by the President and Secretary of the company. Ordinarily two weeks are required to investigate, review and record applications. A longer period may elapse before application can be passed upon. Applications in any form other than prescribed will not be considered. ARIZONA CORPORATION COMMISSION General Order No. 61 TO ALL INVESTMENT COMPANIES Section 2265, Revised Statutes of Arizona, 1913, provides among other things that "every Investment Company, domestic or forei'^n, shall file at the close of business on the first day of July of each year, and at such other times as required by the Corporation Commission, a state- ment verified by oath of the co-partnership or company, if it be a co- partnership or company, or by oath of a duly authorized official if it be an incorporated or unincorporated association, setting forth in such form 58 ARIZONA as may be prescribed by the Corporation Commission, its financial con- dition and the amount of its assets and liabilities, and furnish such other information concerning its affairs as said Corporation Commission may require." The law further provides that any Investment Company failing to iile such report on or before July 10th, of each year, shall forfeit its right to do business in this state. Acting under the authority of the provisions of the above statute, It Is Hereby. Ordered : That every Investment Company shall file an ANNUAL REPORT verified as provided in said act, on or before July 10, 1919, showing the financial condition of said company at the close of its business on the 30th day of June, 1919, and in addition thereto, answer the following queries : (1) Name of Company. (2) State capitalization authorized by articles of incorporation. (3) State number of shares for which company was incorporated, and par value thereof; if authorized to issue both common and pre- ferred stock, state number of shares of each, and .par value of each. (4) Give list of all the property owned by the company on July 1, 1919, stating location and value. (Mark "Exhibit A"). (5) Show distribution of stock, giving the following: Total number of shares for which incorporated. Number of shares of stock issued in exchange for property. Number of shares of stock issued for promotion, Number of shares of stock sold prior to July 1, 1918, Total, Balance of stock in treasury July 1, 1918, Number of shares of stock issued for additional property acquired during fiscal year ending June 80, 1919, Number of shares of stock sold in Arizona, Total, Number of shares of stock sold outside of Arizona, Balance in Treasury July 1, 1919. (6) State amount of stock escrowed and with whom escrowed. (7) State in detail amount of money raised from sale of stock in Arizona. (Mark "Exhibit B"). (8) State in detail amount of money raised from sale of stock outside of State of Arizona. (Mark "Exhibit C"). (9) State net amount turned into the treasury of the company from the proceeds of the sale of stock. (10) State in detail distribution of all funds received from sale of stock for the twelve-month period preceding July 1, 1919. (Mark "Ex- hibit D"). (11) Give statements of assets and liabilities as of June 30, 1919. (Mark "Exhibit E"). (12) Submit trial balances as of June 30, 1919. (Mark "Exhibit F"). ARIZONA 59 (13) Give brief history of operations of company for the twelve-month period preceding July 1, 1919; if mining or oil company, state number of feet of development work, and cost per foot. (Mark "Exhibit G"). (14) Verification under oath of all the foregoing. There is no fee to be paid with the filing of this report. BY ORDER OF THE ARIZONA CORPORATION COM- MISSION, A. E. Stelzer, Secretary. Dated at Phoenix, Arizona, this 25th day of June, 1919. Forms Cornpany of Company Permit No AGENT'S APPOINTMENT To the Arizona Corporation Commission: Mr. of Arizona, having been furnished with a copy of the Corporation Commission's order is hereby appointed a stock selling agent of : Company, for the period ending the 1st day of July, 1.91. . . Company, (seal) By (President) Attest : (Secretary) 60 ARIZONA REGISTRATION OF AGENT To the Arizona Corporation Commission: I, hereby register as a stock selling agent of ■. Company, a. corporation, for the period ending the 1st day of July, 191 .. . I have copy of the order of the Corporation Commission herein and agree to comply there- with. My postofHce address is ' (Agent sign here) I, , do hereby certify that I signed the foregoing "Registration of Agent Blank" on the ....day of , 191.. Subscribed and sworn to before me this day of , 191.. (Notary Public) ( My Commission Expires ) ANNUAL REPORT OF at close of business on '. 19 . . . Submitted to Arizona Corporation Commission, Phoenix, 19.... •- Assets $. Liabilities - - $. Accumulations - - - - $. Amount Capital Stock Paid Up and Issued - - $. ARIZONA 61 PROPERTY OWNED, LEASED OR CONTROLLED REAL PROPERTY Owned Leased or Con- trolled VALUE VALUE Situated at Situated at Situated at PERSONAL PROPERTY Situated at Character... Situated at Character... .Situated at ..Character... Officer or Representative upon whom official notices may be served: (Name) (Title) ". . . . (City or Town) (State) (Street) {Notify Commission promptly of any change in name or address) State of ) J. ss. County of j We , President and. Secretary, of the above-named corporation, do solemnly swear that the foregoing is a true and correct statement to the best of our knowledge and belief. President [Corporate Seal] Secretary Subscribed and sworn to before me this day of 19... [Notarial Seal] Notary Public My commission expires , 191 . . Paragraph 2274, Chapter X, Revised Statutes of Arizona, 1913, Reads: "(a) Every corporation organized under the laws of this State, and every foreign corporation doing business in this State, except purely charitable, social, fraternal, benevolent and religious institutions, not used or held for profit, shall, during the month of June in each year, pay an. annual registration fee of fifteen dollars. Such fees shall be paid to the Corporation Commission, and shall be paid irrespective of any specific license or other tax imposed by law upon such corporation 62 ARIZONA tor the privilege of carrying on its business in this State . or upon its franchises or property. (b) At the time of paying such registration fee, every such cor- poration, domestic or foreign, shall file with the said Corporation Com- mission a report subscribed and sworn to by its president and secretary showing : (1) Its assets, liabilities, and accumulations. (2) The amount of its capital stock paid up and issued. (3) A statement showing in detail all property both real and per- sonal owned, leased or controlled by the corporation, and in what place or places the same is situated, and the value thereof. (c) The Corporation Commission shall charge and collect in ad- vance the' following fees for the performance of the duties herein re- quired : Filing annual report at the time of payment of registration fees $5.00 Annual registration fee of corporation as provided herein 15.00 Failure to render this report and pay filing and registration fees subjects corporatipns to action looking to dissolution and may bring into question their corporate acts. Companies organized under the laws of Arizona, or foreign com- panies heretofore admitted into Arizona, that have permanently discon- tinued doing business should notify the Commission. Send reports, re- mittances and communications to Arizona Corporation Commission, Phoenix, Arizona. ARKANSAS 63 ARKANSAS STATUTES. Laws 1915, Act 242, p. 885 AN ACT To prevent fraud in the sale and disposition of contracts, stocks, .bonds, or other securities sold or offered for sale within the State of Arkansas by any dealer, firm, company, association or corporation, foreign or domestic, by requiring an inspection of such contracts, stocks, bonds, or other securities, and an in- spection of the business of such persons, firms, companies, associations or corporations, including dealers and agents, and such regulation and supervision of the business of said per- sons, firms, companies, associations or corporations, including dealers and agents as may be necessary to prevent fraud in the sale within this State of any contracts, stocks, bonds, or other securities, and to provide a penalty for the violation thereof. Section 1. Bank Commissioner to be executive officer. 2. Investment company defined. 3. Exempts certain classes of securities. 4. Provides method of application and fixes fees. 5. All applications to be verified. 6. Irrevocable consent for service of process. 7. May require additional information ; may examine. 8. Shall issue permit, if found not fraudulent. 9. "Dealer" defined; prescribes regulation of business. 10. How "dealer" may be licensed. 11. Agents. 12. Accounts and examinations; fees for. 13. Unlawful to do any business until law complied with. 14. Unlawful for "dealer" until law complied with. 15. Information subject to public inspection. r6. Act no way repeals or cancels Bank or Insurance laws. 17. Penalty for false oath. 18. Copies may be furnished ; receipts reappropriated. 19. Annual report 20. Appeal 21. Penalty. 22. Constitutionality confined to each Section. 23. In force from and after passage; Act 214 of 1913 repealed. 64 ARKANSAS Be It Enacted by the General Assembly of the State of Arkansas: Section 1. The State Bank Commissioner shall be and he is hereby constituted and delegated with full power and authority to supervise and enforce the provisions of this Act, and he shall appoint an assistant at a salary not exceeding twenty-four hundred dollars per annum for the purpose of this Act, and such Bank Commissioner shall make such rules and regulations as may be necessary to carry out the provisions herein and shall prepare all necessary blanks, records and stationery, and shall pay all other expenses lawfully incurred hereunder. Act 1916 as amended by Act 214, 1917. Section 2. Every person, corporation, co-partnership, company or association (except those exempt under the provisions of this Act), or- ganized or which shall hereafter be organized in this State, whether incorporated or unincorpoated, which shall either himself, themselves or itself, or by or through others, sell or negotiate for the sale of any con- tract, stock, bonds or other securities issued by him,, them, or it, within the State of Arkansas shall be known for the purposes of this Act as a domestic investment company. Every such person, corporation, co-partnership, or association a resident of or organized in any other State, Territory or government shall be known for the purposes of this Act as a foreign investment company. Section 3. The provisions of this Act shall not apply to, (a) securities of the United States ; or any foreign government ; or any State or Territory thereof, or of any county, city, township, district, or other public taxing subdivision of any State or Territory of the United States, or any foreign government; (b) unsecured commercial paper; (c) securities of public or quasi-public corporations, the issue of which securi- ties is Tegulated by the Arkansas Railroad Commission or by any public service commission or board of equal authority of any State or Territory of the United States or securities senior thereto; (d) securities of State or National banks or trust companies; (e) securities of any do- mestic corporation organized without capital stock, and not for pecuniary gain, or exclusively for educational, benevolent, charitable, or reforma- tory purposes ; (f) mortgages upon real or personal property situated in this State where the entire mortgage is sold and transferred with the note or notes secured by such mortgage ; (g) increase of stock sold and issued to stockholders, also stock dividends ; (h) securities which are listed in any standard manual of information approved by said Bank Commissioner ; provided, however, that said Bank Commissioner shall have power to call for additional and further information than that con- tained in such manuals with reference to any securities listed therein, and may, pending the filing of such information, suspend the sale of such securities, and also suspend, either temporarily or permanently, the sale of any securities listed in such manuals after a hearing upon notice to the ARKANSAS 65 issuer of such securities if said Bank Commissioner shall find that the sale of such securities would work a fraud upon the purchaser thereof. Section 4. Before selling, offering for sale, taking subscriptions for, or negotiating for the sale in any manne:; whatsoever in this State, any contracts, stocks, bonds, or other securities of its own issue, every investment company, domestic or foreign, shall file in the office of the Bank Commissioner a. statement showing in full detail the plan upon which it proposes to transact business, a copy of all contracts, stocks, bonds, or other instruments which it proposes to make with or sell to, its contributors or customers, together with a copy of its prospectus, and of the proposed advertisements of its sale of stocks, bonds, or other securities, which statement shall also show the name and location and main office of the investment company; the names and addresses of its officers, and an itemized account of its financial condition and of its assets and liabilities, and such other information touching its condition and affairs as the Bank Commissioner may require. If such investment company shall be a co-partnership or an un- incorporated association, it shall also file with the Bank Commissioner a copy of its articles of co-partnership or association, and all other papers pertaining to its organization. If it be a corporation organized unaer the laws of Arkansas, it shall also file with the Bank Commis- sioner a copy of its articles of incorporation, Constitution and by-laws, and all other papers pertaining to its organization. If it shall be an investment company organized under the laws of any other State, Terri- tory or government, incorporated or iinincorporated, it shall also file with the Bank Commissioner a copy of the laws of the State, or Territory, or government, under which it exists or is incorporated, and also a copy of its charter and the certificate of the proper officer of such State showing that it is authorized to transact business there; and also copies of its constitution and by-laws and of all amendemnts of any of the above mentioned instruments which have been made, and of all other papers pertaining to its organization. It shall also pay a filing fee of one-tenth per cent upon the face value of the securities for the sale of which ap- plication is made ; provided, however, such filing fee shall not be more than one hundred dollars, nor less than ten dollars. Section 6. All the above described papers shall be verified by the bath of a member of the co-partnership or company, if it be a co- partnership or company, and by the oath of a duly authorized officer, if it be a corporation or an unincorporated association. All such papers, however, as are recorded or are on file in any public office shall be further certified by the officer of whose records or archives they form a part, as being correct copies . of such records or archives. 66 ARKANSAS Section 6. Every foreign corporation before offering for sale any of its stocks, bonds, or other securities in this State shall file its irre- vocable written consent that suits and actions may be commenced against it in the proper courts of any county in this State in which a cause of action may arise, or in which the plaintiff may reside, by the service ol any process or pleading authorized by the laws of this State, on the Bank Commissioner, said consent stipulating and agreeing that such service of such process or pleading on such Commissioner shall be taken and held in all courts to be as valid and binding as if due service had been made on the company itself, and said instrument containing such consent shall be authenticated by the seal of said foreign corpora- tion, and shall in such case be accompanied by a duly certified copy of the resolution of the Board of Directors, authorizing the president and secretary to execute the same. In case any process or pleading mentioned in this Act are served upon the Bank Commissioner, it shall be by duplicate copies, one of which shall be filed in the office of the Bank Commissioner, and another immediately forwarded by registered mail to the head office of the corporation against which said process or pleadings are directed. Section 7. The said Bank Commissioner shall have power to demand from any investment company seeking to come under the pro- visions of this Act any further information other than such investment company is required to furnish under the provisions of this Act which shall be necessary to properly qualify him to pass upon all questions that may come before him. He may make or have made under his direction a detailed examination of such investment company's property, business and affairs, which examination shall be at the expense of the applicant. He may cause an appraisal to be made at the expense of the investment company, of the property of the said investment company, including the value of patents, good will, promotion and intangible assets, and he may fix the amount of stocks, bonds, or other securities that may be issued by any corporation, foreign or domestic, in payment for prop- erty, patents, good will, promotion and intangible assets at the value he shall find same to be worth, and may require that such stocks, bonds, or other securities so issued for such property, patents, good will, promo- tion and intangible assets shall be deposited in escrow under such terms as said Bank Commissioner may prescribe. And said Bank Commi;s:oner may withhold his certificate of authority to sell such stocks, bonds, or other securities if such corporation has issued stocks, bonds, or other securities in payment for property, patents, good will, promotion and intangible assets in excess of their value as found by said Bank Com- missioner, or if said stocks, bonds or other securities are not deposited in escrow according to the terms fixed by the Bank Commissioner until such stocks, bonds, or other securities issued in payment for property, patents, good will, promotion and intangible assets in excess of the value so found by said Bank Commissioner has been surrendered to such cor- ARKANSAS 67 poration and cancelled by it, and until the said stock has been deposited in escrow under the terms prescribed by said Bank Commissioner. Section 8. It shall be the duty of said Bank Commissioner to ex- amine the statements and documents filed in his office by any investment company and the reports of any investigation conducted under the direc- tion of said Bank Commissioner and to hear such applicant and he shall have power to examine under oath any person interested or connected with such investment company, and if said Bank Commissioner finds that the proposed contracts, stocks, bonds, or other securities are fraudulent or of such nature that the sale thereof would, in the opinion of the said Bank Commissioner work a fraud upon the purchaser, then the said Bank Commissioner shall disapprove the sale of such proposed contracts, stocks, bonds, or other securities . and shall notify such investment company by registered mail of his findings and disapproval, and it shall be unlawful for such company to do any further business in the way of selling, offer- ing for sale, taking subscriptions for, or negotiating for the sale in any manner whatever of any such contracts, stocks, bonds, or other securities in this State; and said contracts, stocks, bonds, or other securities shall not be sold in this State. If, however, such Bank Commissioner shall not find that the proposed plan of business of said investment company or that its proposed contracts, stocks, bonds oi- other securities are fraudu- lent or are of such nature that the sale thereof, would in the opinion of said Bank Commissioner, work a fraud upon the purchaser thereof, then he shall approve the sale of same in the State of Arkansas, and issue his certificate in substantially the following language: This is to certify that the has this day been given permission to sell | of its within the State of Arkansas. (Stocks, bonds, or other securities) THE BANK COMMISSIONER DOES NOT RECOMMEND THE PURCHASE OF THIS SECURITY (2 sizes larger). This day of A. D., 191.... In witness whereof, I have hereunto affixed the seal of the bank de- partment. . Done at Little Rock this day of A. D., 191. . . . (SEAL) Bank Commissioner. The words "the Bank Commissioner does not recommend the pur- chase of this security" shall be printed in type two sizes larger than any other part of said certificate, and in case said certificate or the fact that said Bank Commissioner has approved said securities is printed or pub- 68 ARKANSAS lished in any circular, pamphlet or newspaper, the words "the Bank Commissioner does not recommend the purchase of this security" shall be printed in type two sizes larger than the balance of said certificate, or statement of such facts that such securities have been approved by said Bank Commissioner appears. Section 9. Any person, firrn, copartnership, corporation or as-ocia- tion, whether domestic or foreign, not the issuer, who shall in this State sell or offer for sale any of the stocks, bonds or other securi ies issued by any foreign or domestic investment company except the securities specifically exempted in this Act, or who shall, by advertisement or other- wise, profess or engage in the business of selling or offering for sale such securities, shall be deemed to be a "dealer" in such securities within the meaning of this Act, and no dealer within the meaning of this Act shall sell or ofifer for sale any such securities or profess the business of selling or offering for sale such securities unless and until he shall have filed a list of the saihe in the office of the Bank Commissioner as in this Act provided. The term "dealer" shall not include an owner, not issuer, of such securities so owned by him when such sale is not made in the course of continued and successive transactions of a similar nature, nor one who, in a trust capacity created by law, lawfully sells any securities embraced within such trust. Section 10. Any dealer desiring to sell or offer for sale within this State any stocks, bonds,' or other securities not exempted under the terms of this Act, shall first register with the Bank Commissioner and shall furnish said Bank Commissioner upon oath in such form as the Bank Commissioner shall prescribe the following information, to-wit : The dealer's name, residence and business address, the general character of the securities to be dealt in, the place or places where the business is to be conducted within this State, and where the business in this S'a^e is not to be conducted by the dealer in person, then the names and addresses of all persons in charge thereof. Said dealer at the time of such registra- tion shall pay to the Bank Commissioner an inspection fee of fifty dol- lars and shall furnish said Bank Commissioner with such other informa- tion in addition to that above specified as said Bank Commissioner shall deem necessary in order to thoroughly acquaint himself with the charac- ter of the business of such dealer. All authorized agents of any dealer shall be reeistered with the Bank Commissioner and the name of any a?ent shall be stricken from the register by the Bank Comm's'ione'- uprn the written request of the dealer and add'tionnl agents mav be re?istefed by the Bank Commissioner uoon like request of the dealer accompanied with the fee therefor; provided, that no agent shall act as such until his name and address shall be registered with the Bank Commissioner. If the dealer be a foreign corporation, it shall at the time it registers with the Bank Commissioner file with the Commissioner a written duly authenticated appointment of the Bank Commissioner of this State as its agent in Arkansas upon -whom process or pleadings may be served ARKANSAS 69 for and on behalf the dealer for the purposes mentioned in section 6 of this Act, and such appointment shall be irrevocable. Upon compliance by such dealer with the provisions of this Act, the said Bank Commissioner shall issue to him a certificate of authority under the seal of said commission, which said certificate shall be valid for one year from the date thereof, or until revoked by said Bank Com- missioner for good cause upon notice to such dealer and a hearing duly had; provided, that in the event such certificate of authority be not revoked before the expiration of one year from the dats the'eof, same may be renewed by the said Bank Commissioner upon receipt of an in- spection fee of twenty-five dollars. Section 11. In addition to the filing fees and examination fee herein provided for to be paid by investment companies and dealers, there shall be charged' and collected by the Bank Commissioner a fee of two dol- lars for the registration and, authorization of each agent of any such dealer or investment company, and ?hall be valid until March 1 following, unless sooner revoked by the Commissioner for cause apoea ing suf- ficient, and all the fees and charges collected by the Bank Commissioner shall be turned into the State treasury and are hereby reappropr ated to the Bank Commissioner toward paying the expenses of enforcing this Act. The expenses of said Bank Commissioner shall not, however, be limited to the moneys received by him but he shall have power to incur all expenses he finds necessary in enforcin-j the provisions lee f. Section 12. The general accounts of every investment company, domestic or foreign, shall be kept in a business-like and intelligent man- ner and in sufficient detail that said Bank Commissioner can ascertain at any time its financial condition and the books of accounts shall at all times during business hours, except on Sundays and legal holidays, be open to stockholders and investors in said company, or the said- Bank Commissioner, and all such investment companies shall be subject to examination by said Bank Commissioner, or duly authorized examiner at any time said Bank Commissioner shall deem it advisable and in the saime manner as is now provided for the examination of State banks, and such investment companies other than building and loan, building, or building and savings associations shall pay a fee for each such exami- ntion not to exceed ten dollars per day or fraction thereof that any examiner is absent from the Capitol building for the purpose of making such examination, and in addition thereto shall pay the actual hotel and traveling expenses of such authorized., examiner from Little Rock and . return. It shall be the duty of said Bank Commissioner to make or cause to be made at least once a year an examination of all building and loan, building or building and savings associations doing business in this State, in the manner now provided for the examination of State banks, and such building and loan, building, or building and savings assrciation shall pay a fee for each of such examinations of not to exceed ten dollars per day plus ten cents per each one thousand dollars or fraction thereof 70 ARKANSAS of its assets; provided, that in no event may the charge for such exami- nation exceed fifty dollars, if such building and loan, building, or building and savings association be a domestic investment company; and, provided also, that such charge for such examination may not exceed fifty dollars plus the necessary hotel and traveling expenses from Little Rock and return if such building and loan, building, or building and savings asso- ciation be a foreign corporation. And the failure or refusal of any investment company to pay such fees upon demand of such Bank Com- missioner or duly authorized examiner, while making such examination, shall work a forfeiture of the right of such investment company to sell or offer for sale any of its contracts, stocks, bonds, or other securities in this State. In case a preliminary examination of any investment company by said Bank Commissioner for the purpose of the ascertain- ment by said Bank Commissioner as to whether said company shall be permitted to come under the provisions of this Act, the fee for such examination shall be the same as in this section provided, and in case it shall appear to the Bank Commissioner from the examination of such investment company, ' after said investment company has been authorized to sell or offer for sale its contracts, stocks, bonds or other securities that the further sale of said contracts, stocks, bonds or other securi- ties would work a fraud upon the purchaser, then said Bank Commis- sioner may make an order revoking tlie license of such investment company to sell its contracts, stocks, bonds or other securities upon notice duly given and a hearing duly had, and may, pending such hear- ing, suspend the right of such investment company to sell its contracts, stocks, bonds or other securities. Section 13. It shall be unlawful for any investment company or dealer or representative thereof, either directly or indirectly, to sell or cause to be sold, offer for sale, take subscriptions for, or negotiate for the sale in any manner in this State, any contracts, stocks, bonds or other securities (except as expressly exempted herein), unless and until said Bank • Commissioner has approved thereof and issued his certificate in accordance with the provisions of this Act, nor shall it be lawful for any such investment company to transact business on any other plan than that set forth in the statements and papers required to be filed by virtue of the provisions of this Act or the rules of the Bank Commissioner. It shall be unlawful for any investment company, or dealer, or its or his agents, to issue, circulate or deliver any advertise- ment, pamphlet, circular, prospectus or other document in regard to its stocks, bonds or other securities in the State of Arkansas differing in any way from the copy filed with the said Bank Commissioner as provided by this Act. It shall be unlawful for any newspaper published in the State of Arkansas to advertise the sale of any stocks, bonds or other securities which have not been approved by said Bank Commissioner or which are not exempt the provisions of this Act. ARKANSAS 71 Section 14. No dealer within the meaning of this Act shall sell or offer for sale within this State any of the stocks, bonds or other securities of any investment company unless such investment company shall have fully complied with all the provisions of this Act, nor until said dealer shall have registered with the Bank Commissioner under the terms of this Act; provided, however, that should any dealer desire to sell or offer for sale within this State the contracts, stocks, bonds or other securities of any investment company, which has not itself complied with the provisions of this Act, said . dealer shall make application to the said Bank Commissioner for license as hereinbefore provided for applications by investment companies and shall pay the same fee re- quired to be paid by said investment company. Section 15. All information obtained by the Bank Commissioner with reference to any securities and all records of the Bank Commis- sioner relating thereto shall be open to examination by the public, and it shall be the duty of the Bank Commissioner to preserve such informa- tion, and so classify and arrange it as to facilitate examination and in- spection thereof. The Bank Commissioner may from time to time issue in pamphlet form, or by newspaper advertisements, or otherwise, any and all information regarding any and all contracts, stocks, bonds or other securities sold or offered for sale within this State which he deems would be of public interest or advantage. Section 16. Nothing in this Act shall be construed to repeal or modify any laws giving the State Bank Department of this State control over State Banks, and the business of Banking in this State, nor shall any part of this Act be contsrued to repeal or modify, laws giving the Insurance Commissioner of this State control of and supervision over the business of insurance in this State, and those engaged therein. Section 17. Any person who shall knowingly or wilfully subscribe to or make or cause to be made any false statement or false entry in «ny book of any investment company, or who shall exhibit any false paper with the intention or for the purpose of deceiving any person authorized to examine into the affairs of said investment comJ)any, or - shall make or publish any false statement of the financial condition of said investment company or false statement relating to the contracts, stocks, bonds or other securities by it issued and offered for sale, shall be deemed guity of a misdemeanor and shall be punished as hereinafter provided. Section 18. The Bank Commissioner shall provide for the furnish- ing to those who may apply therefor of any information regarding any investment company or its affairs, which is on file in its office, said Bank Commissioner to charge therefor approximately the cost of preparing such information, and fifty cents for each certificate of authentication. All fees collected under the provisions of this Act shall be paid in'o the State treasury on the first day of each and every calendar month, and a complete record of all fees received shall be kept in the office of the 72 ARKANSAS Bank Commissioner, and all said fees so turned into the State treasuiy are hereby reappropriated to the Bank Commissioner for the purpose of paying salaries and expenses necessary for carrying this Act in.o effect. Section 19. Every investment company, domestic or foreign, shall file during the month of January in each year, a detailed statement in such form and containing such information as the Bank Commis-ioner may prescribe and require, showing its condition at the close of business December 31 preceding, and shall at the same time pay a filing fee there- for of two dollars and fifty cents ; provided, that said Bank Comrnis- sioner may call for other or additional reports of any kind at any time, and such other or additional reports shall be filed within twenty days after call therefor. Section 20. An appeal will always lie to the Chancery Court, upon petition of any person aggrieved and upon payment of the costs of pre- paring such copies of papers and other documents desired by said pe- titioner from any final orders of the Bank Commissioner. The granting of such appeal shall not, however, unless so ordered by such court or other court of competent jurisdiction, operate as a stay of proceedings. Section 21. Any persori or persons who shall violate any of the provisions of this Act shall be deemed guilty of a misdemeanor, and upon conviction thereof shall be fined not more than one thousand dollars or may be imprisoned in the county jail for not more than one year, or by both such fine and imprisonment in the discretion of the court or jury trying the case. Section 22. Should the courts of this State or of the United States declare any sectjon or provision of this Act unconstitutional or un- authorized, or in conflict with any other section or provisions of this Act, then such declaration shall affect only the section or provision so declared 10 be unconstitutional or unauthorized or if in conflict only such provisions or parts as are so held, and such holding shall not affect ^ny other section or part of this Act. Section 23. All laws and parts of laws in conflict herewith, and particularly Act 214 of the Legislature of 1913, in its entirety are hereby repealed, and this Act being necessary for the immediate preservation of the public peace, health and safety, shall be in force from and after its passage. Approved March 24, 1915. Annotations A prior statute enacted by General Assembly, March 28, 1913, held to be constitutional in (Standard Home Co. v. Davis — 217 Federal 904). (Standard Home Co. v. Davis — 217 Federal 904) A prior Statute, Act 214, Acts 1913, page 904, providing for the regulation and control of investment companies, and giving the In- ARKANSAS 73 surance Commissioner power to withhold from them the right to do business, but also giving the company the right to institute suit in the chancery court to annul the finding of the Insurance Commissioner, is not unconstitutional and does not confer judicial power on the Insu anca Commissioner. Such statute classifying investment companies for State regulation was held to be a proper and reasonable classification. The Mechanics Building & Loan Association v. Cofifraan, 110 Ark., 269, 162 S. W. 1090. Administration of Law "There has been little difficulty in the administration of the law in this state, the Bank Commissioner having been able to enforce the denial of applications, or the applicants have so modified their corporate status as to conform to his requirements and with the provisions of the Report of Assistant Commissioner of Banking Department in charge of Investment Companies. Foirms Farm I the filing of this application, by the of said State of • who, by the laws of said state, is the proper officer by whom such certificate should be executed, showing that said applicant is authorized to transact business in said state. 122 CALIFORNIA (c) Its written instrument in the form prescribed by said Com- missioner, irrevocably appointing said Commissioner and his successor in office its true and lawful attorney, upon whom all process in any action or proceeding against it, arising out of or founded upon the actual fraud of applicant in the sale of securities within the State of California, may be served with the same effect as if said applicant were organized or created under the laws of the State of California and had been lawfully served with process therein. 11. That applicant has complied with all of the provisions of the "Corporation License Act" of the State of California, in so far as said act relates to or affects corporations organized under the laws of another state, territory, or of a foreign country and doing business in said State of California or maintaining an office therein. 12 That applicant tenders with this application. Five Dollars, the fee prescribed by law for filing the same. Wherefore, your petitioner prays that this application may be filed, and that a certificate be issued by said Commissioner authorizing your petitioner to act as a broker within the State of California "for the period ending the 31st day of December next after the filing of this application. By ^. (Corporate Seal) State of ) County of f *^" , being first duly sworn, deposes and says: That he is an officer of the corporation making the foregoing application, to wit, the thereof, and that he makes this verification for it and in its behalf; that he has read the foregoing application, including all exhibits attached thereto or filed therewith, and knows the contents thereof, and that the statements made therein are true of his own knowledge, except as to the matters alleged in paragraph numbered 9 above, and as to such matters, « that he believes them to be true. Subscribed and sworn to before me this day of 19.... Notary Public iii and for the ( Notarial Seal) County of State of My commission expires CALIFORNIA 123 State Corporation Department H. L. Carnahan, Commissioner BROKER'S APPOINTMENT OF THE COMMISSIONER OE CORPORATIONS OF THE STATE OF CALIFORNIA as attorney in fact Upon Whom Process Against Incorporated under the laws of may be served. Know All Men by These Presents : That pursuant to the Corporate Securities Act of the State of California a corporation organized and existing under and by virtue of the laws of the State of carrying on business in the State of California, with oiBces at in the City of County of State of California, as a broker, as such term is defined in said Act, has irrevocably consitituted and appointed and by these presents does irre- vocably constitute and appoint H. L. Carnahan, Commissioner of Cor- porations of the State of California, and his successor or successors in said office, its true and lawful attorney upon whom all process in any action or proceeding against it arising out of "or founded upon the actual fraud of said corporation in the sale of securities within said State of California, may ' be served with the same effect as if said corporation were organized or created under the laws of the State of California and had been lawfully served with process therein. Said corporation has further designated, and by these presents does designate, the following named person, to wit : whose address is (Street and Number) as the person to whom a (Town or City) (State) copy of every process served upon said Commissioner of Corporations in any such action or proceeding against said corporation shall be forwarded by mail, in accordance with the provisions of said Act. IN WITNESS WHEREOF the said corporation, by a resolution of its Board of Directors, duly and regularly passed and adopted, has caused its corporate name to be hereunto subscribed and its corporate seal affixed by its President and Secretary this day of A. D 19. . . . (Name of corporation) Corporate Seal By President By Secretary 124 CALIFORNIA State oif . . County of. On this day of ... , in the year 19 , before me , a Notary Public in and for the County of State of '. ; .personally appeared known to me to be the President and known to me to be the V . Secretary of the cor- poration that executed the within instrument, and acknowledged ' to me that such corporation executed the same. Notary Public in and for the Coutity of State of My commission expires. State of. . . County of. being first duly swbrn, deposes and says : 1st: That he is Secretary of the corporation that executed the foregoing power of attorney. 2nd : That at a meeting of the Board of Directors of said Corpora- tion, duly and regularly called and held on the day of 19. . . , in accordance with the orders or reso- lutions of said Board, the by-laws of said corporation, and the laws of said State, of which meeting notice was duly and regularly given and at which said meeting a quorum vvas present and acting, the following reso- lutions were duly and regularly adopted by the affirmative vote oi.. directors, voting in favor thereof, to wit : Be It Resolved, that H. L. Carnahan, as Commissioner of Corpora- tions of the State of California, and his successor or successors in said office, be and he is hereby appointed the true and lawful attorney of this corporation upon whom all process in any action or proceeding against it arising out of or founded upon the actual fraud of said corporation in the sale of securities within said State of California, may be served with the same effect as if this corporation were organized or created under CALIFORNIA 125 the laws of the State of California and had been lawfully served with process therein, and that service upon such attorney in the manner pro- vided in the Corporate Securities Act of said State of California, shall be deemed to be personal service upon this corporation. Be It Further Resolved, that whose address is (Street and Wumber) (Lity) (State) be and he is designated as the person to- whom a copy of every process served upon said Conjmiss^oner of Corporations in any such action or proceeding brought or pending against this corporation in the said State of California shall be forwarded by mail, in accordance with the pro- visions of the Corporate Securities Act of said State of California. "Be It Further Resolved, that the President and Secretary of this corporation be and they are author- ized and directed to execute and acktiowledge, as the act and deed of this corporation and in its corporate name, a power of attorney in writing in substantially the following form, to wit : (Here is inserted, in the resolution herein quoted, a true copy of the executed power of attorney to which this affidavit is attached.) "Be It Furtker Resolved, that when said power of attorney shall have been so executed and acknowledged, said Secreatry bt and he is further authorized and directed to file the same in the office of the said Commissioner of Corporations." 3d : That said resolutions as herein above quoted and recited have been duly and regularly copied and entered at length in the minutes of said meeting of said Board of Directors. 4th : That the power of attorney to which this affidavit is annexred was executed by the . . , President and Secretary of said corporation and its corporate seal affixed thereto, pur- suant to and in accordance with said resolution. (Signature of Affiant) Subscribed and sworn to before me this day of 19.... Notary Public in and for the County of State of My commission expires Where the applicant seeking a broker's certificate is a foreign cor- poration a certificate showing that such corporation is empowered to do business in the state where it was organized (Form 2) should also be filed. 126 COLORADO COLORADO STATUTES Under the insurance laws of this state the sale of securities is gov- erned by the Insurance Department in a limited degree. Colorado has no Blue Sky Law. The following sections relate to the sale of the securities of in- surance companies. (Laws of Colorado, 1915 Ch.' 96 p: 264) Section 30. (Formation of new companies) Whenever any number of persons shall associate to form an insurance company for any of the purposes named in the preceding sections and become incorporated in accordance with the provisions of Chapter XIX of the General Statutes of 1883, they shall file a copy of the articles of incorporatoin with the Commissioner, who shall submit the same to the Attorney General for examination, and if found by him to be in accordance with the provisions of this Act and not inconsistent with the Constitution of this State, he shall certify and deliver back the same to the Commissioner, who shall commission the persons named in the certificate of incorporation, or a majority of them, to open books for the subscription of stock in the company at such time and place as they shall deem it convenient and proper, but every such commission shall expressly state that it is issued subject to all the provisions of this Act, and a full comipliance therewith by the persons receiving such certificate. Whenever such capital stock has- been subscribed and not less than the amount required by this Act shall have been fully paid in, and deposited with the Commissioner, as required by this Act, they shall notify the Commissioner, who shall cause an examination to be made, either by himself or some disinterested person, especially appointed by him for that purpose, who shall certify under oath that the provisions of this Act have been complied with by said company as far as applicable thereto. Such certificate shall be filed in the office of said Commissioner, who shall thereupon deliver to such company a cirtified copy thereof, which shall be recorded in the offire of the recorder of deeds of the county wherein the company is to be located, before the authority to commence business is granted. The provisions of this section shall also apply in the forma- tion and authorization of domestic life and fire insurance companies formed upon the mutual plan and to accident, health and hail associa- tions formed upon the assessment plan, which are organized with a guar- anty fund in lieu of capital as provided in this Act. Before issuing to any domestic company or to the persons'named in the certificates of incorporation thereof, a commission authorizing the sale of stock as provided in Sectjon 30 of this Act, the Commissioner shall make an investigation and shall satisfy himself that the company COLORADO 127 has bee-^ formed in good faith; that its operations would be beneficial to the public, and that the total amount of its organizatioii expenses will not exceed twenty per cent (20%) of the total amount realized or to be realized from the sale of its capital stock. The commission issued by the commissioner authorizing the sale of stock as provided in Section 30 of this Act shall expire on the last day of January each year, and if it is found by investigation, examination or other evidence that the company is being properly conducted and complying with the law of this state the commission shall be renewed annually until the first amount specified in the certificate of incorporation is subscribed. The commission to open books for the subscription of stock may be suspended or revoked at any time by the Commissioner for cause. Section 34. (Foreign Companies' Agents Must Have License to Sell Stock) It shall be unlawful for any agent, solicitor, or other person to sell or dispose of, or offer to sell or dispose of, within this State, any shares of stock of any corporation formed under the laws of any state other than Colorado, or any territory or fo.aign country, to do an insurance business of any kind, without first procuring from the Commissioner of this state a license authorizing him to sell such stock. Before issuing any such license, the Commissioner shall make an investi- gation and shall satisfy himself that the company in question has been formed in good faith, that its operation would be beneficial to the public, and. that the total organization expenses of the said company will not exceed twenty per cent (20%) of the amount realized from the sale of the capital stock thereof. Before issuing such license, the Commissioner shall also requ'-e to be filed in his office an itemized statement of the actual financial condition of such Company, duly verified by its President, Treasurer, or Secretary. Section 35. (Penalty for Selling Stock Without Procuring License) Any agent, solicitor or other person who shall sell or offer' to sell or dispose of within this State, any portion of the capital stdck of any corporation formed under the laws of any state other than Colorado, or any territory or foreign country, to do an insurance business of any kind without having first procured from the Commissioner a license authorizing him so to do, as required by Section 34 hereof, shall be deemed guilty of a misdemeanor, and upon conviction shall be pun- ished by a fine of not less than twenty-five dollars, nor more than five hundred dollars, or by imprisonment in the county jail for a term of not more than one year, or by both such fine and imprisonment. 128 CONNECTICUT CONNECTICUT STATUTES Cancendng the Sale of Securities Public Acts of 1911, Chapter 293, amended May 3, 1917. [House Bill No. 281.] CHAPTER 226. AN ACT Amending an Act concerning the Sale of Securities. Be it enacted by the Senate and House of Representatives in General Assembly convened: Section 1. Section one of chapter 298 of the public acts of 1911 as amended by chapter 84 of the public acts of 1913 is amended to read as follows : No shares or certificates of stock in any raining or oil cor- poration shall be sold or offered for sale until such corporation has filed with the bank commissioner a statement or certificate showing the financial condition of such corporation, the location of the mine or mines or oil properties or other plant or property owned by such corporation, with, in the case of a mining or oil corporation, plans of the same, the anjount of work done thereon, the amount of cash expended for improvements thereon, and the condition of the plant and machinery connedted there- with, nor until said commissioner has given permission in writing for such sale or offer. Such statement or certificate shall be suhspribed and sworn to by the president, treasurer and secretary of said corporation. The bank commissioner shall make such investigation of the affairs of said corporation as he may find necessary to ascertain its condition and, as far as he is able, the value of its securities, and on becoming satisfied, after such examination, that the sale of such securities should be per- mitted, may issue to said corporation a permit, in writing, authorizing the sale of the same in this state. For the filing of such statement or certificate a fee of one hundred dollars shall be paid to said commis- sioner, for the use of the state, whether or not permission is granted thereon as aforesaid. The corporation filing such statement or certificate shall thereupon pay to the commissioner said fee of one hundred dollars, and shall also give such security as the commissioner shall require for the payment of the expense of making said investigation, and shall pay to said commissioner the amount of said expense on presentation of a statement thereof. Such permit, if given, shall be valid for one year from its date unless said commissioner shall, within said time, revoke CONNECTICUT 129 the same for cause, apd such permission may be renewed for a period of one year, in the discretion of the commissioner, upon payment of a fee of twenty-five dollars for each renewal. Section 2. This act shall take effect from its passage. Section 2. Any person engaged in the business of selling or offer- ing for sale any such shares, certificates of stock, or, securities, a permit for the sale of which, as provided for in section one of this act, has not been given and in effect at the time of such sale or offer, shall be fined not more than one hundred dollars for each offense. Section 3. The building and loan commissioner shall report to the attorney-general the names of all persons and corporations who, to his knowledge, are engaged in the sale of securities in violation of the provisions of this act, and the attorney-general shall cause prosecutions therefor to be instituted by the proper authorities. Section 4. The forejgoing provisions shall not apply to any corpora- tion all of whose mines, plant, or property are situated within this state. Section 5. No investment company as defined by section forty-one of chapter 194 of the public acts of 1903 shall do business in this state until it has been licensed by the commissioner on building and loain associ- ations in the manner provided by section 4009 of the general statutes re- garding foreign building and loan associations, and violations of this provision shall be subject to the penalties provided by section forty7five of said chapter 194 of the public acts of 1903. Section 6. Chapter 196 of the public acts- of 1903 and chapter 232 of the public acts of 1911 are hereby repealed. Concemins^ Annual Reports of Investment Companies Public Acts of 1913. CHAPTER 66 Section 1. Any investment company which is required to file an annual statement with the commissioner on building and loan associations, whose fiscal year does not end on June 30th, may make written applica- tion to said commissioner for permission to file such statement as of the close of business for the fiscal year of such company. Said commis- sioner after due investigation may accept such statement as the annual statement required by law to be filed. Section 2. All acts and parts of acts inconsistent herewith are hereby repealed. 130 CONNECTICUt Concerning Filing of Annual Returns by Mining and Oil Companies Public Acts of 1913. CHAPTER 101. Every mining or oil corporation which has received a certificate from the commission on building and loan associations authorizing such company to sell its shares or certificates of stock in this state, shall, on or before September thirtieth in each year, file with said commissioner, upon blanks furnished by him, a statement of its assets and liabilities and such other information as may be required by said commissioner, as of June thirtieth preceding. Said statement shall be subscribed and sworn to by the president, secretary and treasurer of such mining or oil cor- poration, before a notary public, and shall be accompanied by a certificate from a certified public accountant as to the truth of the facts contained therein. Laws Relating to Mortgage and Investment Companies and Mining and Oil Companies Section 2455. Definition of investment company. The term investment company as used in this title shall include all corporations which have power to, and do, sell or negotiate their own choses in action, or sell, guarantee and negotiate the choses in action of other persons or corporations, as investments or as a business. Section 2456. Choses in action of investment companies, ho^w far taxable. All debentures or other choses in action issued by any such investment company prior to August first, 1889, shall continue to be taxable or nontaxable according to the law at the time when the same were issued, unless the same shall be made exempt from taxation as in section 2325 provided ; but all debentures or other choses in action issued by any such company on or after August first, 1889, shall be taxable in the hands of the holder, any provision in the character of the company notwithstanding, unless the same are made exempt from tax- ation as in said section 2325 provided; and no such company shall issue any of its own debentures which purport upon their face to be nontaxable unless they are made so under the provisions of said section 2325. Section 2457. Their choses not to be sold without certificate. Bond. No corporation organized under any special or general law of this or any other state or territory shall by its agents or otherwise engage or aid in any manner in this state in selling or negotiating any choses in action, made, issued, or guaranteed, by any person or investment company chartered by or organized under the laws of this or any other CONNECTICUT 131 state or territory, payment of which is secured by mortgages on real estate situated in any other state or territory, or by pledges of such mortgages, until it has procured from the state treasurer a certificate of authority so to act. Such certificates shall contain the names of the persons who are to be authorized to -act in this state as the agents of said corporation, and shall continue in force for one year and shall authorize the persons named therein to sell or negotiate such choses in action, payment of which is secured by mortgage on real estate situated in any other state or territory, or is secured by a pledge of such mortgage, or both, during said period of one year; provided, however, that no such certificate shall be so issued to any such corporation whose stock is not taxed under the laws- fo this state, until such corporation shall have executed and filed with the treasurer of the state a bond with satisfactory surety in a sum not less than five hundred dollars nor more than five thousand dollars, as said treasurer shall decide and approve, conditioned -that said corporation shall make the returns and pay the taxes required by section 2458. Section 2458. Returns by and taxes on investment companies. The treasurer, or if there is no treasurer then the secretary, of every cor- poration which shall be authorized to transact such business as provided in section 2457, unless its stock is taxed under the laws of this state, shall annually, within the first ten days of January, make a return to tTie tax commissioner of the state, under oath, showing the aggregate amount of all such choses in action as described in section 2457 sold or negotiated by such corporation in this state during the- year preceding the first day of January, and which were secured by mortgages on real estate situated in any other state or territory, or secured by pledges of such mortgages, and the amounts of said bonds which before said sale or negotiation had been made exempt from taxation under the provisions of section 2325. And every s-uch corporation shall annually, on or before the twentieth day of Jauary, pay to the state a sum equal to one per centum on the aggregate amount of aPI'such choses in action, so sold or negotiated in this state during said year preceding the first day of said January, de- ducting therefrom the amount of said bonds which before the sale thereof by said corporation had been made exempt from taxation under the provisions of section 2325. Said suin when so paid shall be in lieu of all other taxes on the personal property of said corporation which is used exclusively in its said business in this state. Section 2459. Investment broker defined. Every person who is or may be hereafter engaged in the business of selling or negotiating choses in action, made, issued, or guaranteed by any person or investment company chartered by or organized under the laws of this or any other state or territory, and payment of which is secured by mortgages on real estate situated in any other state or territory, or by pledges of such mortgages, shall be an investment broker. 132 CONNECTICUT Sectian 2460. Investment broker not to act without bond and certificate. No person shall act as an investment broker, until he has procured from the state treasurer a certificate of authority so to act, unless he is named in a certificate procured by a corporation under the provisions of section 2457, and'acts solely in his business as an officer or agent of said corporation. Such certificate shall be in substantially the same form, and continue for a similar period of time, as provided in said section 2457 for certificates for the agents of corporations; but no such certificate shall be so issued until such broker shall have executed and filed with the treasurer of the state a bond with satisfactory stirety in the sum of not less than five hundred dollars nor more than five thou- sand dollars, as said treasurer shall decide and approve, conditioned that said broker shall make the returns and pay the taxes required by section 2461. ■ Section 2461. Returns by and taxes on investment brokers. Every such investment broker shall annually, within the first ten days of January, make a return to the tax commissioner of the state, under oath, showing the aggregate amount of all choses in action ais defined in section 2459, sold or negotiated by him in this state during the year pre- ceding the first day of said January, and which were secured by mort- gage on real estate situated in any other state or territory, or by pledges of such mortgages, and the amount of said bonds which before said sale or negotiation had been made exempt from taxation under the provisions of section 2325. Such broker shall annually, on or before the twentieth day of February, pay to the state a sura equal to one per centum on the aggregate amount of all such choses in action so sold or negotiated by him in this state during said year preceding the first day of January, deducting therefrom the amount of said bonds, which, before the sale thereof by said broker, had been made exempt from taxation under the provisions of section 2325, Ibut said broker shall nOt be required to include in his return, nor to pay any tax upon, any such choses in action which during said year he has sold while acting as an officer or agent of any corporation which has complied with the provisions of sections 2457 and 2458. Section 2462. Penalty for illegal sale by investment broker. Every invgstraent broker, who without being first authorized by the state treasurer shall sell or negotiate any such chose in action as is described in sections 2457 and 2459, and which has not been previously made exempt from taxation as provided in section 2325, shall be fined not more than two thousand dollars, or imprisoned in the county jail not more than one yeal-, or both. The sale of every single bond or other chose in action, or the attempt to sell the same, by any «uch investment broker, shall be a separate offense under this section. COiVNECTICUT 133 Section 2463. Board to correct returns of investment companies. The board of equalization shall meet at the treasurer's office at the capital, annually, on the first secular day of February, at ten o'clock in the fore- noon, to examine and correct the returns and valuations required by sec- tions 2458 and 2461, regarding investment companies and brokers, and hear any party making such return in regard to such valuations ; and -said board may adjourn from time to time within eight days next succeeding the first day of said meeting; and if any person shall not make such return as prescribed, or shall make any erroneous return, said board shall, at said meeting hereinbefore fixed, or at some adjournment thereof as aforesaid, make out, upon the best information which they can obtain, the statement required to be made and returned by such person ; and a true copy of such statement as corrected or made out by said board shall be returned to each respective corporation or person. The valuation, amount, and numbers contained in such statement shall be final, and the sums required by the provisions of this chapter regarding investment com- panies and brokers shall be paid according to such provisions. Section 2464. Inconsistencies as to investment companies repealed. Any provision of the law providing for different taxation or for an exemption from taxation and inconsistent with the provisions of this chapter regarding investment companies and brokers, whether contained in the general statutes or in the charter of an investment com- pany incorporated by this state, is hereby repealed, and to that extent the provisions of this chapter regarding investment companies and brokers shall be an amendment to the charter of each of said companies ; but it shall not be necessary for said companies, or any of them, to accept said amendment. Section 2465. Penalties for failure to make returns and pay- ments. Every person who shall fail to return to the tax commis- sioner, as prescribed in any section of this chapter, any statement by such section required to be returned shall, except in cases for which a different penalty has been before in this chapter provided, be fined five hundred dollars ; and every corporation or person required by any sec- tion of this chapter to make any payment to the state, who shall fail to make it within the time therein limited shall, except in cases for which a different penalty has been before in this chapter provided, forfeit to the state twice the amount required for such payment. Provisions of "An Act Concerning Corporations" (P. A. 1903, c. 194) Section 40. Whenever the board of directors of any corporation organized for the purpose of lending money on real estate security, and issuing, negotiating, guaranteeing and dealing in bonds and mortgage securities [which companies are generally referred to in our laws as "in- vestment companies"] shall vote that said corporation shall never issue and have outstanding at any one time bonds exceeding a certain amount specified in such vote, and said vote shall he ratified and approved by a 134 CONNECTICUT vote of the stockholders of said corporation, a copy of such votes of the directors and stockholders, certified by the secretary and attested by the president and a majority of the directors, may be filed for record in the office of the secretary of the state, and thereafter said vote shall be a perpetual limitation upon the powers of such corporation. "Section 41. Every corporation which has power to or does sell or negotiate its own choses in action, or sell, guarantee or negotiate the choses in action of other persons or corporations as investments, shall be under the supervision of the commissioner on building and loan as- sociations and subject in that particular to all the laws relating to the examination and report of banks, savings banks and trust companies. Said commissioner, in his annual report, shall clearly describe the various classes of assets and liabilities of .each, and state any special pro- vision which has been made for the payment of such liabilities. No cor- poration doing business as aforesaid shall guarantee, by indorsement or otherwise, debenture bonds secured by loans upon real estate to an amount exceeding ten times the amount of the capital stock paid up in cash and the cash surplus of said corporation. Section 45. Every person who shall violate any of the provisions of this act, for which no penalty or punishment is expressly prescribed, shall be fined not more than one thousand dollars. DELAWARE 135 DELAWARE STATUTES (Laws of Delaware, Vol. 28 — 1915.) 2101a. Section 188. No corporation created by the laws of any other state, or the laws of the United States, shall do any business in this State, through or by branch offices, agents or representatives located in this State, until it shall have filed in the office of the Secretary of State of this State a certified copy of its Charter and the name or names of its authorized agent or agents in this State, together with a sworn state- ment of the assets and liabilities of such corporation, and shall have paid to the Secretary of State for the use of the State, ten dollars ; and the certificate of the Secretary of State under his seal of office, of the filing of such Charter, shall be delivered to sucK agent or agents upon the payment to said Secretary of State of the usual fees for making certified copies ; the said certificate shall be prima facie evidence of such company's right to do business in this State. This Section shall not apply to in- surance coihpanies doing business in this State. 2101b. Section 189: It shall be the duty of the -Secretary of State after issuing the certificate aforesaid, and delivering the same to the agent or agents of said foreign corporation to issue a certificate to the Prothonotary of the Superior Court of each County of the State of Delaware, containing the name of the agent or agents of the said foreign corporation, and the State wherein incorporated. 2101c. Section 190: The Prothonotary of the Superior Court ol Delaware in each County of this State shall procure and keep a book, which is hereby named "Record of Agents of Foreign Corporations," and shall enter and record therein the name of every Foreign (Corporation, certified by the Secretary of State as aforesaid, the name of such person or agent, the name of the State in which said corporation is incorporated, and the date of the filing of such certificate in the office of the Secre- tary of State; and for making the above .entries the Prothonotary making i the same shall receive from each foreign corporation a fee of one dollar, to be collected from each corporation aforesaid, and paid over by the Secretary of State. 2101e. Section 192. Any such foreign corporation, by filing a certificate of the same kind and nature, executed as aforesaid, may change such agent or person and substitute another person or agent for the purposes aforesaid, provided, however, every such person or agent shall at the time of his appointment be a resident of this State. And provided further, however, if any person or agent designated and certified as aforesaid shall die or remove from this State, then the foreign cor- poration for which such person or agent had been so designated and certified shall, within ten days after the death or removal as aforesaid iS^ DELAWARE of such agent or person, substitute, designate and certify to the Secfd- tary of State, the name of another person or agent for the purposes aforesaid, and all processes, orders, rules and notices mentioned in the foregoing 2101d. Section 191, may be served on or given to such sub- stituted person or agent with like effect as is prescribed in said Section. 2101f. Section 193. Any foreign corporation engaging in, prose- cuting, or transacting any business of any kind within the limits of this State without first having complied with the foregoing provisions of this Chapter shall be guilty of a misdemeanor and upon conviction thereof shall be fined not less than Two hundred dollars nor more than Five hundred dollars for each and every offense. Any agent of any foreign corporation that shall transact any business within the limits of this State for any foreign corporation before such foreign corporation has complied with all the said provisions of this Chapter, s^hall be guilty of a misde- meanor, and upon conviction thereof shall be fined not less than One hundred dollars nor more than Five hundred dollars for each and every offense. 2101g. Section 194. No foreign corporation as aforesaid, shall, within the limits of this State, by any implication or construction, be deemed to possess the power of discounting bills, notes, or other evi- dence of debt, of receiving deposits, of buying gold or silver bullion or foreign coin, of buying and selling bills of exchange, or of issuing bills, notes or other evidences of debt upon loan for circulation as money, anything in its Charter or Articles of Incorporation to the contrary thereof notwithstanding. All certificates issued by the Secretary of State under the foregoing provisions of this Chapter shall expressly set forth the limitations and restrictions contained in the preceding proviso. FLORIDA 137 FLORIDA STATUTES Law Relating to Investment Companies L. 1913 Chapter 6422 No. 2 as Amended by L. 1915 Chapter 6862 No. 56 Corap. Laws 1914, 2661a to 2661i and 3727e and 3727f. AN ACT To Define Domestic and Foreign Investment Companies; to Provide for the Regulation and Supervision of Same; to Provide Con- ditions and Terms Under Which Corporations, Foreign and Domestic, Can Sell to Persons in Florida Stock and Other Securities; to Place Such Investment Companies Under the Jurisdiction of the Comptroller and Attorney General, and to Prescribe for the Comptroller and Attorney General Certain Duties and Powers; to Provide for the Services of Process Thereon; to Provide for the Registration of Agents Selling Securities of Such Investment Companies, and to Provide Penalties for the Violations of the Terms of This Act, and for Other Purposes. Be It Enacted by the Legislature of the State of Florida: : Section 2661a. That every Corporation, other tlian municipal Cor- porations, State and National Banks, Trust Companies, Public Utility Cor- porations, Corporations under the jurisdiction of the Railroad Commis- sion of the State of Florida, and Corporations doing the business of insurance or surety, authorized to do business by the Board of Insurance Commissioners of the State of Florida, and Corporations not organized for profit, which are now organized or which may be organized in this State which shall offer for sale within the State of Florida, and outside of the County where such Corporation has its principal office or place of business through any Agency whatsoever, any of its stocks, bonds, deben- tures, certificates, policies or other securities of any kind or character shall be known for the purposes of this Act as a Domestic Investment Company. Any Corporation organized under the laws of any other State, Teritory or Country shall be known for the purposes of this Act as a "Foreign Investment Company." Section 2661b. Before attempting to sell or offering for sale any stocks, bonds or other securities of any kind or character to any person or persons within this State every such Investment Company, Domestic or Foreign, shall file in the office of the Comptroller of the State of Florida, together with a filing fee of Five Dollars, the following docu- ments, to-wit : 138 FLORIDA A Statement showing in full detail the plan upon which it proposes to transact business fa copy of all contracts, bonds, stocks or other instru- ments which it proposes to make with or sell to its contractors; a state- ment which shall show the name and location of the Investment Com- pany; an itemized account of its actual financial standing, showing the amount, character and location of its property and its liabilities ; and such other information touching its affairs as said Comptroller may require. It shall also file with the Comptroller a copy of its Articles of Incor- poration, constitution and by-laws and all other papers pertaining to its organization, all of which above papers and documents shall be verified by the oath of the President of such Corporation, or by some duly au- thorized officer of same. Section 2661c. Every such Foreign Investment Company shall also file with the Comptroller its written consent, irrevocable, that actio s may be commenced against it in the propfer Court of any County in this State in which a cause of action may arise, or in which the plaintiff may reside, by the Service of Process upon the Comptroller and stipulating that such service of process shall be taken and held in all Courts to be valid and binding as personal service upon the Company itself. Such written con- sent given to the Comptroller by said Companies shall be authenticated by the seal of said Foreign Investment Company, and by the signatures of the President and Secretary of the Corporation, and shall be accom- panied by a duly certified copy of the Order of Resolution of the Board of Directors and of the said Corporation, authorizing the President and Secretary to execute same. When service shall be perfected in sueh manner upon any such Company, the same shall constitute due Service of Process upon such Company, and binding and effective in all respects. SECrfoN 2661d. vlt shall be the duty of the Comptroller, together with the Attorney General, to examine the statements and documents so filed, and if said Comptroller and Attorney General may deem it advisable, they shall make or have made a detailed examination of such Investment Company, and its affairs, which examination shall be at the expense of such investment company as hereinafter prpvided ; and if he finds that such Investment Company is solvent, and that its articles of incorporation and association, its constitution and by-laws, its proposed plan of business and its contracts, contain a fair, just and equitable plan for the transaction of business, they shall issue to such Investment Company a statement reciting that such Company has complied with the provisions of this Act,^ that detailed information with regard to the company and its securities is on file in the office of the Comptroller at Tallahassee, Florida, that such Investment Company is permitted to do business in this State, and that such statement shall also recite in bold type that the Comptroller is not required or permitted by law to recommend the securities offered for sale by such Investment Company. But if said Comptroller and Attorney General find that such Articles of Incorporation or association, charter, constitution and by-laws, plan of business or proposed contract FLORIDA 139 contain any provision that is unfair, unjust or inequitable or oppressive to any class of contractor, or if they decide from their examination of its affairs that said Investment Company is not solvent and does not intend in good faith to do a fair and honest business, then they shall notify said Investment Company in writing of their finding and it shall be un- lawful for such company to sell or offer fpr sale any of its securities in this State until it shall so change its constitution and by-laws, articles of incorporation or association, its proposed plan of business and contract, and its general financial condition in such manner as to satisfy the Comp- troller and Attorney General that it is solvent, and its articles of in- corporation or association, its constitution and by-laws, its proposed plan of business and proposed contract provide for a fair, just and equitable plan for the transaction of business. Provided further that all expenses paid or incurred and all fees or charges received or collected for any examination made under these provisions of this' Section of this Act shall be reported in detail to the Comptroller, and a full report and record thereof made and kept. Section 2661e. It shall not be lawful for any such Investment Com- pany, or any agent thereof, or any person owning or controlling any of the securities of such company, to sell or offer for sale any of the said securities hereinbefore specified, except as provided in Section One, within the State of Florida until it shall have complied in all respects with the terms of this Act and obtained the certificate of the Comptroller and At- torney General as provided herein. Section 2661 f. Any Investment Company may appoint one or more Agents, but no agent shall sell or offer for sale in this State, except as provided in Section One of this Act, the securities of any such Invest- ment Company until he shall first register with the Comptroller as agent for such Investment Company, and for each of such registrations there shall be paid to the Comptroller the sum of One Dollar. Provided the Comptroller and Attorney General, at their discretion, shall require such Agent or Agents to give and file with the Comptroller bond in such sums and amounts as they may deem best to the 'best interests of the investing public, either in their own right or on the part of the Investment Com- pany whom he represents, payable to the Governor of the State of Florida, and conditioned that the securities he offers for sale are fair and just, and that he will save harmless, the purchaser or purchasers against any loss which may be occasioned by reason of the reliance of such purchaser or purchasers on any false or fraudulent representation made in the course of the sale of such securities. And it is hereby expressly pro- vided that any person or persons who may have sustained an injury covered by such bond, may, in addition to any other remedy that he may have, bring suit on such bond in the name of the Governor of the State of Florida, for the use of such person or persons. Such regis- tration shall entitle such Agent to represent such Investment Company as its agent until the first day of January, following, unless such au- 140 FLORIDA thority is sooner revoked by the Comptroller or the Investment Com- pany, and such authority shall be subject to revocation at any time by the Comptroller and Attorney General for cause appearing - to them sufficient. Section 2661g.' Every Investment Company, Domestic or Foreign, shall at such times as required by the Comptroller and Attorney General, rile a statement verified by the oath of the person authorized to make the same, setting forth in such forms as may be prescribed by the Comptroller and Attorney General its financial condition and the amount of its assets and liabilities and furnish such other information concerning its affairs ■ as said Comptroller and Attorney General may require; such statement shall be accompanied by a filing fee of Five Dollars. Any Investment Company failing to file its' report within sixty days after the written re- quest of the Comptroller and Attorney General shall forfeit its right to do business in this State. Section ^Sfilh. Whenever it shall appear to the Comptroller and At- torney General that the assets of an Investment Company doing business in the State are impaired to the extent that such assets dp not equal its liabilities or that it is conducting its business in an unsafe, inequitable, or unauthorized manner, or jeopardizing the interests of its stockholders and investors in stocks, bonds, or other securities by it offered for sale, or whenever any Investment Company shall fail to or refuse to file any papers, statements or documents required by this Act, without giving satisfactory reasons therefor, said Comptroller and Attorney General shall at once revoke the license of said Investment Company to do any further business in the State of Florida. Section 3727e. Any person who shall knowingly subscribe to or make or cause to be made, any false statements or false entry in any book of such investment Company [§§2661a-2661i] or exhibit any false paper with the intention of deceiving any person authorized to examine into the affairs of such Investment Company, or shall make, utter or publisih any false statement of the financial condition of such Investment Com- pany or the stock, bonds, or other securities by it offered for sale, shall be deemed guilty of a felony, and upon conviction thereof shall be fined not exceeding Five Thousand Dollars or imprisoned in the State Prison not exceeding five years, or either or both in the discretion of the court. Section 3727f. Any person or persons, agent or agents, who shall sell or attempt to sell the stocks, bonds or other securities of any in- vestment company, domestic or foreign, when such investment company has not complied with the provisions of this Act [§§ 2661a-2661i] ; and any agent or agents who shall sell or attempt to sell any such securities of any investment company, domestic or foreign, in this State, which agent is not at the time fully registered and has not fully complied with the provisions of this Act, shall be deemed guilty of a misdemeanor, and upon conviction thereof, shall be punisihed by imprisonment in the county FLORIDA 141 jail not exceeding one year or by fine not exceeding one thousand dol- lars, or by both such fine and imprisonment in the discretion of the Court. Provided, That nothing in this Act shall extend to any seller of stock, bond, or other security, who has purchased the same in good faith for valne, and who is the bona fide owner of such stock, bond, or other security at time of such sale. Section 2661i. All fees herein provided for shall be collected by the Comptroller and shall by him be turned into the State Treasury, and all such fees turned into the State Treasury are hereby reapportioned to the Comptroller for the purpose of paying all salaries and expenses necessary for the carrying into effect of this Act, and the Comptroller is hereby authorized to appoint such clerks and deputies as are absolutely necessary to carry into full force and effect the provisions of this Act. All money actually or necessarily paid out by the Comptroller to any clerk or deputy appointed under this Act as salaries or compensation for services, or any money actually or necessarily paid out by the Comptroller, or by any clerk or deputy or employee appointed under this Act, for traveling or incidental expenses, shall be paid by the State Treasurer out of such fees, upon warrants drawn by the Comptroller and approved by the Governor, containing an itemized account of such salaries or expenses. Section 12. All laws and parts of laws in conflict herewith are here- by repealed. Section 13. This Act shall take effect and be in force from and after July first, 1913. Approved May 20, 1913. Annotations Chapter 6422 Acts of 1913 contemplates an adequate hearing and does not deprive a local corporation of its property rights without due process of law, nor does it arbitrarily discriminate against a local cor- poration so as to deny to it the equal protection of the laws. Ex Parte C. H. Taylor. 68 Fla. 61. 66 So. Rep. 292. Ann Cas, 1916 A. 701. Sug-g-estions for Applicants In order that the application for a permit to sell stock, under the Blue Sky Law of the State of Florida, may be considered and passed upon by the Board, it will be necessary to send to the Comptroller of the state a filing fee of five dollars, with the following information, viz: The name and location of the corporation. An itemized account of its actual financial standing, showing the amount, character and location of its property and its liabilities. 142 FLORIDA A statement in full detail of the plan upon which it does, or pro- poses to do, business. A copy of its Articles of Incorporation, Constitution and By-Laws. A copy of all contracts, bonds, stocks or other instruments which it proposes to make with or sell to its contractors in this State. If a foreign company or 'corporation execute and return the stipula- tion, in re service of legal process. All the above papers and documents to be vyified by the oath of a duly authorized officer of the corporation. A yearly registration fee of one -dollar is required for each agent in the State, with the post-office address of each. Forms CONSENT AND AGREEMENT in. re SERVICE OF PROCESS Under Section 3 of Chapter 6422 of the Laws of Florida. State of . . County of \' Know All Men by the Presents, That the of a corporation duly organized ai^d existing under and by virtue of the Laws of does hereby agree and consent that actions may be commenced against it in the proper Court of any County in the State of Florida, in which a cause of action may arise, or in which the plaintiff may reside, by service of process upon the Comptroller of the State of Florida, hereby stipu- lating and agreeing that such service shall be taken and held in all Courts to be as valid and binding upon this company as if personal service had been made upon the President or Secretary, or any other duly authorized and accredited officer or agent of this company. Hereby further agree- ing and stipulating that this consent and agreement is and shall remain irrevocable, as provided by Section 3 of Chapter 6422 of the Laws of Florida, relating to Investment Companies. In witness whereof we the President and Secretary of said com- pany, respectively, have hereunto set our hands and affixed the seal of said corporation on this the day of A. D. 19.... (seal) By President Secretary. FLORIDA 143 The - foregoing agreement must be accon:ipanied by a duly certified copy of the order or resolution of the Board of Directors of the corpora- tion, authorizing the President and Secretary to execute the same for and on behalf of the corporation. 144 GEORGIA GEORGIA STATUTES AN ACT To Regulate the Sale of^ Stocks, Bonds, Debentures and Other Securities; to Provide for the Filing of Information Concerning Same; to Punish Violations of the Act; and for Other Pur- poses. (L. 1913, No. 263, p. 117.) Section 1. Be it enacted by the General Assembly of the State of Georgia, and it is hereby enacted by authority of same. That from and after January 1, 1914, no dealer in stocks, bonds, debentures, certificates of participation, or other securities, shall in this State! sell, offer for sale, invite oilers for or inquiries about, such securities, by personal solicitation, letters or circulans (except to other dealers or banks) or by advertising in any newspaper, magazine or other periodical published in this State, until such dealer has filed with the Secretary of State: (a) A statement under oath showing the name and principal place of business of such dealer, and the names, residences and business ad- dresses of all persons interested in such securities as principals, officers, directors or trustees, including the name, residence and business address of an agent residing in this State; if any. (b) If such dealer is non-resident, a designation or power of attorney filed with the Secretary of State, duly signed and sealed, app(Jint- ing and authorizing some person who shall be a resident of this State, to acknowledge or receive service of process, and upon whom process may be served for and in behalf of such dealer, in all proceedings that may be instituted against such dealer in any court of this State or in any court of the United State, in this State, and consenting that service of process upon any agent or attorney appointed under the provisions of this sec- tion ghall be taken and held to be as valid as if served upon the dealer ; and such instrument shall further provide that the authority of such attorney shall continue until revocation of his appointment is made by such dealer by filing a similar instrument with the Secretary of State, whereby another person shall be appointed as such attorney: Provided, however, that the provisions of this section shall not be construed to alter or amend the laws now in force in this State, relative to bringing suits and serving process on foreign corporations doing business in this State. If any attorney so appointed shall absent himself from this State or his usual place of business or abode, or shall secrete himself, so 1;hat process may not be served upon him, or shall have become disqualified from any cause whatever, or shall die, the Secretary of State shall im- mediately appoint an attorney for service for such dealer, of which ap- pointment notice in writing shall be immediately given by said Secretary GEORGIA 145 of State to such appointee, and shall also be sent to said dealer by mail, which appointment shall be as valid as if made by said dealer, and shall continue in force until such absent agent or attorney shall return and give to. said Secretary of State written notice thereof, or until the dealer shall have made another appointment in the manner above subscribed. Service of process as aforesaid, issued by any such, court, as aforesaid, upon any such attorney appointed by the dealer or by the Secretary of State, shall be valid and binding and shall be deemed personal service upon such dealer, so long as he or it shall have any obligations or liabili- ties outstanding in this State, although such dealer may have withdrawn, been excluded from or ceased to do business in this State. If any dealer shall fail, neglect or refuse to appoint and maintain within this State such attorney or agent, it shall forfeit the right to do or continue busi- ness in this State. Section 2. In this Act, the term "dealer" shall mean any individual, . partnership, association or corporation engaging in this State in the occu- pation of selling stocks, bonds, debentures, certificates of participation or other securities, whether as principal or as broker or as agent. An individual, corporation or association, offering its own securities generally for sale by circular, advertising or through brokers or agents, to others than its own shareholders or members, or to others than the dealers or banks or by such means inviting offers for inquiries about its securities, shall be considered a dealfer under the terms of this Act. Section 3. By an order directed to any such dealer, the Secretary of State may require such dealer, whenever he shall offer any securities in this State, except to other dealers or banks, to file with him a statement showing the security or securities so offered, and the Secretary of State may by such order, require such dealer to mail to him as soon as any copies are so mailed, or shown, to any prospective purchaser in this State, a copy of all printed or otherwise reduplicated circulars of any security or securities- the dealer shall offer for sale in this State, including a copy of all advertisements thereof, inserted in any newspaper, magazine or other periodical published or exhibited in this State. The Secretary of •State may limit such an order to securities of any particular class or character on which he may deem such information necessary. Section 4. The Secretary of State may at any time order a dealer to file with him evidence, including an official statement of assets and earnings, copy of dealer's contract showing his compensation, or other information in relation to any security the dealer is offering for sale or inviting offers for, except to other dealers or banks, or is advertising in newspapers, magazine or other periodicals published or exhibited in this State, sufficient to show that the offering or investigation has been and is being made honestly and in good faith, and with disclosure of pertinent facts sufficient to enable intending purchasers, to form a reasonable and 10 146 GEORGIA accurate judgment of the value of the security. For every such report so filed the Secretary of State shall be paid a fee of five ($5.00) dollars by the dealer at the time of the filing of same. Unless such evidence is filed and is sufficient, as stated, the Secretary of State may order a dealer not to offer the security for sale or otherwise advertise if in publications or circularize it in this State. Section 5. On ordering a dealer not to sell, offer for sale, circ-ilEr- ize or advertise in such publications in this State any security, the Secre- tary of State must send notice to the dealer by registered mail, addresse 1 to the dealer's principal place of business, stated as required under Section 1 of this Act, or to such address as the dealer may designate for that purpose, stating the reasons therefon Upon receipt of such order from the Secretary qf State the dealer may apply to a Judge, of the Superior Court of the Atlanta Circuit for an order addressed to the Secretary, of State to show cause why said order should not be revoked and upon slich application the decision or determination of the Secretary of State as to any matters or things involved in such order may be reviewed by such Judges and he may suspend the order issued by the Secretary of State pending the determination of the application, and may make such Other provisions as justice may require for the summary hearing and determination thereof. Section 6. A fee of $25.00 shall be paid to the Secretary of State with the filing of the initial statetnent required by Section 1-of this Act, and a receipt shall be furnished showing that such dealer has filed the statement required by this Act; and a fee of |1.0O shall be paid for each duplicate receipt furnished said dealer by the Secretary of State. Section 7. Any dealer or agent of a dealer wilfully violating the provisions of this Act, upon conviction thereof, shall be charged guilty of a misdemeanor and be punished' in accordance with Section 1065 Criminal Code of Georgia 1910. Section 8. Every sale or contract of sale in violation "of Section 1 or of any order issued under Section 3 of this Act, shall be void and may be rescinded by the purchaser within one year, but not thereafter. Section 9. The provisions of this Act shall not apply to the follow- ing classes of securities; bonds or other evidences of indebtedness of the United States, of any foreign government, of any state or territory of the United States or of any foreign government, of any county, city, township, village, district or other political or taxing subdivision of any state or territory of the United States or of any foreign government. Commercial paper or evidences of indebtedness running not more than twelve months from date thereof : Bonds, stocks or other securities of any insurance corhpany or quasi-public corporations, the issue of whose securities is regulated by a public service commission or board of any state or territory of the United GEORGIA 147 States or any foreign government, or insurance commissioner, or which are approved as legal investment for savings banks under the laws of any state of the United States ^ first mortgages or other liens secured by first lien on real estate located within this State. Section 10. If a dealer shall sell, offer for sale, invite ofifers for or inquiries about any securities mentioned in Section 9 with intent to defraud, he shall be deemed guilty of violating this Act and subject to all the penalties hereof. Section 11. This Act is not intended and shall not operate to repeal any existing statutes for the regulation of any corporations, associations, individuals or dealers engaged wholly or partly in the issuance, sale or otherwise dealing in stocks, bonds, debentures, certificates of participation or other securities, but all existing remedies, regulations and restrictions relating thereto are expressly reserved by the terms of this Act, and this Act shall be cumulative thereof. Section 12. Be it further enacted. That with the exception stated in Section 11, all laws in conflict with this Act be and are hereby re- pealed. Approved August 19, 1913. Park's Annotated Code (Penal) of Georgia. Section 628. Investment Company business, transacting unlawfully. Any com- pany, corporation, partnership, or association, or any officer or agent of the same, who shall attempt to place or transact business as, defined in section 2899 of the Civil Code, relating to investment companies, if the corporation, company, partnership, or association has not a license to do so, shall be guilty of a misdemeanor. Section 628-a. Unlawfully selling stocks, bonds, and other securities.' Any dealer or agent of a dealer wilfully violating the provisions of sections 2909 (a) — 2909 (j) of the Civil Code, regulating the sale of stocks, bonds, and other securities, shall he charged guilty of a misdemeanor, and be punished in accordance with section 1065 of this Code. SECTION 10. Investment Companies Section 2899. Investment companies, redemption fund. Every corporation of the character generally known as investment companies, organized under the laws of this State for the purpose of conducting a business of placing or selling certificates, bonds, debentures, certificates of interest, or investment securties of. any kind on the partial payment, installment, or any other plan of payment, and providing for the re- demption and retiring of the same, or any part thereof, and every com- pany, corporation, partnership, or association conducting such business 148 GEORGIA in this State shall provide a redemption and reserve fund of not less than seventy-five per cent of the amount collected in premiums, for the bene- fit and protection of its investors, and so much of said fund as shall not be immediately distributed to investors shall be invested as herein- after provided, and every such company, corporation, partnership, associ- ation, or individual now doing such a business in this State, within ninety days after August 13th, 1904, shall deposit with one of the State de- positories or some trust company a sum not less than $25,000 in cash or in bonds. State, county or municipal, or bonds of the United States, or loans as provided in this Section ; said funds so deposited shall be for the protection of investors in such certificates, debentures, or other investment securities wherever residing. Section 2900. Statement of assets and liabilities. Said company, corporation, partnership, or association shall file with the comptroller- general a statement, verified by its president or secretary, showing its assets and liabilities as fixed herein, its income for the preceding year, the total amount of its reserve fund now on hand, the number of certifi- cates or parts of certificates redeemed or paid, and the amount of money used therefor : Provided, said companies have been doing business in this State for such a length of time. Section 2901. License and renewal thereof. Whenever such company, corporation, partnership, or association shall have deposited the above-mentioned amount and filed the verified statement as required by the provisions of this Section, the comptroller-general shall issue to said company, corporation, partnership, or association a license to do business in this State, which license shall expire on the fifteenth day of the succeeding July ; and whenever such company, corporation, partner- ship, association, or individual shall make the deposit and file the verified statement required herein, the comptroller-general shall issue to such com- pany, corporation, partnership, association, or individual a renewal of its license until the fifteenth day of the succeeding July. A certificate from the officers of the depository shall be evidence to the comptroller-general that such deposit has been made as herein required. Section 2902. Annual statement required. Every such com- pany, corporation, partnership, association, or individual shall, on or before the fifteenth day of July of each year, file with the comptroller- general of the State of Georgia a statement of its business for each twelve months preceding the firsl day of July in each year, which state- ment shall be verified by the affidavit of its president or secretary, and shall show the assets and liabilities of the company, corporation, part- nership, or association making J:he statement, and the amount of its premium receipts during the preceding year, and the amount passed to its reserve fund during the preceding year, and the amount distributed to investors. • ;^.i^fc ^ GEORGIA 149 Section 2903. License fee. For every license issued by the comptroller-general, and for every renewal of said license the company, corporation, partnership, or association shall pay to the comptroller- general a fee of $50.00. ^ Section 29(M. Loans to holders of securities. No company, cor- poration, partnership, or association as above defined shall hereafter loan to holders of its bonds, certificates, debentures, or other investment securities, out of its reserve fund, on such bonds, certificates, debentures, and other investment securities in force, an amount greater than the pro- portionate share of such bonds, debentures, certificates, or other invest- ment securities, in said reserve fund; but when any such loan is made it shall be evidenced by the note of the borrower, secured by a deposit of the bonds, debentures, certificates, or other investment securities on which the same is made, as collateral security, which said note and col- lateral may be deposited with the designated depository as a part of deposit hereinbefore required, and shall be computed as making up so much of said required deposit as proportionate share of said bonds, certifi- cates, debentures, or other investment securities so deposited in the entire reserve fund to not exceeding, however, the amount loaned. Section 2905. Interest on securities may bei used. Every com- pany, corporation, partnership, or association may collect and use the interest on any security deposited as herein required, and may exchange any such securities for other securities of equal value and of the kind authorized by this Section. Section 2906. Reserve fund and capital stock, how invested. Every such company, corporation, partnership, or association is hereby authorized to invest its reserve fund, capital stock, and any increase thereof in such real estate as may be authorized by its charter, or in bonds, mortgages, lien notes, or deeds of trust on unencumbered real estate, as may be approved by the majority of the board of directors, and in the bonds of. this State or any other State of the United States, or in bonds of the United States, or in bonds of any county or incorporated city or town of this State or any other State of the United States, author- ized to be issued by law, and any other security approved by the majority of the board of directors of such company, corporation, partnership, or association. Section 2907. Expert accountant, Governor may appoint. The Governor shall have the power, at any time that he may deem proper, to appoint expert accountants at the expense of any company, corporation, partnership, or association operating under the provisions of this Section, to make an examination of its affairs, and if it shall be ascertained by jaid expert accountants that any company, corporation, partnership, or association operating under the provisions of this Section shall not have assets sufficient to equal in value the reserve fund contributed by every contract in force, plus the interest at three and one half per cent per 150 GEORGIA annum, compounded annually, said company shall be declared insolvent and its license revoked. Section 2908. Bonds to be given by the officers. All officers of any company, corporation, partnership, or association governed by this Section, and doing business in this State, who handle or have the custody of any fund of such company, corporation, partnership, or as- sociation, shall give sufficient bonds for the faithful performance of their duties, as the board of directors may require, and no such officer shall be deemed qualified to enter upon the duties of his office until his bond is apprtved by the board of directors with whom' such bond shall be filed. The penalty for a failure of any company to file and maintain the bonds shall be a fine of fifty dollars for each day such company transacts business after such bonds become due. Said bonds shall be held in trust for the benefit and protection of all investors of such company, corporation, partnership, or association. Section 2909. Non-resident companies. Every such company, corporation, partnership, or association organized under the laws of any other State, which shall make a deposit with the proper authorities of said State, or any other State of the United States, either in cash or in acceptable securities for the benefit and protection of its investors wherever residing, or shall comply with the laws of this State upon the following conditions, to wit : It shall' file with the secretary of State of this commonwealth a certified copy of its charter or articles of in- corporation, and a statement giving the location of its office or officers in this State, and the name or names of its agents upon whom process can be served; and shall file with the comptroller-general a certificate from the proper authorities of the State in which it may have been organized or had made such deposit, showing that the deposit afore- said had been made. Such corporation shall, on or before the fifteenth day of July in each year, make an annual statement as required by this Section, and shall furnish to' the comptroller-general a' certificate from the proper officer of the State where it shall have been organized or have made such deposit, showing that the deposit herein required of the companies organizec^ under the laws of this State for the preceding year has been made with the authorities of such State for the protection of its investors; and upon so doing, it shall be entitled to a renewal of its license for one year from the expiration of that already held by it: Provided, when by the laws of any other State any taxes, fines, pen- alties, or deposits of money or cfE securities, or other obligation or pro- hibitions or requirements are imposed upon investment companies organ- ized under the laws of said State and transacting business in such other State, or upon the agents of such investment companies, greater than those imposed upon similar companies by the laws of this State, or when such laws of other States shall require investment companies to deposit money or security for the protection of certificate-holders of such other GEORGIA 151 States, or shall prohibit companies of this State from transacting business in said State without a special examination of said companies or a compu- tation of their liabilities by the officers of said State, the same taxes, fines, penalties, deposits, and all o,ther requirements shall be imposed upon all investment companies organized in such other State and doing business in this State as are imposed upon such company or corporation by the laws of the State in which said company may be corporated : And provided further, that where any such corporation, company, part- nership, or association organized in any other State shall have made a deposit in any other State of the United States for the protection of holders of its certificates, bonds, debentures, certificates of interest, or other investment securities, wherever residing, less in amount than that rquired by the laws of this State, it shall before doing business in this State file a certificate of such deposit as herein required, and shall 'deposit an amount with the treasurer of this State which, together with the amount so deposited in such other State, shall make up the total amount required by this Section to be deposited by said companies in this State : And provided, that when by the laws of another State any such company shall have been required to make, and shall have made, a deposit in such- State for the security of holders of its certificates, bonds, debentures, certificates of interest, or other investment securities in such State alone, said company shall not be required to make a deposit in this State of its reserve fund accruing from its certificates, bonds, debentures, certificates of interest, or other investment securities, which under the laws of such •other StateSj are secured by special deposit in such State, and the holders of said bonds in such State shall not be entitled to the benefit of securi- ties deposited as herein provided under this Section. Section 1065. (1039.) Misdemeanors, how punished. Except where otherwise provided, every crime declared to be a misdemeanor is punishable by a fine not to exceed one thousand dollars, imprisonment not to exceed six months, to work in the chain-gang on the public roads, or on such other public works as tbe coUnty or State authorities may employ the chain-gang, not to exceed twelve months,' any one or more of these punishments in the discretion of the judge : ' Provided, that nothing herein contained shall authorize the giving the control of convicts to private persons, or their employment by the county or State authorities in such mechanical pursuits as will bring the products of their labor into competition with the products of free labor. If the con- vict be a female, the judge may, in his discretion, sentence her to labor and confinement in the woman's prisoli on the State farm, in lieu of a chain-gang sentence,' not to exceed twelve months : Provided, that the trial judge shall have the discretion also of sending any person convicted of a misdemeanor to the State farm, 152 IDAHO IDAHO STATUTES Regulation of Investment Companies (Blue Sky Law.) L. 1913 C. 117 224:1. Definition of investment companies. Every corporation, every copartnership or company, and every association (other thin state and national banks, trust , companies, real estate mortgage companies dealing exclusively in real estate mortgage notes, and corporations not organized for profit), organized or which shall be organized in this state, whether incorporated or unincorporated, which shall sell or negoti- ate for the sale of any stocks, bonds or other securities of any kind or character other than bonds of the United . States, the state of Idaho, or of some municipality of the state of Idaho, and notes secured by mortgages on real estate located in the state of Idaho, to any person or persons in the state of Idaho, other than those specifically exempted herein, shall be known for the purpose of this chapter as a domestic investment company. Every such investment company organized in any other state, territory or government, or organized under the laws of any other state, territory or government, shall be known for the purpose, of this chapter as a foreign investment company. ['13, c. 117, § 1, p.454.] Hist. '13, c. 117, § 1, p. 454. 224:2. Documents to be filed: Fee. Before offering or at- tepipting to sell any stocks, bonds or other securities of any kind or character other than those specifically exempted in section 1 of this chap- ter, to any person or persons, or transacting any business whatever in this state, excepting that of preparing the documents hereinafter required, every such investment company, domestic or foreign, shall file in the office of the bank commissioner of this state, together with a filing fee of $2.50, the following documents, to wit : A statement showing in full detail the plan upon which it pro- poses to transact business. A copy of all contracts, bonds, or other instruments which it proposes to make with or sell to its contributors. A statement which shall show the name and location of the investment company, and an itemized account of its actual financial condition, and the amount of its property and liabilities, and such other information, touching its affairs as said bank commissioner may require. If such investment company shall be a copartnership or an unincor-, porated association, it shall also file with the bank commissioner a copy of its articles of copartnership or association, and all other papers per- taining to its organization, and if it 'be a corporation organized under IDAHO 153 the laws of Idaho it shall also file with the bank commissioner a copy of its articles of incorporation, constitution and by-laws, and all other papers pertaining to its organization. If it shall be an investment company organized under the laws of any other state, territory or government, incorporated or unincorporated, it shall also file with the said bank commissioner a copy of the laws of such state, territory or government under which it exists or is incor- porated, and also a copy of its charter, articles of incorporation, consti- tution and by-laws and all amendments thereof which have been made and all other papers pertaining to its organization. ['13, c. 117, § 2, p. 454.] Hist. 'IS, t. 117, § 2, p. m. Cross ret. Express reference to this section: Filing requisite for transaction of business: 224:6. Penalty: 224:13. 224:3. Papers verified. All of the above described papers shall be verified by the oath of a member of a copartnership or company, if it be a copartneTs:hip or company, or by the oath of a duly authorized oificer, if it he an incorporated or unincorporated association. Ali such papers, however, as are recorded or are on file in any public office shall be further certified to by the officer of whose records or archives they form a part, as being correct copies of such records or archives. ['13, c. 117, §3, p. 455.] Hist. '13, c. 117, § 3, p. 455. 224:4. Consent of foreign investment company to be sued. Every foreign investment company shall also file its written consent, irrevocable, that actions may be commenced against it, in the proper court of any county in this state in which a cause of action may arife. by the service of process on the secretary of state, and, stipulating and agreeing that such service of process on the secretary of state shall be taken and held, in all courts, to be as valid and binding as if due service had been made upon the company itself, according to the laws of this or any other state, and such instrument shall be authenticated by the seal of said foreign investment company and by the signature of a member of the copartnership or company, if it be a copartnership or company, or by the signatures of the president and secretary of the incorporated or unincorporated association, if be an incorporated or unincorporated association, and shall be accompanied by a duly certifie! copy of the order or resolution of the board of directors, trustees or managers of the corporation authorizing the said secretary and presi- dent to execute the same. ['13, c. 117, §4, p. 455.] Hist. '13, c. 117, § i, p. 46t5. 224:5. Duties of bank commissioner: Favorable and unfavor- able reports. It shall be the duty of the bank commissioner to ex- amine the statements and documents so filed, and if said bank com- missioner shall deem it advisable he shall make or have made a detaile 1 examination of such investment company's affairs, which examination 154 ibAMO shall be at the expense of such investment company, as hereinafter provided. If he finds that such investment company is solvent, that its articles of incorporation or association, its constitution and by-laws, its proposed plan of business and proposed contract contain and provide for a fair, just and equitable plan for the transaction of business, and in his judg- ment promises a fair return on the stocks, bonds and other securities by it offered for sale, the bank commissioner shall issue to such invest- ment company a statement reciting that such company has complied with the provisions of this chapter, that detailed information in regard to the company and its securities is on file in the bank commissioner's office for public inspection and information, that such investment company is per- mitted to d(5 business in this state, and such statement shall also recite in bold type that the bank commissioner in no wise guarantees the securi- ties to be offered for sale by such investment company. But if said bank commissioner finds tbat such articles of incorpora- tion or association, charter, constitution and by-laws, plan of business or proposed contract contain any provision that is unfair, unjust, in- equitable or oppressive to any class of contributors, or if he decides from his examination of its affairsthat said investment company is not solvent and does not intend to do a fair and honest business, and in his judg- ment does not promise a fair return on the stocks, bonds or other securi- ties by it offered for sale, then he shall notify such investment com- pany in writing of his findings, and it shall be unlawful for such com- pany to do any further business in this state until it shall so change its constitution and by-laws, articles of incorporation or association, its proposed plan of business and proposed contract and its general financial condition in such manner as to satisfy the bank commissioner -that it is solvent, and its articles of incorporation or association, its constitution and by-laws, its proposed plan of business and proposed contract provide for a fair, just and equitable plan for the transaction of business, and does, in his judgment, promise a fair return on the stocks, bonds and other securities by it offered for sale. Provided that all expenses paid or incurred and all fees or charges received or collected for any examination made under the provisions of this section of this chapter shall be reported in detail by the bank com- missioner and a full report and record thereof made in detail. Hist, '13, c. 117, § 5, p. 455; "and" omitted at beginning of secord paTagraph. 224:6. Filing documents requisite for transaction of business: Amendments. It Shall not be lawful for any investment company, either as principal or agent, to transact any business, in form or character similar to that set forth in section 1 of this chapter, except as is provided in section 2 of this chapter, until it shall have filed the' papers and docu- ments above provided for. No amendment of the charter, articles of incorporation, constitution and by-laws of any such investment company IDAHO 155 shall become operative until a copy of the same has been filed with the bank commissioner as provided in regard to the original filing of charters, articles of incorporation, constitution and by-laws, nor shall it be law- ful for any such investment company to transact business on any other plan than that set forth in the statement required to be filed by section 2 of this chapter, or to make any contracts other than that shown in the copy of the proposed contract required to be filed by section 2 of this chapter, until a written statement showing in full detail the proposed new plan of transacting business and a copy of the proposed new contract shall have been filed with the bank commissioner, in like manner as provided in regard to the original plan of business and proposed contract, and the consent of the bank commissioner obtained as to making such proposed new plan of transacting business and proposed new con- tract. ['13, c. 117, § 6, p. 456.] Hist. '13, t. 117, § 6, p. 456. 224:7. Agents. Any investment company may appoint one or more agents, but no such agent shall do any business for said investment company in this state until he shall first register with the bank commis- sioner as agent for such investment company, and for each of said registrations there shall be paid to the bank commissioner the sum of $1. Such registration shall entitle such agent to represent said invest- ment company as its agent until fhe 1st day of March following, ■ unless said authority is sooner revoked by the bank commissioner ; and such authority shall be subject to revocation at any time by the bank .commis- sioner for cause appearing to him sufficient. ['13, c. 117, § 7, p. 457.] Hist. '13, c. 117, § 7, p. 457. 224:8. Reports of investment companies. Every investment company, domestic or foreign, shall file at the close of business on De- cember 31 and June 30 of each year, and at such other times as required by the bank commissioner, a statement verified by the oath of the co- partnership or company, if it be a copartnership or company, or by the oath of a duly authorized officer, if it be an incorporated or unincorpor- ated association, setting forth in such form as may be prescribed by the. said bank commissioner, its financial condition and the amount of its assets and liabilities, and furnishing such other information concern- ing its affairs as said bank commissioner may require. Each regular statement of December 31 and June 30 shall be accompanied by a filing fee of $2.50. Any investment company failing to file its report at the close of business December 31 or June 30 of each year within 10 days of that date, or failing to file any other or special report herein required within 30 days after receipt of request or requisition therefor, shall for- feit its rightto do business in this state. ['13, c. 117, §8, p. 457.] Hist. '13, L. 117, § 8, p. 457. 224:9. Accounts: How kept: Open for inspection. The general accounts of every invesment company, domestic or foreign, doing busi- 156 IDAHO ness in this state, -shall be kept by double entry, and such company, its copartners or managing officers, shall at least once in each month make a trial balance of such accounts, which shall be recorded in a book pro- vided for that purpose; such trial balances and all other books and ac- counts of such company shall at all times during business hours, except on Sundays and legal holidays, be open to the inspection of stockholders and investors in said company or investors in the stocks, bonds or other securities by it offered for sale and to the bank commissioner and his deputies. ['13, c. 117, § 9, p. 458.] Hist. '13, t. Ur, § 9, p. 458. 224:10. Examination by bank commissioner. The bank com- missioner shall have general supervision and control, as provided in this chapter, over any and all investment companies, domestic and foreign doing business in this state and all such investment companies shall be subject to examination by the bank commissioner or his duly authorized deputies at any time the bank commissioner may deem it advisable and in the same manner as is now provided for the examination of state bank=. The rights, powers, an4 privileges of the bank commissioner in connec- tion with such examinations shall be the same as is now provided with reference to examination of state banks ; and such investment company shall pay a fee for each examination of not to exceed $5 for each day or fraction thereof plus the actual traveling and hotel expenses of said bank commissioner or deputy that he is absent from the capitol building for the purpose of making such examination, and the failure or refusal of any investment company to pay such fees upon the demand of the bank commissioner or deputy while making such examination shall work a forfeiture of its right to do business in this state : J^rovided, That not ,more than two such examinations shair be charged for in any year: And, Provided further, That where examinations of more than one in- vestment company in the same community shall be made the same week the actual traveling expenses of the examiner shall be pro rated between such companies. ['13, c. 117, § 10, p. 458.] Hist. '13, c. 117, § 10, p. 458. 224:11. Appointment of receiver. Whenever it shall appear to the bank commissioner that the assets of any investment company doing business in this state are impaired to the extent that such assets do not equal its liabilities, or that it is conducting its business in an unsafe, inequitable or unauthorized manner, or is jeopardizing the interest of its stockholders or investors in stocks, bonds or other securities by it offered for sale, or whenever any investment company sha'l fail or re- fuse to file any papers, statements or documents required by this chap- ter, without giving satisfactory reasons therefor, said bank commissioner shall at once communicate such facts to the attorney general who shall thereupon apply to the supreme court or to the district court where such company is located or is doing business, or to a judge of either of said IDAHO 157 courts for the appointment of a receiver to take charge of and wind up the business of such investment company, and if such fact or facts be made to appear it shall be sufficient evidence to authorize the appoint- ment of a receiver and the making of such orders and decrees in such cases as equity may require. ['13, c. 117, § 11, p. 458.] Hist. '13, i:. 117, § 11, p. 458. 224:12. Penalty for false entry or statement. Any person who shall knowingly or wilfully subscribe to or make or cause to he made any false statement or false entry in any book of such investment company, or exhibit any false paper with the intention of deceiving any person authorized to examine into the aflfairs of such investment company, or shall make or publish any false statement of the financial condition of such investment company, or the stocks, bonds or other securities by it offered for sale, shall be deemed guilty of a felony, and upon conviction thereof shall be fined not less than $200- rior more than $10,000, and shall be imprisoned for not less than one year nor more than 10 years in the state penitentiary. ['13, c. 117, § 12, p. 459.] I-Iist. (See R. C. § 7128) '13, c. 117, § 12, p. 450. 224:13. Penalty for selling stock without compliance to act. Any person or persons, agent or agents, who shall sell or attempt to sell the stocK, bonds or other securities of any investment company, domestic or foreign, or the stock, bonds or other securities by it offered for sale, who have not complied with the provisions of this chapter, or any invest- ment company, domestic or foreign, which shall do any busines'!, or offer or attempt to do any business, except as provided in section 2 of this chapter, which shall not have complied with the provisions of this chapter, or any agent or agents who shall do or attempt to do any business for any investment company, domestic or foreign, in this- state, which agent is not at the time duly registered and has fully complied with the provisions of this chapter, shall be deemed guilty of a misdemeanor, and upon convic- tion thereof shall be fined for each offense not less than $100 nor more than fSOOO, or by imprisonment in the county jail for not more than 90 days, or both such fine and imprisonment, at the discretion of the couri. ['I's, c. 117, § 13, p. 469.] Hist. '1.3, c. 117, § 13, p. 459. 224:14. Fees to be paid into state treasury: Deputies. All fees herein provided for shall be collected by the bank commissioner and by him shall be turned into the state treasury, and all fees so turned into the state treasury are hereby reappropriated to the bank commissioner for the purpose of paying all salaries and expenses necessary for the carrying this chapter into effect ; the bank commissioner is hereby authorized to appoint such clerks and deputies- as are actually and abso- lutely necessary to carry this chapter into full force and effect, none of 158 IDAHO whom shall be related by blood or marriage to such bank commissioner or to any of his deputies. All money actually and necessarily paid out by the bank commis- sioner to any clerk or deputy appointed under this chapter, as salaries, or any money actually and necessarily paid out by the bank commissioner, or by any clerk or deputy appointed under this chapter, for traveling or incidental expenses, shall be paid by the state treasurer out of such fees upon the state auditor's warrants, to be issued upon sworn vouchers con- taining an itemized account of such salaries or expenses. Hist. '13, c. 117, part of § 14, p. 460; "and" omitted at beginning of sci.oid paragraph; proviso in following section. 224:15. Application to mining corporations. The provisions of this chapter shall not apply to any person, corporation, or association engaged in actual mining operations developing raining property within the state except as hereinafter provided and not otherwise. ['13, c. 117, pro- viso of § 14, p. 460.] Hist. '13, u. 117, proviso of § 11, p. 460. 224: 16. Report of mining corporations to mine inspector. All corporations, domestic or foreign, and associations engaged in mining operations within the state, shall during the month of June each year after the passage and approval of this chapter file with the state inspector of mines, a report which shall be made under oath and shalf contain names of each mining claim and the total number of such claims, owned, leased, or otherwise held, forming the basis for the issue of stock certifi- cates, and the number being worked and developed, and the mining district and county in which such property is located; the nature of the title thereof, or interest therein, whether lease holder or otherwise, the character, value and general description of all buildings, works, ma- chinery, and other improvements ; the total amount and description of all development work done by such corporation or association; the total sum of money or other valuable consideration given or paid out therefor ; the total number of shares or certificates that such corporation or as- sociation is by law authorized to issue, and the different classes and the par value thereof ; total number of shares of stock certificates set aside by such corporation or association in its treasury to sell or otherwise dispose of for the purpose of working, developing or otherwise improving the property of such corporation or association ; the total number of shares of stock or certificates sold and the total sum of money or other consideration received therefor and the number of shares or certificates remaining unsold. All corporations, domestic or foreign, and associations who are not now engaged in mining operations within this state, who desire to engage in mining and mining operations within this state, shall, before engaging in mining^and mining operations within this state, make, execute and file such report as is above provided, and such report shall be made and filed by corporations, domestic or foreign, and associations IDAHO 159 who shall be engaged in mining and mining operations within this state at the time of taking effect of this chapter. Hist. '13, c. 117, § 15, p. 480; "and" omitted at beginning of last sentence. Cross ref. Express reference to this section: Penalty: 224:18. 224: 17. Copy of report from mine inspector. Any person or persons may receive a copy of any such report upon the application to the state inspector of mines therefor, by paying the fees in such cases made and provided by law. ['13, c. 117, § 16, p. 461.] Hist. '13, c. 117, § 16, p. 461. 224:18. Penalty for not filing mining report. It shall be un- lawful for any corporation or association to refuse, fail or neglect to make, execute, and file the report provided for in section 16 of this chapter, and upon conviction thereof such corporation or association shall be deemed guilty of a misdemeanor and punished accordingly. Hist. '13, c. 117, § 17, p. 461; ''such corporation pv association" inserted following "thereof," grammatical error. 224:19. Penalty of false report or statement of mining corpora- tions. Any person, corporation, or association, who. knowingly makes a false report to the state inspector 6f mines as provided by this chapter of or concerning any mining property in this state, or any person, corporation, association, or individual whomsover, who knowingly makes or publishes in any way whatever, or permits to be so made or published, any book, prospectus, notice, report, statement, exhibit, or other publica- tion of or concerning the affairs, financial condition or property of any corporation, association, joint stock association, copartnership, or in- dividual, which said book, prospectus, notice, report, statement, exhibit or other publication, shall contain any statement which is false, jha'l be deemed guilty of a felony, and upon conviction thereof shall be imprisoned for not more than 10 years, or fined not more than $10,000, or shall suffer both such fine and imprisonment. ['13, c. 117, § 18, p. 461.] Hist. '13, c. 117, § 18, p. 461. 224:20. Unconstitutional provisions. Should the courts declare any section of this chapter unconstitutional or unauthorized by law, or in conflict with any other section or provision of this chapter, then such decision shall affect only the section or provision so declared to be unconstitutional, and shall not affect any other section or part of this chapter. ['13, c. 117, § 19, p. 461.] Hist. '13. i:. 117, § 19, p. 461. Comparative Legislation This act is identical with Kan. 'U, c. 183, with the exception of the provisions relating especially to mining corporations which were added by the Idaho statute. Kan. '11, c. 133, was later amended by '13, c. 144; and in '15, c. 164, both the '11 and '13 acts were repealed and a new law enacted. 160 .. , IDAHO The Blue Sky laws of Ohio ('13, Gen. Code 6373-1 to 6373-24) Michigan ('15, Act 46) and South Dakota ('15, c. 275) are similar to the Idaho statutes and were severally declared constitutional in Hall v. Geiger- Jones Co. 242 U. S. 639, 61 L. ed. 480, 37 S. C. R. 217 ; Merrick v. Halsey & Co. 242 U. S. 568, 61 L. ed. 498, 37 S. C. R. 227; and Caldwell v. 'Sioux Falls Stock Yards Co. 242 U. S. 559, 61 L. ed. 493, reversing Geiger- Jones V. Turner, 230 Fed. 236, 37 S. C. R. 224. ILUNOIS 161 ILLINOIS STATUTES The Illinois Securities Law AN ACT Relating to the sale or other disposition of securities and providing penalties for the violation thereof and to repeal Acts in conflict therewith. Section 1. Name of Law. 2. Words and phrases defined. 3. Division and classification of securi- ties. Securities belonging to Class "A" — Exempt. i. 5. Securities belonging to Class "B" — Exempt on condition. 6. Class "C" securities defined. 7. Nature of statement to be filed with the Secretary of State relating to Class "C" securities. 8. Class ''D" securities defined. 9. Statements to be tiled relative to "Class "D" securities — Detail of information required — Irrevocable contract for issuer to receive 80% of proceeds of sale — Summary statements — Information verified . by officers of issuer. 10. Inventory and appraisement — Quali- fications of appraisers. 11. Secretary of State may designate certified public accountant to ex- amine records of issuer — Secret tary of State to fix compensation of certified public accountant. 12. Stock issued or to be issued for In^ tangible property to be placea in escrow. 13. Qualification of solicitors, agents or brokers offering securities of is- suer. 14. Dealer ma^ sell Class "D" securi- ties which have qualified by sub- mitting statement of amount, de- scription and price of securities — Slualification, experience, etc., of ealer. 16. Twerty-five copies of summary of Class "D" securities to be de- posited with Secretary of State -^ Caption of summary. 16. Issuers and individuals to file irre- vocable consents to service of process. 17. Secretary of State to examine state- ments — May refuse to file — May propound interrogatories. 18. Circuit Court of Sangamon County to have power to review official action of Secretary of State. 11 Section 19. Inducements made to procure filing to be reduced to writing. New statements to be filed every six months. Every advertisement to bear a cap- tion — Copy of advertisement to be filed with Secretary of State within ten days of issue — No reference to be made concerning compliance with Act. Secretary of State to mail copy of summary statements to any one requesting same. Secretary of State may prescribe and furnish forms. Right of Injunction— Causes there- for. Documents filed in office of Secretary of State open to inspection of the public. Fees. Oaths to be administered by an offi- cer of the State of Illinois. Additional copies of statements to be submitted on request of the Secretary of State. Broker, etc. offering to sell securi- ties without compliance with Act guilty of a misdemeanor — Penalty. Issuer offering to sell securities with- out compliance with Act guilty of a misdemeanor — Penalty. Person or corporation violating Act guilty of a misdemeanor — Penalty. False statements made by broker, etc. not authorized by issuer guilty of a misdemeanor — Penalty. Signing any statement, etc. knowing same to be false is prima facie evidence of knowledge of falsity — Perjury — Penalty. Sale of securities with knowled^ge of the insolvency of the issuer makes party selling same guilty of embezzlement — Penalty. Any person interested may maintain action to recover money in excess of 20% not paid to issuer. Sale co--trarv to information filed, or on other terms is prima facie evi- dence of fraud. 20. 21, 22. 23. 28. 29. 80. ss. 84. 85. 36. 1^ ILLINOIS Section Section 37. Every sale or contract for sale con- iO, Prosecutions under Act to be brought trary to Act is void. within five years. 38. Act does not relieve corporations 41. Invalidity of one provision or sec- from making reports as required tion does not affect remainder to be made under other existing of Act. laws. 42. Acta repealed — Certificate or evi- 39. Foreign corporations desiring to sell dence of compliance with law re- lecurities must comply with the pealed not to be exhibited — Con- law regulating admission of such tractual obligations not impaired, corporations. 43. Emergency. AN ACT Relating to the sale or other disposition of securities and providing penalties for the violation thereof and to repeal Acts in conflict therewith. (Laws 1919.) Section 1. Be it enacted by the People of the State of Illinois, represented in the General Assembly: This Act shall be known as "The Illinois Securities Law." Section 2. The words and phrases used herein shall, unless the context otherwise indicates, have the following meaning : The word "securities" shall include stocks, bonds, debentures, notes, participation certificates, certificates of shares or interest, pre-organization certificates and subscriptions, certificates evidencing shares in trust estates or associations and profit sharing certificates. The word, "issuer" shall include every person and every company, trust, partnership or association incorporated or unincorporated here- tofore or hereafter formed for any lawful purpose and organized under the laws of this State or any foreign state or country which shall have issued any security sold or offered for sale to any person or persons in this State, The word "file" or "filing" within the meaning of this Act, shall mean the endorsement thereof by the Secretary of State on any statement or document received of the word "filed" followed by the month, day, year, and name of Secretary of State, for the purpose of showing that, in his opinion, the issuer, solicitor, agent, broker, dealer or owner has complied with the provisions of this Act. Section 3. For the purposes of this Act securities are divided into four classes, as follows : (1) Securities, the inherent qualities of which assure their sale and disposition without the perpetration of fraud, which shall be known as securities in Class "A" ; (2) Securities, the inherent qualities of which, or in the nature of one or of both parties to the sale thereof, assure their sale and disposition without the perpetration of fraud, which shall be known as securities in Class "B"; (3) Securities based on established income, which shall be known as securities in Class "C"; ILLINOIS 163 (4) Securities based on prospective income, which shall be known as securities in Class "D". Section 4. Securities in Class "A" shall comprise securities : (1) Issued by a government or governmental agency, or by any body having power of taxation or assessment; (2) Issued by any national or state bank or trust company, build- ing and loan association of this State, or insurance company organized or under the supervision of the Department of Trade and Commerce of this State ; (3) Issued by any corporation operating any public utility in any State wherein there is or was at the time of issuance thereof in effect any law regulating such utilities and the issue of securities by such corporation ; (4) Appearing in any list of securities dealt in on the New York, Chicago, Boston, Baltimore, Philadelphia, iPittsburgh, Cleveland or Detroit Stock Exchange, respectively, pursuant to official authorization by such exchanges, respectively, and securities senior to any securities so appear- ing; (5) Whereof current prices shall have been quoted, from time to time for not less than one year next preceding the offering for sale thereof, in tabulated market reports published as news items, and not as advertising, in a daily newspaper of general circulation, published in this or in an adjoining state, including the State of Michigan, not includiiig any trade paper or any paper circulating chiefly among the members of any trade or profession ; (6) Issued by any corporation organized not for pecuniary profit . or organized exclusively for educational, benevolent, fraternal, charitable or reformatory purposes; (7) Being notes or bonds secured by mortgage lien upon real estate or leasehold in any state or territory of the United States or in the Do- minion of Canada, when the mortgage is a first mortgage on real estate, and when in case it is not a first mortgage lien or is on a leasehold, the mortgage and notes or bonds'* secured thereby (not including interest notes or coupons) shall each bear a legend in red characters not less than one-'half inch in height, indicating (1) that the mortgage is on a leasehold, if that be the case, and (2) that the mortgage is a junior mortgage, if that be the case; (8) Being a note secured by first mortgage upon tangible or physical property, when sUch mortgage is assigned with such securities to the purchaser; (9) Evidencing indebtedness due under any contract made in pur- suance to the provisions of any statute of any state of the United States providing for the acquisition of personal property under conditional sale contract ; (10) Being negotiable promissory notes given for full value and for the sole purpose of evidencing or extending the time of payment of 164 ILLINOIS the price of goods, wares or merchandise purchased by the issuer of such notes in the ordinary course of business, and commercial paper or other evidence of indebtedness running not more than twelve months from the date of issue; (11) Being subscriptions for the capital stock under any license issued to commissioners to incorporate a company under the laws of this' State where no commission or other remuneration is paid for the sale or disposition of such securities; Securities in Class "A" and the sales thereof shall not be subject to the provisions of this Act. Section 5. Securities in Class "B" shall comprise securities : (1) Sold by the owner for the owner's account exclusively when not made in the course of continued and repeated transactions of a similar nature ; (2) Increased capital stock of a corporation sold or distributed by it among its stockholders without the payment of any commission or expense to solicitors, agents or brokers in connection with the dis- tribution thereof; (3) Sold by or to any bank, trust company or insurance company or association organized under any law of this State or of the United States, or doing business in this State under the supervision of the Department of Trade and Commerce; or of the Auditor of Public Ac- counts ; or by or to any building and loan association organized and doing business under the laws of this State, or any public sinking fund trustees ; or to any corporation or any dealer or broker in securities ; (4) Sold or offered for sale at any judicial, executor's or admin- istrator's sale, or at any sale by a receiver or trustee in insolvency or bankruptcy, or at a public sale or auction held at an advertised time and place ; Securities in Class "B", when disposed of by the persons and in the manner provided by this section, shall pot be subject to the provisions of this Act. Section 6. Securities in Class "C" shall comprise the following: Those issued by a person, corporation, firm, trust, partnership or association owning a property, business or industry, which has been in continuous operation not less than two years and which has shown net profits, exclusive of all prior charges, as follows : (!)■ In the case of interest bearing securities not less than one and one-half times the annual interest charge upon all outstanding interest bearing obligations; (2) In the case of preferred stock not less than one and one-half times the annual dividend on such preferred stock; (3) In the case of common stock not less than 3% per annum upon su?h common stock. ILLINOIS 165 Section 7. Securities in Class "C" may be disposed of, sold or oflFered for sale upon compliance with the following conditions, and not otherwise : A statement shall be filed in the office of the Secretary of State: (1) Describing the evidences of indebtedness, preferred stock or common stock intended to be offered or sold; (2) Stating the law under which and the time when the issuer was organized ; (3) Giving a detailed statement of the assets and liabilities of such issuer and income or profit and loss statement, and giving an analysis of surplus account; (4) Giving the names and addresses of its principal officers and of its directors or trustees ; (5) Giving pertinent facts, data and information establishing that the securities to be offered are securities in Class '^C". Such statement shall be verified by the oath of not less than two credible persons having knowledge of the facts. Not less than twenty- five copies of such statement, wholly printed or wholly typewritten, shall at the time of filing the original statement be filed with the Secretary of State. The printed or typewritten copies so filed shall bear at the top in bold faced type the expression : "Securities in Class 'C under Illinois Securities Law," followed by the expression, also in bold faced type: "This statement is prepared by parties interested in the sale of securities herein mentioned. Neither the State of Illinois, nor any officer of the State, assumes any responsibility for any statement contained herein nor recommends any of the securities described below." Section 8. All securities other than those fallin? within Class "A", "B", and "C", respectively, shall be known as securities in Class '"D". Section 9. No security in Class "D", shall be sold or offe''ed for sale until there shall have been filed in the office of the Secretary of State, statements and documents as follows : (1) A description and amount of the securities intended to be offered for sale; (2) If the issuer is a corporation, a certified copy of the charter or articles of incorporation and by-laws; (3) If the issuer is a firm, trust, partnership or unincorporated association, a copy of the articles of partnership, association or trust agreement ; (4) The names, addresses and prior occupations during a period of not less than ten (10) years prior to filing such statement (giving details as to time, place and address of employer and reasons for dis- continuance of employment) of the officers, directors or trustees of the issuer, if it be a corporation, or of the persons composing the issuer, if the issuer be a non-incorporated association ; 166 ILLINOIS (5) A description of the nature of the industry engaged in or in- tended to be engaged in and the approximate time when such industry was or will be established; (6) An inventory showing the assets of the issuer; (7) An appraisement of the assets of the issuer; (8) A statement in detail of the gross income of the issuer and the source or sources thereof and of its operating and other expenses for a period of twelve (12) months prior to the date of filing such statement, or for the period of the existence of the issuer if less than two years prior to the date of filing; (9) A copy of the most recent balance sheet of the issuer, show- ing the fin'ancial condition of the issuer at a date not more than thirty (30) days prior to the date of filing, and giving an analysis of surplus account from inception of such issuer; (10) A copy of the mortgage, trust deed, indenture or writing securing the securities, or whereunder the same are issued, if any such instrument there be; (11) A copy of the form of the securities intended to be offered; (12) A copy of any and all subscription blanks to be used in the sale thereof, which subscription blanks shall have printed thereon, "These are speculative securities." (13) A statement as to the manner in which the securities are to be offered and sold; (14) If the securities be intended to be offered and sold by the issuer through solicitors, agents or brokers, an irrevocable contract executed by each such solicitor, agent or broker authorized to offer or sell such securities by or on behalf of the issuer to the effect that the issuer will receive in cash not less than 80% of the proceeds of each sale of the securities without deduction for any commission or ex- penses, directly or indirectly, and without liability to pay any sum what- soever as commission or expenses for any services in and about such sale; If the securities shall have been or be intended to be sold to any dealer, solicitor, agent or broker and intended to be by such dealer, solicitor, agent or broker sold to the public for their own account,, a statement verified under oath, establishing that the price paid to the issuer was or will be without any fixed or contingent right in the issuer to demand or receive any additional sum on account of such securities or the sale thereof; (15) A summary of the material facts disclosed by the preceding statements ; (16) Such other facts relative to such securities as the Secretary of State shall prescribe. Such statements and, documents shall, except as otherwise pro- vided herein be verified by the oath of not less than two of the officers ILLINOIS 167 of the issuer, if the issuer be a corporation, or by not less than two members of a firm, trust, partnership or association, if the issuer be non-incorporated. The Secretary of State may require further and additional veri- fication under the oaths of other persons. Section 10. With the statement required to be filed in the office of the Secretary of State with reference to securities in Class '"D", there shall also be filed an inventory, in such detail as the Secretary of State shall require ; showing the assets of the issuer as of a date not more than thirty (30) days prior to the date of filing thereof. Such inven- tory shall be accompanied by an appraisement made by a qualified per- son or persons showing the value of the assets described in such in- ventory. The person or persons making such appraisement shall state in such appraisement the character and nature of their experience and their qualifications to value such property and all the facts or con- siderations on the basis of which their estimate of values is predicated. Such appraisement shall be verified by the oath of the person, or persons making the same. Section 11. At any time, either before or after the filing of any statement required by this Act to be filed with reference to securities in Class "C" or Class "D" the Secretary of State may designate a certi- fied public accountant to make an examination of the books, records, papers and documents of the issuer and make a report of the examina- tion thereof to the Secretary of State. The Secretary of State shall fix the compensation of such certified' public accountant in advance and shall notify the issuer thereof of the amount so fixed, which compensa- tion shall be paid by the issuer to such certified public accountant as his compensation for making such examination. Section 12. If the statement as to securities in Class "D" shall disclose that any of such securities shall have been or shall be intended to be issued for any patent right, copyright, trade-mark, process or good will, or for promotion fees or expenses, or for other intangible assets, the amount and nature thereof, shall be fully set forth, and •securities issued in payment of such patent right, copyright, trade-mark, process or good will, or for promotion fees or expenses, or for other intangible assets, shall be delivered in escrow to such bank or trust company as shall be designated by the Secretary of State under an escrow agreement that the owners of such securities shall in case of dissolution or insolvency not participate in the assets of the corporation until after the owners of all other securities have been paid in full. Such escrow agreement shall remain in full force until the securities of the issuer thereof are qualified under Class "C" hereof. Section 13. If the statement as to securities in Class "D" discloses that such securities are intended to be offered or sold by the issuer, through a solicitor, agent or broker, a statement giving the names, resi- 168 ILLINOIS dences, qualifications, occupations and business experience of such solic- itor, agent or broker for a period of ten years prior to the filing, and the name and address of each employer, the period of employment and reason for resignation or discharge, shall be filed in the office of the Secretary of State. The signatures of each and every of such solic- itors, agents or brokers shall be attached to such statement. If after the filing of such statement the issuer shall appoint any additional solicitor, agent or broker to offer or sell such securities before any. such additional solicitor, agent or broker, shall offer or sell any such securi- ties, there shall be filed like statements. Section 14, After qualification of securities in Class "D" by the issuer, any dealer or owner may sell such securities upon filing in the office of the Secretary of State, a statement verified by the oath of such dealer or owner as otherwise provided by this Act, a statement of the amount and description of the securities to be sold by him or it, the maximum price for which they are to be sold, his or its address by street and number, qualification, occupation, and business experience of such dealer or owner for a period of ten years prior to filing such statement, giving name and address of each employer, the period of employment and the reason for resignation or discharge. Section 15. Not less than 25 printed or typewritten copies of the summary of the statement required to be filed with reference to securi- ties in Class "D" shall be deposited in the office of the Secretary of State. The printed or typewritten copies so deposited shall bear at the top in bold face type the expression: "Securities in Class 'D' under Illinois Securities Law: These are speculative securities," followed by the expression, also in bold face type . "This statement is prepared by parties interested in the sale of securities herein mentioned. Neither the State of Illinois nor any officer of the State assumes any responsibility for any statement contained herein nor recommends any of the securities described below." Section 16. Before any securities in Classes "C" or "D" shall be sold or offered for sale the issuer or person intending to sell or offer for sale such securities shall file in the office of the Secretary of State a written irrevocable consent and power-of-attorney, that suits at law or in equity arising out of or founded upon the sale or offering for sale of any of such securities may be commenced against the corporation or person executing such power-of-attorney in any court of competent jurisdiction within this State, in any county in which the plaintiff or complainant resides, or in which the cause of action may have arisen, by the service of process upon the Secretary of State, and therein agreeing and stipulating that such service of process upon the Secretary of State shall be taken and held in all courts to be as valid and binding, as if due service had been made upon the corporation or person exe- cuting such power-of-attorney, according to the law of this State. Such ILLINOIS 169 instrument if the owner be a corporation, shall be signed by its chief executive and chief recording officer under its corporate seal, if it have one. pursuant to a resolution of its governing body, a certified copy of which resolution shall be attached to such irrevocable consent and power-of-attorney, or if a person or a non-incorporated association then signed and acknowledged by such person or by all the members of such non-incorporated association. Whenever any process is served upon the Secretary of State, he shall at once forward a copy of the same by registered mail to the defendant at his or its last address of record in the office of the Secretary of State. Section 17. Before filing any statement or document with reference to securities in Class "C" or Class "D" the Secretary of State shall within a reasonable time examine the same and, if the same is incom- plete, inadequate, evasive or otherwise not in conformity with the pro- visions of this Act, or if the sale or oifering for sale of securities based upon the plan or scheme evidenced by the statements and documents offered to be filed, would in the opinion of the Secretary of State work or tend to work a fraud upon the purchaser of such securities the Secretary of State shall refuse to file the same. Otherwise such state- ments or documents shall be filed by the Secretary of State. Upon the filing of such statements or documents by the Secretary of State, the issuer, solicitor, agent, broker, dealer or owner may proceed to sell the amount of securities proposed to be sold or disposed of in this State, but no written or printed evidence of the compliance with this Act sha;l be issued by the Secretary of State. The Secretary of State may, either before or after such statements and documents are filed, propound interrogatories to the persons filingj or offering to file, such statements or documents, respecting any facts required to be stated with reference to such securities. Such interrogatories shall be answered under oath. If such interrogatories relate to a statement or document offered to be filed, such statement or document shall not be filed until such inter- rogatories are answered, and not then unless such statement and docu- ment and the answers to such interrogatories disclose conformity with this Act. If such interrogatories relate to a statement or document already filed, such interrogatories shall be answered within twenty days or within such further time as the. Secretary of State shall pre- scribe. If not answered within twenty days or within any extension thereof, the sale or offering for sale of the securities covered by the statement or document to which the interrogatories relate, shall be unlawful. Section 18. Whenever the Secretary of State refuses to file any statement or document presented under the provisions of this Act, the per- son presenting such statement or document for filing, may within thirty days thereafter, in the circuit court of Sangamon County, file a petition against the Secretary of State, officially as defendant alleging therein under oath and in brief detail, the plaintiff's right to sell securities in 170 ILLINOIS this State, and praying that the Secretary of State be required to file in his office such statement or document. The Court may make such orders and decrees as the equities and exigencies of the case may re- quire. Judgment against the plaintiff shall be final. Judgment against the plaintiff shall not bar his right to file new statements or documents under the provisions of this Act, nor shall judgment in favor of the plaintiff prevent the Secretary of State from thereafter applying for an injunction, or otherwise proceeding, as is provided in this Act. Merely technical irregularities in the procedure of the Secretary of State shall be disregarded and the burden shall rest upon the plaintiff to prove his right to sell securities in this State. Section 19. Every expression or statement made as an inducement to procure the filing of the information required by the provisions of this Act, either concerning Class "C" or Class "D" securities, shall be re- duced to writing and verified under oath by the person making such ex- pression or statement. Section 20. So long as any security is sold or offered for sale under the provisions of this Act, such person, issuer, dealer, solicitor, agent or broker shall on or before the expiration of each six months' period, from the date of filing the original statements and documents, and oftener if required by the Secretary of State, file new or supple- mental statements disclosing: (1) The amount of securities sold, the sale price thereof and the amount of cash proceeds received therefor by the issuer; (2) All changes in the financial conditions of the issuer or in its management or property, accompanied by a copy of the most recent balance sheet of the issuer showing the financial condition of the issuer at a date not more than 30 days prior to the date of such filing, and such other facts as the Secretary of State may require. Such supplemental statement shall also be accompanied by not less than twenty-five wholly typewritten or printed copies of such summary of such supplemental statement, which summary shall be filed in the office of the Secretary of State. Such supplemental statement shall be verified in the same manner as the original statement. Section 21. Each financial statement, prospectus, advertisement, cir- cular arid document circulated, published or distributed for the purpose of effecting sales of securities in Class "D" shall contain the words, in bold faced type, "Securities" in Class 'D' under Illinois Securities Law. These are speculative securities." But it shall be unlawful to make any other reference in any such matter to the fact that the issuer, solicitor, agent or broker has complied with the provisions of this Act. All such matters shall also contain a statement of the assets, liabilities, income and expenses of the issuer, the law under which the issuer was incorporated or organized, and the names and addresses of all officers, ILLINOIS 171 directors or trustees, of the issuer or of the owner of the prope/ty con- stituting the basis of the issue of such securities. A copy of each such financial statement, prospectus, advertisement, circular and document so circulated, published or distributed shall be filed in the office of the Secretary of State within ten (10) days after the first circulation, pub- lication or distribution thereof. It shall be unlawful to print, publish, circulate or distribute such matter showing the earnings of other com- panies or corporations engaged in a similar business. It shall be unlawful for any issuer, solicitor, agent or broker in any advertisement intended to promote the sale of securities in Class "C" to make any reference whatsoever to the fact that such issuer, solicii- tor, agent or broker has complied with the provisions of this Act. Section 22. The Secretary of State shall, upon request therefor, mail or deliver to any person a copy of the summary of the statements or supplemental statements required to be deposited in his office. Section 23. The Secretary of State may prescribe and furnish forms for all statements and documents and summaries required by this Act to be filed in his office and such statements, documents and sum- maries shall follow substantially the forms so prescribed. Section 24. In case any statement or document filed in the office of the Secretary of State shall, in the judgment of the Secretary of State, in any material part thereof be inadequate, insufficient or not in compli- ance with this Act, or in case the plan or scheme disclosed by such statements or documents so filed, would, in the judgment of the Secretary of State, work or tend to work a fraud upon the people, or if it shall be made to appear to the Secretary of State, by complaint or other- wise, that the statements and documents filed with respect to any securities are false in any material particular, or if it shall be made to appear to the Secretary of State that conditions with respect to such securities have so changed that the further sale or offering for sale thereof would tend to operate as a fraud upon the people, or that any of the terms and provisions of this Act are not complied with, the Secretary of State shall, in the name of the people of the State of Illinois, through the Attorney General, apply for an injunction in any court of competent jurisdiction to restrain the further sale of such securities. The court may grant a temporary injunction and may make such orders and decrees, from time to time, as the equities and exigen- cies of the case may require. The complainant shall not be required to give bond. In no case shall the Secretary of State incur any official or personal liability by instituting such injunction proceedings. Section 25. All statements and documents and all other matters filed in the office of the Secretary of State under the provisions of this Act shall at all proper hours be available for public inspection. Section 26. Before filing any statements required to he filed here- under with reference to securities in Class "C" or in Class "D" the per- 172 ILLINOIS son so filing such statements shall pay in advance to the Secretary of State a fee of one-twentieth of one per cent of the amount of the securities to be offered for sale in this State, but in no case shall the fee be less than twenty-five dollars ($25.00) or more than three hundred dollars ($300.00). Section 27. All oaths required by this Act relating to securities in Class "D" shall be taken before an officer of this State, authorized to administer oaths therein. Section 28. Whenever in this Act copies of statements or other documents are required to be furnished to the Secretary of State for dis- tribution, additional copies as requested by the Secretary of State, shall be supplied by the parties filing the original copies or by parties inter- ested in the disposition of such securities. Section 29. Any solicitor, agent or broker, selling or offering to' sell any securities in Class "D" without compliance with the provisions of this Act, shall be deemed guilty of a misdemeanor and upon convic- tion thereof, shall be punished by a fine of not less than one hundred dollars ($100.00), and not more than five thousand dollars ($5,000.00) for the first offense and not less than one thousand dollars ($1,000.00), nor more than ten thousand dollars ($10,000.00) for the second or any sub- sequent offense, or by imprisonment in the county jail not more than one year or may be punished by both such fine and imprisonment, in the discretion of the Court. Section 30. Any issuer of securities or any officer, director, trustee or agent thereof, selling or offering to sell any securities in Class "D" without full compliance with the provisions of this Act, shall be deemed guilty of a misdemeanor and upon convix;tion thereof shall be fined in any sum not . exceeding ten thousand dollars ($10,000.00) for the first offense and not to exceed twenty-five thousand dollars ($25,000.00) for the second or any subsequent offense, and the officer, director, trustee or agent thereof, or the issuer (if a natural person) may be punished by imprisonment in the County jail not exceeding one year or may be punished by both such fine and imprisonment, in the discretion of the Court. Section 31. Any person or corporation, whether acting on his or its own behalf or on behalf of another violating any of the provisions of this Act, shall be deemed guilty of a misdemeanor and on conviction thereof shall be fined not less than one hundred dollars ($100.00) nor more than five hundred dollars .($500.00) for the first offense and not less than five hundred dollars ($500.00) nor more than one thousand dollars ($1,000.00) for the second or any subsequent offense, or imprison- ment in the county jail for not more than six months for the first offense nor more than one year for the second or any subsequent offense, or shall be subject to both such fine and imprisonment, in the discretion of the Court. ILLINOIS 173 Section 32. Any dealer, agent, solicitor or broker, who shall make any statement or representation not authorized by the issuer, or any statement or representation at variance with, or not reasonably pred- icated upon the statements and documents filed by the issuer in the office of the Secretary of State, shall be guilty of a misdemeanor, and upon conviction thereof, shall be fined in any sum not to exceed one thousand dollars ($1,000.00) for the first offense, and not to exceed five thousand dollars ($5,000.00) for the second or any subsequent offense, or imprisoned in the county jail not more than six -months for the first offense, nor more than one year for the second or any subsequent offense, or shall be subject to both such fine and imprisonment, in the discre- tion of the Court. Section 33. Any person signing any statement, list, inventory, balance sheet or other paper or document required by any provision of this Act to be verified or sworn to, knowing any representation therein contained to be false or untrue (and the depositing of any such state- ment or document in the office of the Secretary of State shall be deemed prima facie evidence of knowledge of the falsity thereof or of any rep- resentation therein contained, and of the wilful signing of such state- ment or document), shall be deemed guilty of perjury and shall be sub- ject to the penalties by the law of this State prescribed therefor. Section 34. It shall be unlawful for any officer, director, trustee, solicitor, agent or broker of or for any issuer, knowing such issuer to be insolvent, to sell any securities issued by such issuer; and any such officer, director, trustee, solicitor, agent or broker who shall make any sale of any securities of and for any such issuer, and by reason of such insolvency of such issuer, the price paid for such securities or any part thereof shall be lost to the purchaser, shall be deemed guilty of em- bezzlement and upon conviction thereof shall be fined in a sum not less than one thousand dollars ($1,000.00) nor more than ten thousand dol- lars ($10,000.00) or may be imprisoned in the State penitentiary for not less than one year nor more than five years, or may be both fined and imprisoned, in the discretion of the Court. For the purpose of this sec- tion, an issuer shall be deemed insolvent whenever the aggregate of its property shall not, at a fair valuation, be sufficient in amount to pay its debts. Section 85. Any person interested in securities in Class "D" may maintain in the name of the issuer an action at law or suit in chancery for the use of the issuer, against the solicitor, agent or broker of such» issuer, jointly or severally, to recover of such solicitor, agent or broker all moneys in excess of 20% of the proceeds of the sales of securities made by such solicitor, agent or broker and not turned into the treasury of the issuer. Section 86. It shall be unlawful for any officer, director, solicitor, broker or agent, to sell or offer for sale any securities in Class "D", 174 ILLINOIS in any other manner or form than specifically set forth in the infor- mation required to be filed in Section 9 of this Act, and any offer or sale upon any other terms or conditions other than set forth, shall be considered prima facie evidence that»such officer, director, trustee, solicitor or agent offered or sold same for the purpose of defrauding the investor to whom such security was offered or sold. Section 37. Every sale and contract of sale made in violation of any of the provisions of this Act shall be void and the seller of the securities so sold and each and every solicitor, agent or broker of or for such seller, who shall have knowingly performed any act or in any way furthered such sale, shall be jointly and severally liable, upon tender to the seller or in court of the securities sold, to the purchaser for the amount paid, together with his reasonable attorney's fees in any action brought to recover such amount. Section 38. Nothing in this Act shall be construed to relieve cor- porations from making reports now or hereafter required by law to be made to the Secretary of State or paying the fees now or hereafter to be paid by corporations. This Act shall not be construed to repeal any law now in force regulating the organization of corporations in this State or the admission of any foreign corporation, but the pro- visions of this Act shall be construed to be additional to any provision regulating the organization of a corporation under the laws of Illinois or the admission of a foreign corporation to do business in this State. Section 39. If the issuer of any securities be a foreign corporation, and such issuer shall desire to make sales of such securities under the provisions of this Act, no statement or document relating to such sales shall be filed in the office of the Secretary of State until such foreign corporation has complied with the law regulating the admission of foreign corporations to transact business in this State. Section 40. No prosecution for violation of any provision of this Act shall bar or be barred by any prosecution for the violation of any other provisions of this Act or of any other statute; but all prosecu- tions and all civil actions to recover money or for other purposes under this Act or based upon any provision of this Act must be com- menced within five years after the commission of the act complained of. Section 41. The invalidity of any section or provision of this Act shall not affect the remainder thereof. Section 42. An Act entitled, "An Act to prevent fraud in the sale 5nd disposition of stocks, bonds or other securities sold or offered for sale within the State of Illinois, by any dealer, firm, company, associa- tion or corporation, foreign or domestic, by requiring an inspection of such stocks, bonds, or other securities and an inspection of the business of such persons, firms, companies, associations or corporations, including dealers and agents, and such regulation and supervision of the business of said persons, firms, companies, associations or corpora- ILLINOIS 175 tions, including dealers and agents, as may be necessary to prevent fraud in the sale within the State, of any stocks, bonds or other securities, and providing penalties for the violation thereof,'' filed June 29, 1917, in effect January 1, 1918, is hereby repealed, and all other Acts and parts of Acts insofar as they conflict with this Act are hereby repealed. It shall hereafter be unlawful for any person or corporation to exhibit or in any wise make use of any certificate issued by the Sec- retary of State under any of the provisions of the Act hereby repealed for the purpose of making or in endeavoring to make any sale of securities. This repeal shall' not affect any contract rights which have arisen under the law hereby repealed, or under the administration thereof, nor invalidate any deposits in escrow or contracts entered into by the issuer of securities for the benefit or security of any person. The Secretary of State shall in all such cases proceed in all respects touching such contracts and escrows as if such law had not been repealed. Sectoin 43. Whereas, an emergency exists, therefore this Act shall be in force and effect from and after its passage and approval. (Approved and in force June 10, 1919.) Revised Instructions For Preparing Statements The Illinois Securities Law AN ACT Relating to the sale or other disposition of securities and providing penalties for the violation thereof and to repeal Acts in con- flict therewith, approved and in force June 10, 1919. "The word 'securities' shall include stocks, bonds, debenitures, notes, participation certificates, certificates of shares or interest, pre-organiza^ tion certificates and subscriptions, certificates evidencing shares in trust estates or associations and profit sharing certificates." (Par. 2, Sec. 2.) Read the Law and Instructions carefully before attempting to pre- pare statement. Satisfy yourself as to the classification of securities to be offered. "Every expression or statement made as an inducement to procure the filing of the information required by the provisions of this Act, either concerning Class 'C or Class 'D' securities, shall be reduced to writing and verified under oath by the person making such expression or state- ment." (Section 19.) Statements in Class "C" securities should be in form and must set forth fully and concisely data, facts and information in the order hereinafter outlined, covering specifications as follows, to-wit : — 176 ILLINOIS STATEMENT "SECURITIES IN CLASS 'C UNDER ILLINOIS SECURI- TIES LAW." "THIS STATEMENT IS PREPARED BY PARTIES IN- TERESTED IN THE SALE OF SECURITIES HEREIN MEN- TIONED. NEITHER THE STATE OF ILLINOIS, NOR ANY OFFICER OF THE STATE, ASSUMES ANY RESPONSIBIUTY FOR ANY STATEMENT CONTAINED HEREIN NOR RECOM- MENDS ANY OF THE SECURITIES DESCRIBED BELOW." Statement giving pertinent facts, data and information, estab- lishing that the securities to be offered are securities in Class "C". State the number of shares of stock, classes thereof or other description and amount of securities to be offered for sale. Give number and class of shares of stock or other securities to be issued and the amount to be offered for. sale in the State of Illinois. 1. Name of "Issuer". 2. Date of incorporation or organization of "Issuer". 3. Under the laws of what State incorporated or organized. (a) Location of principal office and Illinois office. (b) When and in what County were Illinois Articles of In- corporation, including any amendments thereto, filed and recorded. 4. If "Issuer" is not an Illinois corporation, when did it comply with foreign corporation law of Illinois. 5. Purpose for which organized. (a) Original purpose. (b) Change or enlargement of corporate powers and date thereof. 6. Amount of authorized capital stock of each class. (a) Amount of common stock issued and outstanding at date of filing statement. (b) Amount of preferred stock issued and outstanding at date of filing statement. (c) Par value of each class of stock. (d) Date and amount of increase or decrease of capital stock. (e) Date and amount of increase or decrease of par value of each class of shares. (f) Is each class fully or partially paid. (g) Does personal liability attach to ownership, (h) Voting power of each class. 7. If preferred stock has been issued. (a) Preference as to dividends. ILLINOIS • 177 (b) Rate of dividends. (c) Whether cumulative or non-cumulative. (d) Preference as to assets. (e) Date of maturity. 8. Amount of bonded indebtedness authorized and purpose of authorization. (a) Denominations of bonds. (b) Amount issued and outstanding. (c) How secured. (d) Rate of interest and when payable. (e) Date of maturity. (f) Name and address of registrar or trustee. 9. Amount and kind of all other interest bearing obligations outstand- ing at date of filing statement. 10. Submit financial statements in accordance with forms tiherefor ap- pearing on pages 13 to 24 inclusive, as follows: (a) Latest Balance Sheet (Assets, Liabilities and Net Worth), of a date not more than six months prior to date of this application. (Form 1). (b) Balance Sheet as adjusted to show the effect of the new financing. (Form 2). (c) Income Statement (Income, Profit and Loss), covering a period of not less than two years, up to the date of the latest balance sheet. (Form 3). (d) Analysis of Surplus Account, covering the entire period of Income Statement. (Form 4). (e) Schedules 1 to 19. (Form 5). 11. The names and addresses of all ofiicers, directors or trustees. 12. Have officers, directors or trustees, or either of them been charged with fraud in any transaction or in the sale or disposition of securities ? 13. Is "Issuer" a subsidiary of, controlled by, allied to, or does it con- trol or hold the securities of any other company, business or industry? If so, give details. 14. If industry or business has been taken over by "Issuer", give de- tails, purchase price, date and manner. 15. State the price at which the securities are to be sold and the pur- pose for which the proceeds will be used. 16. Copies of securities intended to be offered. 17. If the securities or any portion of the proceeds thereof is to be in- vested in real estate or other property, a detailed statement respecting the same, giving values of such property, should be submitted. 12 178 . ILLINOIS 18. Are there any judgments against "Issuer" in any court; have there been or are there now any suits or proceedings for the appoint- ment of a Receiver, in Bankruptcy, for dissolution or other actions either in law or equity, pending in any court wherein the "Issuer" is a party or interested? 19. Give any other pertinent facts, data and information establishing that the securities to be offered are securities in Class "C". 20. Patent' rights, copyrights, trade-marks, processes, good will or other intangibles, should be itemized as required by schedule 6 of Instructions, and should not be carried as an asset in Class "C" securities in amounts exceeding the actual value of said several items, and the cost and present value of such items should be separately set forth. 21. Such statement shall be separately verified by the oath of not less than two credible persons having knowledge of the facts, (Par. 5, Sec. 7), and such verification should be substantially in the following form: AFFIDAVIT FOR CLASS "C" SECURITIES State of County of I being first duly sworn on oath do solemnly swear that I am >- ss. (Here state connection or relation to "Issuer"), that I am a credible person having or possessing knowledge of the facts within the meaning of Paragraph 5 of Section 7 of "The Illinois Se- curities Law" and that I have signed my name on the margin of each siheet of the within STATEMENT; that the outstanding capital stock and the liabilities of said "Issuer" are therein truly stated; and upon my oath further state that the values, amounts and assets therein set forth are the true values, amounts and assets of "Issuer", quality and quantity considered, and that the said several valuationSj amounts and assets herein above set forth are not stated in excess of the fair and true values thereof; that I have read and knowingly made each and all of the foregoing statements and representations and upon my oath further say that each and all the representations, -specifications and aver- ments in the said STATEMENT herein above contained and set forth, is and are true. Subscribed and sworn to before me, a Notary Public, this day 6f A. D. 19. . . . (notarial seal) Notary Public. My commission expires ILLINOIS 179 Resolution of Board of Directors authorizing service of process, verified by the oath of the Secretary; and irrevocable consent and power of attorney for service of process, executed in accordance with section 16, must be submitted. EACH PARAGRAPH OF STATEMENT MUST BE GIVEN PROPER HEADING AND NUMBERED. EACH SHEET OF STATEMENT MUST BE SIGNED ON MARGIN THEREOF BY THE PERSONS VERIFYING SUCH STATEMENT UNDER OATH, AND WHEN COMPLETED, SECURELY BOUND. ORIGINAL STATEMENT MUST BE WHOLLY TYPEWRITTEN. There shall be furnished at time of filing such statement, not less than twenty-five wholly printed or wholly typewritten copies of such statement, such copies to bear the heading set forth in paragraph 5, sec- tion 7. Reports or audits of certified public accountants accompanying statement are appreciated. Certified copy of articles of incorporation and by-laws, or verified copy of articles of partnership, agreement or association of "Issuer", as the case may be, must be submitted and marked Ex- hibit "A". Certified copy of all amendments to or changes in articles of incorporation or association of "Issuer", showing same filed and recorded as required by law, must be submitted and marked Exhibit "B". Copy of minutes of all meetings of "Issuer", during the past two years, relating to purchase, sale or disposition of property or securities, or relating to any contract or agreement in any way affecting the disposition of net earnings of "Issuer", verified under oath by the Secretary, must be submitted and marked Exhibit "C"- Where deeds, leases, contracts or other title papers form the basis of or are essential to the issue of securities, opinion of counsel in that behalf, verified under oath, must be submitted and marked Exhibit "D". Statements of business men and bankers respecting the character and business ability of the officers and expressing opinion on securities offered, will be accepted and considered. "It shall be unlawful for any issuer, solicitor, agent or broker in any advertisement intended to promote the sale of securities in Class 'C to make any reference' whatsoever to the fact that such issuer, solicitor, agent or broker has complied -with the provisions of this Act." (Last Par. Sec. 21). Statements in Class "D" securities should be in form and must set forth fully and concisely data, facts and information in the order hereinafter outlined, covering specifications as follows, to-wit: 180 ILLINOIS STATEMENT "SECURITIES IN CLASS 'D' UNDER ILLINOIS SECURI- TIES LAW:- THESE ARE SPECULATIVE SECURITIES." "THIS STATEMENT IS PREPARED BY PARTIES IN- TERESTED IN THE SALE OF SECURITIES HEREIN MEN- TIONED. NEITHER THE STATE OF ILLINOIS NOR ANY OFFICER OF THE STATE ASSUMES ANY RESPONSIBILITY FOR ANY STATEMENT CONTAINED HEREIN NOR RECOM- MENDS ANY OF THE SECURITIES DESCRIBED BELOW." Statement giving pertinent facts, data and information, estab- lishing that the securities to be offered are securities in Class "D". State the number of shares of stock, classes thereof or other description of securities to be offered for sale. Give number and class of shares of stock or other securities, and the amount to be offered for sale in Illinois. 1. Name of "Issuer". 2. Date of incorporation or organization of "Issuer". 3. Under the laws of what State incorporated or organized. (a) Location of principal office and Illinois office. (b) When and in what County were Illinois Articles of In- corporation, including any amendments thereto, filed and recorded. 4. If "Issuer" is not an Illinois corporation, when did it comply with the foreign corporation laws of Illinois. 5. Purpose for which organized. (a) Original purpose. (b) Change in or enlargement of corporate powers and date thereof. 6. Amount of authorized capital stock of each class. (a) Amount of common stock issued and outstanding at date of filing statement. (b) Amount of preferred stock issued and outstanding at date of filing statement. (c) Par value of each class of stock. (d) Date and amount of increase or decrease of capital stock. (e) Date and amount of increase or decrease of par value of each class of shares. (f) Is each class fully or partially paid. (g) Does personal liability attach to ownership, (h) Voting power of each class. 7. If preferred stock has been issued. (a) Preference as to dividends. ILLINOIS 181 (b) Rate of dividends. (c) Whether cumulative or non-cumulative. (d) Preference as to assets. (e) Date of maturity. 8. Amount of bonded indebtedness authorized and purpose of authoriza- tion. (a) Denominations of bonds. (b) Amount issued and outstanding. (c) How secured. (d) Rate of interest, when payable. (e) Date of maturity. (f) Name and address of registrar or trustee. 9. Amount and kind of all other interest bearing obligations outstand- ing at date of filing statement. 10. Detailed itemized statement of consideration received for each and all issued and outstanding securities. 11. The names and addresses of each officer, director or trustee, salary received by each, amount of securities owned by each and actual cash paid for such securities. 12. Detailed statement, separately signed, by each officer, director or trustee, showing prior occupation during a period of not less than ten years, giving details as to time, place and address of each employer, and reason for discontinuance of employment; also disclosing if officer, director or trustee has been connected in any wise with company that failed, with reason for such failure, and if ever charged with fraud in any transaction or in the sale or disposition of securities, verified under oath be- fore an officer in Illinois authorized to administer oaths. 13. Is "Issuer" a subsidiary of, controlled by, allied to, or does it con- trol or hold the securities of any other company, business or industry? If so, give details. 14. Copy of minutes of all meetings of "Issuer'' relating to purchase, sale or disposition of property or securities, or relating to any contract or agreement in any way affecting the disposition of net earnings of "Issuer", verified under oath by the Secretary. 15. Detailed statement of proposed plan of business of "Issuer". 16. Submit financial statements in accordnace with forms therefor ap- pearing on pages 13 to 24 inclusive, as follows : (a) Latest Balance Sheet (Assets, Liabilities and Net Worth), of a date not more than thirty days prior to date of this application. (Form 1). (b) Balance Sheet as adjusted to show the effect of the new financing. (Form 2). 182 ILLINOIS (c) Income Statement (Income, Profit and Loss), covering a period of two years prior to the date of filing state- ment, or for the period of the existence of the issuer if less than two years prior to date of filing, and ending on the same date as date of Balance Sheet. (Form 3). (d) Analysis of Surplus Account from date of inception of "Issuer." (Form 4). (e) Schedules 1 to 19. (Form 5). 17. Copies of any and all mortgages, trust deeds, indentures or other writings securing or pertaining to any securities offered; also copies of all deeds, claims or leases to property carried as assets of "Issuer", together with copies of all mortgages, trust deeds, leases or other indentures executed by the "Issuer", whereby any lien has been created upon or against any prop- erty of "Issuer", duly certified by the public official in whose office the same are required by law to be recorded. 18. Certified or verified copies of any and all contracts, optional or otherwise, entered into by "Issuer" for the purchase of addi- tional real estate, leases, interest in real estate or other prop- erty. 19. Opinions of attorney or counsel on character of titles to any and all real estate, leases, claims or patents owned or contracted for by "Issuer" duly verified under oath. 20. Are securities intended to be offered and sold by the "Issuer" through solicitors, agents or brokers? 21. Are the securities to be sold to a dealer, solicitor, agent or broker, and by them sold to the public? 22. Copies of the securities intended to be offered. 23. Copies of subscription blank and receipt, to be executed in dupli- cate, copy to be delivered to subscriber, having printed at the head in bold face type, the words, "THESE ARE SPECU- LATIVE SECURITIES". Par value of stock shall also be stated therein. (All sales shall be made on such form, and not otherwise). 24. State the minimum and maximum price that will be asked for se- curities, setting forth the number of shares and amount to be offered at each price. 25. The purpose for which securities are to be offered and sold and if the same or any portion thereof is to be invested in real estate or other property, give detailed statement with descrip- tion and value of property. 26. Has any tangible or intangible property been exchanged for the capital stock of the "Issuer" or any portion thereof? If so, state kind and actual cost of tangible or intangible property ILLINOIS 183 to the person or persons transferring such tangibles or in- tangibles to the "Issuer". 27. Are there any judgments against "Issuer" in any court; have there been or are there now any suits- or proceedings for the ap- pointment of a Receiver, in Bankruptcy, for dis^olut'on or other actions either in law or equity, pending in any court wherein the "Issuer" is a party or interested? 28. Give any other pertinent facts, data and information establishing that the securities to be offered are securities in Class "D" ORIGINAL STATEMENT MUST BE WHOLLY TYPE- WRITTEN. STATEMENTS SHOULD BE PARAGRAPHED AND EACH PARAGRAPH GIVEN HEADING AND NUMBERED AS ABOVE INDICATED. Each sheet of statement must be signed on margin by president and secretary thereof, or by at least two members of partnership or associa- tion, if "Issuer" be not incorporated, and securely bound. Such statements must also be separately verified under oath in the State of Illinois by the President and Secretary of "Issuer"; or by at least two members of partnership or assodlatioii, if "Issuer" be not in- corporated. Such affidavit should be in the following form : AFFIDAVIT FOR CLASS "D" SECURITIES State of Illinois, County of ss. I, , being first duly swbrn (Officer) on oath, do solemnly swear that I am the of the said ; that I have signed (Issuer) my name on the margin of each sheet of the within STATEMENT, and that the outstanding capital stock and the liabilities of said "Issuer" are therein truly stated; and upon my oath further state that the values, amounts and quantity of assets in the foregoing STATEMENT, set forth the true values, true amounts and true assets of "Issuer", quality and quantity considered ; that neither the assets, values or amounts afore- said are stated in excess of the fair and true values of such assets ; that I have read and knowingly made each and all of the foregoing state- ments and representations and have read the schedules and «chibits ac- companying the same, and upon my oath further say that each and all the said representations, specifications and averments in the said STATE- 184 ILLINOIS MENT contained and set forth, or appearing in the schedules and ex- hibits submitted hereiwth, is and are true. Subscribed and sworn to before me this, the day of , A. D. 19. . . . Notary Public. (notarial seal) My commission expires. A dealer or o\rner may sell Class "D" securities upon compli- ance with Section 14. "All oaths required by this Act relating to securities in Class 'D' shall be taken before an officer of this State, authorized to administer oaths therein." (Section 27). PRINTED COPIES OF ALL SUBSCRIPTION BLANKS TO BE USED IN SALE OF CLASS "D" SECURITIES SHALL BEAR IN BOLD FACE TYPE AT THE TOP, THE WORDS, "THESE ARE SPECULATIVE SECURITIES," AND A DUPLICATE THEREOF SHALL BE GIVEN EACH SUBSCRIBER. "// the statement as to securities in Class 'D' shall disclose that any of such securities shall have been or shall be intended to be issued for any patent right, copyright, trade-mark, process or good will, or for pro- motion fees or expenses, or for other intangible assets, the amount and nature thereof, shall be fully set forth, and securities issued in payment of such patent right, copyright, trade-mark, process or good will, or for promotion fees or expenses, or for other intangible assets, shall be de- livered in escrow to such bank or trust company as shall be designated by the Secretary of State under an escro-w agreement that the owners of such securities shall in case of dissolution or insolvency not participate in the assets of the corporation until after the owners of all other se- curities have been paid in full. Such escrow agreement shall remain in full force until the securities of the "Issuer'' thereof are qualified under Class 'C hereof." Escrow agreement should be executed in triplicate, and a copy thereof should be delivered to the "Issuer" and receipt therefor or proof of delivery submitted. Where "Issuer" places securities in escrow, copy of resolution of Board of Directors authorizing escrow, duly verified under oath in Illinois by the Secretary, shall be filed. ILUNOrs 185 All financial statements, exclusive of schedules, must be in- cluded in summary statements. "Not less than twenty-five printed or typewritten copies of the sum^ mary of the statement required to be filed with reference to securities in Class 'D' shall be deposited in the office of the Secretary of State. The printed or typewritten copies so deposited shall bear at the top in bold face type the expression: "'Securities in Class "D" under Illinois Securities Law:' 'These are speculative securities,' followed by the expression/, also in bold face type: "'This statement is prepared by parties interested in the sale of securities herein mentioned. Neither the State of Illinois nor any officer of the State assumes any responsibility for any statement contained herein nor recommends any of the securities described below.'" (Section 15). Copy of affidavits of officers of "Issuer" should appear on last page of summary of the statement. Reports or audits of certified public accountants accompanying statement are appreciated. Certified copy of articles of incorporation and by-laws, or veri- fied copy of articles of partnership, agreement or association of "Issuer", as the case may ber, must be submitted and marked Ex- hibit "A". Certified copy of all amendments to or changes in articles of incorporation or association of "Issuer", showing same filed and recorded as required by law, must be submitted and marked Ex- hibit "B". Name and address of each stockholder owning \% or more of capital stock, and number of shares held by each, must be sub- mitted and marked Exhibit "C". Inventory and appraisement of all property and assets of the "Issuer" by qualified person or persons, properly verified in Illinois under oath. The appraisement of assets must be made by one or more disinterested persons, must disclose fully the character and nature of experience and qualifications to value such property, and all facts or conditions which form the basis of appraisement, em- bodying all the requirements of Section 10, shall be filed with state- ment, and marked Exhibit "D", and such appraisement and the verification thereof shall be in the following form: — 186 ILLINOIS CLASS "D" SECURITIES Inventory and Appraisement of Assets In Re: (Owner aji.d Issuer) Date o,f appraisetnent Pursuant to and in compliance with Section 10 of "The Illinois Securities Law", I respectfully state that my name is my age and place of residence and that the character and nature of my experience and qualificalions to value the property herein below described are as follows : • (Here set forth experience and qualifications and at least three references in support of qualifications). That I am not interested as a stockholder or otherwise, in the said owner or in any securities of said Owner and Issuer; that in mak- ing said appraisement, I personally examined and inspected the prop- erty herein below described, and the invoices, price liists, accounts and other data pertaining thereto and appraise and fix the fair net sound value of such property and of each part and parcel thereof as follows : Description Original Age Reproduction Depreciation Net Sound cost Value Value $ $ $ $ and having personally examined and inspected the above property, and the invoices, price lists, accounts and other data showing the original cost of said property, and with knowledge of the values thereof, age and all elements of sound value considered, do report and state that the fair and reasonable net sound value of the foregoing property and each separate part or parcel thereof, is truly stated, and set forth above, and that the valuations, herein above set forth respectively are not stated in excess of the actual netsound values of any one or more or all of the items, parts or parcels of said property. I further state that I have signed my name on the margin of each sheet herein. Dated, this the day of A. D. 19 State of Illinois, County of ss. I, being first duly sworn upon oath depose and say that the net sound value of each item, article, part and parcel of all the property specified in the above Inventory and Appraisement is therein truly stated; that all statements, representations, Illinois 187 valuations and appraisals set forth in the foregoing Inventory and Ap- praisement are knowingly made by me and are true; that the valuations therein given are the true fair net sound values, and that the aforesaid several valuations do not exceed the net sound value of any, either or all of the items, articles, parts or parcels of the said property. Subscribed and sworn to before me this, the day of , A. D. 19.... (notarial seal) Notary Public. My commission expires "Each financial statement, prospectus, advertisement, circular and document circulated, published or distributed for the purpose of effect- ing sales of securities in Class 'D' shall contain the words, in bold face type, 'Securities in Class 'D' under Illinois Securities Law. These are speculative securities.' But it shall be unlawful to make any other reference in any such matter to the fact that the issuer, solicitor, agent or broker has complied with the provisions of this Act. All such matter shall also contain a statement of the assets, liabilities, income and ex- penses of the issuer, the law under which the issuer was incorporated or organized, and the names and addresses of all oiHcers, directors or trustees, of the issuer or of the owner of the property constituting the basis of the issue of such securities. A copy of each such financial state- ment, prospectus, advertisement, circular and document so circulated, pub- lished or distributed shall be filed in the office of the Secretary of State within ten (lo) days after the first circulation, publication or distribu- tion thereof. It shall be unlawful to print, publish, circulate or distribute such matter showing the earnings of other' companies or corporations en- gaged in a similar business." (Par. 1, Sec. 21). GENERAL INSTRUCTIONS Great care should be exercised in preparing statements. The burden is upon the "Issuer" in Class "D" securities, and upon "Issuer" or broker as the case may be, in Class "C" securities, to present state- ment qualifying securities under the law. Do not wait to comply virith provisions of Act until the day you wish to offer your securities. Submit statement by mail in advance, so as to give the Department attiple time to examine the same; statements mailed receive the same attention as if presented in person. Statements, appraiaements and other instrumenti in writing must not be changfed, altered or amended after being executed or 188 ILLINOIS verified under oath. Should changes, alterations or amendments become necessary, the same must be prepared and submitted anew, or if originals shall have been changed, altered or amended, they must be again signed and again verified under oath, as changed, altered or amended. All evidence of such final accomplishment thereof shall be fully shown. All statements and legal essentials must be accomplished and the information requested furnished in accordance with the Act and these instructions. All licenses issued under the law repealed by this Act are null and void. Your attention is directed to section 42, making it an offense to display such certificate or license issued under the former Act. All statements should be submitted on legal cap size paper. Report of certified public accountants accompanying statement will be appreciated. Statements of bankers and other business men respecting char- acter and business ability of officers and expressing opinion of securities offered, will be accepted and considered. Fees, one-twentieth of one per cent of the amount of securities to be offered for sale in this State, but in no case shall the fee be less than $25.00 or more than $300.00. At end of each six months' period, supplemental statements should be filed pursuant to section 20 of the Act. The sale of securities in Illinois is limited to the amount and price set forth in statement. "No written or printed evidence of the compliance with this Act shall be issued by the Secretary of State." (Section 17). The requirements of the Act and these instructions will not be waived in any case. * The financial statements disclosing assets, liablities, net earnings, net worth of "Issuer", analysis of surplus account, income or profit aind loss statement and balance sheet with schedules attached are required in original statements in both Class "C" and Class "D" securities and must be in the following order and form : (Form 1) BALANCE SHEET (Assets, Liabilities and Net Worth) Date ASSETS 1. Cash: On Hand $ On Deposit $ $ ILLINOIS 189 2. Accounts Receivable: (Schedule 1) Trade Debtors $ Other Accounts Receivable $ Total $ Less: Reserve for Bad Accounts. $ $ 3. Notes Receivable: (Schedule 1) Customers' Notes $ Other Notes Receivable $ Total $ Less: Reserve for Losses $ $ 4. Inventories: (Schedule 2) Finished -Goods ' $ Goods in Process...' $ Raw Materials $ Supplies $ , $ Total $ Less: Amount of Goods not readily salable $ $ 5. Total Quick Assets $ 6. Prepaid Expenses (Itemized to corre- spond with ledger accounts) $ $ 7. Organization Expenses (Schedule 3) $ Less : Reserve for Extinguish- ment $ $ 8 . Total Defemed Charges $ 9. Investments (Itemized to correspond with ledger accounts kept) (Schedule 4) $ $ 10. Sinking Funds (Itemized to correspond with ledger accounts) $ $. 190 ILLINOIS 11. Machinery and Equipment (Itemized to correspond witli ledger accounts kept) $. Total $.... Less: Reserve for Depreciation.! 12. Real Estate: (Schedules) Buildings $. Less: Reserve for Depreciation. $. Net $ Land $ $. 13. Total Invested Assets $. 14. Patents, Trade-Marks, Etc., (Itemized to correspond with ledger accounts kept) (Schedule 6) $ Total $. Less: Rfeserve for Extinguishment!. 15. Good Will 16 . Total Intangible Assets , $. Total Assets $. liabilities Accounts Payable: (Schedule 7) Trade Creditors Other Accounts Payable Notes Paybale: (Schedule 7) Notes given for Merchandise $ Notes due to Banks $ Other Notes Payable $ ; . $. Accrued Expenses (Itemized to corre- spond with ledger accounts kept) $ $. 4. Deferred Credits (Itemized to corre- spond with ledger accounts kept) $ 5. Total Cuhrent Liabiuties. ILLINOIS 191 6. Reserves not deducted froiji Assets, (Itemized to correspond with ledger accounts kept) $. 7. Mortgages (Schedules) $. 8. Other Long-Term Obligations (Schedule 8) $. 9. Mortgage Bonds (Schedule 8) $. 10. ToxAL Long-Te^m Indektedness $. Total Liabilities $. NET WORTH) 1. Capital Stock; Preferi!ed: Authorized Unissued Total Issued $. Treasury Stock $. Outstanding 2. Capital Stock; Common,: Authorized . . . : $. Unissued $. Total Issued $. Treasury Stock $. Outstanding 3. Total Capital Stock Outstanding $. 4. Surplus: Surplus Account $ Reserves from Profits $ $ 5. Stock Premiums and Discounts.: Premium on Sales of Stock $. Discount on Sales of Stock $. 6. Net Surplus (Or Net DEFiaT) $. Total Net Worth $. 192 ILLINOIS (Form 2) BALANCE SHEET (Adjusted to Show the Effect of the New Financing) Date as of 19. ASSETS LIABILITIES Cash ....^....... $ Accounts Payable $.... Accounts Receivable $ ^^^^^ p^y^^l^ ^ Notes Receivable $ A^^^^^j Expenses $. . . . Inventories $ Deferred Credits $.... Total Quick Assets $. Total Current Liabilities $. Prepaid Expenses $ ff "^^ ^ts^r^ts $. Organization Expenses . .$ ^°''*^^'^' ^ ' ' V l' Investments $ Mortgage Bonds $. Sinking Funds $ Mach'y and Equipment . . . $ ''^^ ^°'*^'' Real Estate $ Preferred Stock $. Patents, Trademarks, etc. . .$ Common Stock $. Good Will $ Surplus $. Total Assets' $ Total $. (Form 3) INCOME STATEMENT {Income, Profit and Loss) Date Year Year ending ending 19. . . . 19. . . . 1. Gross Sales (Schedule 9) $ $ 2. Returned Goods and Allowances $ $ 3. Net Sales $ ?. 4. Cost of Sales (Schedule 10) $ $. 5. Gross Revenue from Operations $ $. 6. Operating Expenses (Schedule 11) $ $. ILLINOIS 183 7. Net Income before allowing for Depreciation $. . 8. *Depreciation (Schedule 12) $. . 9. Net Income from Operations $ $. 10. Other Income (Schedule 13) $ $. 11. Total Net Income .' $ $. 12. Miscellaneous Expenses (Schedule 14) $ $. 13. Net Profit for the Period $ $. 1 4 . **Interest on Bonds, Mortgages, Notes, Etc. (Schedule 15) $ $. 15 . Net Surplus for the Period $ $. Iti. Previous Balance, Surplus Account, As Adjusted (Schedule 16) $ $. 17 . Surplus Available for Dividends $. 18 . Dividends Declared (Schedule 17) $; 19 . Balance of Surplus Available $ $. 20. Special Appropriations — New Construction,' Bet- terments, Welfare Work, Pensions, Etc. (Schedule 18) $ $. 21 . Unappropriated Surplus $ $. (Form 4) ANALYSIS OF SURPLUS ACCOUNT Balance at beginning of period $. Add : Profits (Detailed as to periods) $ Credit Adjustments (Itemized) $ $. Total Deduct: Dividends Paid (Detailed as to dates, kind, rates and amounts) i Debit Adjustments (Itemized) i Special Appropriations (Itemized) -i Balance at end of period $ * Oil, mining, timber and other companies whose income is derived from "wasting assets" must also show separately allowance made for Depletion. ** Interest charges on all interest-bearing obligations, including bonds, debentures, mortgages, trust deeds, notes, etc., shall be included in the above statement under item 14 ONLY, 13 194 ILLINOIS (Form 5 — Schedules 1 to 19, inclusive) Schedule 1 Notes and Accounts Receivable Notes Accounts Description - Receivable Receivable 1 . Due from Trade Debtors only — upon usual terms $ $ 2. Due from Trade Debtors — over six months old.$ $ 3-. Due from Capital Stock Sold $ : $ 4. Due from Officers, Directors, Stockholders, or Employees $ $ 5. Due from Own Selling Houses or Branches $ % 6. Due from Subsidiary Corporations $ $ 7. Due from Allied or Controlled Interests $ $ 8. Other Accounts or Notes Receivable (Itemize) . .$ $ Total $ $ Amount of Consignment Accounts included in above schedule $ Amount Discounted, or Pledged, or Assigned, in- cluded in above schedule $ Schedule 2 Inventories Date Taken How Taken* How Priced** Description Amount Finished Goods $. Goods in Process... $. Raw Materials $. Supplies $. $. Total $ ♦ How Taken — Was inventory taken by actual physical count, or uy estimate, or from Perpetual Inventory records? ** How Priced — State whether inventory was priced at Cost, Market Prices or Selling Prices. 1. What amount, included in above inventories, is held under trust receipt by you? $ ■>. What amount, included in above inventories, do you hold on consignment? $ 3. What amount, included in above inventories, has been pledged as collateral for loans or advances ? % ILLINOIS 195 Schedule 3 Orgameation Expenses Give an itemiased, detailed statement of all charges and credits to Organization Expenses. Schedule 4 Investments Submit Statement in the following form covering all investments : Description Number of Shares or Bonds Held Par Value Market Value Income or Dividend Received Last Year 1 . -Vre any of the above items pledged as collateral for loans or ad- vances or otherwise encumbered? 2. If so, give particulars and amounts. Schedule 5 Real Estate {Land and Buildings) Submit Statement covering the following items, and give par- ticulars for each parcel : Description Location Title in Name of : Mortgages Value Equity 1. Is any Good-Will included in any of the above items? 2. Are the above items carried at cost, market value or appraised value? 196 ILLINOIS Schedule 6 Patents, Etc. Give a detailed statement of the nature and value of patent rights, copyrights, trade-marks, processes and other items listed in your ac- counts and making up the amount shown on Balance Sheet under this heading, stating the actual cost of securing such patent rights, etc., and the manner and amount of payment therefor. Schedule 7 Notes and Accounts Payable 1 . Notes Payable given for Merchandise $ 2. Notes Payable negotiated to own banks (Itemize, giving name of bank, amount of loan, rate of interest, nature of se- curity, amount and kind of collateral pledged) $ 3. Notes Payable otherwise disposed of (Itemize, giving name of creditor, amount of loan, rate of interest, nature of se- curity, amount and kind of collateral pledged) $ 4. Accounts Payable, due for Merchandise $ 5. Other Accounts Payable (Itemize, giving name of creditor, for what due and amounts) $ Total $ Schedule 8 Long-Term Indebtedness Submit detailed statement of Mortgages, Bonds and other long- term indebtedness, covering the following items : Kind of Obligation Amount Outstanding When due Rate of Interest Secured by what assets ? Name and address oi Trustee, Mortgagee or Holder ILUNOIS 197 Schedule 9 Gross Sales Submit statement analyzing Gross Sales (or Gross Income) show- ing the source or sources thereof and amounts received from each kind or class of Sales (or Income). Schedule 10 Cost of Sales — {General) Year Year ending ending 19.... 19.... 1 . Inventory at Beginning of Period $ $ •2 , Net Purchases $ $ Total $ I '?>. Less Inventory at End of Period $ $ 4 . Cost op Sales '. $ $ ' ===:= OR: Schedule 10 Cost of Sales — {Manufacturing) 1 . Raw Material : Inventory at beginning of period $ $ Net Purchases $ $ Total $ $ Less Inventory at end of period $ $ Cost of Raw Material $ $ 2. Labor $ $ H-. Manufacturing Expenses — Factory Expense, Fuel, Repairs to Buildings and Machinery, etc. (Itemized to correspond with ledger accounts kept) $ $ Total Manufacturing Expense $ $ ' := =:x L Total Cost of Goods Manufactured (Adding Cost of Raw Material, Labor and Total Manu- facturing Expense) $ $ 198 ILLINOIS 5. Add; Inventory of Finished Goods at Begin- ning OF Period $ $. $ $ 6. Deduct: Inventory of Finished Goods at End OF Period $ $ 7. Cost of Sales. Schedule 11 Operating Expenses Year Year ending ending 19.... 19.... 1. Selling Expenses (Itemizezd to correspond with ledger accounts kept) $ $ Total Selling Expenses $ $. 2. General Expenses (Itemized to correspond with ledger accounts kept) $ $. Total General Expenses $ $. ' 3. Administrative Expenses (Itemized to correspond with ledger accounts kept) $ Total Administrative Expenses $ $. 4. Total Operating Expenses $ $. Schedule 12 Depreciation Year ending 19. . . . Amount De- . Kind of Property Value predated Per Cent Buildings $ $ Machinery $ $ Equipment $ $ Total ILUNOIS 199 Schedule 13 Other Income Submit detailed statement of income derived 'from thfe capital or property of the business invested in outside ventures or controlled by others, such as interest on money loaned, interest on bonds owned, dividends on stocks owned, rent received from real estate investments, etc., in the following form : Year Year ending ending 19.... 19.... 1. Other Income (Itemized to correspond with ledger accounts kept) $ $ 2. Total Other Income $ $. Schedule 14 Miscellaneous Expenses 1. Miscellaneous Expenses — Taxes, Additions to Reserve for Bad Debts, Etc., but not including interest on funded debts or other interest bear- ing obligations, which should be included under Schedule 15 (Itemized to correspond with accounts kept) $ 2. Total Miscellaneous Expenses $ $ Schedule 15 Interest on Bonds, Notes, Etc. Include herein all interest charges on all interest-bearing obliga- tions, including bonds, debentures, mortgages, trust deeds, notes, etc. 1. Interest on Bonds, Notes, Etc. (Itemized to correspond with accounts kept) $ $ 2. Total Interest on Bonds, Notes, Etc $ $. Schedule 16 Adjustments to Surplus During Period Year Year ending ending 19.... 19.... 1. Balance at Beginning of Period $ $ 200 ILLINOIS '1. Add: Credit Adjustments (Itemized in detail for each period) $ $• Total $ $ 3. Deduct: Debit Adjustments (Itemized in detail for each period) $ $ Total Debit Adjustments $ $ 4. Balance as Adjusted $ $ Schedule 17 Dividends Declared 1 . Dividends Declared (Itemize, giving dates when dividends were declared, kind of dividends, rates and amounts, separately for each period) $ $ 2. Total Dividends Declared $ $ SCHiEDULE 18 Special Appropriations From Surplus 1. Special Appropriations (Itemize, giving dates when such appropriations were made, purposes and amounts, separately for each period) $ $ 2 . Total Special Appropriations $ $ Schedule 19 Contingent Liability Kind Amount Upon customers' notes discounted $ Upon drafts negotiated $ For guarantees given $ Upon leases '. $ Upon bonds or other obligations of subsidiary or allied com- panies ; .$ Under contracts or purchase arrangements $ Under agreements -.$ Under pending lawsuits $ Total $ ILLINOIS 201 Reports of certified public accountants must be adjusted to forms and positive or negative information must be given relative to state- ment of assets, liabilities, income or profit and loss, and schedules in connection therewith. BLANKS AND FORMS The Department does not furnish blanks for preparing statements. Statements should be typewritten. Upon request the Securities Department will furnish the follow- ing blanks : (For use in Class "C" and Class "D" Securities) Resolution of Board of Directors authorizing service of process. (Section 16). Certificate and verification of adoption of resolution. (Section 16). Corporation form of irrevocable consent and power of attorney authorizing service of process on Secretary of State. (Section 16). Persons, partnerships and non-incorporated associations form of irrevocable consent and power of attoi'ney authorizing service of process on Secretary of State. (Section 16). (For use in Class "D" Securities) Escrow agreement prepared for compliance with Section 12. Interrogatories of officers or persons proposing to file statement pursuant to Section 17. Statement of prior occupation and business experience of solicitor, agent or broker. (Section 13). Statement of prior occupations and business experience of dealer or owner. (Section 14). Irrevocable contract of solicitors, agents and brokers. (Par. 14 Sec. 9. Appointment and acceptance of agents. (Sections 13 and 14). Form of Inventory and Appraisement and verification thereof, in Class "D" securities, is to be found on page 11 of the Instructions. Address : Louis L. Emerson, Secretary of State, Springfield, Illinois. Securities Dept 202 ILLINOIS Forms Class "D" Securities. ESCROW AGREEMENT Under Illinois Securities Law Whereas, desires to sell certain securities under the provisions of an Act entitled, "An Act relating to the sale and other disposition of securities and providing penalties for the violation thereof, and to repeal acts in conflict therewith," approved and in force June 10, 1919, known as "The Illinois Securities Law," and Whereas, Section 12 provides that securities "issued for any patent right, copyright, trade-mark, process or good will, or for promotion fees or expenses, or for other intangible assets * * * shall be delivered in escrow to such bank or trust company as shall be designated by the Secretary of State under an escrow agreement that the owner of such securities shall in case of dissolution or insolvency not participate in the assets of the corporation until after the owners of all other secur- ities have been paid in full," and Whereas, The Secretary of State has designated a located at , , Illinois, as a depository for the. securities hereinafter fully described, and Whereas, The securities described below have been issued in pay- ment of such "patent right, copyright, trademark, process or good will or for promotion fees or expenses ot for other intangible assets" as described in said section; Now, therefore. In consideration of the benefits that will accrue to the issuer by virtue of being permitted to file certain statements and documents in the office of the Secretary of State of Illinois pursuant to the provisions of the aforesaid Act, the undersigned hereby deposits with the the securities more fully described below and irrevocably consents and agrees that said securities are to be held subject to the provisions of the aforesaid act. Such securities being more fully described as fol- lows, towit : It is hereby stipulated and agreed by the undersigned that in case- of dissolution or insolvency of the (Name of Issuer) the owners of such securities shall not participate in the assets of the corporation until after the owners of all other securities have been paid in full. It is further understood and agreed by the undersigned, that said securities deposited in the said shall not be ILLINOIS 203 sold nor transferred directly or indirectly during the time said, securities remain on deposit with the above named trustee, but that such deposit of such securities shall not affect the voting powers of the owners of such securities. It is further tacitly understood and agreed that said securities are to be held by the said until such securities become qualified under Class "C" of the aforesaid Act. It is further stipulated and agreed by and between the parties hereto that this stipulation shall be binding upon the heirs, administrators, ex- ecutors, or legatees of the undersigned. In Witness Whereof, The parties hereto have hereunto set their hands and seals this day of , A. D. 19.... State of Illinois, J / ss. County of j I, a Notary PubWc in and for the County and State aforesaid, do hereby certify that per- sonally appeared before me known to me to be the same person .... whose name is (or are) subscribed to the foregoing instrument, and acknowledged that .... he executed the same as free and voluntary act for the uses and purposes therein set forth. In witness whereof, I have hereunto set my hand and notarial seal this day of A. D. 19 [seal.] Notary Public. This is to certify that the above described securities have been de- posited in accordance with the terms of this agreement with the to be irrevocably held until such securities meet all the requirements and conditions herein set forth, in accordance with "THE ILLINOIS SECURITIES LAW." Dated at this - . . day of A. D. 19.... Name of Bank or Trust Company. f Corporate) By Seal. ( Escrow Officer. 204 ILLINOIS Prepared Under the Illinois Securities Law. IRREVOCABLE CONTRACT OF SOLICITORS, AGENTS AND BROKERS — CLASS "D" SECURITIES Know All Men by These Presents: That the undersigned in compliance with the provisions of "The Illinois Securities Law," approved and in force June 10, 1919, and for the purposes set forth in paragraph 14 of section 9 and in section 35 thereof, and in consideration of the employment of the undersigned by or on behalf of (1) (hereinafter called the ("Issuer") to offer for sale and sell the following described securities : (2) hereby irrevocably agrees, contracts and covenants for the benefit of any and all persons interested, and any and all persons who shall purchase any of said securities from or through the undersigned, or of_ or from any present or future stockholder or creditor, or of or from any assignee, successor in ownership, trustee in bapkruptcy of the Issuer, or otherwise become interested in or the owner thereof as follows : That the said Issuer shall and will receive in cash (Not less than 80% J per cent of the proceeds of each sale of said securities made by or through the undersigned without any deduction whatsoever, for any commission, compensation or expenses, directly or indirectly, and without liability to pay any sum whatsoever as commission, compensation or expenses or for services in and about such sale. That the undersigned has entered into no other contract or agreement, and will enter into no contract or agreement, respecting the sale of said securities, either directly or indi- rectly, whereby the undersigned will receive any sum in excess of per cent of the proceeds of any sale of such (Not exceeding 20%) securities, as commission or for services or expenses or other compen- sation in and about the sale of such securities. That for the faithful observance of this obligation, the undersigned is held and firmly bound unto the said Issuer by these presents; and the promises, contracts and covenants herein contained, shall be and are bind- (1) Here insert name and principal business address of Issuer. Ff a corporation, give State of incorporation. (2) Here describe fully the securities intended to be offered. ILLINOIS ■ 205 ing upon the heirs, executors and administrators of the undersigned, and shall inure to the benefit of said Issuer and to the benefit of the heirs, executors, administrators, successors and assigns of any present or future stockholder, creditor or person or persons who shall purchasCj or who may be or become interested in any of said securities. Witness my hand and seal this the. . . .day of A. D. 19, . (Seal) Residing at Street (City) (State) State of Iixinois, County of I, , a Notary Public in and for the said county and state, do hereby certify that , personally known to me to be the same person whose name is subscribed to the foregoing instrument, appeared before me in person and acknowl- edged that . .he signed, sealed and delivered the said instrument as the free and voluntary act of said ■. for the uses and purposes therein set forth ; and the said being duly sworn upon his oath deposes and says that the- statements in the foregoing contract set forth are true in substance and in fact. Given under my hand and notarial seal this the day of A. D., 19.... Notary Public. My commission expires , 19. . . . CLASS "D" SECURITIES PREPAKED UNDER THE ILLINOIS SECURITIES LAW APPOINTMENT AND ACCEPTANCE OF AGENT Herewith is submitted statement of (Agent) giving residence, qualification, occupation and business experience of said pursuant to and in compliance with (Agent) Section 13 of "The Illinois Securities Law," and the undersigned being of the opinion that the said is of (Agent) good character, hereby selects and appoints (Agent) of to act as (his or its) agent within (Give address of agent) , 206 ILUNOIS the State of Illinois for the sale of (Kind of securities) of (Name of Issuer) Dated at this day of A. D. 19. . . . (Issuer or Owner) (Corporate Seal) By State op Illinois, County of I , a Notary Public in and tor the County and State aforesaid, hereby certify that (President or residing at , Secretary) (Address) known to me to be the of said (Officer) , appeared before me this day in (Corporation) person, and subscribed the name of the said corporation to the foregoing appoint of agent, being thereunto duly authorized, and acknowledged that he signed, sealed and delivered the said instrument for and on behalf of the said (Corporation) as its free and voluntary act, for the uses and purposes therein set forth. Given under my hand and notarial seal this day of A. D. 19.... (Notarial Seal) Notary Public. NOTE: Tile appointment of agent sliould be properly executed by "Issuer," dealer or owner of Class "D" securities, as the case may be. If a corporation, by President or Secretary with corporate seal attached. I, , residing at ; , (Agent) (Address of agent) accept the aforesaid agency and agree to faithfully observe and comply with the requirements and provisions of "The Illinois Securities Law," approved and in force June 10, 1919, in and about the sale or offering for sale of (Describe securities) in said State, and upon my oath state that I will make no false or fraudulent statement or representation in and about the sale or other disposition of the aforesaid securities and in my above appointment mentioned, and that I will make no statement or representation respect- ing the said securities or in connection with the sale or disposition thereof ILLINOIS 207 not within or supported as a fact by the statement qualifying said se- curities under "The Illinois Securities Law." Dated at this, the day of , A. D. 19.... (Agent) Subscribed and sworn to before me by the above (Agent) this, the day of A. D..19.... (Notarial Seal) Notary Public. My commission expires NOTE: To this appointment of agent, there must be attached a typewritten statement setting forth lie address of such agent. Such statement must show business qualifications, present and prior occupation or profession, for a period of ten years prior to date of such statement, together with the correct names and present addresses of each former employer of such agent and reasons for resignation or discharge (Section 13). This statement must be verified under oath m Ilhnois by such agent or solicitor. Irrevocable contract remiir ss. I, , being duly sworn on nijr oath, depose and say that I am the Secretary of a corporation of and that the foregoing is a true and correct copy of a resolution adopted by the Board of Directors of said on the day of A. D. 19 , as the same appears on the records of the said corporation now remaining in my custody and control. In Witness Whereof, I have hereunto set my hand and affixed the seal of said corporation. Secretary. Subscribed and sworn to before me this day of A. D. 19... Notary Public. I hereby certify that I am authorized to administer oaths by the laws of the State of and that my commis- sion expires the day of A. D. ly. . . Notary Public. RESOLUTION WhereaSj this corporation is intending to issue. (Here describe securities) and sell (Amount) thereof in the State of Illinois; Therefore, be it Resolved, that tie President and Secretary of be and they are hereby authorized and instructed to execute in due legal form and deliver to the Secretary of State of the State of lUin is the written irrevocable consent and power of attorney provided for by Section 16 of "The Illinois Securities Law", approved and in force June 10, A. D. 1919, providing and consenting that suits at law or in equity arising or founded upon the sale or offering for sale of any of such securities, may be commenced against said corporat'on in any coun'y in which the plaintiff or complainant resides, or in which the cause of action may have arisen, by the service of process upon the Secretary ILLINOIS 215 of State, and therein stipulating and agreeing that such service of process upon the Secretary of State shall be taken and held in all courts to be due legal service of process valid and binding upon this corporation. CORPORATE FORM PREPARED UNDER THE ILLINOIS SECURITIES LAW IRREVOCABLE CONSENT FOR SERVICE OF PROCESS Know All Men by these Presents : That for the purpose of authorizing suits at law and in equity, to be commenced in any court of competent jurisdiction within the State of Illinois^ in any county in which the plaintiff or complainant resides, or in which the cause of action may have arisen, founded upon or aris- ing out of the sale or offering for sale of securities under "The Illinois Securities Law," approved and in force June 10, 1919, pursuant to and in compliance with the provisions of Section 16 of said Act: THE a corporation duly organized and existing under and by virtue of the laws of the State of interested in the sale and disposition of the securities herein mentioned within the State of Illinois, hereby consents, without power of revocation, that any and all suits at law and in equity, arising out of or founded upon the sale or offering for sale of — . . (Describe securities, name of Issuer, number shares, amount) and further described in a statement submitted to the Secretary of State of the State of Illinois, may be commenced against the said (Corporate Name) in any court of competent jurisdiction within the State of Illinois, in any county in which the plaintiff or complainant resides or in which the cause of action may have arisen, by the service of process upon the Secretary of State of the State of Illinois. And the said (Corporate Name) Stipulates and agrees that such service of process upon the said Secre- tary of State shall be taken and held in all courts to be due legal service of process upon (Corporate Name) valid and Ibinding upon the said corporation in the State of Illinois and in all States and Territories of the United States. In Witness Whereof, the President and Secretary of said (Corporate Name) by the authority and direction of the iboard of directors of said corpora- 216 ILLINOIS tion, have executed this irrevocable consent and power of attorney for and on behalf of the said for the purposes herein set forth at in the State of Illinois this, the day of A. D. 19.... By President. Attest Secretary. (Corporate Seal) State of Illinois, ") County of J ^®" I, , a Notary Public in and for said County in the State aforesaid, do hereby certify that personally known to me and per- sonally known to be respectively the President and Secretary of the (Corporate Name) and personally known to me to be the same persons who subscribed to the foregoing instrument as the President and Secretary of (Corporate Nanvj) and for and on its behalf appeared before me this day in person and acknowledged that they signed, sealed and delivered the said instrument for and on behalf of the said (Corporate Name) as its free and voluntary act, for the uses (Corporate Name) and purposes therein set forth. Given; under my hand and notarial seal this day of.... A. D. 19.... (Notarial Seal) My commission expires XOTE: The irrevocable consent and power of attorney should accompany the statement forwarded to the Secretary of State in Classes "C" and "D" in conformity with Section 16 of the Illinois Securities Law. If the issuer or owner intending to sell or offer for sale securities under said law is a corporation, the same shall be executed hy its chief executive and chief recording officer 'under its corporate 6eal, pursuant to resolution of its governing body, and a certified copy of suck resolution so adopted shall be attached thereto. If the issuer or owner be a person or a non- incorporated association, a form suitable for persons nr members of such non-incor- porated association should be used. ILLINOIS 217 INVENTORY AND APPRAISEMENT OF ASSETS IN RE: (Owner) Date of appraisement Pursuant to and in compliance with Section 10 of "The Illinois Securities Law", I respectfully state that my name is my age and place of residence and that the character and nature of my experience and qualifications to value the property herein below described are as follows : (Here set forth experience and qualifications) That I am not interested as a stockholder or otherwise, in the said owner or in any securities of said owner; that in making said appraise- ment, I personally examined and inspected the property, invoices, price lists, accounts, assets and data of owner thereof, and appraise and fix net sound value of each item of the inventory thereof as follows : Description Original Age Reproduction Depreciation Net Sound Cost Value Value $ $ $ $ and having personally examined and inspected the above property and assets, and the invoices, price lists, accounts and data showing the original cost of said property and considering age and all elements of a sound value, do report and state that the fair and reasonable net sound value of the foregoing property and each separate part and parcel thereof, is correctly stated, and set forth above, and that the valuations herein above set forth are not stated in excess of the net sound values respec- tively, of any or either item thereof. Dated this the day of A. D. 19. . . . State op Illinois, 1 County of .., J I^ ; , , being first duly sworn upon oath, say that each and all statements, representations and valuations and appraisals set forth in the foregoing inventory and ap- 218 ILLINOIS praisement, are true, and that the several valuations do not exceed the actual net sound value of any or either of the articles, items, parts or parcels of property. Subscribed and sworn to before me, this the day of A. D. 19.'... (Notarial Seal) Notary Public. My commission expires INDIANA 219 INDIANA STATUTES AN ACT Supplemental to an act entitled "An Act concerning the organiza- tion and perpetuity of voluntary associations, repealing all laws in conflict therewith, legalizing the organization of certain as- sociations organized under former laws and declaring an emergency," approved March 9, I90I, authorizing the organiza- tion, incorporation and perpetuity of voluntary associations for certain purposes not named in said act approved March 9, 1901, and declaring an emergency. (Acts 1915, ch. 6). (H. 8. Approved February 16, 1915) Corporations — Voluntary Associations — Realty and Security Companies. Section 1. Be it enacted by the general assembly of the State of Indiana, That any number of persons, not less than fifteen, may volun- tarily associate themselves into a corporation in the manner set forth in an act entitled "An act concerning the organization and perpetuity of voluntary associations, repealing all laws in conflict therewith, legalizing the organization of certain associations organized under former laws and declaring an emergency," approved March 9, 1901, with all the rights, powers and privileges expressed and granted by said act to asso- ciations organized thereunder and subject to all the provisions of said act, for the following named purposes : * * * b. To purchase and sell stocks and bonds, or other approved se- curities, in manufacturing corporations seeking to locate within the cor- porate limits of any city in this state, wherein such voluntary associa- tion has its principal office or place of business, or within the suburbs thereof, and to purchase and sell stocks and bonds or other approved securities in such civic enterprises as may be of benefit to the city within which such incorporation has its principal office or place of business. The object or purpose of any such association may include any or all of the purposes stated in the above subdivisions of this section. AN ACT ft Regulating foreign corporations issuing stocks, bonds, contracts and agreements upon which payments are to be made in install- ments or receiving deposits of money for any purpose, pre- scribing conditions upon which they can do business in this state, prescribing the duties of the Auditor of State with 220 INDIANA reference to such corporations, providing penalties for the violation of the provisions of this Act, and declaring an emergrency. (Acts 1901, ch. CCXV). (S. 415. Approved March 11, 1,901 J Section 1. Be it enacted by the General Assembly of the State of Indiana, That it shall be unlawful for any corporation, association or society organized under the laws of any State (other than the State of Indiana), or of any government foreign to the Government of the United States to conduct or engage in the business of a trust or investment company for the purpose of issuing its stocks, bonds, contracts or agree- ments to its members, or other persons, upon which payments are to be made in installments, or for the purpose of receiving deposits or pay- ments of money for any purpose without first procuring a certificate of authority from the Auditor of State, which certificate shall be re- newed annually. (Burns An. St. § 4963). Section 2. Before the Auditor of State issues such certificate to .Illy such corporation, association or society, it shall file in his office a statement under the oath of its president and secretary showing the date of its incorporation, the names of its officers, the amount of its capital stock. It shall also furnish, under oath of its president and secretary a statement showing the resources and liabilities and sucli ' other information concerning its business as the Auditor of State may from time to time pres<;ribe upon the filing of said statements and in- formation aforesaid, and satisfying said Auditor of State that it is solvent and doing a safe and legitimate business then the said Auditor of State may issue to such corporation, association or society his certifi- cate authorizing them to transact business in said State for the current calendar year. (Id. § 4964). Section 3. Every such corporation, association or society before the Auditor of State shall issue his authority to do business shall deposit with said Auditor of State, stocks or bonds, approved by said Auditor in a sum, not less than $25,000.00, which amount shall remain in posses- sion of said Auditor for and during the first year that said corporation, association or society shall do business. At end of said first year said corporation, association or society shall deposit with said Auditor of State stocks or bonds approved by said Auditor equal to the amount of its liabilities to citizens of this State and shall keep such deposit at all times equal to such liabilities. (Id. § 4965). Section 4. Any time such corporation, association or society, shall fail to make such deposit, as required by Section 3, or shall become insolvent or fail to carry out its contracts or agreements with citizens of this State, then said Auditor of State, shall revoke its authority to do business in said State and shall ask the proper court of this State INDIANA 221 to appoint a receiver to take charge of such deposit for the benefit of its creditors in said State. (Id. § 4966). Section 5. Every such corporation, association or society shall, an- nually, in the month of January of each year, file with Auditor of State, a full and complete statement in such form as may be prescribed by the Auditor of State showing its condition of December 31st, of the previous year. If from an examination of said statement it shall ap- pear that such corporation is solvent the Auditor of State shall renew its license for the ensuing calendar year. (Id. § 4967). Section 6. The Auditor of State shall examine, or cause to be examined, under the provisions of this act, whenever in his judgment it may be necessary for the interests of the shareholders, stockholders or creditors of said foreign corporation, association or society residing in this State, every detail of the business of any said foreign corpora- tion, association or society transacting business in this State. Said ex- amination shall be made at the expense of the foreign corporation, as- sociation or society examined, and consent to make such examination shall be filed before any certificate authorizing such foreign corporation, association or society shall be granted by said Auditor of State. (Id. Section 7. The Auditor of State shall charge and collect from such foreign corporation, association or society, for filing the statements and other papers and issuing the certificates required to be filed and issued by this act, the same fees as are charged and collected from insurance companies doing business in this State, and are chartered and incorporated under the laws, of the State in which such foreign corpora- tion, association or society is incorporated. (Id. § 4969). Section 8. Any person or persons, who, either directly or indi- rectly, shall solicit subscriptions to the capital stock of any such foreign corporation, association or society, or act as agent or officer for any such foreign corporation, association or society, or solicit any business of any nature for it without first procuring the certificate required in Section One of this act, shall be deemed guilty of a misdemeanor, and upon conviction thereof shall be fined in any sum not less than five hundred dollars ($500) nor more than one thousand ($1,000) to which may be added imprisonment in the county jail not exceeding thirty days. (Id. § 4970). AN ACT Regulating foreign investment companies. (H. 521. Approved March 11, 1901. Acts 1901, Ch. 238) Section 1. Be it enacted by the General Assembly of the State of Indiana, It shall be unlawful for any person, firm, joint stock com- pany or corporation organized under the laws of any State, Territory or the District of Columbia other than the State of Indiana or any 222 INDIANA government foreign to the government of the United States, to conduct or engage directly or indirectly, in the business of selling its stock, bonds, " contracts, shares, memberships or agreements of any kind, re- ceiving therefor payments on the installment plan, without first procur- ing from the Auditor of State a certificate of authority. Before such Auditor shall issue such certificate of authority, the person, firm, joint stock company or corporation shall file in his office a statement, under oath of its president and secretary, or one of the firm, if a firm, show- ing the name and location of such person, firm, joint stock company or corporation, the names of the officers of such firm, joint stock com- pany or corporation, the date of incorporation thereof, if incorporated, and the amount of the assets and liabilities, and such other information concerning their respective plans of doing business as. shall be pre-" scribed by said Auditor of State. If it shall appear from said state- ment that said person, firm, joint stock company or corporation is doing a safe and legitimate business, and that it is in a solvent condition, then said Auditor may issue his certificate authorizing said person, firm, joint stock company or corporation to transact business in this State for the then current calendar year: Provided, If it appear from the statements and plans, of business of said person, firm, joint sto(;k com- pany or corporation that it permits forfeitures of payment by members, or persons holding its stocks, bonds, contracts or agreements, or pro- vides for the payment of its expenses other than from earnings, or pro- vides for the payment to any member, share holder, certificate holder or bond holder, or to any class of members, share holders, certificate holders or bond holders, or any profit, advantage or compensation of any form or description other than that received by all o'her members, share, certificate or bond holders of the same cfess, and under like con- ditions and the investment of a like amount of money; or, if beneficiaries are determined, selected or advantage given to one over the other by any form of lottery, chance or hazard, then such firm, joint stock com- pany or corporation shall not be authorized to transact business in this State; and if any such firm, joint stock company or corporation engages in any such business, it shall immediately cease doing business in the State. (Burns, Ann. St., § 4971). Section 2. Annually thereafter, during the month of January in each year, every such firm, joint stock company or corporat'on shall file with the Auditor of State a statement showing its condition on De- cember 31, of the previous year. Such statement shall be in the form prescribed by the Auditor of State. If it appears from such statement that such person, firm, joint stock company or corporation is still doing a safe business and is solvent, then said Auditor may is'=ue his certifi- cate authorizing it to transact business in said State until December 31 of said year. If, at any time, it shall appear that such person, firm, joint stock company or corporation is doing an unsafe business, or is INDIANA 223 insolvent, said Auditor of State may revoke said certificate of authority. (Id. § 4972). Section 3. Said firm, joint stock company or corporation shall, at all times, be subject to examination by the Auditor of State, or iO.ne person appointed by him. Said examination shall be at the expense of said firm, joint stock company or corporation, and refusal to permit said examination shall be cause for revocation of its authority to do business in the State. (Id. § 4973). Section 4. Any person who shall act as agent for such person, firm, joint stock company or corporation, or solicit business of any nature for it before it shall be authorized to do business in said State, shall be deemed guilty of a misdemeanor, and upon conviction thereof, shall be fined in any sum not less than fifty dollars nor more than five hundred dollars; to which may be added imprisonment in tTie county jail not exceeding thirty days. (Id. § 4974). Section 5. Every such person, firm, joint stock company or cor- psration shall pay to the State for license fee for a certificate of au- thority to do business in the State, as herein provided, the sum of one hundred dollars annually, and a further license fee of five dollars for each agent; and every such person, company, firm or corporalion, prior to the receipt of its certificate of authority, shall deposit with the Auditor of State the sum of fifty thousand dollars in securities of the same character as those required to be deposited by foreign life insurance companies. (Id. § 4975). 224 IOWA IOWA STATUTES Law Relating to Stocks, Bonds and Securities CONTENTS. Sec. 1. Repeals Chap. 13-B, Title IX — enacts substitute therefor — securing permit. Sec. 2. Exemptions. Sec. 3. What to file — papers verified. Sec. 4. Fees — for filing — annual fees. Sec. 5. Secretary of State keep account of fees — report to governor and legislature. Sec. 6. Resolution authorizing service of process. Sec. 7. Statements examined —^conditions foT granting or refusing permit. Sec. 8. Changes in articles or plan of business — approval of. Sec. 9. Annual report filed — when — pay annual fee. Sec. 10, Failure to file annual reports — penalty — collection of. Sec. 11. Accounts how kept — subject to examination — fees for. Sec. 12. Permit cancelled — when. Sec. 13. Fees accounted for — compensation of clerks fixed by executive council. Sec. 14. Bona fide owner of stocks — may sell — conditions. Sec. 15. Form of permit. Sec. 16. Agents — license for — how secured. Sec. 17. Brokers — fees for — give bond. Sec. 18. Appeal to executive council — when and how made. Sec. 19. Supersedeas in appeal ^ when and how. Sec. 20. Penalty for false statement. Sec. 21. Penalty for sale without permit. Sec. 22. False statement — misdemeanor — penalty. Sec. 23. Decision of courts — effect. Sec. 24. Publication clause. AN ACT To repeal the law as it appears in chapter (13-B), title IX, Supple- ment to the Code, 1913, and to enact a substitute therefor, to prevent fraud in the sale and disposition of stocks, bonds and other securities within this state, by requiring an inspection of such stocks, bonds and other securities, and an inspection of the business of such persons, firms, associations, companies or corporations, including their agents and representatives, and the payment of an inspection fee. IOWA ■ 225 Be it enacted by the General Assembly of the State of Iowa: Section 1. That the law as it appears in chap. 13-B, title IX, sup- plement to the code, 1913, be and the same is hereby repealed, and the following enacted in lieu thereof : Every person, firm, association, company or corporation that shall either directly or through representatives or agents, sell, offer or nego- tiate for sale, within this state, any stocks, bonds or other securities, shall be subject to the provisions of this act, except as herein otherwise pro- vided; and shall, before doing or offering to do any such business in this state, be required to secure a permit of the secretary of state of the state of Iowa. Section 2. The provisions of this act shall not apply to — (a) Securities of this state, or of the United States, or of any state or territory thereof, or of any foreign government, or of any dis- trict, county, township, city, town or other public taxing subdivision of any state or territory of the United States, including all drainage, county, school or other municipal bonds of this state; (b) Securities of state, savings or national banks of any state or territory of the United States, or of trust companies or building and loan associations of this state, including the unsecured commercial paper of such institutions; (c) Securities of public or quasi-public corporations, the issue, of which securities is regulated by any public board or commission now or hereafter created by the laws of this state ; (d) Promissory notes and the mortgages, contracts, collateral or other things, if any, securing the same, when said notes and secarities have, in a bona fide way, been issued, given or acquired in the ordinary course of legitimate business, trade or commerce. (e) The stock of any corporation organized under the laws of this or any other state or territory of the United States, or of the federal government, provided that under the laws of such state or territory or federal government no capital stock of a corporation can be legally issued unless the par value of said stock is paid for in full in either cash or property at its actual value before the issuance of such stock and where all property and any other thing given in exchange for such stock other than cash must be valued at not more than its actual cash value by some duly appointed officer or commission of such state, territory or federal government under the laws of which such corporation is organized and where such stock has been issued in accordance with the provisions of such laws. (f) The sale of stocks, bonds or other securities at judicial sale or by administrators or executors. Section 3. Before any person, firm, association, company or corpo- ration, subject to the provisions of this act, shall secure a permit from 16 226 IOWA the secretary of state of the state of Iowa to sell, offer or negotiate for sale any stocks, bonds or other securities, in this state, such person, firm, association, company or -corporation shall pay to the secretary of state of the state of Iowa a filing fee of $2.00 and an annual inspection fee of $20.00 and file in the office of said secretary of state the following papers and documents, to-wit: 1. A copy of its constitution and by-laws, or articles of co-partner- ship or association. 2. An itemized statement of its actual financial condition and the amount of its properties and liabilities. 3. A statement showing in full detail the plan upon which it pro- poses to transact business. 4. A copy of all bonds or other securities which it proposes to make with or sell to its contributors, including the price at which such stocks, bonds or other securities are to be sold or offered for sale. 5. Sample copies of all literature or advertising matter used or to be used by such person, firm, association, company or corporation. 6. A statement showing the name and location of its principal office of business and the names and addresses of its officers and directors. 7. If said person, firm, association, company or corporation is chartered to do business under the laws of any other state or territory than the state of Iowa, it shall file a copy of its charter or other instru- ment or documents authorizing it to do business in said state or territory, which copy shall bear the certificate of the secretary of state or other officer of such state having custody of such records to the effect that the same is a correct, true and complete copy of said charter or other instru- ment, together with the seal of such officer attached thereto, if such officer is possessed of a seal. All of the above described papers shall be verified by the oath, of the person receiving the permit, if the business is carried on by an individual, or by the oath of a member of a co-partnership or association, or by the president and secretary of a corporation, if the concern be incorporated; provided, however, that the secretary of state may, if in his judgment it becomes necessary in order to prevent fraud in the sale of any stocks, bonds or other securities in this state, require of such person, firm, asso- ciation or corporation, or any of the officers, agents or representatives thereof, additional information in the form of reports or otherwise, duly verified. Section 4. If any person, firm, association, company or corporation, subject to the provisions of this act, desires to transact business in this state and does not desire to pay the annual inspection fee of twenty dol- lars ($20.00) by reason of the limited amount of business to be transacted, or otherwise, said person, firm, association, company or corporation shall have the option of paying to the secretary of state the filing fee of two IOWA 227 dollars incident to the cost of filing and recording said papers and docu- ments and an inspection fee of one-tenth of one per cent upon the face value of the securities for the sale of which application is made to the secretary of state of the state of Iowa ; provided further, however, that any person, firm, association, company or corporation, paying the inspec- tion fee of one-tenth of one per cent upon the face value of the secur.ties which it is proposed to sell within the state of Iowa, shall not be required to pay in the aggregate more than twenty dollars ($20.00) inspection fees to the said secretary of state in any one year. Section 5. The secretary of state shall keep an accurate account of all moneys received from each person, firm, association, company or corporation as filing and inspection fees under the provisions of this act, and a record of all money expended in the enforcement of the provisions of this act, and at the end of the biennial period a report shall be made to the governor and legislature showing the amount of fees received and the amount of the money expended in the administration of this act, and if from said report it shall appear that the inspection fees are in sub- stantial excess of the cost of inspection and all expenses incidental thereto, the succeeding legislature shall then reduce the amount of said inspection fees in proportion to the amount of such excess collected hereunder. Section 6. Every non-resident person, firm, association, company or corporation subject to the provisions of this act shall, before receiving a certificate as provided for in section 1 hereof, file in the office of the secretary of state an agreement in writing signed by the person re- ceiving the permit, if the business is to be carried on by an individual, and by the signature of a member of a co-partnership or company, if it be a co-partnership or company, and by the signatures of the president and secretary of the incorporated or unincorporated company or asso- ciation, if it be a company or association, authenticated by the seal of said company, if possessed of a seal, and shall be accompanied by a duly certified copy of the order or resolution of the board of directors, trustees or managers of the corporation, authorizing the said president and secretary to execute the same ; that thereafter service of notice of any action or process of any kind against such non-resident person, firm, association, company or corporation, growing out of the transaction of ahy business of said person, firm, association, company or corporation in this state may be made on the secretary of state of the state of Iowa, and when so made, such service of notice or process of any kind shall be valid, binding and effective for all purposes as if served upon said non-resident person, firm, association, company or corporation accord- ing to the laws of this or any other state, and waiving all claims or rig'ht to claim error by reason of such acknowledgment of service. Such notice or process, with a copy thereof, shall be mailed to the secretary of state of the state of Iowa at Des Moines, Iowa, in a registered letter 228 IOWA addressed to him by his official title, and he shall immediately upon its receipt acknowledge service thereon on behalf of the non-resident per- son, firm, association, company or corporation to which the same is directed by writing thereon, giving the date thereof, and shall imme- diately return such notice or process in a registered letter to the clerk of the court in which the suit is pending, addressed to him by his official title, and shall also forthwith mail such copy, with a copy of his acknowledgment of service written thereon, in a registered letter ad- dressed to each person, firm, association or corporation who shall be named or designated as defendant in such written instrument. Section 7. It shall be the duty of the secretary of state to examine the statements and documents so filed in his office and secure such further information as he deems necessary, if any, and if from such examination of all papers and documents submitted to him and from such other information as he may obtain, he finds that the sale within this state of stocks, bonds or other securities by any such person, firm, company, association or corporation would work a fraud upon the pur- chasers thereof, then and in that event he shall refuse to grant such per- mit; otherwise he shall grant such permit. Section 8. Every person, firm, association, company or corporation having submitted to said secretary of state a detailed plan of its busi- ness, together with such other information required by section 3 of this act, and thereafter desiring to change its articles of association or in- corporation or its proposed plan of business, or its proposed contract, the character of its securities or method of advertisement, shall, before such change is made, submit the same to the secretary of state of the state of Iowa, in writing, showing in full detail the new plan of trans- acting business, together with all changes made either in articles of association or corporation, by-laws, plan of business, proposed contract, or in the character of securities, and if the secretary of state after ex- amination shall find that the proposed change will not work a fraud upon the purchasers of its stocks, bonds or other securities in this state, then he shall approve the same; otherwise he shall refuse to approve such change or amendment and require such a modification thereof as may be necessary to protect the people of this state against fraud, and if and in the event such person, firm, association, company or corpora- tion submitting such proposed change shall refuse to so modify the plan of his business, including the character of the securities sold, as to conform to the requirements of the secretary of state and to the end that no fraud may be perpetrated upon the purchasers of the stocks, boftds or other securities sold in this state, then said secretary of state shall be required and he is hereby directed to cancel the permit of said person, firm, association, company or corporation, and said person, firm, association, company or corporation shall be denied the right to transact business in this state, unless and until said person, firm, association, IOWA ■ 229 company or corporation shall so modify and change its business that the transaction of business in this state will not work a fraud upon the purchasers thereof. Section 9. Every person, firm, association, company or corporation doing business within this state pursuant to the provisions of this act shall, on or before December 31st of each year, or at such time as they make their annual statement to their directors, but not less than once each year, file with the secretary of state a statement properly verified by the officers of said company, if a company or corporation, or by a member of a partnership, if a firm or co-partnership, or by the owner of said business, if the same is transacted by an ifidividual, which state- ment shall set forth its financial condition, the amount of its assets and liabilities and such other information concerning its financial affairs or its plan of business, including the character of securities sold, as the secretary of state may require in order to determine whether said person, firm, association, company or corporation is doing a legitimate and honest business within this state. Said statement shall be for the in- formation of the secretary of state, the attorney general or any public officer who may be interested in an official way in receiving said infor- mation and shall not be open to public inspection, nor shall it be pub- lished or used for private purposes, but may be used in an official, legit- imate way if need be. Said annual statement shall be accompanied by an annual inspection fee of twenty dollars for the year next succeeding ; provided, however, that any person not desiring to pay the annual in- spection fee of twenty dollars may pay the inspection fee of one-tenth of one per cent on the amount of securities proposed to be sold as provided under the terms and conditions set forth in sections 3 and 4 of this act. Section 10. Any person, firm, association, company or corporation failing to file said statement for the preceding year, or failing to pay the inspection fee as provided by this act, shall, in addition to the crim- inal punishment otherwise imposed in this act, be liable to a penalty of ten dollars per day for each and every day which said person, firm, asso- ciation, company or corporation transacts business in this state in vio- lation of the provisions of this act. Said penalty may be collected by a suit in the name of the state of Iowa upon the relation of the attorney general, instituted in any court of competent jurisdiction, and when col- lected shall be paid over to the secretary of state who shall cover the same into the general revenues of the state. Section 11. The general accounts of every person, firm, association, company or corporation doing business in this state pursuant to the pro- visions of this act shall be kept in a business-like and intelligent m-nner and in sufficient detail that the secretary of state can ascertain at any time upon inspection and examination its financial condition, and any person, firm, association, company or corporation engaged in the busi- 230 IOWA ness of buying or selling stocks, bonds or other securities and subject to the provisions of this act, shall keep its books of account during business hours, except Sundays and legal holidays, open to its members, stock- holders and investors and to the secretary of state or his duly authorized agents or representatives, and the said secretary of state shall have the right to make an examination and inspection of the books, accounts and financial condition of any such person, firm, association, company or cor- poration engaged in the business of dealing in stocks, bonds and other securities pursuant to the provisions of this act. The right, powers and privileges of the secretary of state in connection with such examination shall be the same as is now provided with reference to examination of state and savings banks, and such person, firm, association, company or corporation so examined shall pay a fee to the secretary of state for each of such examinations not to exceed six dollars per day, or fraction thereof, spent by said secretary of state or his duly authorized repre- sentative while absent from the seat of government in making such ex- amination, and shall further pay the actual traveling and hotel expenses of said examiner. Upon failure or refusal of any person, firm, associa- tion, company or corporation to pay the fees required by this act. upon the demand of the secretary of state or his duly authorized representa- tive, the secretary of state may suspend its right to sell, offer or nego- tiate for sale any of its stocks, bonds or other securities in this state until such fee or fees are paid. Section 12. If from such examination it shall appear that said person, firm, association, company or corporation is doing an illegitimate and fraudulent business in this state, that its plan of business is fraud- ulent or that the sale of its stocks, bonds, or other securities would work a fraud upon the purchasers in this state, said secretary of state shall have the right to cancel the certificate of such person, firm, association, company, or corporation,, and deny it the right to further transact busi- ness in this state until it changes its plan of business, including the character of its securities, so that the citizens and residents of this state or others dealing with it therein shall not be defrauded thereby. Section 13. All fees herein provided for shall be collected by the secretary of state and by him covered into the state treasury on the first secular day of each month; and the secretary of state shall keep a record of the receipts and expenditures incurred in carrying out the provisions of this act. The secretary of state is hereby authorized to appoint such clerks and deputies as the executive council deems actually necessary to carry this act into full force and effect. The compensation of such clerks and deputies shall be fixed by the executive council. Before the salary and expenses of any such clerk or deputy shall be paid, a detailed an 9th. That the following is a statement showing in full detail the plan upon which the company is doing and intends to do business, and the purposes for which said securities are to be sold : 10th. That it has adopted the following plan for the sale of its stock : nth. That attached hereto, marked Exhibit E, are true copies of all contracts, bonds or other securities it desires to sell, or make with its contributors, together with a true copy of its subscription blank, and all other blanks used in connection therewith. 12th. That attached hereto, marked Exhibit F, is a true and com- plete copy of its by-laws and articles of incorporation. 13th That attached hereto, marked Exhibit G, is a true and com- plete copy of its charter, further certified to as being a true copy by the recording officer of the state under which it is incorporated. 244 IOWA 14th. That attached hereto, marked Exhibit H is the written irre- vocable consent for service of process as provided in House File No. 351 of the acts of the Thirty-sixth General Assembly. 15th. That attached hereto, marked Exhibit I, is a certified copy of the resolution passed by its board of directors, authorizing the execution of the blank designated as Exhibit H. 16th. That attached hereto, marked Exhibit J, are true copies of all literature or advertising matter used or to be used by such investment company. Form 4 17th. That the following is a true statement in regard to its officers and directors : Address. Number Shares and Bonds O-wned. < u S l-> s. >, ll nt if 5 E Name. O U T3 a o 4 President, Vice President, • Secretary, Treasurer, General Manager, Trustees and Directors: 1. 2. ?■ 4. . 6. 6. 7. 8. 9. 10. IOWA 245 18th. That its securities will be sold for the following named prices and on the following terms, and will not be sold at any other price or on any other terms without the consent of the Secretary of State : 19th. That the stocks, bonds or securities offered for sale in the State of Iowa, are not fraudulent, nor likely to work a fraud on the pur- chasers thereof. 20th. That attached hereto, marked Exhibit K, is a true and com- plete copy of each contract or agreement, made or which will be made, with any person, officer, agent or other representative of this company for the sale of its stock; and that there are no agreements, understand- ings or contracts, either verbal, written or implied, by which any one has received, or is to receive, any cash, stock, securities or other compensa- tion for the sale of its securities, for its promotion, or for any other causes except as specified in this application and its several exhibits at- tached, and that all of the stock securities of this company will be sold or disposed of for cash or its equivalent, as provided in the contracts or agreements attached, except as herein excepted. Remarks NOTE — Please give at least four references as to the character, responsibility and financial standing of each director. Also eight references as to the company itself. Wherefore, your petitioner, in view of the showing herein made, does respectfully pray that authority be granted it to sell, its securities as follows : $ Common Stock, $ Preferred Stock, $ Bonds, and $ ' other securities, in accordance with the provisions of the above mentioned law. In Testimony Whereof, We have hereunto set our hands and af- fixed the official seal of this company, this the day of 19 Company By President. Attest Secretary. STATE OF , COUNTY OF , ss. President, and ! Secretary of the Company, of of lawful age, being first duly sworn, depose and say that they have each 246 IOWA read the foregoing application and know the contents thereof, and that the statements and allegations therein contained and attached are true. President. Secretary. Subscribed and sworn to before me by and on this the. . . .day of 19,.... (My commission expires ) Form 5 RESOLUTION BY The of Notary Public. , 191.... At a meeting of the Directors of of duly held at the office of said com- pany, on the day of 191 the following resolution was adopted: Resolved, That the President and Secretary of this be and they are hereby authorized and instructed to execute the written consent thereof to be sued in the State of Iowa, in the manner provided in House File No. 351 of the Acts of the Thirty-sixth General Assembly of the State of Iowa. State of ) V ss. County of ". I . I, being duly sworn, on my oath, depose and say : That I am Secretary of the of and that the foregoing is a true and cor- rect copy of a resolution adopted by the board of Directors of said on the day of 191 , together with the minutes concerning said resolution. Secretary. Subscribed and sworn to before me, this •. day of 191.... Notary Pi*bKc. My commission expires '. , 191 .... IOWA 247 Form 6 Know All Men by These Presents : That the '. a corporation organized under the laws of the State of . . . ■ and with its principal office at in said state, hereby consents, without power of revocation, that actions or process may be commenced against it, the said in the proper court of any county in the State of Iowa in which cause of action against such corporation may arise, or may have heretofore arisen growing out of the transaction of any business of said company in the State of Iowa, or in which plaintiff, or any of plaintiffs, if more than one, may reside, by service of process on the Secretary of State of the State of Iowa ; and the said corporation stipulates and agrees that such service shall be taken and held in all courts to be as -valid and binding as if due service had been made upon the president or any other chief officer of said corpora- tion. In Witness Whereof, said corporation has caused these presents to be executed by its President and its Secretary, and authenticated by its corporate seal at , in said State of , this day of , A. D. 191.... Attest : President. Secretary. Form 7 To the Secretary of State, Bond and Investment Dept., Des Moines, Iowa. Dear i'lR : — The undersigned, having made application and been granted authority to sell its securities in the State of Iowa, hereby desires to register the following as its duly authorized agents in said state, as provided for by House File No. 351, Acts of the 36th General Assembly and hereby requesting licenses to be issued for the sale of its stocks, bonds and securities in the State of Iowa. Name of Agent. Address. 248 IOWA Enclosed find for $ in payment of registration as above set out (Fee $1.00 for each agent). Respectfully, Dated at ; on 19.... KANSAS 249 KANSAS STATUTES "Blue Sky" Law (Chapter 164, Session Laws 1915.) AN ACT To prevent unfairness, imposition or fraud in the sale or disposition of certain "securities" herein defined by requiring an inspection thereof, providing for such inspection, supervision and regula- tion of the business of any person, association, partnership, or corporation, engaged or intending to engage, whether as prin- cipal, broker or agent, in the sale of any such securities in the state of Kansas, as may be necessary to prevent unfairness, im- position or fraud in the sale or disposition of said securities, and prescribing penalties for the violation thereof and repeal- ing chapter 133 of the Session Laws of 1911 and chapter 141 of the Session Laws of 1913. Be it enacted by the Legislature of the State of Kansas: Section 9458. The term "securities" as used in this act shall be taken to mean stock certificates, shares, bonds, debentures, certificates of participation, contracts, contracts or bonds for the sale and conveyance of lan4 on deferred payments or installment plan, or other instruments in the nature thereof by whatsoever name known or called. The term "speculative securities" as used in this act shall be taken to mean and include, (1)) All securities to promote or induce the sale of which, projfit, gain qr-advantage unusual in the ordinary course of legitimate business is in any way advertised or promised; (2) All securities for promoting the sale of which a commission of more than five per cent is offered or paid; (3) All securities into the specified par value of which the element of chance or hazard of speculative profit or possible loss equal or predom- inate oyer the elements of reasonable certainty, safety, and investment; (4) All securities the value of which materially depends on proposed or promised future promotion or development rather than qn present tangible assets and conditions; (5) The securities of any enterprise, association, partnership or corporation which has included or proposes to include in its assets as a material part thereof, patents, formulae, good-will, promo- tion, or intangible assets, or which has issued or proposes to issue a material p^rt of its securities in payment for formulae, patents, good-will, promotion or intangible assets; (6) Securities made or issued in further- ance or promotion of any enterprise or scheme for the sale of unim- proved or undeveloped land on any deferred payments or installmeijt 250 KANSAS plan, when such lands are not situated in the state of Kansas and the value of such securities materially depends on the future performance of any stipulation by the promoters of such enterprise to furnish irrigation or transportation facilities, or other value enhancing utility or improve- ment. The term ''speculative enterprise" as used in this act shall be taken to mean any business undertaking, project, venture or activity for the promotion or furtherance of which "speculative securities" as herein defined are made, issued, sold, or offered for sale. Section 9459. It shall be hereafter unlawful for any person, co- partnership, association, or corporation, hereinafter called the promoter, either as principal, or through brokers or agents, to sell or offer for sale or by means of any advertisements, circulars, or prospectus, or by any other form of public offering, to attempt to promote the sale of any speculative securities in this state, unless there first shall have been filed with the bank commissioner: (1) A copy of the securities so to be promoted; (2) A statement in substantial detail of the assets and liabil- ities of the person or company making and issuing such securities and of any person or company guaranteeing the same, including specifically the total amount of such securities and of any securities prior thereto in in- terest or lien, authorized or issued by any such person or company; (3) If such securities are secured by mortgage or other lien, a copy of such mortgage or of the instrument creating such lien, and a competent ap- praisal or valuation of the property covered thereby, with a specific state- ment of all prior liens thereon if any; (4) A full statement of facts show- ing the gross and net earnings, actual or estimated, of any person or company making and issuing or guaranteeing such securities, or of any property covered by any such mortgage or lien; (5) All knowledge or information in the possession of such promoter relative to the character or value of such securities, or of the property or earning power of the person or company making and issuing or guaranteeing the same; (6) A copy of any general or public prospectus or advertising matter which is to be used in connection with such promotion, and no such prospectus or advertising matter shall be used unless the same has been filed here- under; (7) The names, addresses and selling territory in this state of any agents by or through whom any such securities are to be sold, and no such agents shall be employed unless such statement with respect to them has been filed hereunder, and there shall have been paid to the bank commissioner a registration fee of one dollar for each such agent. The payment of such fee shall be payment in full of all fees for registration of such agent until and including the first day of March next following; (8) The name and address of such promoter, including the names and addresses of all partners, if the promoter be a partnership, and the names and addresses of the directors or trustees, and of any person own- ing ten per centum, or more, of the capital stock, if the promoter be a corporation or association; (9) A statement showing in detail the plan on which the business or enterprise is to be conducted; (10) The articles KANSAS 251 of co-partnership or association, and all other papers pertaining to its organization, if the securities be insured or guaranteed by a co-partnership or unincorporated association; (11) A copy of its charter and' by-laws if the securities be issued or guaranteed by a corporation; (12) A filing fee of twenty-five ($25.00) dollars. Section 9460. Every foreign corporation before selling or offer- ing for sale any speculative securities, in this state shall also file its written consent, irrevocable, that actions may be commenced against it in the proper courts of any county in this state in which a cause of action may arise, by the service of process on the secretary of state, and stipulating and agreeing that such service of process on the secre- tary of state shall be taken and held in all courts, to be as valid and binding as if due service had been made upon the company itself, according to the laws of this or any other state, and such instrument shall be authenticated by the seal of said foreign corporation, and shall be accompanied by a duly certified copy of the order or resolution of the board of directors, trustees, or managers of the corporation author- izing the said secretary and president to execute the same. Section 9461. It shall be the duty of the bank commissioner as soon as is practical, to examine the statement and documents so filed and if said bank commissioner shall deem it advisable, he shall make, or have made, a detailed inspection, examination, audit and investiga- tion of the affairs of the makers or guarantors of such securities which said inspection, examination, audit, and investigation shall be at the promoter's expense. As a part of the aforesaid inspection, examination, audit and investigation, the bank commissioner may cause an appraisal to be made of the property of the maker or guarantor, including the value of patents, formulae, good-will, promotion, and intangible assets and shall furnish a full and complete statement or report of his inspec- tion and investigation aforesaid to the Charter Board. The Charter Board shall, within ten days thereafter, examine the statements or re- port, and give the promoter a hearing if he so desires. If the Charter Board finds no legal objection to the enterprise, or securities, it shall direct the bank commissioner to note in a book to be kept for [by] the bank commissioner for that purpose that said person,- co-partnership, association or corporation has complied with section 2 (9469) of this act. But if, from the statements, papers and documents on file, and the in- vestigations and report of the bank commissioner, or from other evidence submitted, it shall appear, and the Charter Board shall find (1) that the makers or guarantors of said securities are insolvent, in failing cir- cumstances, or are untrustworthy; (2) or that the promoters' plan of business is unfair, inequitable, dishonest, or fraudulent; (3) or that the promoters' plan of business does not adequately secure investors against the unlawful dissipation or misapplication of the funds of the enterprise or business; (4) or that the promoters' literature or adver- 252 KANSAS tising is misleading and caJculated to deceive purchasers or investors; (5) or tliat the securities offered, or to be offered, or issued, or to be issued, in payment for property, patents, formulae, good-will, or promo- tion and intangible assets in excess of the reasonable value thereof; (6) or that the enterprise or business of the promoter is unlawful or against public policy; (7) or is a mere scheme of a promoter or promoters to get rick quick at the expense of the purchasers of the aforesaid securities; the said Charter Board shall reduce its said findings to writing and attest the same by the signature of the chairman and secretary thereof. Notice of such finding, or findings, shall immediately be given to the applicant by registered mail. And it shall thereafter be unlawful for the promoter or any broker or agent of said promoter to sell, offer for sale, or by means of any advertisement, circular, or prospectus, or by any other form of public offering to attempt to promote the sale of any such speculative security or securities in this state. Section 94<)2. The Charter Board shall at any time have the au- thority and jurisdiction to investigate the affairs of any speculative enter- prise, the securities of which are being sold or offered for sale in this state, and after giving the promoter a hearing, may if the evidence war- rant, make any of the adverse findings' enumerated in section 9461 of this act, and it shall thereafter be unlawful for any person, co-partner- ship, association or corporation to sell, offer for sale, or by means of any advertisement, circular, or prospectus or by any form of public offer- ing to attempt to promote the sale of the securities of such speculative enterprise in this state. ; Section 9463. Any person, co-partnership, association or corpora- tion being dissatisfied with any finding or findings of the Charter Board made in accordance with the provisions of this act, may within thirty days from the making thereof commence an action in any court of competent jurisdiction against said Charter Board as defendant, to vacate and set aside said finding or findin<3;s on the ground that the said findings are unjust or unreasonable. The rules of pleading and procedure in such action shall be the same as are provided by law for the trial of equitable actions in the district courts of this state and on the hearing the jud^e of said court may set aside, modify, or confirm said findings as the evidence and the rules of equity may require. Appeals may be taken from the decision of the district court to the supreme court by either party in the same manner as is provided by law in other civil actions. Pending any such action, the said findings of said Charter Board shall be prima facie evidence that they are just and reasonable and that the facts found are true, and pending any such action the said finding of the Charter Board shall remain in full force and effect. If no action be brought to set aside said findings within thirty days, the same shall be- come final and binding. Section 9464. No amendment of the charter, articles of incorpora- tion, constitution or by-laws of any such corporation or the articles of KANSAS . 253 association or by-laws of any unincorporated association subject to this act, shall become operative until a copy of the same has been filed with the bank commissioner as provided in regard to the original filmg of charters, articles of incorporation, or association, constitution and by- laws, and it shall be unlawful for any such person, co-partnership, as- sociation or corporation to transact business on any other plan than that set forth in the statement required to be filed by section 2 (9459) of this act, or to make, issue, sell or offer for sale any "security" or "securities" required to be filed by section 2 (9459) of this act, until a written state- ment showing in full detail the proposed new plan of transacting business and a copy of the proposed new "security" or "securiLies" shall have been filed with the bank commissioner, in like manner as provided in regard to the original plan of business and proposed "security" or "securities." Section 9465. The provisions pi this act shall not apply to (a) Securities of the United States ; or any foreign government ; or of any state, or territory ; or of any county, city, township, district or other public taxing sub-division of any state or territory of the United States or any foreign government. (6) Securities of public or quasi-public corpora- tions, the issues of which are regulated by the Public Utilities Commis- sion of the state of Kansas, or by the public service commission or board of similar authority of any state or territory of the United States; or securities senior thereto, (c) Securities of state or national banks or trust companies, mortgage companies dealing exclusively in bona fide mortgages on farm and city real estate, or building and loan associations authorized by the Charter Board to do business in this state, (d) Se- curities of any domestic corporation organized without capital stock, for religious, charitable or reformatory purposes. Section 9466. The general accounts of every person, copartnership, association or corporation, issuing or guaranteeing any securities subject to the provisions of this act, shall be kept in a business-like and intelligent manner and in sufficient detail so that the bank commissioner or his authorized representative can ascertain at any time the financial condition of such person, co-partnership, association or corporation, and the books of account and affairs of any such person, co-partnership, association or corporation, shall be subject to examination by the said bank commis- sioner or upon his direction by his assistants, accountants or examiners, at any time said bank commissioner shall deem it advisable, and in the same manner as is now provided for the examination of state banks; and such person, co-partnership, association or corporation shall pay a fee for each of such examinations, of not to exceed fifteen dollars ($ 5.00) for each day or fraction thereof, plus the actual traveling and hotel ex- penses of said bank commissioner, assistant, accountant, or examiner, that he is absent from the capital of the state for the purpose of making such examination. And it is provided further, that every person, co-partner- ship, association or corporation making or guaranteeing any securities 254 ., KANSAS subject to the provisions of this act, shall file at the close of business December 31st, March 31st, June 30th, and August 31st, of each year, and at such other times as may be required by the bank commissioner, a state- ment, certified by the oath of some person having actual knowledge of the facts therein stated, setting forth, in such form as may be prescribed by said bank commissioner the financial condition, amount of property and liabilities of such person, co-partnership, association or corporation and such other information as said bank commissioner may require. Each statement shall be accompanied by a filing fee of two dollars and fifty cents ($2.50). It shall be unlawful for any person, partnership, associa- tion, or corporation subject to the provisions of this act, failing or refus- ing to comply with the provisions of this section within ten days after compliance is required, to thereafter sell or offer for sale in this state any speculative stock which said person, partnership, association or corpora- tion is selling or offering for sale in this state. Section 9467. The bank commissioner shall have power upon reason- able notice either upon his own initiative or upon complaint of any re- sponsible person, to make or have made such special inspection or investi- gation as he may deem nedessary, in connection with the promotion, sale, disposal, or offering for sale or disposal in this state, of any certificates, shares, stocks, bonds, securities, contracts, or contracts or bonds for deeds, to determine whether the same constitute a violation of this act or any other statute of this state, by any individual, co-partnership, cor- poration, or association, promoting, offering, selling or pledging the same ; and the state bank commissioner, his assistants or deputy shall have the power to issue subpoenas and process compelling the attendance of any per- son and the production of any papers or books for the purposes of such investigation and examination, and shall have power to administer an oath to any person whose testimony may be required on such examina- tion or investigation ; and any person who shall refuse to obe> any such subprena or make answer to any competent and material question pro- pounded to him by the state bank commissioner shall upon conviction in any court of competent jurisdiction be deemed guilty of a misde- meanor, and fined in any sum not exceeding five hundred dollars ($500.00) or be punished by confinement in the county jail for not more than ninety days, or by both such fine and imprisonment. Upon the conclu- sion of any such investigation, the bank commissioner may make findings of fact touching the matter or matters under investigation, and such findings shall be prima facie evidence of the truth of the matters therein found by the bank commissioner in any action, either civil or criminal, instituted under any of the laws or statutes of this state against the person, persons, partnership, corporation or association. The notice herein provided for may be given by registered letter mailed to the last known address of person or persons or corporations to be investigated and the bank commissioner's certificate shall be sufficient evidence of such notice and the mailing thereof. KANSAS 255 Section 9468. Any persons who shall knowingly make or file or cause to be made or filed with the bank commissioner any statement, document, circular, advertisement or prospectus, required to be filed by this act, which is false in any material respect or matter, shall be deemed guilty of a felony, and on conviction in any court of competent jurisdic- tion punished by a fine of not less than one hundred dollars ($100.00) or more than five thousand dollars ($5,000), or by imprisonment in the state penitentiary for not less than one nor more than five years, or by both such fine and imprisonment. Section 9469. Any person, partnership, association or corporation who shall commit in this state any act declared unlawful by sections two, (9459), four, (9461), seven, (9464), or nine, (9466), of this act, shall be deemed guilty of a felony and on conviction in any court of competent jurisdiction be punished by a fine of not less than one hundred nor more than five thousand dollars, or by confinement in the Kansas state peni- tentiary for a term of not less than one nor more than seven years. Section 9470. This act shall not apply to the owner of any specu- lative security, who is not the maker or issuer thereof, who shall acquire and sell the same for his own account in the usual and ordinary course of business and not for the direct or indirect promotion of any enter- prise or scheme within the purview of this act, providing that such own- ership is in good faith. Repeated or successive sales of any such specu- lative security or securities shall be prima facie evidence that the claim of ownership is not bona fide, but is a mere shift or device to evade the provisions of this act. Section 9471. All fees herein provided for shall be collected by the bank commissioner and shall be turned into the state treasury, and the bank commissioner is hereby authorized to appoint a special assistant who shall have charge of the administration of this act under the direc- tion of the said bank commissioner, and who shall receive a salary of two thousand dollars ($2,000.00) per annum. The bank commissioner shall also have full power to employ such temporary assistants or clerks" as he may from time to time deem necessary, and fix their compensation, and all salaries and expenses necessarily incurred in the administration of this act shall be paid out of fees collected and turned into the state treasury under the provisions of this act and the acts hereby repealed, upon the presentation of itemized vouchers, duly verified, and having the approval of the bank commissioner. The auditor shall issue his war- rant on the state treasurer for such salaries and expenFes, and the sate treasurer shall pay the same out of said fees, and for that purpose the said fees are hereby appropriated for use during the fiscal years 1916 and 1917. Section 9472. In any case wherein the value of the securities or con- tracts hereinbefore enumerated are in any way dependent upon the present or proposed development of land or mines, oil or gas wells, the state 256 KANSAS bpai;4 of edi^cational administration shall, on the request of the hank com- missioner, cause such investigation thereof as the bank commissioner may desire to be made by experts ' from the appropriate departments of the State Agricultural College or State University, or both, as the case may be. Section 9473. Any person who shall knowingly or willfully sub- scribe to, or make, or cause to be made any false statements or false entry in any book of account of any person, co-partnership, association, or corporation, subject to the provisions of this act, or exhibit any false paper with intention of deceiving any person authorized to examine into the affairs of such person, co-partnership, association, or corporation, or shall make or publish any false statement of the financial condition of any person, co-partnership, association or corporation subject to the provisions of this act, or shall knowingly make any false statements ma- terially affecting the value of the stocks, bonds, or other securities of- fered for sale by any such person, co-partnership, association or corpora- tion, shall be deemed guilty of a felony and upon conviction thereof shall be fined not less than one hundred dollars nor more than five thousand dollars, or shall be imprisoned not less than one year nor more than ten years in the state penitentiary. Section 9474. Persons, partnerships, associations or corporations holding permits under the statutes hereby repealed shall be deemed to have complied with section 9459 of this act. Section 9475. Should the courts declare any section or clause of this act unconstitutional, then such decision shall affect only the section or clause so declared to be unconstitutional, and shall not affect any other section or part of this act. Section 9476. Chapter 133 of the Session Laws of 1911, and chap- ter 141 of the Session Laws of 1913 are hereby repealed. Section 9477. This act shall take effect and be in force from and after its publication in the official state paper. Published April 1, 1915. Amendments to Blue Sky LaAV AN ACT Amending sections 9458, 9459, 9461, 9482, 9470 and 9471 of the General Statutes of 1915, and repealing said original sections 9458, 9459, 9461, 9462, 9470 and 9471. Be it enacted by the Legislature of the State of Kansas: Section 1. That section 9458 of the General Statutes of 1915 be and the same is hereby amended so as to read as follows : Sec. 9458. The term ''securities" as used in this act shall be taken to mean stock certificates, shares, bonds, debentures, certificates of partici- KANSAS 257 pation, contracts, contracts or bonds for the sale and conveyance of land on deferred payments or installment plan, or other instruments in the nature thereof by whatsoever name known and called. The term •'speculative securities" as used in this act shall be taken to mean and include: (1) All securities to promote or induce the sale of which profit, gain or advantage imusual in the ordinary course of legitimate business is in any way advertised or promised ; (2) all securities for ' promoting the sale of which a commission of more than five percent is offered or paid; (3) all securities into the specified par value of which the element of chance or hazard, or speculative profit, or possible loss equals or predominates over the element of reasona:ble certainty, safety and investment; (4) all securities, the value of which materially de- pends on proposed or promised future promotion or development rather than upon present tangible assets or conditions; (5) all securities of any enterprise, association, partnership or corporation which has included or proposes to include in its assets as a material part thereof patents, formulae, good-will, promotion or any intangible assets, or which has issued or proposes to issue a material part of its securities in payment for formulae, patents, good-will, promotion, or intangible assets ; (6) all securities made or used in furtherance or promotion of any enterprise or scheme for the sale of unimproved or undeveloped land on any de- ferred payment or installment plan, when such lands are not situated in the state of Kansas ; (7k any undivided interest or certificate of par- ticipation based on any undivided interest in oil royalties or in oil leases, where the value of such undivided interest or certificate of participa- tion materially depends on proposed or promised future development : Provided, that this shall not apply to undivided interests or certificates based upon undivided interests in oil royalties or in oil leases where the interest or certificate based upon such interest offered for sale or sold to any one purchaser exceeds one-twenty-fifth of the whole royalty or oil lease; (8) securities made or offered or used in furtherance or promotion of any enterprise or scheme where the value of such securi- ties materially depends on the performance of any stipulation or agree- ment^ by the promoter or others to furnish irrigation, transportation facilities or other value enhancing utility or improvement. The term "speculative enterprise" as used in this act shall be taken to inean any business undertaking, venture or activity for the promotion or further- ance of which speculative securities as herein defined are made, issued, sold or offered for sale. Section 2. That section 9459 of the General Statutes of 1915 be and the same is hereby amended so as to read as' follows : Sec. 9459. It shall be unlawful hereafter for any person, co-partnership, association or corporation (hereinafter called the promoter), either as principal or through brokers or agents, to sell or offer for sale by means of any ad- 17 258 KANSAS vertisements, circulars, or prospectus, or by any other form of public offering, any speculative securities in this state unless there first shall have been filed with the bank commissioner and approved by him; (1) A copy of the securities so to be promoted; (2) a statement in sub- stantial detail of the assets and liabilities of the person or company making and issuing such securities and of any person or company guaran- teeing the same, including specifically the total amount bf such securi- ties and of any securities prior thereto in interest or lien authorized or issued by any such person or company; (3) the name of the fiscal agent, if any, who it is proposed shall handle the sale of such proposed securities, together with a statement of the financial standing of such fiscal agent; (4) if such securities are secured by mortgage or other lien, a copy of such mortgage or of the instrument creating such lien and a complete appraisal or valuation of the property covered thereby, with a specified statement of all prior liens thereon, if any; (5) a full statement of facts showing the gross and net earnings, actual or esti- mated, of any person or company making and issuing or guaranteeing such securities, or of any property covered by any such mortgage or lien ; (6) all knowledge or information in the possession of such promoter relative to the character or value of such , securities, or of the property or earning power of the person or company making and issuing or guaranteeing the same; (7) a copy of any general or public prospectus or advertising matter which is to be used i% connection with such pro- motion, and no such prospectus or advertising matter shall be used unless the same has been filed as herein provided; (8) the names, ad- dresses and selling territory in this state of any agents by or through whom any such securities are to be sold, and no such agents shall be employed unless such statement with respect to them has been filed hereunder, and there shall be paid to the bank commissioner a regis- tration fee of one dollar for each such agent. The payment of such fee shall be payment in full for all fees for registration of such agent until and including the first day of March next following; (9) the name and address of such promoter, including the names and addresses of all partners, if the promoter be a partnership, and the names and addresses of the directors or trustees and of any person owning ten per centum, or more, of the capital stock, if the promoter be a corporation or as- sociation; (10) a statement showing in detail the plan on which the busi- ness or enterprise is to be conducted; (11) the articles of co-partnership or association, and all other papers pertaining to its organization, if the securities be insured or guaranteed by a co-partnership or unincorporated association; (J.2) a copy of its charter and by-laws if the securities be issued or guaranteed by a corporation; (13) a filing fee of twenty-five dollars ; and in no event shall any speculative securities be sold or offered for sale until a permit shall have been issued as hereinafter provided. KANSAS 259 Section 3. That section 9461 of the General Statutes of 1915 be and the same is hereby amended so as to read as follows: Sec. 9461. It shall be the duty of the bank commissioner as soon as practicable to examine the statements and documents so filed, and if said bank com- missioner shall deem it advisable, he shall make, or have made, a de- tailed inspection, examination, audit and investigation of the affairs of the makers or guarantors of such security, which inspection, examina- tion, audit and investigation shall be at the promoter's expense, and the said bank commissioner shall have power and authority to call upon the makers or guarantors of such securities, or the persons seeking to or offering the same for sale, for such information as he may deem necessary, and a failure on the part of the person or persons so requested for information to furnish the same shall be considered as a withdrawal of the application for permission to sell or advertise such securities. As a part of the aforesaid inspection, examination, audit and investigation, the bank commissioner shall cause an appraisal to be made of the prop- erty of the maker or guarantors of such securities, which appraisal shall include the value of patents, formulae, good will, promotion, and in- tangible assets, if any, and said bank commissioner shall furnish a com- plete statement and record of his inspection, examination and investiga- tion, together with a copy of the appraisal aforesaid, to the said Char- ter Board. The appraisal hereinbefore provided for shall be made either by the bank commissioner in person or by his assistants or by some one duly appointed by said bank commissioner to make such appraisal, and said bank commissioner, if necessary, may appoint appraisers, not to exceed three in number, to make such appraisal, and such examiners and appraisers shall receive as compensation for their services a sum not to exceed fifteen dollars per day for the time actually employed in such examination and necessary expenses, which compensation and expenses shall be paid by the persons, company, partnership or association making application to such Charter Board. The Charter Board shall within ten days after the bank commissioner has made his report to it and has filed with the secretary of said board a copy of the appraisal as herein- before provided for, examine such statement, report and appraisal and shall give the promoter a hearing, if he so desire, and said Charter Board shall have power to make an independent investigation, inspec- tion and examination of the affiairs of the promoter making such appli- cation, and shall have power to investigate the personnel of the agent or agents through whom or by whom sai^ securities are to be handled or sold. It shall direct the bank commissioner to issue a permit au- thorizing the sale of such securities, which permit may be revoked at any time 'by the said Charter Board upon complaint made and after hearing as herein set out: Provided, that whenever the company making and issuing such securities or the company guaranteeing the same is a company whose business is under the supervision or control of one of the state departments, said permit shall not be effective until the same 260 KANSAS shall have been approved by the head of such state department : Pro- vided further, that upon complaint being made to the bank commissioner or to the Charter Board and notice being given to the bank commissioner of such complaint, said bank commissioner may forthwith suspend the order granting the permit pending a final hearing, and during such sus- pension no securities shall be sold or offered for sale. It shall be the duty of the bank commissioner upon issuing the order of suspension forthwith to notify the promoter or parties affected by such order, and to set a time and place for the hearing of such complaint by the said Charter Board, which hearing shall not be later than thirty days from the date of said order of suspension. It shall be sufficient notice to the promoter or parties interested of the complaint and of the order of suspension, if the bank co;mmissioner shall mail such notice to the ad- dress of such promoter or parties interesited as furnished at the time of the filing of the application. If the Charter Board, upon a full hearing, shall find that there are just grounds for the complaint made and that the promoter, -agents or other parties connected with tlie sale of the securities as representatives of the promoter, have violated any of the provisions of this act, or the orders of the Charter Board, or of the bank commissioner made under the provisions of this act, and within the scope thereof, said Charter Board shall make an order canceling the permit hereinbefore granted. The said Charter Board at the time of the granting of the permit as herein provided shall determine and fix the maximum amount that may be paid as and in the way of a com- mission for the sale of such securities, which amount shall include the cost of advertising, office expenses and all other expenses connected with the sale of such securities : Provided, that no permit as herein set out shall be granted by the said Charter Board for the sale of any securities where such securities are to be sold and handled on commission or for a consideration by any officer or director of the company handling such securities for sale, or officer or director of the company issuing or guaranteeing the same : .A.nd provided further, that before any permit shall issue by the bank commissioner under the order of the Charter Board as herein provided, all stock or securities of any kind issued or to be issued in payment of property, patents, formulae, good-will, pro- motion or intangible assets shall be deposited by the person to whom they are to be issued, or by the company or promoter issuing them, with the bank commissioner of the state of Kansas, to be held by him until the securities for the sale of which the permit has been granted shall have been sold, and until there sliall have been filed with the bank commis- sioner a statement under oath by the proper officer of any company or by the promoter, showing that the requirements made by the said Char- ter Board or by the bank commissioner have been met; that the securi- ties have been sold only in the way provided for in this act; and that there has been a full compliance with the provisions of this act and with the orders of the bank commissioner or the Charter Board, or KANSAS 261 both; and if it shall appear and the board shall find that said state- ments aire true and that there is no further reason why such promoter or company should continue under the control of the said bank commis- sioner, or Charter Board, or both, and that no good purpose would be served by said promoter or company remaining under the control of said Charter Board, or bank commissioner, or both, said Charter Board shall make an order canceling the permit theretofore issued and permitting the withdrawal of the securities held in escrow and their return to the parties depositing the same, and no assignment or transfer of such secu- rities in escrow shall be binding upon the bank commissioner unless approved by the said Charter Board. Section 4. That section 9462 of the General Statutes of 1915 be and the same is hereby amended so as to read as folows : Sec. 9462. If the Charter Board, from the statements, papers and documents on file, and from the investigation, appraisal and report of the bank commis- sioner, and from evidence furnished, or from its own investigation, shall find, (1) that the makers or guarantors of such securities are insolvent, or are in failing circumstances, or are not trustworthy; (2) that the pro- moter's plan of business is unfair, inequitable, dishonest or fraudulent; (3) that the promoter's plan of business does not adequately secure investors against the unlawful dissipation or misapplication of the funds of the enterprise or business; (4) that the promoter's literature or ad^ vertising is misleading and calculated to deceive purchasers' or investors; (.5) that the securities offered or to be offered, or issued or to be issued in payment for property, patents, formulae, good-will, promotion or in- tangible assets, are in excess of the reasonable value thereof; (6) that the enterprise or business of the promoter is unlawful or against public policy; (7) or is a mere scheme of the promoter or promoters to get rich quick at the expense of the purchasers of the aforesaid securities ; the said Charter Board shall reduce its findings to writing and attest the same by the signature of the chairman and secretary thereof, and shall refuse to issue a permit to the applicant or applicants for the sale of such securities, and it shall thereafter be unlawful for the promoter or any broker or agent of such promoter to sell or offer for sale by means of any advertisement or circular or prospectus, or by any other form of public offering to attempt to promote the sale of the securities of such specula- tive enterprise in this statp. Section 5. That section 9470 of the General Statutes of 1915 be and the same is hereby amended so as to read as follows : Sec. 9470. This act shall not apply to the owner of any speculative security who is not the maker or issuer thereof, who shall acquire and sell the same for his own account in the usual and ordinary course of business, and not for the direct or indirect promotion of any enterprise or scheme withm the' purview of this act : Providing, that such ownership is in good faith. Repeated or successive sales of any such speculative security or securities 262 KANSAS shall be prima facie evidence that the claim of ownership is not bona fide, or is a mere shift or device to evade the provisions of this act: Pro- vided, that this act shall apply to brokers and stock exchanges and mem- bers thereof engaged in the purchase, handling and sale on the market of speculative securities, either as owners or for a commission. Section 6. That section 9471 of the General Statutes of 1915 be and the same is hereby amended so as tO read as follows : Sec. 9471. All fees herein provided for shall be collected by the bank commissioner and shall be turned into the state treasury, and the bank commissioner is hereby authorized to appoint a special assistant who shall have charge of the administration of this act under the direction of the said bank commis- sioner, and who shall receive a salary of two thousand dollars per an- num. The bank commissioner shall also have pull power to employ such temporary assistants or clerks as he may from time to time deem neces- sary, and fix their compensation, and all salaries and expenses neces- sarily incurred in the administration of this- act shall be paid out of the fees collected and turned into the state treasury under the provisions of this act, and the acts hereby repealed, upon the presentation of itemized vouchers, duly verified, and having the approval of the bank commissioner. The auditor shall issue his warrant on the state treasurer for such salaries and expenses, and the state treasurer shall pay the same out of said fees. Section 7. Original sections 9458, 9459, 9461, 9462, 9470 and 9471 of the General Statutes of 1915 are hereby repealed. Section 8. This act shall take effect and be in force from and after its publication in the statute book. Approved March 11, 1919. Administration of Law (Report of Banking Department) This law has been administered for more than two years just past during' which time there has been eliminated from the markets of this state millions of dollars of worthless securities. In addition to this it has been possible to see that at least 80 per cent of the investors' money was used for the purpose of developing the assets of the company in which he bought stock, and thereby preventing, the greater portion of money spent for stock from going into the pockets of the promoters and agents. Instructions To Applicants The Banking Department will insist that the information indicated in the accompanying blanks be given in fullest possible detail. Failure *o do so will make delay for you. This will be especially insisted upon when patents, formula, good will or intangible assets are capitalized, or stock has been, or is to be, issued KANSAS 263 therefor. This form of "watering" stock will not be tolerated, and valua- tions of such assets will be closely scrutinized. , When it is sought to sell land on installments or deferred payments, an abstract or satisfactory certificate of title must be filed ; and the com- pany will be required to pay the expenses and per diem of our agent if an inspection be deemed necessary. Gas, oil, mining, irrigation and other similar enterprises must furnish satisfactory expert opinions or pay expense of investigation by the state's experts if examination of the property is deemed necessary. Walter E. Wilson, Bank Commissioner. Frank Organ, Special Assistant. In making application for authority to sell stock and securities under the supervision of the Kansas State Charter Board and the jurisdiction of the Kansas "Blue Sky" law, it is well to bear in mind that the Board will not pass upon these applications unless they comply with the fol- lowing requirements : 1. The application must be signed by the proper officers of a Com- pany as provided for in the blank, and attested by the corporate seal of the Company, if there be one at the time the application is made. 2. A copy of the charter, form of stock certificate, all advertising matter in use, complete copy of the Company's by-laws, together with all other data required, and called for in the blank, should be at- tached to the application before transmitting to this Department. 3. Under paragraph 15, Exhibit "G", a copy of the Contract which you will make with your selling agents, should contain the following pro- visions : (a) Agents should be prohibited from entering into any agreement with a prospective purchaser whereby said agent agrees to re-sell his stock. (b) Prohibit the agent from selling the stocks of any other Com- pany while in the employ of this Company. (c) Commissions paid underwriters should be based upon the actual cash received, and not upon the amount of stock sold. 4. The Board does not approve of too great a capitalization. 5. An excessive value will not be allowed for real estate, properties, plants, equipment, leases, patents, good-will, formulae, etc. Applications must show DEFINITELY the amount of stock retained for any of the above. 6. Large salaries will not be allowed the officers of a Company, same to be paid out of the proceeds of the sale of stock. 7. In case of foreign corporations, the blank form giving irrevocable consent to be sued in this State, should be filled out and filed in the 264 KANSAS office of our Secretary of State. A certified copy of the minutes of the meeting of the Board of Directors at which such resolution was passed should be filed with this consent. 8. The amount desired to be used for promotion expense should be shown in Paragraph 12 of the apphcation. Forms [Sheet 1] STATEMENT TO BANK COMMISSIONER. Compliance with section 2, chapter 164, Session Laws of Kansas, 190.5. [BLUE SKY DEPARTMENT] Any person who shall knoitfingly make or file or cause to be made or filed with the bank commissioner any statement, document, circular, advertisement or prospectus, required to be filed by this act, which is false in any material respect or matter, shall be deemed guilty of 'i felony, and on conviction in any court of com.petent jurisdiction punished by a fine of not less than one hundred dollars (,$100.00) or m,ore than five thousand dollars {$5,000}, or by imprisonment in the state peniten- tiary for not less than one nor more than five years, or by both sucli fine and imprisonment. {Section 11, Chapter 164, Session harms 1915.) To the Bank Commissioner of the State of Kansas: [Name.] No. [Address.] Makes the following statements in compliance with section 2, chap- ter 164, Session Laws of the State of Kansas, 1915 : [1] The is a corpora- tion, incorporated under the laws of the State of on the day of 19..; its authorized capital stock is $ divided into shares of common and shares of preferred stock, with a par value of $ and that it has an authorized bo^id issue of $ Attached hereto are certified copies of the charter and all existing by-laws of said corporation and marked respectively Exhibits "A" and "B." KANSAS 265 [2] That the following is a true statement of its officers and directors and the names of jU persons owning as much as ten per cent (10%) of its capital stock: OFFICERS AND DIRECTORS Address. Number Shares and Bonds Owned. 5i < S S-a 2" •II W s P Name. 6 u in ■a , Trustees and Directors: ' • 1 stockholders owning as much as 10% of stock each. 13 15 [Sheet 3] [3] That the following is a full and correct statement of its capital stock and securities on this date : Authorized Capital. r Common Stock, $ . I Preferred Stock, $ . 266 KANSAS {Common Stock, $. Preferred Stock, $. Bonds authorized $. Bonds issued $. Other securities called Authorized, $ Other securities called .Issued, $ [4] That the following is a true and complete statement, showing the consideration received from the stock issued and outstanding to date: COMMON STOCK No. Shares. •Actual Value. Remarks. Actual Cash Real Estate Plant Equipment Organizing ., Promotion - Totals ; , . i| -^11 >--l.=.-' . •This column should specify the actual amount of cash or notes received, or the actual value of real estate, etc., received in exchange for stock issued, and should correspond with value at which these different items were given in to the company and carried on the books. KANSAS PREFERRED STOCK 267 No. Shares. Actual Value. Remarks. Actual Cash Notes 1 Plant .... E(iiiipnient Patents Organizing ...*.. Commissions Dividends ........ 1 [Sheet 3] BONDS No. Shares. Actual Value. Remarks. Actual Cash 1 Real Estate Plant Equipment Organizing Promotion Commissions Dividends ■ ' ' ' :i ■ i Totals 268 KANSAS [5] Attached hereto, marked Exhibit "C," is a statement describing fully the real estate, plant, equipment, patents, good will, formulae, or intangible assets, received in exchange for stock. NOTE.— The Department will insist on a full statement touching each item mentioned in this paragraph. Failure to comply will surely bring adverse action from the Board. [6] That the following is a complete and correct statement of its assets and liabilities : ASSETS Amount. Write Nothing in«this Column. Accounts Receivable Other Assets as follows: LIABILITIES Amount. Write Nothing in this Column. Common Stock outstanding. Preferred Stock outstanding. Sinking Fund or Reserve Other liabilities as follows: [7] That attached hereto, marked Exhibit "D," is a true and cor- rect trial balance sheet nf its books on the date of the above statement. KANSAS 269 [Sheet i] [8] That the following is a true statement of its profit and loss account for the months prior to this date: (6 or 12) Loss. Profit. Undivided profits 10.... Gross earnings (Specify sources) Dividends, Common Stock per cent >. Dividends, Preferred Stock.... Interest paid on bonds Interest borrowed money - , Salaries 1 [9] That attached hereto, marked Exhibit "E," is a true and com- , plete statement of its receipts and disbursements for the past months, as shown by its books. (^ "'■ ■'•^^ [10] Attached hereto is the consent of the Company to the commencement of actions against it and the service of process upon it in the State of Kansas by service of process on the Secretary of State of the State of Kansas as required by section 8, chapter 164 of the Session Laws of 1915. ' ' ■ [11] Exhibit "F," hereto attached, is a true copy of the "security" which the said intends to sell in the State of Kansas, which said security will be sold for the foUowing-nanied price and on the following terms, and will not be sold, or offered for sale, in Kansas, at any other price or on any other terms, without the consent of the Banking Department: 270 KANSAS [12] That the promotion expenses of the company will not exceed per cent of the capital stock. (There must also be included in this statement what arrangement, if any, has been made to absorb this expense.) [13] That the following is the general plan upon which the company is doing and intends to do business' and the purposes for which said securities are to be sold. (Make full statement.) [Sheet 5] [14] That it has adopted the following plan for the sale of its stock : [15] That attached hereto, marked Exhibit "G," is a true and complete copy of each contract made, or which will be made, with any person, officer, agent or other representative of this company for the sale of its stock; and that there are no agreements, understandings or contracts, either verbal, written or implied, by which any one has re- ceived, or is to receive, any cash, stock, securities or other compensation for the sale of its securities, for its promotion, or for any other causes except as specified in this statement and its several exhibits attached, and that all of the stock securities of this company will be sold or dis- posed of for cash or its equivalent, as provided in the contracts or agree- ments attached, except as herein excepted. [16] Accompanying this statement and made a part hereof by ref- erence are copies of each public prospectus and all advertising matter used by the said and to be used in the State of Kansas. [17] References : (NOTE.— Please give at least four references as to the character, responsibility and financial standing of each director. Also eight references as to the company itself.) KANSAS 271 In Testimony Whereof, We have hereunto set our hands and af- fixed the official seal of this company, this the day of 191.... (Company.) [seal] Attest : By. President. Secretary State of ■ ss. County of President, and . . .-. Secretary of the Company, of , of lawful age, being first duly sworn, depose and say that they have each read the foregoing application and know the contents thereof, and that the statements and allegations therein contained and attached are true. day President. Secretary. Subscribed and sworn to before me this the of 191. Notary Public. My commission expires . 8 901 272 KANSAS Know all Men by these Presents : That the a corporation organized under the laws of the State of , and with its principal office at ■ , in said State, hereby consents, without power of revocation, that actions may be commenced against it, the said in the proper court of any county in the State of Kansas in which a cause of action against such corporation may arise, or may have here- tofore arisen, or in which plaintiff may reside, by service of process on the Secretary of State of the State of Kansas ; and the said corporation stipulates and agrees that such service shall be taken and held in all courts to be as valid and binding as if due service had been made upon the President or any other chief officer of said corporation. In Witness Whereof, Said corporation has caused these presents to be executed by its President and its Secretary, and authenticated by its corporate seal, at in said State of this day of A. D. 191.... Attest : President. 71467 Secretary. RESOLUTION BY THE OFI 191.... At a meeting of the Directors of duly held at the office of said Company, on the day of 191.. Mr ■ offered the following resolution and moved its adoption: Resolved, That the President and Secretary of this be and they are hereby authorized and instructed to execute the written consent thereof to be sued in the State of Kansas, in the manner provided in section 3 of an act of the Legislature of the State of Kansas concerning private corporations, approved January 7, 1899. The resolution was adopted. KANSAS 273 State of County of being duly sworn, says he is secretary of the of and that the foregoing is a true and correct copy of a resolution adopted Ijy the Board of Directors of said ' on the day of 191 .... together with the minutes concerning said resolution. Secretary. » Sworn to and Subscribed before me, this day of 191.... Notary Public. My commission expires 19 ... . 7—663 274 KENTUCKY KENTUCKY STATUTES (Act of March 22, 1902) Investment Companies 1. Regulation of investment companies — Provision for deposit and redemption fund — Statement. Every corporation of the char- acter generally known as investment companies, organized, or which may be hereafter organized under the laws of Kentucky, for the purpose of conducting the business of placing or selling certificates, bonds, de- bentures, certificates ■ of interest, or other investment securities of any kind, on the partial payment, installment or any other plan of payment, and providing for the redemption and retirement of same, or any part thereof, and every company, partnership, or association conducting such business in this State shall provide a reserve and redemption fund of not less than seventy-five per cent of amount collected in premiums, for the benefit and protection of its investors, and so much of said fund as shall not be immediately distributed to investors shall be invested as hereinafter provided, and every such company, corporation, partnership, association or individual now doing such business in this State within ninety days after the passage of this act, shall deposit with the State Treasurer the total amount of its paid-up capital stock, and if said paid-up capital stock shall not amount to fifteen thousand dollars, shall deposit in addition thereto enough of the reserve fund to make fifteen thousand dollars in cash, or in bonds or mortgages, lien notes or deeds of trust, or unincumbered real estate within the State of Kentucky, worth fifty per centum more than the sum loaned thereon, exclusive of buildings, unless such buildings are insured and the policy transferred to said corporation, partnership, company, or association, and continue in force so long as the loan continues; and in bonds of this State, or any other State of the United States, or in bonds of the United States or in bonds of any county or incorporated city or town of this State, authorized to be issued by the Legislature, and also stock of any incorporated bank or trust company of this State and of the national banks of this State or of adjacent States, and in the first mortgage bonds of railroads of this and other States, stocks or bonds of any bridge, water, street railway, gas, or electric light corporation of this State, which have for two years previous to the time of making the investment paid interest or dividends of not less than four per centum per annum ; and none of the foregoing securities shall have a market value of less than eighty per cent of the par value. Said fund so deposited shall be for the protection of investors in such certificates, debentures, and other investment securities, wherever KENTUCKY 275 residing. Said company, corporation, partnersliip or association shall, within ninety days after the passage of this act, also file with the treas- urer of the Commonwealth a statement verified by its president and secretary, showing its assets and liabilities as fixed herein, its income for the preceding twelve months, the total amount passed to its reserve fund now on hand, the number of certificates or parts of certificates redeemed or paid, and the amount of money used therefor. And at the same time, such corporation, company, partnership or association shall deposit with the treasurer in cash, or in bonds or such other securities as hereinbefore provided for, the amount passed to the reserve fund, as shown by said statement, which deposit shall be made each year until the total amount of the deposit with the treasurer shall be of the actual value of one hundred thousand dollars ($100,000). 2. License, expiration, renewal, statement. Whenever such corporation, company, partnership or association shall have deposited the amount above mentioned and filed the verified statement as required by the provisions of this act, the Treasurer of this Commonwealth shall issue to said corporation, company, partnership or association a license to do business in this State, which license shall expire on the fifteenth' day of the succeeding January, and whenever any such company, corpora- tion, partnership or individual shall make the deposit and file the veri- fied annual statement required herein, the Treasurer of the Common- wealth shall issue to such corporation, company, partnership, or -associa- tion a renewal of its license until the fifteenth day of the succeeding January. 3. Annual statement, filing with state treasurer, publication of, etc. Every such corporation, company, partnership or association shall annually, on or before the fifteenth day of January each year, file with the Treasurer of the Commonwealth of Kentucky a statement of its business for the twelve months next preceding the first day of said year, which statement shall be verified b;y the affidavit of its president or secretary and treasurer, and shall show the assets and liabilities, as fixed herein, of the corporation, company, partnership or association making the statement, and the amount of its premium receipts during the preceding year, and the amount passed to the reserve fund during the preceding year ; and the amount distributed to investors, which state- ment shall be published in some newspaper of general circulation in the county in which the principal office or place of business may be located. 4. Collection of interest on and exchange of securities de- posited. Every such corporation, company, partnership or asso- ciation may collect and use the interest on any securities deposited as herein ■ required, and also exchange such securities for other of equal \alue and of the kind authorized by this act. 5. Loans, how secured — Computation of collateral on deposit. No company, corporation, partnership or association as above defined 276 KENTUCKY shall hereafter lend to holders of its bonds, certificates, debentures, or other investment securities, out of its reserve fund on such bonds, certifi- cates or debentures, or other investment securifies in force an amount greater than the proportionate share of such bonds, debentures, certifi- cates, or other investment securities in said reserve fund, but when any such loan is made, it sliall be evidenced by the note of the borrower, secured by a deposit of the bonds, debentures, certificates or other invest- ment securities on which the same is made, as collateral security, which said note and collateral may be deposited with the Treasurer as a part of the deposit hereinbefore required, and shall be computed as making up so much ,of said required deposit as the proportionate share of such bonds, debentures or certificates so deposited in the entire reserve fund amounts to, not exceeding, however, the amount loaned. 6. Investments antedating this act. No company, corporation, partnership or association shall be required to change investments herein- ' before made legally and in good faith in the course of business, and the securities representing such investments shall be accepted by the Treas- "urer of 'this State as part of the deposit required by this act to be made for the security of investors. 7. Fee to treasurer. For every license issued by the treasurer under this act and every renewal of same, the company, corporation, partnership or association receiving the same shall pay to the treasurer a fee of one hundred dollars ($1()0). 8. Reserve fund — Manner of investment. The reserve fund, capital stock and any increase thereof, of each and every such corpora- tion, company, partnership or association, doing business in this Com- monwealth, shall be invested in such real estate as may be necessary for the proper conduct of business ; in bonds or mortgages, lien notes, or deeds of trust on unincumbered real estate, worth fifty per centum more than the sum loaned thereon, exclusive of buildings, unless such buildings are insured and the policy transferred to said corporation, part- nership, company or association, and continued in force so long as the loan continues; and in bonds of this State or any other State of .the United States, or in bonds of the United States, or in bonds of any county or incorporated city or town of this State or any other State of the United States, authorized to be issued by law, and also stock of any incorporated bank or trust company of this State and of the national banks of this State or of any other State in the United States, and in the first mortgage bonds of railroads of this or any other States, stocks or bonds of any bridge, water, street railway, gas or electric light corporation or company, have for two years previous to the time of making the investment, paid interest or dividends of not less than four per centum per annum ; or in like securities in any other nation or country, provided always, that any of the aforementioned securities shall KENTUCKY , 277 have a market value of not less than eighty per centum of their par value. 9. Examination of company — Expert accountant — ^Appointment. The Governor of the Commonwealth of Kentucky shall have the power, at any time that he may deem proper, to appoint expert accountants at the expense of any company, corporation, partnership or association operating under provisions of this act, to make an examination of its affairs, and if it shall be ascertained by said expert accountants that any company, corporation, partnership or association operating under the provisions of this act shall not have assets sufficient to equal in value the reserve fund contributed by every contract in force, plus the interest at three and one-half per cent per annum, compounded annually, said company shall be declared insolvent and its license revoked. 10. Corporations, foreign, compliance with laws of another state, reciprocal laws, requirements. Every such corporation, com- pany, partnership or association organized under the laws of any other State, which shall have made deposit with the proper authoi-ity of such State, Qx of any other State of the United States, either in cash or in ac- ceptable securities, for the benefit and protection of all its investors, wherever residing, or which shall comply with the laws of this State upon the following conditions, to-wit : It shall file with the Secretary of State of this Commonwealth a certified copy of its charter or articles of in- corporation and a statement giving the location of its office or oiiSces in this State and the name or jiames of its agents upon whom process can be served; and shall file with the Treasurer a certificate from the proper authorities of the State in which it may have been organized or had made such deposit, showing that the deposit aforesaid has been made; such corporation shall also, on or before the fifteenth day of January in each year, make an annual statement as required by this act, which shall be published as aforesaid; and shall furnish to the Treasurer a certificate from the proper officer of the State where it shall have been organized or have made such deposit, showing that the de- posit herein required of companies organized under the laws of this State for the preceding year has been made with the authorities of such State for the protection of its investors; and upon so doing, it shall be entitled to a renewal of its license for one year from the expiration of that already held by it : Provided, When, by the laws of any other State, any taxes, fines, penalties, or deposits of money, or of securities or other obligations, or prohibitions, or feqiiirements are imposed upon investment companies organized under the laws of- said State, and tran- sacting business in such other State, or upon the agents of such invest- ment companies, greater than those imposed upon similar companies, by the law of this State, or when such laws of other States shall require investment companies to deposit money or security for the protection of certificate holders of such other State, or shall prohibit companies of this 278 KENTUCKY State from transacting business in said State without a special examina- tion of said companies or a computation of their liabilities by the officers of said State, the same taxes, fines, penalties, deposits, and all other re- quirements shall be imposed upon all investment companies organized in such other State and doing business in this State as are imposed upon such company or corporation by the laws of the State in which said company may be incorporated: And provided, further. That where any such corporation, company, partnership or association organized in any other State shall have made a deposit in any other State of the United States for the protection of holders of its certificates, bonds, debentures, certificates of interest or other investment securities, wherever residing, less in amount than that required by the laws of this State, it shall, be- fore doing business in this State, file a certificate of such deposit as herein required, and shall deposit an amount with the Treasurer of this State, which, together with the amount so deposited in such other State, shall make up the total amount required by this act to be deposited by said companies in this State: And provided. That when, by the laws of any other State any such company shall have been required to make, and shall have made, a deposit in such State for the security of holders of its securities, bonds, debentures, certificates of interest, or other in- vestment securities in such State alone, said company shall not be re- quired to make a deposit in this State of its reserve fund accruing from its certificates, bonds, debentures, certificates of interest, or other investment securities which, under the laws of such other States, are secured by special deposit in such State, and the holders of said bonds shall not be entitled to the benefits of the securities deposited with the Treasurer of this State under this act. 11. Penalty, transacting unauthorized business. Any corpora- tion, company, partnership or association, or any officer or agent of the same, who shall attempt to place, or transact business as herein defined, when the corporation, company, partnership or association has not license to do so, shall be deemed guilty of a misdemeanor, and, upon conviction thereof, shall be fined not less than five hundred dollars ($51)0), nor more than one thousand dollars ($1,000), for such offense. (This sec- tion is an act of March 22, 1902; the numbers of the sub-sections are the numbers of the act.) LOUISIANA 279 LOUISIANA STATUTES (Act No. 40 of 1912.) AN ACT Levying a license tax on itinerant or traveling agents selling stock and bonds; regulating the sale of such stock and bonds by itin- erant or traveling agents or vendors and requiring them to se- cure a certificate of permission before receiving a license; pro- viding the cost and manner of securing such certificate of per- mission and license; and providing that bond and security be given that such stock or bonds are as represented; and provid- ing a penalty for the violation of this act. Section 1. Be it enacted by the General Assembly of the State of Louisiana, That every itinerant or traveling agent engaged in the sale of stocks or bonds of any corporation, whether organized in this State or any State or Territory, shall before being permitted to make any such sales, procure from the Secretary of State, at a cost of one dollar, a written certificate of permission, which shall entitle him to procure from the sheriff of the parish, in which he proposes to engage in such a sale, a license to do so, which license is hereby fixed at the sum of five dollars per annum, and any such agent who engages in such sales, before securing such certificate of permission and before payment of such license in each parish in which he operates, shall be deemed guilty of a misdemeanor and punished as hereinafter provided. Section 2. Be it further enacted, etc., That each and every itin- erant or traveling agent so engaged in the sale of such stock or bonds before securing such certificate of permission as aforesaid, shall file with the Secretary of State a sworn statement giving his name, residence and the name and kind of bonds or stock which he proposes to sell, with the par value thereof, as well as a full statement of the domicile and offices of the corporation whose bonds or stock he proposes to sell, and shall therein declare the market value of such bonds or stock with a brief statement of the property owned by such corporation with its location and any such itinerant or traveling agent who shall make any false statement in said affidavit shall be deemed guilty of perjury and prose- cuted as such. Section 3. Be it further enacted, etc.. That each of such itin- erant or traveling agents shall before securing such certificate of permis- 280 LOUISIANA sion, or procuring of any license or making any sales of stock and bonds as hereinbefore referred to give bond in any sum not less than fifteen thousand dollars filed by the Secretary of State, and payable to him which bond shall be furnished by a surety company and approved by the Secretary of State and the same shall be conditioned that he will make no false statement, or misrepresentation of facts in making such sales of said stock or bonds, the same to continue in full force for a period of two years from date, and any purchaser of stock or bonds from such agent shall have a right of action on this bond to recover any damages caused by any false statement or misrepresentation made by such agent in the sale of such stock or bonds to be recovered before any court of competent jurisdiction in the parish where the sale is made. Section 4. Be it further enacted, etc., That any such itinerant or traveling agent engaged in the sale of such stock or bonds who shall make any false statement, false representations, or false promise in order to induce any person to buy such bonds or stock and a purchase is made relying thereon, shall be deemed guilty of misdemeanor and on con- viction shall be punished as hereinafter provided. Section 5. Be it further enacted, etc.. That each certificate of per- mission' and license shall designate the name of the company whose bonds or stocks are being sold under it, as well as the name of the person to whom it is issued and for each separate company or stocks and bonds represented, a separate bond shall be filed and separate certificate of permission and license obtained, and any agent who shall use or attempt to use any certificate of permission or license for the sale of stock and bonds not designated therein and not issued to him shall be deemed guilty of a misdemeanor and shall be punished as hereinafter provided. Section 6. Be it further enacted, etc., That any itinerant or trav- eling agent as aforesaid, violating the provisions of this act shall be deemed guilty of a misdemeanor and on conviction thereof shall be fined not more than $500.00 or imprisoned not more than six months or both at the discretion of the court. Approved : July 1, 1912. Administration Up to this time no one has been able to comply with tlie provisions of the said Act, for the reason, as we understand it, that the surety com- panies doing business in this state refuse to write the bond proposed by the Act, and we have no authority to accept any other bond. Report of Secretary of State. \ LOUISIANA 281 Form Act No. 40 of 1912. State of T County op ' , \. ss. City of , ] That I, residing at State of representing the Company, f Stocks} propose to sell in the State of Louisiana Jb„_j, \ of the said company under the provisions of Act No. 40 of the Session Acts of the General Assembly of the State of Louisiana for the year 1912, the par value of which is (§ ) Dollars per share, and the market value is '. ($ ) Dollars per share. The domicile of the said company is located at No Street, in the City of , State of , with its principal offices in the City of The property owned by the said company is as follows : Description Location Street No City of State of Street No. City'of ... State of . . Street No. City of . . , State of . . / 282 LOUISIANA In faith whereof I have furnished bond in the sum of Fifteen Thousand ($15,000.00) Dollars, as required by Section 3 of said Act No. 40 of the Session Acts of the General Assembly of this State for the year 1912, executed by the Company, located in the City of State of Sworn to and subscribed before me this day of A. D., 191.... Notary Public Book No Folio. ., No STATE OF LOUISIANA Itinerant or Traveling Agents (Act 40 of 1912.) Application for License and sworn statement by AS FOR THE Received, Filed and Recorded , 191. Secretary of State. MAINE 283 MAINE STATUTES Registration of Dealers in Securities (Laws 1913, Ch. 209, as amended; Laws 1915, Ch. 232, and as further Amended, R. S. 1916, Ch. 40 §§ 11 to 23) Section 11. Dealers in securities shall be registered; salesmen shall be registered. 1913, c. 209, § 2. No dealers in securities shall in this state, by direct solicitation or through agents or salesmen, or by letter, circular or advertising, sell, offer for sale, or invite offers for or inquiries about, securities unless registered as a dealer under the pro- visions of the following section. No salesman or agent shall in this state, in behalf of any dealer, sell, offer for sale, or invite offers for or inquiries about, securities unless registered as a salesman or agent of such dealer, under the provisions of the following sections. Section 12. Application for registration; non-resident dealers shall file power of attorney; notice and proceedings on application; issue of certificate and changes therein. 1913, c. 209, § 3. Any dealer desiring registrattion shall file written application therefor wi'th the bank commissioner, which shall be in such form as may be prescribed by the commissioner, and shall state the principal place of business, the name or style of doing business, and the address of the dealer, the names, resi- dences and business addresses of all persons interested in the business as principals, officers, directors or managing agents, specifying as to each his capacity and title, and the length of time during which the dealer has been engaged in the business. Every non-resident shall file a power of attorney, irrevocable, properly authorized, and with satisfactory certificates or other evidence of the authorization, appointing the commissioner agent for the service of legal process upon the dealer in any action in the courts of this state, based upon or arising in connection with any sale of, attempt to sell, or advertising of, securities in this state, or any violation of sections eleven to twenty-two, both inclusive. Upon the filing of the application, the commissioner shall forthwith give notice of the fact and date of such application, and of the name, principal place of business and address of the dealer, by advertisement inserted once in the state paper, and once in a newspaper of general cir- culation where the dealer's place of business is located, if it is elsewhere in this state than in the city of Augusta. The registration certificate shall not be issued before the expiration of two weeks from the last publication period. Any person may within such two-weeks period file objection to the proposed registration. 284 AlAtNE Each application shall be accompanied by certificates or other evi- dence sufficient to reasonably establish the dealers good repute, and the commissioner may make such other and further investigation thereof as lie deems desirable. Upon being satisfied of the dealer's good repute, the commissioner shall, in case no objection to the proposed registration be filed, register the dealer. If the commissioner shall not be satisfied with the dealer's good re- pute, or if, within the period of two weeks succeeding the publication aforesaid, objection shall be made to the proposed registration, the com- missioner shall give notice of either fact to the dealer, and upon request from the dealer shall fix a time and place for hearing, of which fourteen days' notice shall be given by mail to the dealer and to the objectors, and by publication in the state paper ; and at such hearing opportunity shall be given to said dealer, and to any other persons interested or objecting, to offer further evidence as to the dealer's repute. If satisfied, as a result of such hearing, of the dealer's good repute in business, the commissioner shall .thereupon register the dealer. Upon registration of any dealer, a registratipn certificate shall be issued stating the name, principal place of business and address of the dealer, the names, residences and business addresses of all the persons interested in the business as principals, officers, directors or managing agents, and' the fact that the dealer has been registered for the current calendar year as a dealer in securities. The certificate shall in other re- spects be in such form as the commissioner may determine, but shall state in bold type that the commissioner does not recommend, and as- sumes no responsibility for, securities offered by the dealer. Changes in the certificate, necessitated by changes in the personnel of a partner- ship, or in the principals, officers, directors or managing agents of any dealer, may be made at any time upon written application to the com- missioner, accompanied by statement of the facts necessitating the change. Upon the issue of the amended certificates, the original certificate and the certified copies thereof outstanding shall be promptly surrendered to the commissioner. Section 13. Registration of agents or salesmen. 1913, ».. 209, § 4. Upon written application by a registered dealer, the commis- sioner shall register, as agents or salesmen of such dealer, such persons as the dealer may request. The application shall be in such form as the commissioner may prescribe, and shall state the residences and addresses of the persons whose registration is requested. The commissioner shall issue to each person so registered a registration certificate, stating his name, residence and address, the name, principal place of business and the address of the dealer, and the fact that he is registered for the current calendar year as agent or as salesman (as the case may be) of the dealer. The certificate shall in other respects be in such form as the commissioner shall determine, but shall state in bold type that the commissioner does MAINE 285 not recommend, or assume any responsibility for, securities offered by the dealer or the dealer's agents or salesmen. Upon application by the dealer, the registration of any agent or salesman shall be cancelled. Section 14. Definition of terms "dealer" and "securities," 1913, c. 209, § 1. Under sections eleven to twenty-three, both inclusive, the term "dealer" shall mean any individual, partnership, association or corporation engaging in the business of selling or offering for sale securities, except to, or through the medium of, or as agent or salesman of, a registered dealer. But sales made, by, or in behalf of, a vendor in the ordinary course of bona fide personal investment, or change of investment, shall not constitute such vendor, or the agent of such vendor, if not otherwise engaged either permanently or temporarily in selling securities, a dealer in securities. Nor shall the offer of or sale of its own securities by an association or a corporation to- its own members or stockholders constitute such association or co::poration a dealer in securi- ties. The term "securities'' shaH include all stocks, botids, debentures or certificates of participation, and all other forms of securities, except that it shall not be held to include commercial paper or other evidence of debt running not more than nine months, or securities legal for purchase by savings banks under the statutes of any New England state, or notes secured by mortgage of real estate in tbis state, or the shares of loan and building associations organized under the laws of the State of Maine. Section 15. Registrations shall expire at' close of calendar year; renewals. 1913, c. 209, § 5. 1915, c. 232. All registrations shall expire at the close of the calendar year, but new registrations for the succeeding year shall be issued as of course, upon written application of the dealer, and payment of the fee provided in section sixteen of chapter one hundrd eighteen, without the filing of further statements or furnish- ing any further information, unless specifically requested by the commis- sioner; provided, that applications for renewal of registration shall be made on or before the first day of March in each year, and if not so made, applications thereafter received shall be treated as, and be subject to the same fees provided for, original registrations. Section 16. List of dealers shall be published. 1913, c. 209, § 6. The commissioner shall, at least twice during each year, publish in the state paper a list of the then registered dealers, and of their registered agents or salesmen, and shall also at any time, on request by mail or otherwise, inform any inquirer as to whether or not any individual, part- nership, corporatioh or association is registered either as dealer, agent or salesman. Section 17. Certificate shall be shown to prospective purchas- ers. 1913, c. 209, § 7. Any dealer may, and any person named in a registration certificate as above provided may, in behalf of any dealer, 286 MAINE sell, offer for sale or invite offers for or inquiries about securities in this state, but shall at all times when so engaged carry- with him the registration certificate, or a copy thereof, certified by the commissioner, which shall at any time be shown to any prospective customer upon request. No dealer, agent or salesman shall advertise publicly the fact of his registration, or use such fact or the registration certificate, in connec- tion with any sale or effort to sell securities, except by statement of the fact or by exhibiting the certificate or a certified copy thereof. Section 18. Commissioner may require dealer to. file list of securities, and statements of assets and earnings. 1913, c. 209, § 8. The commissioner may at any time require a dealer to file with him a list of the securities which he has offered for sale or advertised within the preceding six. months, or which he is at the time offering for sale or advertising, or any portion thereof; and may require the filing of state- ments of assets or earnings, or any other facts he may deem pertinent in relation to any of the securities offered or to be offered by the dealer, or the associations or corporations issuipg them; and may require the filing of copies of any or all printed or otherwise reduplicated circulars or printed advertisements relating to securities which the dealer has within six months offered for sale or which the dealer shall thereafter offer for sale; and, thereupon, unless satisfied that all such offerings of the dealer have been and are to be made honestly and in good faith, and with disclosure of pertinent facts sufficient to enable intending purchasers to form a judgment of the nature and value of the securities, and without intent to deceive or" defraud, may prohibit the dealer from selling or offering the securities, or any of them, or in any way advertising them. Section 19. Dealer's registration may be revoked; registration of agent or salesman thereby revoked. 1913, c. 209, § 9. The com- missioner may, unless furnished with satisfactory evidence as provided in the preceding section in case of violation of any provision of sections eleven to twenty-two, both inclusive, or in case of dishonest, deceitful or fraudulent conduct on the part of the dealer in connection with the carry- ing on of the business, revoke the dealer's registration ; and may, having reasonable cause to believe that the dealer may have been guilty of viola- tion of the provisions of said sections, or of dishonest, deceitful or fraudulent conduct in connection with the carrying on of the business, suspend the dealer's registration until satisfied to the contrary. In either case, the dealer shall not be regarded as registered under the provisions hereof, until restored to registration by the commissioner, either on his own initiative or upon order of court as hereinafter provided. The revocation or suspension of the dealer's registration shall consti- tute a revocation or suspension of the registration of any agent or sales- man of the dealer. Section 20. Agent's registration may be revoked. 1913, c. 209, § 9. The commissioner may, in case of violation of any provision of MAINE 287 section eleven to twenty-two, both inclusive, or in case of dishonest, deceitful or fraudulent conduct, on the part of any agent or salesman in connection with the business, revoke the agent's or salesman's registra- tion ; and may, having reasonable cause to believe that the agent or sales- man may have been guilty of violation of the provisions of said sections or dishonest, deceitful or fraudulent conduct in connection with the busi- ness, suspend the agent's or salesman's registration until satisfied to the contrary. In either case, the agent or salesman shall not be regarded as registered under the provisions hereof, until restored to registration by the commissioner, either on his own initiative or upon order of court as hereinafter provided. In case of suspension or revocation of registration, all certificates shall at -once be surrendered to the commissioner upon his request. Section 21. Service of notices. 1913, c. 209, § 10. Notice of any requirement or decision of the commissioner shall be sufficient if sent by mail addressed to the dealer, agent or salesman, as the case may be, at the address designated in the application for registration. Section 22. Appeals; proceedings thereon. 1913, c. 209, § 11. Appeals may be taken by any person aggrieved by any decision of the commissioner, to the supreme judicial court, by petition addressed to that court, stating the decision complained of. Upon such petition, cita- tion shall be issued to the commissioner, who shall file an answer to the petition, stating therein his reasons for the decision. The court may, in its discretion, after hearing the commisioner, or his representative, suspend the order "of the commissioner, pending the determination of the petition upon its merits, and may, after final hearing thereon, make such decree in connection with the matter complained of as justice may require. The court shall make provision for summary hearing and determination of such petitions so far as in its discretion seems desirable. Section 23. Penalties. 1913, c. 209, § 12. Any dealer or any person violating any provision of sections eleven to twenty-two, both inclusive, or knowingly filing with the commissioner or furnishing to him any false or misleading statements or information, shall be punished upon conviction theredf by a fine of not more than one thousand dollars, or by imprisonment for not more than sixty days, or by both such fine and imprisonment. The foregoing penalties shall be in addition to, and not a substitute for, any civil or criminal liability now or hereafter existing. 288 MAINE Amendments AN ACT To amend sections Twelve and Twenty-three of chapter Forty of the Revised Statutes, relating to the duties of the Bank Com- missioner in registering dealers in securities. Be it enacted by the\ People of the State of Maine, as follows: Section 1. Section twelve of chapter forty of the revised statutes is hereby amended so that said section shall read as follows : Sect. 12. Any dealer desiring registration shall file written, applica- tion therefor with the bank commissioner, which shall be in such form as may be prescribed by the commissioner, and shall state the principal place of business, the name or style of doing business, and the address of the dealer, the namies, residences and business addresses of all persons interested in the business as principals, officers, directors or managing agents, specifying as to each his capacity and title, and the length of time during which the dealer has been engaged in the business. Each applica- tion shall be accompanied by certificates or other evidence of the dealer's good repute, and if required by the commissioner, a copy of the securities to be sold, a statement in detail of the assets and liabilities of the issuer of such securities, a statement in such form as the commissioner may prescribe of the general affairs of the issuer, copies of any mortgage or instrument creating a lien by which such securities are secured, a full statement of the earnings and expenses of each issuer for three years prior to the filing of the application, a copy of any contract to under- write the securities to be offered for sale, the names and addresses of all persons holding ten per cent or more of the capital stock of the issuer, a statement in detail of the plan on which the business of the issuer is to be conducted, and such other information as the commissioner may deem necessary in considering the application. Every non-resident shall file a power of attorney, irrevocable, prop- erly authorized, and with satisfactory certificates' or other evidence of tht; authorization, appointing the commissioner agent for the service of legal process upon the dealer in any actions in the courts of this state, based upon or arising in connection with any sale of, attempt to sell, or ad- vertising of, securities in this state, or any violation of sections eleven to twenty-three, both inclusive. Upon the filing of the application, the commissioner shall forthwith give notice of the fact and date of such application, and of the name, principal place of business and address of the dealer, by advertisement inserted once in the state paper, and once in a newspaper of general circulation where the dealer's place of business is located, if it is else- . where in this state than in the city of Augusta. The registration cer- MAINE 283 tificate shall not be issued before the expiration ot two weeks from the last publication. Any person may, within such period of two weeks, file objection to the proposed registration. If the commissioner ij sastified that the dealer is of good repute, and that the proposed plan of business of the dealer is not unfair, un- just or inequitable, and that the dealer intends to honestly and fairly conduct its business, with disclosure of pertinent facts sufficient to en- able intending purchasers to form a judgment of the nature and value of the securities, and without intent to deceive or defraud, and that the securities that it proposes to issue or sell are not such as in his opinion will work a fraud upon the purchasers thereof, he shall register the dealer unless objection to such registration shall be filed with the commissioner within the period of two weeks succeeding the publication of the dealer's application. If the commissioner is not so satisfied, or if, within the period of two weeks succeeding the publication aforesaid, objection shall be made to the proposed registration, the commissioner shall give notice of either fact to the dealer, and upon request from the dealer shall fix a time and place for hearing, of which fourteen days' notice shall be given by maU to the dealer and to the objectors, and by publication in the state paper, and -at such hearing opportunity shall be given to said dealer, and to any other persons interested or objecting, to offer further evidence re- lating to the dealer's application. If satisfied, as aforesaid, as a result of such hearing, the commissioner shall thereupon register the dealer. Upon registration of any dealer, a registration certificate shall be issued stating the name, principal place of business and address of the dealer, the names, residences and business addresses of all the persons interested in the business as principals, officers, directors or managing agents, and the fact that the dealer has been registered for the current calendar year as a dealer in securities. The certificates shall in other respects be in such form as the commissioner may determine, but shall state in bold type that the commissioner does not recommend, and as- sumes no responsibility for, securities offered by the dealer. Changes in the certificate, necessitated by changes in the personnel of a partner- ship, or in the principals, officers, directors or managing agents of any dealer, may be made at any time upon written application to the com- missioner, accom'panied by statement of the facts necessitating the change. Upon the issue of the amended certificates, the original certificate and the certified copies thereof outstanding shall be promptly sur- rendered to the commissioner.' Section 2. Section twenty-three of said chapter forty is hereby amended by inserting after the word "imprisonment" in the sixth line thereof, the words' "and municipal and police courts shall have original and concurrent jurisdiction with the supreme judicial and superior courts" 19 290 MAINE and by adding at the end of said section the following paragraph : "The bank commissioner is authorized to appoint an examiner who shall, under his direction, have charge of the enforcement of the provisions of sec- tions eleven to twenty-three, both inclusive, and make any necessary in- vestigations thereunder; the amount of his compensation to be subject to the approval of the governor and council. The salary and traveling expenses of such examiner and all expenses of administration and en- forcement of sections eleven to twenty-three, 'both inclusive, shall be paid out of the registration fees received from dealers in securities," so that said section as amended shall read as follows : "Section 23. Any dealer or any person violating any provision of sections eleven to twenty-two, both inclusive, or knowingly filing with the commissioner or furnishing to him any false or misleading state- ments or information, shall be punished upon conviction thereof by a fine of not more than one thousand dollars, or by imprisonment for not more than sixty days, or by both such fine and imprisonment, and mu- nicipal and police courts shall have original and concurrent jurisdiction with the supreme judicial and superior courts. The foregoing penalties shall be in addition to, and not a substitute for, any civil or criminal liability now .or hereafter existing. The bank commissioner is authorized to appoint an examiner who shall, under his direction, have charge of the enforcement of the .provi- sions of sections eleven to twenty-three, both inclusive, and make any necessary investigations thereunder; the amount of his compensation to be subject to the approval of the governor and council. Th£ salary and traveling expenses of such examiner and all expenses of administration and enforcement of sections eleven to twenty-three, both inclusive, shall be paid out of the. registration fees received from dealers in securities." Effective July 5, 1919. (Revised Statutes, Chapter 118.) Sect. 16. The bank commissioner shall receive : For a certificate of authorization of a loan and building association, five dollars, in advance. For each license authorizing a foreign banking corporation to con- duct its business in this state, and each renewal thereof, twenty dollars. For receiving service of process against such corporation, or against a for^sign corporation acting as trustee of a mortgage given by a domestic corporation, two dollars, which shall be paid by the plaintiff at the time of such service, and shall be recovered by him as a part of his taxable costs, if he prevails in the suit. For granting license to foreign corporations selling securities on the partial payment or instalment plan, and for each renewal thereof, twenty dollars. MAINE 291 For registration, or renewal of registration, of dealers in securities, twenty-five dollars, which shall be returned if application is not granted. For certified copies of dealer's certificate, fifty cents each. For registration, or renewal of registration, of salesman or agent of dealer in securities, ten dollars each.' Effective July 5, 1919. Admiiiistration (Report of- Commissioner of Banking. 1914.) The Blue Sky law became operative January 1, 1914, and under its provisions one hundred and fifty-six dealers and one hundred and seventy- five salesmen were licensed. The dealers paid |25 each for their licenses and $S for the license of each salesman or agent. The state derived in fees a benefit of $4,983, but the legislature failed to make an appropriation for the law's en- forcement, and satisfactory investigation has been impossible on account of this oversight. The Commissioner has used such amounts as could be spared by strict economy from his offtte expenditures for some of the work and has beien successful in stopping some of the selling of worthless or doubtful securities, in one case to cause the offending concern to make restitution. With a generous appropriation for the enforcement of this law much, more could be done even with our present' equipment of two men, which is too small to attend to all the details now imposed upon them. Forms To Bank Commissioner, Augusta, Maine. Sir: The undersigned ' .' ,. . .of whose principal place of business is and whose principals, officers, directors, managing agents and their ca- pacity or titles, residence and 'business addresses are Name Residence Business .Address Title hereby makes application to be registered as DEALER in securities un- der the provisions of Public Laws of 1913, Chapter 209. The Dealer has engaged in the business of selling securities years. 292 MAINE Enclosed find registration fee of $25 made payable to the Bank Commissioner, the fee to be returned if the application is not granted. Enclosed find (in case of non-resident dealer) a power of attorney, irrevocable, properly authorized and with satisfactory certificates or other evidence of the authorization, appointing the said Bank Commissioner agent for the service of legal process upon the Dealer in any action in the courts of this State, based upon or arising in connection with any sale of, attempt to sell, or advertising of, securities in this State, or any violation of this act. Enclosed find certificates or other evidences suflScient to reasonably establish the Dealer's good repute. He requests, if application be granted, that certified (;ppies be furnished and encloses a fee of fifty cents each for same, the fee to be returned if the application is not granted. Bank Commissioner, Augusta, Maine Sik: The undersigned of DEALER hereby makes application to have registered as AGEN'TS or SALESMEN the following named persons : Name Residence Bu.-^iness Address Enclosed $5 registration fee for each agent or salesman, the fee to be returned if the application is not granted. Know All Men bv These Present. That the " a corporation located in the of in the State of ' and established under the laws of said State, hereby constitutes and appoints the Bank Commissioner of the State of Maine, to be the true and lawful Attorney of said Corporation, in and for the said State, upon whom all lawful processes in any action or proceeding against said Corporation in said State may be served in like manner and with thS same effect as if said Corporation existed therein. And the said Corporation hereby stipulates and agrees that any lawful MAINE 293 process against said corporation, which is served on its said Attorney, shall be of the same legal force and validity as if served on said Cor- poration. This appointment and the authority of said Attorney shall be irre- vocable and shall continue in force so long as any liability remains out- standing against said Corporation in said State. In Witness Whereof, the aforesaid Corporation, pursuant to a vote of its Directors, duly passed on the day of A. D. 19...., (a certified copy whereof is hereunto annexed), have caused these presents to be subscribed by its President and countersigned by its Clerk or Secretary, and the corporate seal of said Corporation to be here- unto afRxed, this day of in the year of our Lord One Thousand Nine Hundred and President ; Clerk (or Secretary) N. B. — The Seal of the Corporation should be affixed. State of ^ J- ss; County op J On this day of A. D. 19 before me, a duly appointed and qualified, personally appeared the before named President, and Clerk or Secretary of the and severally acknowledged the execution of the foregoing instrument by the subscribed, and they severally made oath that they are respectively the afore-described officers of said Corporation; that the seal affixed to said instrument is its true and proper corporate seal; and that they sub- scribed said instrumet, and said corporate seal was affixed by virtue of authority duly conferred by said Corporation. WITNESS my hand and official seal, at in the State and county aforesaid, the day and year above written. *If out of Maine, before a Commissioner for Maine^ or Notary Public; if within Maine, before a Notary Public or Justice of the Peace. 294 MAINE At a meeting of the Board of Directors of the , a corporation established under the laws of the State of duly held on the day of A. D. 191. . ., a quorum being present, the following resolution was adopted. "Resolved : That this corporation hereby appoints the Bank Com- missioner of the State of Maine, or his successor in office, to be its true and lawful attorney, in and for said State, upon whom all lawful processes in any action or proceeding against this corporation in said State based upon or arising in connection with any sale of, attempt to sell, or adver- tising of, securities in this State, or any violation of Chapter 209, P. L. 1&13 entitled 'An Act to Regulate the Business of" Dealing in Securities', may be served in like manner and with the same effect as if this cor- poration existed therein, and this corporation hereby stipulates and agrees that any lawful process against it, based on the above mentioned act, which is served on its said attorney, shall be of the same legal force and validity, as if served on this corporation. This power of attorney shall be irrevocable, and the president and clerk or secretary are hereby authorized to execute in the name of the corporation a certifi-cate of authority or power of attorney to the said Commissioner of Banks in conformity with this jesolution, and the laws of said State of Maine." I hereby certify that the above is a true copy of the resolution of the directors of this corporation, authorizing the appointment of an attorney for the State of Maine, 'as recorded by me. POWER OF ATTORNEY. (In case of an individual or co-partnership use this blank.) K NOW .\ll Men by These Presents : That, We and of co-partners doing business under the firm name of do and each of us doth appoint the Bank Commissioner of the State of Maine or his successor in office to be our true and lawful attorney irrevocable in and for said State upon all law- ful proceedings in any actions or process against us in said State, based upon or arising in conrect'on with any sale, attempt to sell or advertis- ing of securities in said State or any violation of Chapter 2i'9 of the Public Laws of the State of Maine for the year 1P13 entitled "An Act to rcs'uhte the bus-ness of dealing in securities," may te served in Ike MAINE 295 manner and with the same effect as personal service upon us. And we hereby stipulate and agree that any lawful process against us based on the above mentioned act which is served on our said attorney shall be of the same force and validity as if served upon us. Signed and sealed this day of in the year of our Lord One Thousand Nine hundred and Signed, Sealed and delivered in the presence of 296 MARYLAND MARYLAND STATUTES This state has no "Blue Sky Law'' and the following relates solely to the sale of stock in Insurance Companies. (Act of 1916, Ch. 274.) 186-A. No stock salesman, broker or other person representing an insurance company, wherever incorporated, in process of organization and not licensed to tansact business in this state, shall be permitted to solicit subscriptions to or sell the stock of such company in this state unless and until such company has furnished the Insurance Commissioner with full particulars as to the methods and proposed cost of promotion. Before any such person shall solicit subscriptions to or sell the stock of such company, he shall be required to secure a license from the Insurance Commissioner, who, prior to the issuance of such license, shall in- vestigate the record of the applicant and may, for good cause shown, refuse to issue same. The fee for each such license shall be ten dol- lars. The cost of promotion, including commissions to the stock sales- men and all expenses of organization of whatever character, shall not exceed five per' centum of the subscription or selling price of each share of stock, and the Insurance Commissioner shall require this provision to be plainly set forth in the stock subscription agreement or contract for the sale of stock. No part of the commissions to the salesmen or other organization expense under any subscription for stock shall be payable until such share or shares of stock have been fully paid for in cash or securities of equivalent value. The subscription to or sale of stock in any such company in series is prohibited, except that after a company is organized and actively engaged in the insurance business, the Insurance Commissioner is empowered to authorize it to sell a new issue of stock at an advanced price on conditions not otherwise inconsistent with the provisions of this section. The fiscal agent, person or corpora- tion engaged in promoting the organization of any such insurance com- pany shall be required to give to the Insurance Commissioner a surety bond in the mount of ten per cent of the proposed maximum capital of such company for a faithful performance of the undertaking in ac- cordance with the provisions of this section by both himself and his salesmen. Any violation of the provisions of this section shall be deemed a misdemeanor and shall be punishable by a fine not exceeding one hun- dred dollars for the first offense, and by a fine of not less than one hun- dred dollars or more than one thousand dollars for each subsequent of- fense. MASSACHUSETTS 297 MASSACHUSETTS STATUTES Chap. 427, Acts of 1904 AN ACT To regulate bond and investment companies. Be it enacted, etc., as follows : — Section 1. The business of issuing, negotiating or selling any bonds, certificates or obligations of any kind on the partial •payment or instal- ment plan, unless such bond, certificate or obligations shall at the time of issuance, negotiation or sale be secured by adequate property, real or personal, shall be transacted in this Commonwealth only by corporations subject to the requirements of this chapter. Every such corporation be- fore doing business in this Commonwealth shall have at least one hun- dred thousand dollars of capital stock fully paid in, which for the benefit and protection of all its investors equally shall be deposited in trust with the treasurer of the Commonwealth, or with the duly author- ized officer of some other state, which deposits shall consist of cash or -of securities in which the savings banks in this Commonwealth are per- mitted to invest their deposits, or of securities approved by the savings bank commissioners and worth at least one hundred thousand dollars. Such corporation, if the deposit is made with the officer of any other state, shall furnish the savings bank commissioners with a certificate from said officer under his official seal, showing that he, as such officer holds said deposit in trust for the benefit and protection of all the in- vestors in said corporation. The certificate shall embrace the items of securities so held, and' show that such officer is satisfied that said securi- ties are worth one hundred thousand dollars, but such certificate shall in no manner impair the right of said commissioners to examine the se- curities so held. A corporation making such deposit with the treasurer of this Commonwealth shall be entitled to the income thereof, and may from time to time, with the consent of the treasurer, change, in whole or in part, the deposited securities for other securities of equal value, approved as aforesaid. The treasurer may return to the corporation any such deposit, if it shall appear that the corporation has ceased to do business in this Commonwealth, and is under no obligation to its con- tract holders or other person in this Commonwealth or elsewhere for whose benefit such deposit was made. A corporation that has made such deposit, or the commissioners of savings banks, or any creditor, may bring in the supreme judicial court for the county of Suffolk a suit in equity against the Conimonwealth to enforce, administer or terminate the trust created by such deposit. 298 MASSACHUSETTS Section 2. No corporation shall transact said business without receiving a certificate of authority from the commissioners of savings banks. Upon the filing of the certificate required by the provisions of section one by such corporation and upon an examination or exhibition ' of the assets and liabilities of such corporation showing that it is in. a sound financial condition and if it is otherwise duly qualfied under the laws of this Commonwealth to transact business therein, ^aid commis- sioners shall issue to said corporation a certificate of authority to do business in this Commonwealth. Upon the filing of such certificate, or . whenever they deem it to be prudent for the protection of investors in this Commonwealth, said commissioners may visit personally, or by a competent exarriiner whom they shall appoint, any corporation engaged in said business, and thoroughly inspect and examine its affairs, and ascertain its financial condition and whether it has complied with the provisions of law. The proper charges incurred in the examination of a foreign corporation, including the expenses of the commissioners and the expenses and compensation of their assistants employed therein, shall be paid by such corporation. For the purposes aforesaid, the commis- sioners or the person making the examination shall have free access to all the books and papers of a corporation which relate to its business, and to the books and papers kept by any of its agents; and may examine and administer oath to, and examine as witnesses, the directors, officers and agents of said corporation, and any other person relative to its af- fairs, transactions and condition. Section 3. Every corporation transacting said business shall an- nually, on or before the fifteenth day of January, file in the office of the commissioners of savings banks a statement which shall exhibit its financial condition on the thirty-first day of December of the previous year, and its business of that year. For cause, the commissioners may extend the time for filing said statement, but not to a date later than the fifteenth day of February. Such annual statement shall be in the form required by the commissioners of savings banks, and shall be sworn to by the president and secretary, or in their absence, by two of its principal officers. For filing each annual statement every corporation shall pay to the Commonwealth twenty dollars. A corporation which neglects to file its annual statement with the board within the time re- quired Sihall forfeit one hundred dollars for each day during which such neglect continues; and, upon notice of the commissioners of savings banks to that effect, its authority to do any business shall cease while such default continues. For willfully making a false annual statement, the corporation and the person making oath to or subscribing to the same shall be punished by a fine of not less than five hundred dollars nor more than five thousand dollars, and a person who makes oath to such fake statement shall be guilty of perjury. Section 4. If the commissioners of savings banks are of opinion, upon examination or other evidence, that a foreign corporation subject MASSACHUSETTS 299 to this chapter is in an unsound financial condition, that it has failed to comply with the law, or if its officers or agents refuse to submit to examination or to perform any legal obligation relative thereto, they shall suspend all certificates of authority granted to said foreign corporation, its officers or agents, and shall cause notices thereof 'to be published in the newspaper in which the general laws are published; and no new business shall thereafter be done by it in this Commonwealth while such default or disability continues, nor until its authority to do business is restored by the commissioners, or by the supreme judicial court as here- inafter provided. They shall forthwith notify the company of such suspension and shall specify in the notice the cause thereof and the particulars of any alleged violation of law. The supreme judicial court, upon petition of said corporation brought within thirty days after receipt of said notice, shall summarily hear and determine the question whether such cause for suspension exists, and shall make any appropriate order or decree therein. Question of law may be taken to the full court, as in other cases. If upon examination the commissioners of savings banks are of opinion that any domestic corporation subject to the requirements of this chapter is in an unsound financial condition or has exceeded -its powers, or has failed to comply with any provision of law, they shall apply to the supreme judicial court, which shall have jurisdiction in equity of such application, for an injunction restraining it, in whole or in part, from further proceeding with its business. The court may issue an in- junction forthwith, and may, after a full hearing, make the injunction perpetual, and may appoint a receiver or receivers to take possession of , the property and effects of the company and to settle its affairs, subject to the order of the court. Section 5. Whoever sells or attempts to sell any bond, certificate or obligation issued by a corporation subject to the requirements of this chapter, or transacts any business in behalf of said corporation, unless said corporation is authorized by the commissioners of savings banks, as hereinbefore set forth, shall be punished hy a fine of not less than one hundred nor more than one thousand dollars', or by imprisonment for not more than six months, or by both -such fine and imprisonment. Section 6. Every corporation subject to the requirements of this chapter shall provide in every bond, certificate or contract issued by it that, after one-fourth of the total amount of instalments therein re- quired has been paid and in any event after instalments for two full years have been paid thereon, in case of default in the payment of any subsequent instalment a paid up bond shall be given to the holder of said bond, certificate or contract, of not less than the full amount paid thereon less any amount paid by said corporation on account thereof, said paid up bond to mature at the same date as the original bond, certificate or contract ; and no such corporation shall provide for the payment of profits in the form of dividends or otherwise, except from earnings, nor pay any part of the payments made by the holder of any bond, certificate 300 MASSACHUSETTS or contract in force to the holder of any other bond, certificate or con- tract : provided, hoisf^ver, that nothing herein contained shall be con- strued to prohibit the payment of accumulations by such corporation on its contracts at their final maturity. Section 7. The provisions of this act shall not apply to corpora- tions which are subject to the requirements of chapters one hundred and eighteen, one hundred and nineteen and one hundred and twenty of the Revised Laws. Section 8. Any person or corporation violating any provision of this chapter for which no penalty is specifically provided shall be punished by a fine of not more than five hundred dollars. [Approved June 4, 1904.] (Acts of 1911, Chapter 492.) AN ACT Relative to the listing and advertising of shares of stock of mining corporations. Be it enacted, etc., as follows: Section 1. An officer of a mining corporation who makes a false statement, knowing the same to be false, in an application to any stock exchange to list the shares of such corporation shall be punished by a fine not exceeding five hundred dollars, or by imprisonment for not more than two years. Section 2. No officer, agent, clerk or servant of a mining corpora- tion, nor any person dealing in the shares of suoh corporation shall cause to be published any advertisement of the shares of such corporation in which any statement is made of the value of the property of the corpora- tion, or of its present or prospective earnings, or of a prospective increase in the price of the shares, unless the president and a majority of the directors of such corporation, ■ within sixty days prior to the date of the publication of such advertisement; shall have filed with the commissioner of corporations, in such form as he shall prescribe, a statement under oath of the financial condition of the corporation, a full description of its property, and a statement of the earnings, if any, from the operation of the same for the fiscal year next preceding the date of the filing of the said statement. Section 3. Whoever, having caused the publication of such an advertisement, or being a promoter, officer-, clerk or servant of a mining corporation, or a broker or agent for such a corporation or for such a promoter, or for the person or corporation causing the publication of such an advetisement, sells or oflfers foi" sale any shares of stock in such cor- poration knowing that any statement in such advertisement is false or is inconsistent with a statement filed under the provisions of section two MASSACHUSETTS 301 of this act, shall be punished by a fine of not more than five hundred dol- lars or by imprisonment for not more than two years. Section 4. Whoever violates the provisions of section two of this act shall be punished by a fine of not more than two hundred dollars or by imprisonment for not more than one year; and an officer or director of a mining corporation who signs any false statement filed with the com- missioner of corporations under the provisions of said section, knowing such statement to be false, shall be punished by a fine of not more than one thousand dollars or by imprisonment for not more than two years. [Approved May 27, 1911.] 302 MICHIGAN MICHIGAN STATUTES "Blue Sky Law" AN ACT To prevent fraud in the sale and disposition of stocks, bonds or other securities sold or offered for sale within the state of Mich- igan by any dealer, firm, company, association or corporation, foreign or domestic, by requiring an inspection of such stocks, bonds, or other securities and an inspection of the business of such persons, firms, companies, associations or corporations, in- cluding dealers and agents, and such regulation and supervision of the business of said persons, firms, companies, associations, or corporations, including dealers and agents, as may be neces- sary to prevent fraud in the sale within the state, of any stocks, bonds or other securities, and to provide a. penalty for the violation thereof, and to repeal act number one hundred and forty-three of the Public Acts of nineteen hundred thirteen, approved May two, nineteen hundred thirteen, and all other acts or parts of acts inconsistent herewith. (Act No. 46, P. A. 1915) The People of the State of Michigan enact: Section 1. There is hereby created a commission to be known- as ,the Michigan Securities Commission and hereafter called in this act "the commission," whose duty it shall be to administer and provide for the enforcement of all the provisions of this act. Said commission shall consist of the Commissioner of the State Banking Department who shall be president thereof ; the State Treasurer of the State and the Attorney General of the State, all of whom shall be members of said commission during their respective terms of office and any two of whom shall consti- tute a quorum. The said commission shall succeed the Michigan securi- ties commission created by act one hundred forty-three of the Public Acts of nineteen hundred thirteen, and as such successors shall receive all of the files, papers and property of said Michigan securities com- mission created by said act one hundred forty-three of the Public Acts of nineteen hundred thirteen. All proceedings pending before said Mich- igan securities commission created by said act one hundred forty-three of the Public Acts of nineteen hundred thirteen shall be continued by the commission created by this act ; all actions, civil and criminal, pending under said act one hundred forty-three of the Public Acts of nineteen hundred thirteen shall he continued and completed thereunder. Said MICHIGAN 303 commission shall have its office in the capitol in the city of Lansing, in rooms to be provided by the Board of State Auditors, and all of its records shall be there kept. It shall hold a regular meeting on the first Friday of each month and may hold special meetings upon the call of the president. It shall ■ keep a complete record of all its meetings, its accounts and the business it transacts. It shall appoint a secretary whose salary shall not exceed the sum of tvifenty-five hundred dollars per annum and shall have power to employ such other and further assistants as may be necessary to carry out the provisions of this act. All salaries fixed by it shall be subject to the approval of the Board of State Auditors. It shall make such rules and regulations as may be necessary to carry out the provisions of this act and may prepare all necessary blanks to be used in its proceedings and in the conduct of its business. Section 2. Every person, corporation, co-partnership, company, or association, except those exempt under the provisions of this act, organ- ized, or which shall hereafter /be organized in this State, whether in- corporated or unincorporated, which shall either himself, themselves or ' itself, or by or through others, sell or negotiate for the sale of any stocks, bonds or other securities issued by him, them or it within the State of Michigan, shall be known for the purposes of this act as a domestic investment company. Every such person, corporation, co-partnership or association resident of or organized in any other state, territory or govern- ment, shall be known for the purposes of this act as a foreign investment company. Section 3. The provisions of this act shall not apply to (a) securi- ties of the United States, or any foreign government, or of any state or territory thereof, or of any county, city, township, district or other public taxing subdivision of any state or territory of the United Sates, or of any foreign government; (b) unsecured commercial paper; (c) securities of public or quasi public corporations, the issue of which securities are reg- ulated by the Michigan Railroad Commission or by a pubic service com- mission or board of equal authority of any state or territory of the United States or securities senior thereto ; (d) securities of state or national banks or trust companies, or building and loan associations of this State; (e) securities of any domestic corporation organized without capital stock and not for pecuniary gain, or exclusively for educational, benevolent, char- itable or reformatory purposes; (f) mortgages upon real and personal property situated within this State where the entire mortgage is sold and transferred with the note or notes secured by such mortgages ; (g) in- crease of stock sold and issued to stockholders, also stock dividends ; (h) securities which are listed in any standard manual of information approved by said commission ; Provided, however, That said commission shall have the power to call for additional and further information than that con- tained in such manuals with reference to any securities listed therein, and may, pending the filing of such information, suspend the sale of such securities, and also suspend, either temporarily or permanently, the sale 304 MICHIGAN of any securities listed in such manuals after a hearing upon notice to the issuer of such securities if said commission shall find that the sale of such securities would work a fraud upon the purchasers thereof; (i) all stocks, bonds and securities approved by the Michigan securities com- mission created by act one hundred forty-three, of the Public Acts of nine- teen hundred thirteen. Section 4. Before selling, offering for sale, taking subscriptions for, or negotiating for the sale in any manner whatever in this State, any stocks, bonds or other securities of its own issue, every investment com- pany, domestic or foreign, shall file in the ofifice of the commission a state- ment showing in full detail the plan upon which it proposes to transact business ; a copy of all contracts, stocks, bonds or other instruments which it proposes to make with, or sell to, its contributors or customers, to- gether with a copy of its prospectus, and of the proposed advertisements of its scale of stocks, bonds, or other securities which statement shall also show the name and location and main office of the investment company; the names and addresses of its officers, and an itemized account of its financial condition and the amount of its assets and liabilities, and such other information touching its conditions and affairs as the commission may require. If such investment company shall be a co-partnership or an unincorporated association it shall also file with the commission a copy of its articles of co-partnership or association, and all other papers per- taining to its organization. If it be a corporation organized under the laws of Michigan it shall also file with the commission a copy of its articles of incorporation, constitution and by-laws, and all other papers pertaining to its organization. If it shall be an investment company organized under the laws of any other state, territory or government, incorporated or unincorporated, it shall also file with the commission a copy of the laws of the state, territory, or government under which it exists or is incorporated, and also a copy of its charter and the certifi- cate of the proper officer of such state showing that it is authorized to transact business there; and also copies of its constitution and by-laws, and all amendments of any of the above mentioned instruments which have been made, and all other papers pertaining to its organization. It shall also pay a filing fee of one-tenth of one per cent upon the face value of the securities for the sale of which application is made : Pro- vided, however. That such filing fee shall not be more than one hundred dollars, nor less than ten dollars. Section 5. All of the above described papers shall be verified by the oath of a member of the co-partnership or- company, if it be a co- partnership or company, and by the oath of a duly authorized officer, if it be a corporation or an unincorporated association. All such papers, however, as are recorded or are on file in any public office shall be fur- ther certified by the officer of whose records or archives they form a part, as being correct copies of such records or archives. MICHIGAN 305 Section 6. Every foreign investment company before offering for sale any of its stock, bonds or other securities in this State shall also file its irrevocable written consent that suits and actions may be com- menced against it in the proper court of any county in this State in which a cause of action may arise or in which the plaintiff may reside, by the service of any process or pleading authorized by the laws of this State, on the Commissioner of the State Banking Department, said consent stipulating and agreeing that such service of such process or pleadings on such commissioner shall be taken and held in all courts to be as valid and binding as if due service had been made upon the com- pany itself, and said instrument containing such consent shall be authen- ticated by the seal of said foreign investment company, and by the acknowledged signature of a member of the co-partnership or company, if it be a co-partnership or company, or by the acknowledged signature of the president and secretary of the incorporated or unincorporated association, if it be an incorporated or unincorporated association, and shall in such case be accompanied by a duly certified copy of the reso- lution of the board of directors, trustees or managers of the corporation or association, authorizing the secretary and president to execute the same. In case any process or pleadings mentioned in this act are served upon the Commissioner of the State Banking Department, it shall be by duplicate -copies, one of which shall be filed in the oifice of the Michigan Securities Commission and another immediately forwarded by registered mail to the head office of the person or corporation against which said process or pleadings are directed. Section 7. Said application shall be heard by the said commission at the next regular meeting after said application is filed (providing such filing shall precede such monthly meeting by twenty-four hours), or at a special or adjourned meeting of said commission, but if such application is heard at a special or adjourned meeting of said commis- sion the secretary shall give such applicant at least two days notice of such hearing. Said commission may have power to adjourn such hear- ings upon such applications from day to day or from time to time. Section 8. The said commission shall have power to demand from any investment company seeking to come under the provisions of this act any further information other than such investment company is required to furnish under the provisions of this act which shall be necessary to the end that the commission may be put in possession of all facts and information necessary to qualify it to properly f ass upon all questions that may come befoe it. It may make or have made under its direction a detailed examination of such investment company's property, a business and affairs, which examination shall be at the expense of such investment company. It may cause an appraisal to be made, at the expense of said investment company, of the property of said in- 20 306 MICHIGAN ■ vestment company, including the value of patents, good will, promotion and intangible assets, and it may fix the amount of stocks, bonds and securities if such corporation has issued stocks, foreign or domestic, in payment for property, patents, good will, promotion and intangible assets in excess of their value find the same to be worth and may require that such stocks and securities so issued for such property, patents, good will, promotion and intangible assets shall be deposited in escrow under such terms as said commission may prescribe. And said commission may withhold its license to sell such stocks, bonds and securities if such corporation has issued stocks, bonds and securities in payment for prop- erty, patents, good will, promotion and intangible assets in excess of their value as found by said commission or if said stocks, bonds and se- curities are not deposited in escrow according to the terms fixed by such commission until such stocks, bonds and securities issued in payment for property, patents, good will, promotion and intangible assets in excess of the value so found by said commission have been surrendered to such corporation and cancelled by it, and until the said stock has been deposited in escrow under the terms prescribed by said commission. SEcno^f 9. It shall be the duty of said commission to examine the statements and documents filed in its office by an investment com- pany and the reports of any investigation conducted under the direction of said commission and to hear such applicant and it shall have power to examine under oath any person interested or connected with such investment company, and if said commission finds that the proposed plan of business of said investment company, or that its proposed contracts, stocks, bonds or other securities are fraudulent or are of such a nature that the sale of such contracts, stocks, bonds or other securities would in the opinion of said commission work a fraud upon the purchaser, then said commission shall disapprove the sale of such proposed con- . tracts, stocks, bonds or other securities and shall notify such investment company by registered mail of its findings and disapproval, and it shall be unlawful for such company to do any business in the way of selling, offering for sale, taking subscriptions for, or negotiating for the sale in any manner whatever of any such contracts, stocks, bonds and other securities in this State; and said contracts, stocks, bonds and other securities shall not be sold in this State. If, however, said commission shall not find that the proposed plan of business of said investment com- pany or that its- proposed contracts, stocks, bonds or other securities are fraudulent or are of such a nature that the sale of such contracts, stocks, bonds or other securities would in the opinion of said commission work a fraud upon the purchaser thereof, then it shall approve the sale of such stocks in the State of Michigan and issue its certificate in sub- stantially the following language : MICHIGAN 307 "This is to certify that the has this date been given permission to sell J of its within the stocks, bonds or securities. State of Michigan. The Commission does not recommend the purchase of this security. Dated In Witness Whereof, I have hereunto affixed the corporate seal of the Michigan Securities Commission. (Seal) Secretary." The words "The commission does not recommend the purchase of this security" shall be printed in type two sizes larger than any other part of said certificate, and in case said certificate or the fact that said com- mission has approved said security, is printed or published in any cir- cular, pamphlet or newspaper, the words "The commission does not rec- ommend the purchase of this security'' shall be printed in type two sizes larger than the type in which the statement of fact that such security has been approved by said commission appears. ' Section 10. Any person, firm, co-partnership, corporation ot asso- ciation whether domestic or foreign, not the issuer, who shall in this State sell or offer for sale any of the stocks, bonds or other securities issued by any foreign or domestic investment company, except the se- curities specifically exempted in this act, or who shall by advertisement or otherwise profess to engage in the business of selling or offering for sale such securities, shall be deemed to be a "dealer" in such securities within the meaning of this act, and no dealer within the meaning of this act shall sell or offer for sale any such securities or profess- the business of selling or offering for sale such securities unless and until he shall have filed a list of the same in the office of the Michigan Securities Com- mission as in this act provided. The term "dealer" shall not include an owner not issuer, of such securities so owned by him when such sale is not made in the course of continued and successive transactions of a similar nature, nor one who in a trust capacity created by law lawfully sells any securities embraced within- such trusts. Section 11. Any dealer desiring to sell or offer for sale within this State any stocks, bonds or other securities not exempted under the terms of this act, shall first register with the Michigan Securities Com- mission and shall furnish said commission, upon oath, in such form as the commission shall prescribe, the following information, to-wit: The dealer's name, residence and business address, the general character of the securities to be dealt in, the place or places where the business is to be conducted within this State, and where the business in this State is not to be conducted by the dealer in person, then the names and ad- 308 MICHIGAN dresses of all the persons in charge thereof. Said dealer shall pay to the commission a fee of fifty dollars and shall furnish said commission with such other information in addition to that above specified as said commission shall deem necessary in order to thoroughly acquaint such commission with the character of the business of said dealer. All au- thorized agents of any dealer shall be registered with the commission and the name of any agent shall be stricken from the register by the commission upon the written request of the dealer and additional agents may be registered by the commission upon like request of the dealer ■ Provided, That no agent shall act as such until his name and address shall be registered with the commission. If the dealer shall be a non- resident of this State or a corporation other than a domestic corpora- tion, he shall at the time he registers with the commission, file with the commission a written duly authenticated appointment of the Commis- sioner of the State Banking Department of this State as his or its agent in Michigan upon whom process or pleadings may be served for and on behalf of the dealer, which appointment shall be irrevocable. Upon compliance by such dealer with the provisions of this act the said com- mission shall issue to such dealer a license under, the seal of said com- mission and signed by. the secretary thereof, which said license shall be good until revoked by said commission for good cause upon notice to such dealer and a hearing duly had : Prodded further. That said com- mission shall issue the license provided for in this section to each dealer registered under act one hundred forty-three of the Public Acts of nine- teen hundred thirteen upon the payment to said commission of the sum of one dollar, and shall also issue licenses under the terms of this act and upon the payment of the sum of twenty-five cents to such agents as were registered under the provisions of said act number one hundred forty-three of the Public Acts of nineteen hundred thirteen. Section 12. In addition to the filing and examination fees herein provided for to be paid by investment companies and dealers, there shall . be charged and collected by said commission a fee of three dollars for the registration and authorization of each agent of any such investment company or dealer and all the fees and charges collected by the com- mission shall be turned into the State Treasury and are hereby reappro- priated to the commission towards paying the expenses of enforcing this act. The expenses of said commission shall not, however, be limited to the moneys received by it, but it shall have the power to incur all ex- penses it finds necessary in enforcing the provisions hereof. Section 13. General accounts of every investment company, do- mestic or foreign, shall be kept in a businesslike, and intelligent manner and in sufficient detail that said commission can ascertain at any time its financial condition and the books of accounts shall at all times during business hours, except on Sundays and legal holidays be open to stock- holders and investors in said company, and the said commission or its MICHIGAN 309 duly authorized representatives, and all such investment companies, shall be subject to examination by said commission or any member thereof or the clerks, accountants oi- examiners thereof, at any time said commis- sion shall deem it advisable, and in the same manner as it is now pro- vided for the examination of State banks, and such investment company s.hall pay a fee for each of such examinations of not to exceed seven dollars for each day or fraction thereof that any member of said com- mission, clerk, accountant or examiner is absent from the capitol build- ing for the purpose of making such examination and shall also pay the actual traveling and hotel expenses of the person or persons making such examination and the failure or refusal of any investment company to pay such fees, upon demand of such commission, clerk, accountant or examiner, while making such examination shall work a forfeiture of the right of such investment company to sell or offer for sale any of its contracts, stocks, bonds or other securities in this State. In case of a preliminary examination of any investment company by Said commis- sion for the purpose of the ascertainment by said commission as to whether said company shall be permitted to come under the provisions of this act, the fee for such examination shall be the same as in this sec- tion provided, and in case it shall be made to appear to the commission from the examination of said investment company after said investment company has been authorized to sell its stocks, bonds and securities that the further sale of said stocks, bonds and other securities would work a fraud upon the purchaser, then said commission may make an order revoking the license of said investment company to sell its stocks, bonds and securities upon notice duly given and a hearing duly had and may, pending such .hearing, suspend the right of said investment company to sell its Stocks, bonds and securities. Section 14. It shall be unlawful for any investment company or dealer, or representative thereof, either directly or indirectly, to sell or cause to be sold, offer for sale, take subscriptions for, or negotiate for the sale in any manner whatever in this State, any stocks, bonds or other securities (except as expressly exempted herein), unless and until said commission has approved thereof and issued its certificate in ac- cordance with the provisions of this act, nor shall it be lawful for any such investment company to transact business on any other plan than that set forth in the statements and papers required to be filed by virtue of the provisions of this act or the rules of the commission. It shall be unlawful for any investment company or dealer, or its or his agents, to issue, circulate or dfeliver any advertisement, pamphlet, circular, pros- pectus, or other document in regard to its stocks, bonds or other secur- ities in the State of Michigan differing in any way from the copy filed with said commission as provided' by this act. It shall be unlawful for any newspaper published in the State of Michigan to advertise the sale of any stocks, bonds or securities which have not been approved by said commission' or which are not exempt under the provisions of this act. 310 MICHIGAN Section 15. No dealer within the meaning of this act shall sell or offer for sale within this State any of the stocks, bonds or other secur- ities of any investment company unless such investment company shall have fully complied with all the provisions of this act, nor until said dealer shall have registered with the commission, under the terms of this act: Provided, however. That should any dealer desire to sell or offer for sale within this State the stocks, bonds or other securities of an investment company, which has not itself complied with the pro- visions of this act, said dealer shall make application to the said com- mission for license as hereinbefore provided for applications by invest- ment companies and shall pay the same fee required to be paid by said investment company. Section 16. All information obtained by the commission with refer- ence to any securities and all records of the commission relating thereto shall be open to examination by .the public, and it shall be the duty of the commission to preserve such information, and so classify, and ar- range it as to facilitate examination. The commission may from time to time issue in pamphlet form, or by means of newspaper advertise- ments or otherwise, any and all information regarding any and all con- tracts, stocks, bonds or other securities sold or offered for sale within this State which it deems would be of public interest or advantage. All fees herein provided for shall be paid into the State Treasury by the commission upon receipt thereof. Section 17. Nothing in this act shall be construed to repeal or modify any laws giving the State Banking Department of this State control of and supervision over State banks and the business of banking in this State, nor shall any part of this act be construed to repeal or modify laws giving the Commissioner of Insurance of this State control of and supervision over the business of insurance in this State, and those engaged therein. Section 18. The commission shall adopt a seal with the words "Michigan Securities Commission" and such design as the conimission may prescribe, engraved thereon, by which it shall authenticate its pro- ceedings. Copies of all records and papers in the office of the com- mission certified by the secretary thereof and authenticated by the seal of said Michigan Securities Commission shall be received in evidence in all courts equally and with like effect as the originals. Section 19. Any person who shall knowingly or willfully subscribe to or make or cause to be made any false statement or false entry in any book of any investment company, or who shall exhibit any false paper with the intention or for the purpose of deceiving any person au- thorized to examine into the affairs of said investment company or shall make or publish any false statement of the financial condition of said investment company or false statement relating to the contracts, stocks, bonds, or other securities by it issued and offered for sale, shall be MICHIGAN 311 deemed guilty of a misdemeanor and shall be punished as hereinafter provided. Section 20. The commission shall provide for the furnishing to those who may apply therefor, of any information regarding any invest- ment company or its affairs, which is on file in its office, said commis- sion to charge therefor approximately the cost of preparing such in- formation. All fees collected under the provisions of this act shall be paid into the State treasury on the first day of each and every calendar month, and a complete record of all fees received shall be kept in the office of the commission, and all said fees so turned into the State treasury are hereby re-appropriated to the commission for the purpose of paying salaries and expenses necessary for carrying this act into effect. The members of the commission shall perform the duties im- posed upon them and each of them, by the terms of this act, without other compensation than the salaries paid them by the State, but they shall be entitled to receive their actual expenses incurred when absent from the seat of government on business of the commission. Section 21. Every investment company, domestic or foreign, shall file during the month of January in each and every year a detailed statement in such form and containing such information as the commis- sion shall require showing its condition at the close of business on the preceding December thirty-first, and shall at the same time pay a filing fee therefor of one dollar. Section 22. The supreme court upon petition of any person ag- grieved may review by certiorari any final order of determination of the commission. The issuance of the writ shall not, however, unless specifically ordered by the court, operate as a stay of proceedings. Section 23. Any person or persons who shall violate any of the provisions of this act shall be deemed guilty of a misdemeanor and upon conviction thereof shall be fined not more than one thousand dollars or shall be imprisoned in the county jail for not more than one year, or both such fine and imprisonment in the discretion of the court. Section 24. Should the courts of this State declare any section or provision of this act unconstitutional or unauthorized, or in conflict with any other section or provision of this act, then such decision shall effect only the section or provision so declared to be unconstitutional or unauthorized and shall not affect any other section or part of this act. Section 25. Act one hundred forty-thfee of the Public Acts of nineteen hundred thirteen and all acts or parts of acts in conflict here- with are hereby repealed. Approved April 9, 1915. 312 MICHIGAN Investment Company Law (Howell's Statutes) Corporations Included — Articles — Agreement Relative to Process — Deposit — Interest. Section 9657. Every foreign corporation, partnership and associa- tion, other than life insurance companies and building and loan associa- tions, that places or sells certificates, bonds, debentures, tontine contracts, or other investment securities of any kind or description, on the partial payment or installment plan, shall, as a condition precedent to transact- ing business in this state, comply with the following provisions : First: It shall file with the Secretary of State a certified copy of its charter or Articles of Incorporation or agreement, a copy of its by- laws and rules governing it, together with a sworn statement of its financial condition; Second : It shall file with the Secretary of State, a written instru- ment properly executed, agreeing that any summons or process of any Court in this State may issue against it from any county in this state, and when served upon the Secretary of State, shall be accepted irrevocably as a valid service upon such foreign corporation, partnership or associa- tion : provided, however, that the Secretary of State shall mail a copy of any such legal process served upon him to the home office of such foreign corporation, partnership or association. The plaintiff shall, for each process so served pay to the Secretary of State, at the time of such service, a fee of Ten Dollars, which shall be recovered by the plaintiff as a part of the taxable costs if he prevail in the suit; . Third : It shall deposit with the Secretary of State One Hundred Thousand Dollars, either in cash or bonds of the United States, or bonds of any state in the United States, or bonds of any county or municipal corporation in the State of Michigan, or any other securities which shall be approved by the Secretary of State. Said deposit shall be held as security for all claims of residents of this state against such foreign corporation, partnership or association, and shall be liable for all judg- ments or decrees thereon; and said securities shall not be released until all contracts and obligations to residents of this state shall have been fully performed and discharged. Such foreign corporation, partnership or association may collect and use the interest on any securities so de- posited, so long as it fulfills its obligations and complies with the pro- visions of this Act. It may also exchange them for other securities of equal value if satisfactory to the Secretary of State : provided, that when, by the laws of any other State, such tontine, bond, certificate and invest- ment companies, organized or doing business therein are required to keep on deposit with the State Treasurer of that state, or other state officer, securities for the protection of all investors, and any such com- pany shall furnish the Secretary of State the certificate of the proper MICHIGAN 313 officer of suoh other state, showing the amount and character of the securities so deposited with him, and if it shall appear therefrom that the said securities are equal in market value and availability to One Hundred Thousand Dollars, the Secretary of State shall thereupon be authorized to issue to such company, a certificate of authority to transact business within this state without any such deposit of securities required as a condition precedent to transacting business within this state : pro- vided further, however, that any such company so authorized shall, on , or before the 10th day of January of each year, deposit with the Secre- tary of State of this State, an amount equal to 20% of the gross re- ceipts on the amount of business done by it in the State of Michigan for the next year preceding the 31st day of December, until the total amount of said deposit shall amount to One Hundred Thousand Dollars, at which amount it shall thereafter be maintained. Said deposit shall be either in cash or approved securities hereinbefore named, which deposit shall be subject to the same provisions of this Act as a deposit made as a condition precedent to transacting business in this State herein provided. Section 9658. Who Responsible for Deposits. All such securities deposited with the Secretary of State shall be immediately deposited by him with the State Treasurer, who with his sureties, shall be responsible for the safe keeping thereof. The State Treasurer shall deliver such securities only upon the written order of, the Secretary of State. Section 9659. Certificate of Authority — Renewal. Whenever such foreign corporation, partnership or association ha!» complied with the provisions of this Act, and the Secretary of State is satisfied that it is in sound financial condition, and upon payment by sudi foreign corporation, partnership or association, of a franchise fee such as is required to be paid by corporations organized under the laws of this state, the Secretary of State shall issue his-certificate of authority to such foreign corporation, partnership or association doing business in this State. Annually thereafter, upon the filing of the annual statement herein provided for, and if the Secretary of State shall be satisfied that such foreign corporation, partnership or association is conducting its business in accordance with the laws of this state, and shall regard it as safe, reliable and entitled to public confidence, he shall issue a renewal of such certificate of authority. Section 9660. When Securities May Be Sold. If at any time any resident of this state shall recover judgment against such foreign corporation, partnership or association, and which after thirty days shall not have been satisfied, the State Treasurer, upon an order from the Secretary of State, shall proceed to sell, at the current market value, sufficient of the securities deposited with him, to satisfy the amount of sudi judgment, together with one percent for his services and expenses: provided, that before ordering the State Treasurer to 314 MICHIGAN dispose of such securities as aforesaid, the Secretary of State shall be served with an affidavit by the plaintiff or his attorney setting forth the recovery of the judgment, and that the same has remained unpaid for thirty days, and that no proceedings are pending for the review or re- versal of the same: provided further, that such foreign corporation, part- nership or association, after notice of the service of such affidavit, shall not transact any new business in this state until any deficiency of se- curities, caused by the necessity of satisfying such judgments, shall have been made good by a further deposit of similar securities with the Secre- tary of State. Section 9661. Annual Report. Every such foreign corporation, partnership or association doing business within this state shall, upon the first day of January of each year, or within thirty days thereafter, file with the Secretary of State a full and detailed statement of its financial condition on the 31st day of the preceding December, and of the business transacted during the preceding year. Said statement shall contain such information, and be in such form as the Secretary of State may prescribe, and shall be sub- scribed and sworn to by the President and Secretary, or other managing officer. Section 9662. Annual Examination — Powers of Examiner — Revocation of Certificate. Once in each year, or oftener, if in the opinion of the Secretary of State it shall be necessary, the Secretary of State shall make, or cause to be made, an examination into the affairs of every such foreign corpora- tion, partnership or association doing business in this State. Such ex- amination shall be full and complete, and in making the same the ex- aminer shall have full access to, and may compel the production of all books, papers and money, etc., of the corporation, partnership or associa- tion under examination, and may administer oaths to and examine officers of such corporation, partnership or association, or any other person connected therewith, as to its business and affairs. If, upon such examina- tion, it shall appear that such corporation, partnership or association does not conduct its business in accordance with law, or that its affairs are in an unsound condition, or if such foreign corporation, partnership or association refuses such examination to be made, the Secretary of State may revoke its certificate of authority to do business in this state: pro- vided, that upon the revocation of said certificate of authority, the Secre- tary of State shall mail a notice thereof to the home office of such foreign corporation, partnership or association, and cause a similar notice to be published in at least one newspaper published in the City of Lansing. Section 9663. Penalty for Unlawfully Transacting Business. Any officer, agent or representative of any such corporation, partner- ship or association, who shall attempt to place or sell any certificates, debentures, tontine contracts or other investment securities, or transact MICHIGAN 315 any business whatsoever in the name or on behalf of any such corpora- tion, partnership or association not authorized to do business in this state, or -which has failed 'or refused to comply with the provisions of this Act, shall be deemed guilty of a misdemeanor, and upon conviction thereof shall be punished by a fine of not less than One Hundred Dollars nor more than Five Hundred Dollars for such offense, and in default of payment of such fine shall be imprisoned for a period not to exceed one year, or he may be punished by imprisonment for a period of not less than three months nor more than one year, or by both such fine and imprisonment in the discretion of the court. Section 9664. Fees. All such foreign corporations, partnerships or associations author- ized to transact business in this state shall be subject to and shall pay to the Secretary of State the following fees, which fees shall be paid into the State Treasury, to-wit: For filing certified copy of Articles of Association, By-Laws, annual statements or any- other papers. One Dol- lar ; for each certificate of authority and annual renewal of same. Five Dollars ; for making certified copy of any of the papers above mentioned, twenty cents per folio of one hundred words; for making the examina- tions herein provided for, the sum of Ten Dollars per day and necessary expenses for the actual time employed in making such examinations ; also the franchise fee hereinbefore described. Section 9665. Application of Act. Every foreign corporation admitted to do business within this state, under the provisions of chapter No. 163 of the Compiled Laws of 1897, and all other foreign corporations, partnerships and associations, other than life insurance companies and building and loan associations, at present transacting, within this state, the business designated in Section One of this Act, shall be subject to all the provisions of this Act, and shall, within sixty days after the passage of this Act, comply with all its requirements. Section 9666. Acts Repealed. All Acts or parts of Acts contravening the provisions of this Act are hereby repealed. Section 9(£]. Certificates of Authority — Procedure to Secure. No corporation, company, partnership, association or firm, other than building and loan associations and life insurance companies, shall be permitted to place or sell certificates, bonds, debentures, tontine con- tracts, or other investment securities of any kind or description on the partial payment or installment plan until it shall procure a certificate of authority from the Secretary of State. To procure such certificate of authority it S'hall be necessary for such corporation, company, partner- ship, association or firm to file with the Secretary of State a copy of the certificate, bond, debenture, tontine contract, or other investment con- tract being issued, or which is intended to be issued; also a copy of its 316 MICHIGAN by-laws or rules governing it, and of all printed matter issued, together with a sworn statement showing in detail, its financial condition. Section 9668. When Secretary of State May Issue. If the Secretary of State is satisfied that the business of such corporation, company, partnership, association or firm is not. in viola- tion of the law or public policy, and is safe, reliable and entitled to public confidence, and if he shall approve the investment contract herein- before named, he may issue a certificate of authority to such corporation, company, partnership, association or firm to transact business in this State. Section 9669. Annual Examination — Access to Books — Revo- cation of Certificate. Once in each year, or oftener, if in the opinion of the Secretary of State it shall be necessary, the Secretary of State shall make or cause to be made, an examination into the affairs of every such corporation, company, partnership, association or firm doing business in this State. Such examination shall be full and complete, and in making the same the examiner shall have full access to, and may demand the production of, all books, securities, papers, moneys, etc., of the corporation, com- pany, partnership, association or firm under examination and may ad- minister oaths to and examine any person connected therewith. If upon examination, it shall apTpear that such corporation, company, partnership, association or firm does not conduct its business in accordance with the law, or that its affairs are in an unsound condition, or if such corpora- tion, company, partnership, association or firm refuses such examination to' be made, the Secretary of State may revoke its certificate of authority to do business in this State. Section 9670. Unlawful to Sell Certain Contracts. It shall be unlawful for any such corporation, company, partner- ship, association or firm to issue or sell in this State any bonds,' de- bentures, certificates, tontine contracts, or obligations of any kind what- soever which . are by the terms thereof to be redeemed in numerical order, or in any arbitrary order of procedure without reference to the amount previously paid thereon by the holder thereof. Section 9671. Penalty for 'Violation. ' Any member, or representative of any such corporation, company, partnership, association or firm, who shall attempt to place or sell any certificates, debentures, tontine contracts, or other investment securities of any kind or description, or transact any business vvhatsoever in the name or on behalf of any such corporation; c&mpany, partnership, asso- ciation or firm, not authorized to do business in this State, and which has failed or refused to comply with the provisions of this Act or has violated any of the provisions of the preceding sections, shall be deemed guilty of a misdemeanor, and, on conviction thereof, shall be punished MICHIGAN 317 by imprisonment in the State Prison for a period not to exceed two years, or in the county jail not to exceed one year, or by fine of not less than Two Hundred Dollars nor more than One Thousand Dollars, or by both such fine and imprisonment in the discretion of the court. Section 9672. What Companies Subject to Act. Every corporation, company, partnership, association or firm other than building and loan associations and life insurance companies, at present transacting within this State the business designated in Section One of this Act (§ 9667) shall be subject to all the provisions of this Act, and shall, within sixty days after the passage of this Act, comply with all its requirements. Section 9673. Fees. Every such corporation, company, partnership, association or firm authorized to do business in this State shall be subject to and shall pay to the Secretary of State the following fees, which fees shall be paid into the State Treasury, to-wit: For filing any of the papers hereinbe- fore named. One Dollar; for making and certifying to copies of the same, twenty cents per folio of one hundred words ; for each certificate of authority, Five Dollars ; for making annual examination herein pro- vided for, Ten Dollars per day and necessary expenses for the actual time employed in making such examination. Section 9674. Appointment of Special Examiner. For the purpose of carrying out the provisions of this Act, the Secretary of State is hereby authorized to appoint a special examiner, said examiner shall be paid at the rate of ' Seven Dollars per day ; he shall also receive necessary traveling expenses, which when audited by the State Board of Auditors, shall be paid by the State Treasurer on the warrant of the Auditor General. Annotations A prior act (L. 1913, No. 143) was declared to be unconstitutional on the ground that the power given to the commissioners to forbid the sale of securities at less than what they thought the proper price, was a taking of property and was not within the police power, and that the act directly and substantially burdened interstate commerce. Alabama & N. O. Transp. Co. et al vs. Doyle et al. 210 Fed. 173. Act of 1915 Mich. L. 1915 No. 46, known as "Blue Sky Law" declared unconstitutional on same grounds as prior act of 1918. N. W. Halsey & Co. vs. Merrick et al — 228 Federal 805. Reversed in Frank W. Merrick v. Halsey & Company et al., 242 U. S. — , 37 Sup. Ct. Rep. 227. 318 MICHIGAN Administration REVISED RULES AND REGULATIONS OF THE MICHIGAN SECURITIES COMMISSION (All references to Sections refer to the law regulating Foreign and Domestic Investment Companies, being Act No. 46 of the Public Acts of 1915.) I— EXEMPTIONS 1. This law does not affect the sale of the following: (Sec. 3) (a) Securities of the United States, or any foreign govern- ment, or of any state or territory thereof, or of any county, city, township, district or other public taxing subdivision of any state or territory of the United States, or any foreign government. (b) Unsecured commercial paper. (c) Securities of public or quasi public corporations, the issue of which securities are regulated by the Michigan Rail- road Commission or by a public service commission or board of equal authority of any state or territory of the .United States, or securities senior thereto. (d) Securities of state or national banks or trust companies, or building and loan associations of this State. (e) Securities of any domestic corporation organized without capital stock and not for pecuniary gain, or exclusively for educational, benevolent, charitable or reformatory purposes. (f) Mortgages upon real and personal property situated with- in this State where the entire mortgage is sold and trans- ferred with the note or notes secured by such mortgages. (g) Increase of stock sold and issued to stockholders, also stock dividends. (h) Securities which are listed in any standard manual of information approved by said commission. (i) All stocks, bonds and securities approved by the Michigan Securities Commission, created by Act No.' 143 of the Public Acts of 1918. 2. The Commission has on file and until further notice will not demand the filing of statements and will permit the sale of securities listed in the latest editions of : A. The Standard Statistics Bureau's Bond Records. B. The Standard Statistics Bureau's Stock Records. C. Poor's Manual of Railroads. D. Poor's Manual of Public Utilities. E. Poor's Manual of Industrials. MICHIGAN 319 F. Moody's Manual of Railroads and Corporations Securities. G. Michigan Manual of Corporation Statistics. H. Annual Financial Review — Canadian. The Commission, however, reserves the right at its discretion to exclude, at any time, any information contained in the foregomg or furnished under the provisions of this rule, not otherwise exempt, and to demand such additional information and proof as it may deem necessary. (Sec. 3.) Should the Commision at any time be informed that any company listed, or to be listed, in any of the above manuals and claiming exemp- tion thereby, is selling or offering for sale any new issue of stock, bonds or other securities or any part of existing unissued securities, this Com- mission may exercise its right to exclude the statement of such company and it will be necessary for such company to . discontinue selling or offering for sale any of its securities until it has made application to the Commission for the sale of the same, and complied with all of the pro- visions of Act No. 46, Public Acts of 1915. A resolution was made and adopted Oct. 24, 1917, eliminating the manuals listed under paragraph 2, of the Rules and Regulations of the Michigan Securities Commission, as exemptions, and providing that in the future no stock can be sold in Michigan by reason of it beiiig listed in said manuals, unless said listing was prior to Oct. 24, 1917. 3. It is hereby understood that the exemptions provided for under the provisions of Rule two shall only be for the purpose to facilitate dealing in such exempt securities by dealers and agents duly registered with the Michigan Securities Commission, and the benefit of such exemp- tions shall not apply to dealers or agents not registered with the Com- mission. II _ INVESTMENT COMPANIES Domestic and Foreign. ("Sec. 2.) The following requirements must be met by investment companies before selling or offering for sale any of its stocks, bonds, or other securities within this State. The designation "Investment Companies" is a general term 'arid embraces all corporations, co-partnerships, com- panies and associations. (Sec. 2.) 4. Application to sell securities must be made on blanks furnished by the Commission. In addition to the information demanded in the application form there must be attached thereto the several exhibits and statements called for in the same. All documents so attached must, when- ever practicable, conform in size to that of the application and be attached consecutively in the order as requested. Such additional information as the commission may require must also accompany the application. (Sec. 4.) S26 MICHIGAN 5. Filing fee. Minimum fee $10.00, maximum fee $100.00. 'Com- puted at rate of one-tenth of one per cent of face value of all unsold securities (Sec. 4). Under an opinion of the Attorney General filing fee is demanded on the basis of all unsold securities, covered in the application, irrespective of the amount intended to be sold in this State, for in judging the merits of any application the Commission must con- sider the probable value of all securities which might be sold at any time or place. When it is contemplated or probable that the owners of issued securities shall offer for sale such securities in the course of continued and successive transactions of a similar nature a filing fee upon the entire issue must be paid. Payment of fee on this basis will also obviate the necessity of expensive examinations by the Commission to ascertain the exact amount of securities sold. 6. Foreign investment compaines must file consent to suits by service on the Commissioners of the Banking Department. (Sec. 6.) (Blank Forms supplied by the Commission.) 7. If in the judgment of the commission it is necessary to make an examination of any investment company, such company will be so notified. The commission will render a statement of the estimated cost of such examination and the amount so estimated must be remitted in advance to the commission. Where estimate exceeds the actual cost of examination the balance will be returned. 8. No application will be considered unless accompanied by correct filing fee as above provided; nor until such application is complete with all papers demanded filed therewith. 9. Upon examination of any application made by an investment company, the secretary will notify such applicant if an examination of the company should be made, also the date of hearing and said applicant may appear and be heard either in person or by counsel at such meeting or at any meeting to which hearing upon such application may be ad- •journed. 10. No investment company should, either in its prospectus, its advertising, or in soliciting sale of its stock or other securities, use, for the purpose of making such sales, the fact that permission to sell such securities has been given by this commission. In case the fact that said commission has approved such security is printed in any circular, pamph- let, or newspaper, the words "The Commission does not recommend the purchase of this security" shall be printed in type two sizes larger than the type in which the statement of fact that such security has been ap- proved by said commission appears. (Sec. 9.) 11. Notices of Disapproval of any securities submitted to the Commission will be sent by registered mail within thirty days after MICHIGAN 321 final order thereof is entered by the Commission. In case of disapproval filing fees will not be returned. 12. Authorized agents must be registered. Fee $3.00 each. (Sec 11.) Registration is not transferable. The Commission will issie licenses to all agents registered under the provisions of Act No. 143, of the Public Acts of 1913, upon the payment of the sum of twenty-five cents. (Sec. 11.) (Special blanks are furnished by Commission). 13. Annual statements must be filed during January, on special blanks furnished by the Commission, together with filing fee of $1.00. (Sec. 21.) Ill— DEALERS 14. Registration must be made upon blanks furnished by the Com- mission and dealer must give all information required thereon. This registration is not transferable. The Commission will issue a license to each dealer registered upon the provisions of Act No. 143, of the Public Acts of 1913, upon the payment of the sum of one dollar. (Sec. 11.) 15. Fee of $50.00 must accompany dealer's registration. (Only pay- able once.) (Sec. 11.) 16. Agents of dealers must be registered, fee for each agent being $3.00. This registration is not transferable. (Sec. 11). 17. Non-resident dealers must file duly authenticated appointment of Commissioner of the Banking Department as his, or its agent upon whom process or pleading may be served. (Sec. 11.) 18. All dealers, before oflfering or selling any securities not exempt under the provisions of Section 11 (Exemptions) of this bulletin, must submit the same to the Commision under the same provisions as pro- vided for investment companies. (Sec. 15.) 19. Application of dealers should be accompanied by at least four references, one of which should be made by the bank where the parties do business. IV— MISCELLANEOUS 20. For penalties for violation of law see Section 23. 21. Transcripts of any information on file in the office of the Commission shall be furnished at twelve cents per folio, that being approximately the cost of preparing the same. Certified copies can be had at a cost of twenty cents per folio. The minimum charge for any papers certified to shall be fifty cents. Certified copies will be received in evidence in all courts of this state. 22. Regular meetings will be held on the second and fourth Wed- nesday of each month excepting when there are five Wednesdays in one month and in such case meetings will be held on the third and fifth Wednesdays. 21 322 MICHIGAN GENERAL REPORT OF SECURITIES COMMISSION MEMBERSHIP AND ORGANIZATION The membership of the Michigan. Securities Commission, as provided for in the Act creating it, consists of the Commissioner of the Banking Department, State Treasurer, and Attorney General. The State Treasurer and the Attorney General are elective. State officers, while the Commis- sioner of the Banking Department is appointed by the Governor of the State. The terms of their office as members of the Securities Commis- sion, are coterminous with the terms of their respective offices. They draw no salaries as members of the Commission, and are only recom- pensed for actual moneys expended by them in the performance of their duties as such members of the Commission. The personnel of the departmental organization at the date of this report consists of the Executive Officer, who is the directing head of the Department ; the Chief Accountant, two Examiners, Chief Qerk, Financial Clerk and Bookkeeper, two Stenographers, Filing Clerk, and Messenger. In addition to the above, the Executive Officer, by and with the consenf of the Commission, has authority to engage experts from time to time to make examination of companies whose assets may require an expert appraisal. A most complete filing system has been installed to accommodate the steady increase of voluminous documentary files of cases considered by the Commission. Auxiliary to the general filing system is the card index system, which is worthy of note in consideration of the office organ- ization, since the exact status of the applications of all investment com- panies considered and the condition of all escrowed stock can be imme- diately determined without the necessity of going through all the files and records. These cards contain a brief history or synopsis right up to date of each investment company coming under the jurisdiction of the Commission, and because of this digested information the Department is enabled to inform both investors and investment companies of the status of all matters passed upon with greater dispatch and complete accuracy. SECURITIES The layman, ordinarily, in the consideration of what constitutes a security does not have in mind anything but common or preferred stock and bonds, but in reading the Act it will be noted that the language therein includes "stocks, bonds or other securities," whether of an in- corporated or uninco^orated company, co-partnership or association (foreign or domestic), unless specifically exempted in the Act. Profit- sharing contracts constitute a considerable portion of the "other securi- ties'' coming under the consideration of the Commission. Attempts to evade the Blue Sky Law, or rather attempts to get around it through the financing of propositions by means of the sale of these co-operative or MICHIGAN 323 profit-sharing contracts, instead of stocks or bonds, have recently come to the attention of the Commission. A plan often resorted to in this connection is the one used mostly by oil companies of offering for sale certain land units or lots on a co-operative or profit-sharing basis. For illustration, a tract of land is divided into five thousand units, ranging in size from one to several hundred square feet, and selling for, say, $50.00 per lot. The conditions of the contract are that upon payment in full for the lot, the purchaser will receive a warranty deed; that $10.00 of the purchase price for each lot will be set aside as a development fund ; that upon the completion of the sale of these lots or land units an operating company will be organized with its capital of $50,000.00 (resulting from the $10.00 set aside from the money received fr^om the purchasers of each lot), fully paid up, and the owners of the land units or lots receiving from the operating company ten dollars' virorth of stock for each land unit they purchase. In this way the capital stock of the operating company is fully paid up before it is organized from the money received from the sale of the land units. When they get to this point they are fully capitalized and have no need for the sale of stock. These contracts differ somewhat as to special features, and the above illustration is therefore only descriptive in a general way. The Com- mission holds that the sale of a profit-sharing contract of this kind constitutes the sale of a security. While it is believed that this method of organization is often used as a subterfuge, or with a deliberate intent to contravene the provisions of the Blue Sky Law, yet the financing of many worthy enterprises in this manner has come to the attention of the Commission and applications have been filed submitting them as se- curities for approval, in accordance with the construction placed on this class of securities by the Department. PROCEDURE APPLICANT MUST FOLLOW Great care and thought has been exercised by the Department in preparaing application blanks for the use of investment companies desir- ing to sell their securities within the State. These blanks contain queries covering all the cardinal questions that may be involved in passing on the merits of an application and have been altered from time to time to meet changing conditions and more effective constructions placed upon the law by the Attorney General. Application blanks of investment companies used by the Commission have been provided for the approval of stocks and general securities of both foreign and domestic companies, a special form of blank being used for application to sell bonds. Great importance is attached to the neces- sity of the applicant filing full and complete detailed information as will enable the Commission to intelligently pass upon each proposition. This is especially insisted upon where patents and formulas, good will, or intangible assets are capitalized or stock has been or is to be issued 324 MICHIGAN therefor. This form of "watered" stock is closely scrutinized. Gas, oil, mining, irrigation, and other similar enterprises are usually required to furnish special information concerning their properties. The book value and the assessed value of all property belonging to the companies is required. In all cases where real estate is the principal asset of the company, or where there is a bond issue secured by mortgage upon real estate, a. certified copy of the conveyance to the company must be attached to the application, together with a certified statement of an attorney that the examination of the title shows it to be good and in the company. If the company is buying the land on a contract, a copy of the contract must be attached to the application. If there is a mort- gage on the property, a copy of the same should be filed. The application provides for and should show the price at which securities are. to be sold, and the rate of commission that is to be paid. If the bond issue is secured by a trust mortgage, a complete copy of the trust mortgage must accompany the application. The application also provides for and should contain a complete list of all stockholders, their addresses, together with the number of shares held by each, the value of shares, and the actual consideration received by the company for the stock. Application further provides for copy of the original Articles of Association and amendments thereto, being certified as to correctness by the Secretary of the State where the company is incorporated. The application also provides for a comprehensive finan- cial statement showing complete list of company's assets and liabilities. All foreign companies must file consent that suits and actions may be commenced against them by service on the Commissioner of the State Banking Department of Michigan. (Section 6, Act 46, Public Acts of 1915.) Blank forms are supplied by the Commission to the applicant for this purpose. PROCEDURE BV DEPARTMENT Upon the filing of the investment company's application, asking for the approval thereof by the Securities Commission and permission to sell its securities in the State, a preliminary examination of such application is made by the departmental officers for the ptjrpose of determining whether or not all papers required by law have been filed, and a prelim- inary hearing is usually had with the applicant for the purpose of de- termining whether or not a complete investigation and examination of the company's assets and liabilities, management and prospects should be made by a regular or special examiner of the Commission. EXAMINATION AND INVESTIGATION OF INVESTMENT COMPANIES The character of the investigation and examination depends, of course, entirely upon the conditions shown in the application as to the form and character of the enterprise. If particularized information is re- quired in regard to the financial condition of the applicant, a complete MICHIGAN 325 examination of the books of the company is made by an auditor or ex- aminer representing the Commission. Practically all examinations involve . the determination of the financial condition of the applicant company. If information is (jesired on property values which do not rEqui'e a tech- nical or expert examination, but may involve an investigation of the business trustworthiness and financial responsibility of the persons rep- resenting the enterprise and its prospects for commercial success, then such examination and report is made by one of the regular examiners of the Commission. ; If the applicant company is a foreign corporation and has not been approved by the State Commission where organized, then in addition to an examination of their assets and liabilities, the Department has been able to obtain very satisfactory information in reference to the standing of the parties promoting the enterprise through the instrumentality of some of the larger mercantile agencies. If the applicant company states that it owns tangible or intangible assets which require an expert appraisement or technical advice to the Commission to determine its value (and there are a number of these in the motor industry), the application is referred to an engineer of recog- nized standing and ability, who usually makes a personal examination of the patent values, formulas, good will, secret processes, trademarks, etc., of the company and files a report with the Commission as to its commercial possibilities. If the company sets up in its application that its assets consist mostly of mineral lands, for which stock is to be taken or cash is to be paid, the examination is made by or in conjunction with the State Geological Department. If there is filed with the application information from reliable mining experts or geologists in regard to the value of properties, then a report is filed with the Commission by the geologist or engineer representing the Commission, based on the data which he has examined, but in most instances the information filed by the applicant is inadequate and unsatisfactory and a personal examination is made by a special examiner, of the properties described in the application, together with an investigation of the management, financial condition of the company, and its possibilities for success. HEARINGS ON APPLICATIONS After the report of the Examiner has been filed, applicant is notified of the date when the application will be heard by the Commission. The applicant must be represented at this hearing either by an officer or attorney of the company. Witnesses are thoroughly examined by the Commission, and a stenographic record of the hearing is taken, which is later t^anscribed and made a permanent record. After the hearing an order is made by the Commission covering the several conditions of the approval or disapproval, which is entered in a separate book known as the MINUTE BOOK, and is used exclusively for the record of orders. 326 MICHIGAN EXAMINATION OF COMPANIES AFTER APPROVAL Although every investment company is required by the Act to file in January of each year a detailed annual statement showing its financial condition at the close of business of the preceding December 31st, yet it is believed that the real constructive work of the Department can be obtained by periodical examinations of companies after approval. The experience of the Department has been that fraud, stock and financial juggling, if any, have taken place after the company has been approved and therefore the re-examination of approved companies periodically has become of paramount importance. Many specific instances could be cited which in justice to the best interests of the stockholders thereof have not been given publicity, where these re-examinations by the Commission brought to light conditions which would have been disastrous to the company and would have resulted in the loss of the investment made by the stockholders therein were it not for the action taken by the Com- mission when this condition was discovered. On the other hand, many instances could also be cited of companies that have been ruined through mismanagement, fraud, or some other unnecessary cause, which could have been prevented had the Commission been able, with its limited corps of examiners, to have made more frequent examinations of these com- panies. The Commission believes that those who invest in securities are entitled, to a certain extent, to the same protection as those who deposit their funds in the banks. As a result of this policy a genuine service has been rendered to the investing public of Michigan by adjust- ment of companies which had permitted their assets to be impaired by mismanagement or fraud. Attention should be called to the fact that there are approximately twelve thousand foreign and domestic corpora- tions doing business in the State of Michigan, and therefore it is phys- ically impossible for the present limited examination force of the Com- mission to make these periodical axaminations as often as should be for the best interests of the investing public. In comparison it might be stated that there are less than six hundred State Banks and Trust Com- panies in the State, and the Banking Department is required to maintain a corps of upwards of twenty examiners. When a re-examination of a company's affairs reveals conditions justifying the Commission's action, a citation is issued requiring the officers of the company to appear and defend the charges cited in the examiner's report. These citations usually require all the directors to be present. The charges contained in the examiner's reports are thor- oughly gone over. The defendants in the citation are examined and finally an order of the Commission is entered, based upon its decision as what is deemed best to save the investments made in the company's securities by Michigan investors. Where it is believed that there is no opportunity for readjustment, a revocation of the license is ordered so that no further sales may be made to the Michigan public. Many of these citations have been authorized as a result of exorbitant salaries paid to MICHIGAN 327 officers, issuance of large blocks of stocks for questionable assets, payment of cash for intangible assets of a doubtful value, the payment of com- missions in excess of the amount allowed by the Commission at the time of approval of the application, or the company's violation of the Commis- sion's order in other respects. AMOUNT OF SECURITIES APPROVED AND DISAPPROVED BY THE COMMISSION During the period covered by this report, the Commission has exam- ined and directly passed upon one thousand investment companies' appli- cations, comprising securities of a total value of $420,332,438.10, divided as follows : Companies approved, 772, involving $265,786,038.10 of author- ized securities. Companies disapproved, 29, with a capital stock involved of $36,265,000.00. Applications of companies indefinitely postponed, 57, with a total capital stock of $50,740,000.00. Companies awaiting- com- pletion, 31; companies awaiting examination, 6; companies withdrawn, 68, and consisting of an additional $67,541,400.00 worth of securities. In addition to the amount of securities that have been disapproved by the Commission and the amount involved in the applications which have been indefinitely postponed in a manner which is equivalent to disapproval, companies with an aggregate capital of over one hundred million dol- lars have started to make applications, but upon learning of the re- quirements of the Blue Sky Law, that a complete examination and investi- gation of the tangible and intangible assets, physical properties, finances, and management of their company would be necessary, were deterred from proceeding further. It is safe to estimate that upwards of two hundred million dollars of questionable securities have been prevented from sale in Michigan through the administration of the Blue Sky Law during the period covered by this report. SECURITIES ESCROWED WITH THE STATE TREASURER BY THE ORDER OF THE COMMISSION Securities amounting to $27,224,069.00 of investment companies passed upon by the Securities Commission have been placed in escrow with the State Treasurer. Of this amount $3,355,940.00 stock has been released, leaving a balance now in escrow of $23,868,129.00. The conditions under which the Commission has ordered the es- crowing of stock depend on the nature of the enterprise. While a great deal of stock issued to the organizers and promoters of companies for promotion, patents, secret processes, formulas, etc., has been ordered placed in escrow before granting permission for the sale of the company's securities, a considerable amount of stock has, by the order of the Com- mission, been placed in escrow by the holders thereof which has been issued for leases, contracts, and property of a more tangible character, pending the carrying out of certain conditions thought by the Commission to be of vital interest to the stockholders and to the investing public. 328 MICHIGAN Under the escrow agreement and order, the Commission reserves the right to order the return of all escrowed stock to the treasury of the company for its use and benefit. A large amount of stock has been escrowed until such time as the company is earning 6 per cent net upon all of its outstanding stock, thus placing the person to whom the escrowed stock was originally issued in a position where in order for his stock to be of any value, the company must first succeed to a point in produc- tion which will provide sufficient net earnings to meet this requirement. Conditions other than the payment of dividends are sometimes the bases of the Commission's escrow orders : for illustration, in the case of an oil company where dividends are being paid but the oil production is limted; in a case of this sort the company desiring to sell its securities for the purpose of further development by the sinking of new wells. The escrow order sometimes provides that the stock shall remain in escrow until the present production has been doubled or increased a certain percentage, thus preventing the holders of the escrowed stock from mak- ing a stock jobbing proposition of the matter, and requiring them to increase production to the benefit of all stockholders. Briefly the escrowing of stock is the placing of the same in the hands of the State Treasurer until the company has complied with the order of the Com- mission. ADVERTISING OF SECURITIES The character and subject matter of advertising used by investment companies and brokers to promote and stimulate the sale of their securi- ties is of paramount importance to the investing public, and to the Commission in administering the Act. As previously noted, the Statute provides that no investment company should either in its prospectus, its advertising, or in soliciting the sale of its securities, use for the purpose of making such sales the fact that permission to sell has been given by the Commission. In some instances companies authorized to sell their securities have taken advantage of the Commission's approval by adver- tising that fact, and have even attempted to induce investors to purchase on the strength of the Commission's certificate of approval, intimatmg to the investor that their authority to sell securities, by the Michigan Securi- ties Commission, is an insurance against any loss resulting from the purchase. The Commission does not recommend the purchase of any security, whether approved or disapproved, nor does it guarantee the investor that no loss may be sustained through the purchase thereof. The Commission can only pass upon the merits of the proposition at the time of the application, and the success of the enterprise is therefore necessarily dependent upon the subsequent management and trade conditions. In addition to the inspection of the advertising matter referred to the office has inaugurated a plan of examining, every "day, advertising matter of investment companies and dealers published in all important MICHIGAN 329 newspapers of the State with the following objects in view: First, to ascertain whether approved companies are complying with the order of the Commission ; second, to determine whether registered dealers are selling unapproved securities; third, to locate and cause to be inveftigaed those dealers who are selling securities without being properly licensed. The Statute imposes a legal responsibility on the newspapers of the State of not accepting for publication advertisements of unapproved securities, and most of the newspapers of the State have co-operated with the Commission in suppressing this class of advertising. • The Commission has found it necessary to require the submission of all advertising matter of approved companies to the Department for approval before publication or acceptance for publication by the news- papers of the State. Whenever deemed necessary, the Commission has utilized the adver- tising columns of the press to warn the public against the purchase of securities of companies -which have not complied with the State law, or which are offered for sale by unauthorized companies or dealers located outside the State. They have also sought the co-operation of the United States Postal Authorities in barring from the mails advertising matter in reference to stocks, bonds, and other securities of these companies which have not complied with the requirements of the Commission. COMPLAINTS AND PROSECUTIONS Perusal of the foregoing subiect matter in explanation of the various functions of the Deoartment will undoubtedly impress the reader with the view that the Commission, to administer the law in a meaninifful and effective manner, has become, in a general way, the investigating pub- lic's Doctor of Corporations. This conclusion becomes all the more sig- nificant when considered in connection with the Commission's activities in general and miscellaneous investigations. As a result of an increasing number of complaints filed with the Department in reference to the sale of unapproved securities and approved securities sold in an unlawful manner, there has been apnointed a spec'al investigator in charge of complaints and prosecutions. The work of this investigator has been very resultful in ferreting out fraud, misn-anaTe- ment, misappropriation, or diversion of companies' funds, and as a result of his activities many violators have been apprehended and puni hed. While the Department has consistently refrained from becoming a collection agency in any sense of the word, or an arbiter of personal differences, yet cases without number are of record wherein the element of intent to wrong or defraud to an extent warranting prosecutions was lacking, but wherein there existed a condition, if permitted to remain, would result in the loss of the entire investment to the stockholders unless some action was immediately taken, either looking to the return of the investor's money by those who accepted it without first fully complying 330 MICHIGAN with the statute, or by return of sufficient tangible asset's, or possibly by an entirely different rearrangement through reorganization. During the early part of the period covered by this report, the policy of the Department concerning the investigation of violations of the Act and the instituting of criminal proceedings differed somewhat from the policy adopted by the Department later on. During the early period, while the Act was yet new and before an opportunity had been given to determine results by practical application of the Act, it was the policy to look upon the matter of prosecutions as of more local importance and therefore within the jurisdiction of the prosecuting offices of the county, in which the offense was committed, rather than a State departmental matter wherein representatives of the Commission would accumulate the evidence to institute the criminal proceedings through the local prose- cuting attorney's office and follow a case to conclusion. Since this new policy has been in vogue, a complete record is kept of all prosecutions. During the period when they were conducted by the local officials, rather than as a departmental matter, a record of such cases and the results thereof was not available. REGISTRATION AND LICENSING OF DEALERS AND AGENTS Every dealer desiring to sell or offer for sale within this State any stocks, bonds, or other securities not exempted under the terms of the Act, shall, according to the provisions thereof, first register with the Commission and obtain authority to sell such securities. Generally speak- ing, the "Dealer," so-called, is the broker. Within the meaning of the Act, a dealer is deemed to be any person, firm, co-partnership, corpora- tion or association, whether domestic or foreign, not the issuer, who shall in this State sell or offer for sale any of the stocks, bonds, or other securities issued by any foreign or domestic investment company, except the securities specifically exempted by the Act, or who shall by advertise- ment or otherwise profess to engage in the business of selling or offering for sale such securities. The term "Dealer" does not include an owner who is not the issuer of such securities so owned by him when such sale is not made in the course of continued and successive transactions of a similar nature; in other words, an individual stockholder would not be termed a dealer if he were to sell his personal stock in a single trans- action. If he disposed of his securities in the course of continued and successive transactions of a similar nature, he would become a dealer, and unless he were registered with the Commission and obtained a license, he would be committing an unlawful act. The term "Dealer" does not include, according to the Act, one who in a trust capacity created by law, lawfully sells any securities embraced within such trust. The experience of the Department has demonstrated that the same relative importance should be attached to maintaining close supervision on the sale of securities by dealers and their agents, as to MICHIGAN 331 the investment company or original issuer of such securities. In addition, therefore, to the information required to be filed by the dealer making ap- plication for registration, further information is asked for from time to time concerning the general character of his business transactions and of the securities dealt in by him. ■Monthly reports are required from all dealers, showing the amount and kinds of securities sold by them during the preceding month, the con- dition of sale, and the amount received therefor. All dealers before offering or selling any securities, unless exempted under the provisions of the Act, or unless previously approved upon the application of the investment company, must submit the same to the Commission under the same conditions as are provided for investment companies making their application direct. Non-resident dealers must file duly authenticated appointment of the Commissioner of the Banking Department as his or its agent upon whom process of pleading may be served. All agents in the eihploy of dealers, or investment companies, must first apply to the Commission and obtain a license before oflFering any securities for sale. In addition to the revocation of the authority granted dealers and agents to sell securities, for non-compliance with the provisions of the Act or the orders of the Commission, there are other penal provisions in the Statute. Instructions To Applicants IMPORTANT TO APPLICANTS The application should be completed as fully as possible. If it is not possible to furnish an exhibit or give the information required on a par- ticular subject the reason therefor must be stated. THE COMMISSION IS AUTHORIZED UNDER THE LAW TO CAUSE SPECIAL APPRAISALS, AUDITS AND INVESTIGA- TIONS TO BE MADE AT THE APPLICANT'S EXPENSE WHEN- EVER NECESSRY. Maps, sketches, diagrams, copies of patents, etc., should be furnished when these are necessary or helpful to a correct understanding of the facts. "Where the title to real estate (or any interest therein) is involved the legal description should be given and an opinion on the title by a reputable attorney should be furnished. Copies of oil, gas and mining leases and any assignments thereof should be filed with the application. 332 MICHIGAN Engineers' reports, contracts, reports of appraisers or of special investigations showing the nature and value of assets are often helpful to the Commission and should be submitted. A FILING FEE OF ONE-TENTH OF ONE PERCENT OF THE FACE VALUE OF THE SECURITIES FOR THE SALE OF WHICH APPLICATION IS MADE SHOULD ACCOMPANY THE APPLICATION (MINIMUM FILING FEE IS $10.00 AND THE MAXIMUM $100.00). The Commission requires that the application be accompanied with a list of at least four references, one of which shall be from a State or National Bank or Trust Company, stating the reputation of the applicant for honesty and fair dealing. If the applicant has a commercial rating, a copy of the commercial agency's report, certified to by such agency, should be forwarded with the application. Forms Application must be complete and filed forty-eight hours in advance of meeting. Form 16— GENERAL APPLICATION. (Supersedes form No. 1) Sheet 1. Date of Application Final papers filed Fee $ Passed Disapproved (Do not write in the above space.) BEFORE THE MICHIGAN SECURITIES COMMISSION. In the matter of the application of Name. y No. Address. for authority to sell its securities in the State of Michi- gan under the provisions of Act No. 46, Public Acts of 1915. The Company of hereby makes the following statement to the Michigan Securities Commission : 1 . Principal office _ Branch offices 2. Incorporated under the laws of the state of on the day of 19.... 3. Financial statement : as of the day of A D 19.... MICHIGAN 333 Subscribed Authorized. Issued. Unissued, but not ISSUED. Preferred stock, $ $ %$ $ Common stock, $ $ $ $ Bonds, $. . . 1 $ $ $ $ $ $ $ (If there is any other mortgage, indebtedness outstanding, attach schedule of same.) (All authorized securities including those for which this applica- tion is made must appear in above statement.) Assets. Am't. Liabilities. Am't. Common Stock outstanding.. Common _ Stock Subscribed Preferred Stock outstanding. Preferred _ Stock Subscribed Stock Subscriptions (Unpaid) Other Assets as follows: Billi Pavahle Sinking Fund or Reserve.... Other liabilities as follows:.. Trtfa! Total . . ? (Total, of assets and liabilities must balance.) (Forward to sheet 2.) (Application must show date upon which financial statement is taken from books.) 334 MICHIGAN Form 16— GENERAL APPLICATION. Sheet 2. 4. Statement showing the consideration received from the stock and bonds issued and outstanding to date: ' COMMON STOCK No. Shares. fActual Value. Remarks. Real Fstflte Plant > Stock Subscriptions (Un- J PREFERRE D STOCK No. Shares. 1 tActual Value. Remarks. t Notes Plant ,......, Dividends Stock Subscriptions (Uupaid) Totals MICHIGAN BONDS 335 No. Bonds. tActual Value. Remarks. 1 1 1 Plant 1 1 1 Totals Tt t This column should specify the actual amount of cash or notes received, or 'the actual value of real estate, etc., received in exchange for stock and bond^ issued, and should correspond with the value at which these different items were given in to the company and carried on the books. Form 15— GENERAL APPLICATION. Sheet 3. 5. Statement of earnings for five years: (If a new corporation; from date of organization.) Fiscal year ends. 19.... 19.... 19... Gross, $ $. $ Net, $ $ $ Statement of dividends : (As above.) 19.... 19.... 19... Amount, $ $ $ Rate, ; ..% % 19.... 1.9. 19. 19... 7. Real estate, plant and equipment: (Give detailed description and location; give valuation as carried on books, also assessed valua- tion. In all cases where real estate is the principal asset of the company, or where there is a bond issue secured by a mortgage upon real estate a certified copy of conveyance to company must be attached to application, together with a certificate of an attorney 336 MICHIGAN that an lexamination of the title shows the same to be good and in the company.) Is the physical property covered by insurance? If so, give amount of policies and issuing companies : Patents : (Give description and attach copy of all patents and copy of assignment of patents to company.) (Forward to sheet 4.) Form 15— GENERAL APPLICATION. Sheet i. 10. What is the nature of the business now being or to be conducted? Give detailed plans of operation : 11. For what purpose are unissued securities to" be sold?. (Attach copies of stock certificates and bonds.) MICHIGAN 337 12. At what price and under what conditions and by whom are such securities to be sold ? (Attach copy of all contracts relative to sale of securities and resolution authorizing same.) In all cases give rate of commis- sion to be paid for selling securities. In case no commission is to be paid for selling securities that fact must be stated. (Attach copy of application or contract from purchaser.) 13. Is it contemplated or probable that the owners of issued securities will offer the same for sale in the course of continued and suc- cessive transactions of a similar nature? Where it is desired to validate issued as well as unissued securities, filing fee upon entire authorized issue must be paid. 14. By whom is the bpnd issue trusteed? 15.' Are the bonds guaranteed? If so, by whom and what is the personal worth of the guarantor or guarantees over and above their interest in the company: :. -1 (Attach copy of guarantees.) (Forward to sheet 5.) - Form 15-GENERAL APPLICATION. Sheet 6. 16 . Date of bonds Maturity If bonds are optional, state at what price and provisions for calling: 17. State fully, sinking fund provisions. 22 338 MICHIGAN 18. Give name and address of attorney approving bond issue and attach copy of opinion hereto 19. Have the company's books been audited? If so, by whom and when was audit made ? (Attach copy of audit hereto.) 20. Attach hereto a complete list of all stockholders, showing number of shares of stock or bonds held by each, value of same, and ACTUAL consideration which was given for same in each instance. 21. Sample copy of all literature or advertising matter MUST be at- tached. This means advertisements of securities and not advertise- ments of company's products unless same is to be used in sale of securities. 22. Additional requirements are as follows: 1. Attach copy of Articles of Incorporation or Charter, which must be- certified to by the Secretary of State of the state under whose laws the company is incorporated. Do not file original Articles of Incorporation with the idea of furnish- ing certified copy later. 2. If not organized under the laws of the State of Michigan, attach copy of law under which company was organized. 3. Attach copy of constitution and by-laws. 4. Attach any amendment to- any of the foregoing. 5. Attach copy of mortgage or lease. 6. All foreign companies must file consent that suits and actions may be commenced against it by service on the Commissioner of the State Banking Department. (Sec. 6, Act 46, P. A. 1915.) Blank forms are supplied by the commission. 7. Filing fee must be computed at the rate of one-tenth of one per cent on face value of UNISSUED securities, minimum fee $10.00, maximum fee $100.00. No application will be filed or considered until the fee is paid. 8. Attach at least four references as to the character, responsibil- ity and financial standing of each director. Also references as to the company itself. Business address of all references must be given. 9. Do not fasten the sheets of this application together with a permanent staple or fastener. Do not fasten documents to body of application but number same as "Exhibits" and enclose with application. 10. The applicant should be represented at the hearing on this ap- plication. (Forward to sheet 6.) MICHIGAN 339 Form 16-GENERAL APPLICATION. Sheet 6. 21. The fou-owing is a list of the officers of the company: Name. Address. Salary per year. Directors: 3 7 g WhiEREfore, in view of the showing herein made, the Company of ; does respectfully pray that it be permitted to sell its UNISSUED stocks and bonds in accordance with the provisions of the above mentioned law. In Testimony Whereof, We have hereunto set our hands and affixed the official seal of this company, this day of 191 (Seal.) By. Attest Company. President. Secretary. ss. State of.' , County of President, and Secretary of the Company, of of lawful age, being first duly sworn, depose and say that they have each read the foregoing application and know the contents thereof, and that the statements and allegations therein contained and attached, are true. President. Secretary. 340 MICHIGAN Subscribed and sworn to before me this the. day of , 191. . .' Notary Public. My commission expires (See that CORPORATE. SEAL is affixed.) Remember that this application must be filed in complete form at least forty-Hght hours in advance of meeting. This provision of the statute will not be modified or waived and cdl applications that are re- ceived in this office later than nine a. m. two days before a meeting vinll go over for hearing until the following week. Form No. 2. MICHIGAN SECURITIES COMMISSION. Consent Under Section 6, Act 46, Public Acts 1915. Know All Men By These Presents : That the of '. , a corporation, incorporated and doing business under and by virtue of the laws of the State of and for the purpose of com- plying with the provisions of Section 6, of Act No. 46, Public Acts of 1915, of the State of Michigan, does hereby and herein make and give its consent that suits and actions may be commenced against it in the proper court of any county in said State of Michigan in which a cause of action may arise against it or in which the plaintiff in said action may reside by the service of any process or pleadings authorized by the laws of said State of Michigan on the Commissioner of the State Banking Department of said State of Michigan. It is hereby stipulated and agreed on the part of said corporation that such service of such process or pleadings on such Commissioner shall be taken and held in all courts to be as valid and binding as if due service had been made upon such corporation itself. The consent herein given shall be deemed to be and is irrevocable. In Witness Whereof, the said corporation has hereunto affixed its seal and signature in accordance with the resolution of the Board of Directors thereof authorizing the same. ■ (L. S.) By (L. s.) (Seal.) President. •• (L. S.) Secretary. MICHIGAN 341 State of ] County of J ^®' On this day of , A. D., 191 .. . personally appeared before me, a notary public in and for said county and State, and who are both known to me to be the persons whose signatures are attached to the foregoing instrument and who each acknowledge the same to be his act and deed, and the act and deed of the corporation for which each said person purports to act. Notary Public. My commission expires (Attach hereto duly certified copy of the resolution of the board of di- rectors authorizing the above.) Form No. 2 (aj. "On motion, the following resolution was duly made, passed and adopted : Whereas, This corporation proposes to make application to the Michigan Securities Commission for permission to sell securities within the State of Michigan, in accordance with the provisions of Act No. 46 of the Public Acts of Michigan of 1915, and Whereas, This corporation is organized under the laws of the State of , and Whereas, It is therefore necessary to file with said application the consent of this corporation that suits and action may be commenced against it in the proper. court of any county in said State of Michigan in which a cause of action may arise against or in which the plaintiff in said action may reside, by the service of any process or pleadings authorized by the laws of said State of Michigan on the Commissioner of the State Banking Department of said State of Michigan, and that such consent be irrevocable. Be it therefore resolved: That the President and Secretary of this corporation be hereby authorized and directed for and in behalf of said corporation to execute and file with the Michigan Securities Commission, in the form prescribed by said Commission, the irrevocable consent of this corporation that suits and actions may be commenced against it in the proper court of any county in said State of Michigan in which a cause of action may arise or in which the plaintiff in said action may reside, by the service of any process or pleadings authorized by the laws of the said State of Michigan on the Commissioner of the State Banking Department of 342 MICHIGAN said State of Michigan, and that such service of such process or plead- ings on such Commissioner shall be taken and held in all courts to be as valid and binding as if due service had been made upon such corpora- tion itself." I) Secretary of Company, Hereby Certify that the foregoing is a true and exact copy of a resolution of the Hoard of Directors of the Company, which resolution was duly made, passed and adopted at a legal meeting of said Board, held on the day of A. D., 191.., and that the passage of said resolution was in all respects regular and according to the By-Laws of said corporation. In Testimony Whereof, I have hereunto set my hand and the seal of said Corporation, this (Seal.) day of A. D., 19. . .. Secretary. Sheet 1. Application must be complete and filed forty-eight hours in advance of meeting. Date of Application Final papers filed Fee $ Passed Disapproved (Do not write in the ahove space.) BEFORE THE MICHIGAN SECURITIES COMMISSION. In the, matter of the application of Name(s). Address. > No. for authority to sell his their securities' in the State of Michigan under the provisions of Act No. 46, Public Acts of 1915. and • of hereby make the following statement to the MICHIGAN SECURITIES COMMIS- SION: MICHIGAN 843 1 . Home office 2 . Business ■3. Residence Address 4. Financial statement of the mortgaged property, including securities for which this application is made, as of the day of , A. D., 19 Incumbrance against said property Amount of bonds secured by mortgage. 5. (a) What is the consideration received for the bonds or mortgages . outstanding to date and of bonds to be approved ; (b) Is this a construction loan? (c) Value of land (d) Value of building when completed (e) Are bonds to be issued and sold before completion of building? If so what disposition is made of funds in interim. (f) If construction loan what provision has been made to protect property against mechanics liens ? (g) Is liability insurance carried? If so what amount? 6. Real Estate. (a) Legal description and location. (b) Valuation as carried on books (c) Assessed valuation (d) (Attach certificate of an attorney that an examination of the title shows the same to be good and in the mortgagors. Attach copy of opinion of attorney approving trust deed and attach Trust Deed made by the mortgagors.) 344 MICHIGAN (e) For what purpose is property covered by bond issue to be used? (f) If bonds are to be retired from earnings of . property so mortgaged, state fully estimated earnings and detailed estimated cost of operating and maintaining such property 7. Give the amount of policies and names of the companies in which the property is insured 8. What is the nature of the business now being or to be conducted? Give detailed plans of operation &. For what purpose are the bonds to be sold? (Attach copy of bond) 10. At what price and under what conditions and by whom are such bonds to be sold ? 11 . By whom is the bond issue trusteed ? 12. Are the bonds guaranteed? By whom and what is the personal worth of the guarantor or guarantors over and above their interest in the company? 13. (a) Date of bonds (b) Number and denomination of bonds (c) Maturity of bonds, and if bonds are subject to redemption, state at what price and provisions for redeeming 14. Give name and address of attorney approving bond issue 15. Sample, copy of all literature or advertising matter must be attached. MICHIGAN 345 GENERAL INSTRUCTIONS. 16. Filing fee must be computed at the rate of 1-10 of 1 per cent on the face value of the bonds, minimum fee $10, maximum fee $100.00. No application will be filed or considered until the fee is paid. Do not fasten the sheets of this application together with a per- manent staple or fastener. Do not fasten documents to body of application but number same as "Exhibits" and enclose with applica- tion. The applicant should be represented at the hearing on this applica- tion. Wherefore, in view of the showing herein made, the mortgagor (s) in the aforementioned Trust Mortgage do respectfully pray that they be permitted to sell his their bonds in accordance with the provisions of the above mentioned law. In Testimony Whereof, We have hereunto set our hands and affixed our seals this day of A. D. 19. . State of Michigan } County of j ^^" and mortgagors in the above mentioned Trust Mortgage, of the City of ; , being of lawful age, being by me first duly sworn, depose and say that they read the foregoing application and know the contents thereof and that the statements and allegations therein contained and attached are true. Subscribed and sworn to before me this day of A. D;, 19.... Notary Public in and for the County of. State of My commission expires 346 MICHIGAN Form No. 3. MICHIGAN SECURITIES COMMISSION. Appointment of Commissioner of State Banking Department of Michigan as Agent of Dealer To Accept Service of Process or Pleading. (Sec. 11, Act 46, Public Acts 1915.) Be It Known By These Presents that I of the City (or village) of ; , State of do hereby appoint the Com- missioner of the State Banking Department of the State of Michigan as my agent in said State of Michigan upon whom process or pleadings may be served for and on my behalf as a dealer within the meaning of Act No. 46, P. A. 1915 of said State of Michigan. Such appointment shall be deemed to be and is irrevocable. Sealed with my hand and seal this day of 19.... Dealer. State of . . County of On this day of A. D., 191 . . , personally appeared before me, a notary public in and for said county and State, to me known to be the person described in and who executed the fore- going instrument and acknowledged that he executed the same as his free act and deed. Notary PubHc. My commission expires (If a corporation certified copy of resolution authorizing the foregoing must be attached.) Form No. 6. DEALER'S APPLICATION To THE Michigan Securities Commission, No Lansing, Michigan. Sirs: — The undersigned hereby desire. . to be registered with the Michigan Securities Commission as a DEALER in srtocks, bonds and other se- curities, under the provisions of Act No. 46, Public Acts of 1915, and for your information make the following statements: MICHIGAN 347 1 . Name (in full) 2. Business address 3. Residence (if individual) 4. If corporation, copartnership or association, give names and addresses of partners or stockholders. Partners or Stockholders. Residence. No. of Shares. * 5. If corporation, give date and place of organization 6. If copartnership doing business in this state under an assumed name, state if you have filed certificate with county clerk as provided for in Act No. 101, Public Acts of 1907. Give name of county and date certificate was filed 7. The following is a detailed description of the securities dealt in: (Securities exempted under the provisions of Sec. 3, Act 46, Public Acts of 1915, or those listed by: A. The Standard Statistics Bureau's Daily Bond Service. B. The Standard Statistics Bureau's Daily Stock Service. C. Poor's Manual of Railroads. D. Poor's Manual of Public Utilities. E. Poor's Manual of Industrials. F. Moody's Manual of Railroads and Corporation Securities. G. Michigan Manual of Corporation Statistics. H. Annual Financial Review — Canadian. I. Supplements to any of the above Manuals. (N. B.— A resolution was made and adopted Oct. 24, 1917, eliminating the manuals listed under paragraph 2, of the Rules and Regulations of the Michigan Securities Commission, as exemptions, and providing that in, the future no stock can be sold in Michigan by reason of its being listed in said manuals, unless said listing was prior to Oct. 24, 1917.) 348 MICHIGAN as duly authorized agents : Name. Address. • Enclosed you will find for $ to cover registration as DEALER (fee $50.00) and AGENTS' registra- tion (fee $3.00 each). • ■■... certify that the foregoing statements are true and agree that will not sell or offer for sale any stocks, bonds or other securities unless the same comply with all the provisions of Act No. 46, Public Acts of 1915, and in testimony thereof have hereunto subscribed name and affixed seal this day of 19 Witness : (L. S.) (L. S.) N. B.— Non-resident dealers must file with the commission a duly authenticated appointment of the Commissioner of the State Banking Department of this State as bis or its agent in Michigan upon whom process or pleadings may be served for and on behalf of the dealer, which appointment shall be irrevocable. (Blanks for the foregoing will be supplied by the commission.) MICHIGAN 349 Form No. 9. File No. (Do not write in this space.) To THE Michigan Securities Commission, Lansing,. Michigan. Sirs: The undersigned, having made application to sell its securities in the State of Michigan, hereby desire to register the following as its duly authorized agents in said state, as provided for in Sec. 10 and 11, Act 46, Public Acts of 1915. Name of Agent. Address. Do Not Write in This Space. File No. Enclosed find for of registration as above (fee, $3.00 each). Very respectfully. Dated at on in payment A filing fee of One Dollar must accompany the report. ANNUAL REPORT (Name of Corporation) . (Postoffice Address) Michigan Securities Commission, Lansing, Michigan. Sirs : — In accordance with Section 21 of Act No. 46, Public Acts of 1915, the undersigned Secretary of the 350 MICHIGAN Company, respectfully submits the following report of its condition on the thirty-first day of December, 19 1. Financial Statement: Authorised. Issued. Preferred stock $ $ Common stock $ $ Bonds $ $ $ $ Assets. Amount. Liabilities. Amount. 11 Common Stock outstanding.. Preferred Stock outstanding. s Sinking Fund or Reserve Other Liabilities as follows: Total ? Total 2. Statement of Profit and Loss Account for the past twelve months. (If a new Corporation, from date of organization.) MICHIGAN a 51 Losfc Profit. $ . — Dividends, Common Stock per cent Dividends, Preferred Stocic Gross earnings (Specify Interest paid on bonds Interest borrowed money.... • ' Gain Loss $ — Total !B Total Statement, showing the consideration received from the stock and bonds issued since date of filing original application. (From date of last report, if previous report has been filed.) COMMON STOCK No. Shares •Actual Value. Remarks. Actual Cash Real Estate Equipment Organizing Promotion Commissions Salaries Dividends Totals * This coTumn should specify the actual amount of cash or notes received, or the actual value of real estate, etc., received in exchange for stock and bonds issued, and should correspond with the value at which these different items were given in to the company and carried on the books. 352 MICHIGAN PREFERRED STOCK No. Shares. •Actual Value. Remarks. Actual Cash 1 Plant Equipm^t Organizing Commissions ,,., Totals BONDS No. Bonds •Actual Value. Remarks. Actual Cash Notes } r Real Estate 1 ■ -* Equipment Organizing Promotion Commissions Salaries Dividends Total J MICHIGAN 353 4. At what price and under what conditions have securities been sold? Paid CASH for Patents, or other intangible assets, since date of filing original application Paid CASH for Commissions on sale of stock since date of filing original application Paid CASH for Promotion since date of filing application Paid CASH for Real Estate since date of filing original application 6. Paid CASH for Buildings or Plant since date of filing original ap- plication A total of wliicli is all of the said expenses paid in CASH by said company since its last annual report to the Michigan Securities Commission. The following is a list of the officers of the company : Name. Address. Salary per year. Vice President Secretary Directors: 1 / 9 I Secretary of the Company, do solemnly swear that the above statement is true to the best of -my knowledge and belief and that this report has been carefully filled out and fully and correctly exhibits the true state of the several matters therein contained, as shown by the books of the company. 23 Secretary. 354 MICHIGAN Subscribed and sworn to before me this the day of , 19- • Notary Public. My commission expires (See that CORPORATE SEAL is affixed.) Michigan ANNUAL REPORT For 19.... Filed. 19. With Michigan Securities Commission. Section 21. Act No. 46, P. A. 1915. Section 21. Every investment company, domestic or foreign, shall file during the month of January in each and every year, a detailed statement in such form and con- taining such information as the Commission shall require, showing its condition at the close of busi- ness on the preceding December thirty-first, and shall at the same time pay a filing fee therefor of one dollar. Fom 16— 12-17— 2M. MEMBERS Chairman FRANK W. MERRICK Commissioner of the Banking Depart- ment SAMUEL ODELL State Treasurer ALEX. J. GROESBECK Attorney General EXECUTIVE OFFICER WILLIAM R. GATES SECRETARY LEE H. PRYOR Form No. 5 (a) MICHIGAN SECURITIES COMMISSION Lansing monthly report of dealer (To be filed with the Michigan Securities Commission on or before the lOlh oj each month.') To the Michigan Securities Commission:. The undersigned makes this Report for the Month of 191... MICHIGAN 355 SECURITIES LISTED WITH THE COMMISSION Name of Issuing Company. Kind of Security. Amount Sold Dur- ing Month (Far Value). . NOTE — {^'Amount sold during month" includes sates or exchanges in which the dealer acts as agent or Intermediary, as well as sales made direct by the dealer in this State.) Dated 19. Dealer. By. 356 MINNESOTA MINNESOTA STATUTES Sale and Disposition of Stocks, Bonds and Other Securities In The State (Chapter 429, General Laws of Minnesota for 1917, as Amended to March 27, 1919) An act to prevent fraud in the sale and disposition of stocks, bonds or other securities sold or offered for sale within the state of Minnesota, providing for the enforcement thereof and for prosecutions and penalties for the violation thereof, and creat- ing a state securities commission. Be it etiacted by the' Legislature of the State of Minnesota: Section 1. State Securities Commission. — There is hereby created a commission, to be known as the state securities commission, hereafter referred to as the "commission," whose duty it shall be to administer and provide for the enforcement of all the provisions of this act. Said commission shall consist of the public examiner, the superintendent of banks, the attorney general of the state or an assistant attorney general specifically designated by him therefore and the commis- sioner of insurance, all of whom shall be members of said commission during their terms of office and any three of whom, or any two of whom and the executive officer hereinafter provided for shall constitute a quorum. Said commission shall have its office in the state capitol, in the city of St. Paul, in a room to be furnished and equipped by the state and all its records shall be there kept. It shall hold regular bi- weekly meetings on such dates as may be determined by the commission and may hold special meetings upon the call of the chairman; it shall keep a complete record of all its meetings, its accounts and the business it transacts and may prepare all necessary blanks to be used in its pro- ceedings and in the conduct of its business. The commission shall have the power to elect a chairman and a vice chairman from among its members and appoint an executive officer at a salary of three thousand ($3,000) dollars per annum. The person so appointed shall proceed to qualify by subscribing the usual oath of office and by giving a bond to the state of Minnesota in the sum of ten thousand dollars with such surety as the commission shall approve, conditioned upon the faithful performance of the duties of the office, which bond shall be filed and recorded as now provided by law for state officers. The executive MINNESOTA 357 officer, when acting for the commission, shall have equal power and authority, subject to the approval of the commission, and his acts in exercising such power and authority shall be binding and of full force and efifect until disapproved by the commission, and he shall attend to and perform any and all detailed work relative to the commission, and shall be entitled to vote in case -of a tie. The commission shall have ' power to employ such other and furtlier assistance as may be necessary to carry out the provisions of this act. Annually on or before the first day of November, the commission shall prepare and file in the office of the governor a report containing an accurate review of the work of the commission for the fiscal year ending June 30, preceding the date of said report and which shall contain a schedule of all appLcations for license to sell securities in the state, a schedule of licenses granted, a schedule of applications denied, a schedule of licenses suspended or re- voked, a statement of the receipts and disbursements of the commission and such other material information as relates to the work of the office. Section 2. To what institutions act is not to apply The provisions of this act, except section 10 thereof, shall not apply to (a) securities of the United States or any foreign government; or of any state or territory thereof; or of any county, city, township, district or other public taxing subdivision of any state or territory of the United States or any foreign government; (b) commercial paper, or unsecured' negotiable promissory notes, due in not more than eighteen months from their date; (c) securities of public or quasi public corporations, the issue of which securities is regulated by a public service commission of this state or of any state or territory of the United States, or securi- ties senior thereto; (d) securities of federal reserve banks, federal farm loan banks, building and loan associations of this state, or foreign build- ing and loan associations that have now fully complied with the laws of this state pertaining to such corporations, and are now permitted to do business by the superintendent of banks, national banks, or of co- operative associations organized under sections 647& to €490 inclusive. General Statutes 1913, for operating creameries, cheese factories, or rural telephone lines, w:here the authorized capital stock does not exceed twenty-five 'thousand dollars; (e) securities of any domestic corporation organized without capital stock and not for pecuniary gain, or ex- clusively for educational, religious, benevolent, charitable or reformatory purposes; (f) authorized securities as specified and defined by section 6393 of the General Statutes of 1913 and any amendment thereof, or securities of the classes specified and defined in section 3313, General Statutes 1913; (g) mortgages and notes or bonds secured by mortgage 'upon real or personal property where the entire ftiortgage is sold and transferred with the note or notes or bonds secured' by such mortgage, or where the indebtedness secured is not more than seventy per cent of the fair value of the property mortgaged; (h) increase of stock sold 358 MINNESOTA and issued to stockholders or stock dividends; (i) securities sold pur- suant to the order of any court; (j) isolated or single transactions; (k) policy contracts of insurance companies licensed to do business in this state. Section 3. What shall be known as investment company. — Every person, firm, co-partnership, corporation, company or association, whether unincorporated or incorporated, under the laws of this or any other state, territory or government, which shall either himself, them- selves or itself, or by or through others icngage in the business within the state of Minnesota of selling, offering or negotiating for the sale pi any stocks, bonds, investment contracts or other securities, herein called securities, issued ^by him, them or it, except to a bank or trust company, shall be known, for the purpose of this act, as an investment company. Every person, firm, co-partnership, company, corporation or asso- ciation, whether unincorporated or incorporated under the laws of this or any other state, territory or government, not the issuer, who shall within the state of Minnesota sell or offer for sale any of the stocks, bonds, investment contracts, or other securities herein called securities, issued by an investment company, except the securities, specifically ex- empt under the provisions of this act, or who shall by advertisement or otherwise profess to engage in the business of selling or offering for sale such securities within the state of Minnesota, shall be known for the purpose of this act as a dealer. The term dealer shall not in- clude an owner, not issuer, of such securities so . owned by him when such sale is not made in the course of continued and successive transac- tions of a similar nature, nor one who in a trust capacity created by law lawfully sells any securities embraced within such trust. Section 4. Investment companies to be licensed; fees for same. — No such investment company and no such dealer shall sell or offer for sale any such securities or profess the business of selling or offering for sale such securities, unless and until he or it shall have been licensed by the commission as herein provided. To secure such license said investment company or dealer shall file application therefor with the commission and shall furnish said commission, upon oath, in such form as the commission shall prescribe, the following information, to-wit. : The investment company's or dealer's name, residence and busi- ness address, the general character of the securities to be sold or dealt in, the place or places where the business is to be conducted, within this state, and where the business in this state is not to be conducted by the investment company or by the dealer in person, then the names and ad- dresses of all the ftersons in charge thereof. Said investment company shall pay to the commission a filing fee of one-tenth of one per cent upon the face value of the securities for the sale of which application is made ; provided that such filing fee shall not be less than twenty-five dollars; MINNESOTA 359 provided, further, that an investment company, as defined in section 6445, General Statutes 1913, which is under the supervision of the superin- tendent of banks and which is engaged in the business of soliciting pay- ments to be made to itself on the installment, single payment or full paid plan, issuing therefor saving certificates, agreeing to return to the holders or owners thereof money at some future date, shall for the issuance of such certificates, in lieu of other fees and payments herein provided for, pay to the commission an annual fee of one hundred ($'00.00) dol- lars; and said dealer shall pay to the commission an annual fee of twenty-five dollars and shall furnish said commission with such other information in addition to that above specified as said commission shall deem necessary in order to thoroughly acquaint such commission with the honesty and good faith of such dealer or investment company, and the character of the business of said investment company or dealer. All authorized agents of any dealer or investment company shall be registered with the commission and the name of any agent shall be stricken from the register by the commission upon the written request of the dealer or investment company, and additional agents may be registered by the commission upon like request of the dealer or investment company; provided, that no agent shall act as such until he shall have filed with the commission a signed and acknowledged certificate of registration and acceptance of agency upon forms to be furnished by the commission and until ihe shall have been licensed by the commission ; provided, also, that the commission shall have authority to reject or cancel the registra- tion and appointment of any person as agent for such cause as may to the commission appear sufficient. If an investment company or dealer shall be a non-resident of the state or a corporation other than a do- mestic corporation, he or it shall at the time he or it registers with the commission also file with the commission a written, duly authorized, executed and acknowledged appointment of the public examiner of this state as his or its agent in Minnesota^ upon whom process or pleadings may be served for or on behalf of the dealer or investment company, which appointment shall be irrevocable. Upon compliance by such in- vestment company or dealer with the provisions of this act, the said commission shall either make an order denying said application or shall make findings as provided in section 9 hereof or shall issue to such in- vestment company or dealer a license under the seal of said commis- sion and signed by the executive officer thereof, in such form or forms as the commission shall adopt, which said license shall be good until revoked by said commission for good cause upon notice to such in- vestment company or dealer and a hearing duly had; provided, however, said license may be suspended as to the selling of specific securities as provided in section 8 of this act. In addition to the filing and examina- tion fees herein provided for to be paid by said investment companies and dealers, there shall be charged and collected by said commission a fee of three dollars for the registration and authorization of each agent 360 MINNESOTA of such investment company or dealer, which fee and registration shall entitle each agent to act as such until the first day of July following, unless said authority is sooner revoked by the commission or the dealer or investment company. Each of such agents shall make a new regis- tration on July 1 of each year for the renewal of his agency, and the commission shall charge and collect for each such renewal registration a fee of three dollars. Section S. Fees to be paid into state treasurer. — All fees and charges collected by tlie commission shall be covered into the state treasury and credited to the state securities commission fund. Provided that there is hereby created a revolving fund of $1,000.00 to be advanced from the state treasury on auditor's warrant, any part or all of which fund may be used for the purpose of defraying the ex- pense of travel on business of the commission and the expenses which may be incurred under section 7 of this, act. Section 6. Promotion of securities. — Every investment com- pany or dealer who shall, as principal or agent, promote or negotiate by advertisement, letter, circular, prospectus, by word of mouth or hx any other method of public or general offering, or specific offering, the sale or distribution, of any such securities, not exempted under the terms of this act, in this state, except to banks, trust companies or to duly licensed dealers, shall before making such negotiation, sale or promo- tion file a statement in writing signed by suCh investment company or dealer, as the case may be, or by its or his authorized representative, notifying the commission of its or his intention to promote, offer or sell such securities, describing fully such securities, and furnishing to said commission true copies of all prospectuses, circulars, and advertisements used, or to be used in such sale or promotion, and said commission may make such investigation thereof and require sudi further information or proof with respect thereto as it may deem necessary to determine the character of such securities or, of such promotion. If any such invest- ment company or dealer shall mail by registered mail postpaid and' properly addressed to the commission such notification and documents prescribed in this section, with the name and address of the investment company or dealer, the same shall be deemed a filing and notification under this section, provided said registered letter or package would reach the commission at least twenty-four hours in the ordinary course of delivery, before such sale, promotion or offering shall be made. Sec. 6-A. Every person, firm, co-partnership, company or associa- tion, incorporated or unincorporated, who shall himself, themselves ov itself, or by or through others, circulate, distribute or cause to be cir- culated or distributed, either publicly or privately in any manner what- soever, any printed or written matter containing an offer . of, or a solicitation to purchase, directly or indirectly, stocks, bonds, investment contracts or other securities not exempt under the terms of this act, and MINNESOTA 361 every person, firm, co-partnership, company or association, whether in- corporated or unincorporated, who shall as an agent or otherwise in any manner assist in such distribution or circulation, unless such offer of, or solicitation to purchase, said stocks, bonds, investment contracts, or securities shall have been approved by the commission, shall be guilty of a misdemeanor. (Ch. 257, Gen. L. 1919). Section 7. Investigations to be made by commission. — The commission may also make such special investigations as it may deem necessary in connection with the promotion or sale of any suoh securi- ties to the end that tha commission may be put in possession' of all facts and information necessary to qualify it to properly pass upon all ques- tions that may properly come before it and to determine if the same is in violation of this act or of any of the acts of the legislature described in section 9 hereof, and to that end it shall have power to issue subpoenas compelling the attendance of any person and the production of any papers and books for the purpose of such investigation, and shall have power to administer oaths to any person whose testimony may be required in such investigation. It may also make or have made under its direction a detailed examination and report of the property, business and affairs of such investment company, which investigation and examination shall be at the expense of such investment company, or of the dealer seeking to sell such securities. It may cause an appraisal to be made at the ex- pense of said investment company or dealer, of the property of said investment company. Section 8. Commission given power to limit price, fix maxi- mum commission and other promotion expense and to fix other conditions in granting license. — The commission shall have power: To limit the price at virhich securities shall be sold by an inve'tment company or dealers or the agents of either; to fix the maximum amount which may be paid for promotion services or be expended for commis- sions and other expense incidental to the sale of securities;- to require licensed investment companies and dealers to furnish to it from time to time upon oath in such form as the commission shall prescribe such information as may be necessary to enable the commission to determine whether the furtiher sale of the securities authorized to be sold under the license of such investment company or dealer would be in violation of this act; to fix such other conditions for granting a license and to make such other orders and alter, suspend or revoke the same as may be necessary for carrying out and enforcing the provisions of this act; to suspend the license of any investiraent company or of any dealer with respect to the sale or promotion of any security or securities said dealer or investment company may propose to sell, upon original notification of his or its purpose to sell, or at any future time w:hen information in the possession of the commission may cause it to believe that such in- vestment company or dealer has violated any lawful order of the com- 362 MINNESOTA mission or any of the provisions of this act or any of the conditions upon which he, they or it was licensed or that the further sale of said securities would be a violation of this act and shall also have power to suspend any and all licenses issued by it pending the furnishing of any proof or information which the commission has asked or may ask for under the terms of this act. The investment company or dealer, how- ever, may within 30 days demand a hearing upon such suspension or upon a denial under section 4 of this act at any subsequent meeting of the commission, or the commission upon notice duly given may set a time for hearing, at which the commission shall grant a full hearing to all parties concerned, and upon such hearing duly had may make such order as the facts justify, removing, continuing or making permanent the suspension, or revoking the license of said dealer or investment com- pany as to the sale of such securities or of all securities in the state. Section 9. Arrests and prosecutions for misrepresentation. — If the commission finds that the proposed plan of business of said invest- ment company, or that its proposed contracts, stocks, bonds or other securities, are fraudulent or' are of such a nature that the sale of such contracts, stocks, bonds or other securities would in the opinion of said commission work a fraud upon the purchaser, or, if said commission shall determine that any such promotion or sale constitutes a violation of this act, or that any such promotion or sale constitutes the crime defined and described in chapter 479, General Laws Minnesota, 1909, entitled, "An act to prohibit the making or publishing of false statements of or concerning the affairs, pecuniary condition or property of any corpo- ration, joint stock association, co-partnership or individual, which said statements or publications are intended to give or shall have a tendency to give, a less or greater apparent value to the shares, bonds or prop- erty, or any part thereof of said corporation, joint stock association, copartnership or individual than the said shares, bonds or property shall really and in fact possess, and providing a penalty therefor," or that any such promotion or sale constitutes the crime defined and described in chapter 51 of the Laws of Minnesota for 1913, entitled, "An act to prevent fraudulent advertising,'' as amended by chapter 309 of the laws of 1915, insofar as said act relates to securities, and shall notify said dealer or investment company by registered mail and also by telegraiA, if deemed advisable, of its findings, suspension or . disapproval, then it shall be unlawful for such investment company or dealer to do any business in the way of selling, offering for sale, taking subscriptions for, or negotiating for the sale, in any manner whatever, of any such securities in this state; and said securities shall not be sold in this state and it shall immediately suspend the license of said investment company or dealer with respect to the promotion or sale of said securities, and shall so notify him or it, and the commission may immediately take such steps as may be necessary to cause the arrest and prosecution of all MINNESOTA 363 persons deemed guilty thereof. It shall be the duty of each county at- torney to prosecute any violation of this act in his county, and upon his request or the request of the commission the attorney general shall assist in such prosecution. Section 10. Gross misdemeanor for defrauding. — If any per- son, including a corporation, co-partnership, company or association, and the officers or agents thereof, alone or in common with others, hav- ing devised or intending to devise any scheme or artifice to defraud by the issuance, sale, promotion, negotiation or distribution of any stocks, bonds, notes, contracts or other securities, shall in and for executing such scheme or artifice or in attempting so to do, commit any overt act within this state, such person shall be guilty of a gross misdemeanor. Section 11. False statements such exceptions. Section 18. Review by supreme court. — The supreme court upon petition of any person aggrieved may review by Certiorari any final order or determination of the commission. The issuance of- the writ shall not, however, unless specifically ordered by the court, operate as a stay of proceedings. Section 19. Declaring of one section unconstitutional not to affect other sections. — ^Should the courts of this state declare any section or provision of this act unconstitutional or unauthorized, or, in conflict with any other section or provision of this act, then such decision shall affect only the section or provisions declared to be unconstitutional or unauthorized, and shall not affect any other section or part of this act. Original act approved April 20, 1917; effective from and after July 1, 1917. Act amended as above approved March 27, 1919; effective from and after date of approval. Statutes Pertaining To Certain Investment Companies Investment Companies Under Control of Superintendent of Banks — No person and no co-partnership, association or corpora- tion, whether local or foreign, heretofore organized or which may here- after be organized, doing business as a so-called investment, loan, benefit, co-operative, home, securities, trust or guarantee company for the licens- ing, control and management of which there is no law now in force in this state, and which such person, co-partnership, association or corpora- tion shall solicit payments to be made to himself or itself either in a lump sum, or periodically, or on the installment plan, issuing therefor so-called bonds, shares, coupons, certificates of membership or other evidences of obligation or agreement or pretended agreement to return 366 MINNESOTA to the holders or owners thereof money or anything of value at some future date, shall solicit or transact any business in this state, unless such person, co-partnership, association or corporation shall have first complied with all the provisions prescribed in chapter 58 of the Revised Laws of Minnesota, 1905, required of general building and loan associa- tions doing business in this state. (G. S. '13, 6445). Supervision of Superintendent — Powers, How Exercised — Fees — The persons, co-partnerships, associations and corporations mentioned or enumerated in the foregoing section are hereby put under the super- vision of the state superintendent of banks. The powers, authority, privileges and duties conferred upon him for the purpose of examin- ing, supervising, controlling and regulating the action of ^each and every class of financial institutions, to the full extent to which he may at any time lawfully exercise them, shall each and all, so far as applicable, be exercised by him personally or by deputy in the examination, super- vision, control and regulation of the persons, co-partnerships, associa- tions and corporations first hereinbefore mentioned. The fees for ex- amination shall be those prescribed by law for the examination of state banks and the actual necessary expenses incurred by the state superintendent of bajiks in and tending toward the performances of its duties and the exercise of its powers herein referred to shall be paid by the person or institution examined or supervised. (G. S. '13, 6446). Soliciting Business Without Authority — Penalty. — Any person, co-partnership, association or corporation who or which shall act as principal or agent in doing such business, or in soliciting suoh business for, or membership or participation in any such co-partnership, association, or corporation, or solicit business for such person or persons doing busi- ness as suoh companies, not authorized to do business in this state, shall be deemed guilty of a misdemeanor and upon conviction thereof shall be punished by a fine of not less than one hundred dollars nor more than one thousand or by imprisonment in the county jail of not less than three months nor more than one year or by both such fine and imprisonment. Provided, however, that nothing contained in this act shall apply to domestic mortgage loan companies. (G. S. '13, 6447). Plan to be Submitted — Permit. — The persons, co-partnerships, associations and corporations hereinbefore referred to are hereby re- quired to lay before the superintendent of banks a comprehensive plan of their intended business; and the superintendent of banks shall con- sider the same and, if he finds that the same contains no feature or essential proposition which is likely to be injurious to or defraud the public, he shall issue a permit for such person or institution to begin business according to such plan ; otherwise such person or institution shall not engage in such business in this state. (G. S. '13, 6448). MINNESOTA 367 AN ACT To provide for the regulation and supervision of insurance and certain other companies, (Laws of Minnesota, 1913, Page 534 et seq., Chapter 385, S. F. No. 31) Be it enacted by the Legislature of the State of Minnesota: Section 1. What companies, etc., are subject to provisions of this act. — Every corporation, company, co-partnership or associa- tion, all of which are in this act termed company, organized, proposed to be organized, or which shall hereafter be organized, within or without this state, whether incorporated or unincorporated, doing or intending to do an insurance business, or selling or holding, or intending to sell or hold, any stocks, bonds or other evidences of property or interest in any other company organized, proposed to be organized, or which shall hereafter be organized to transact the business of insurance, which shall in this state sell or negotiate for the sale of any stocks, bonds or other evidences of property or interest in itself or any other company, all of which are in this act termed securities, upon'whidh sale or proposed sale the whole or any part of the proceeds are used, or to be used, directly or indirectly, for the payment of any commissions or other expenses incidental to the organization or promotion of any such company, shall be subject to this act. Section 2. Facts and statements to be filed with insurance com- missioner, together with fee of $30. — Before offering or attempt- ing to sell any such securities to any corporation, person or persons and before doing or offering to do any business whatever in this state, ex- cepting that of preparing the documents hereinafter required, every such company, domestic or foreign, shall file in the office of the coramissionier of insurance of this state, together with a filing fee of thirty dollars ($30.00), the following documents, to-wit: (1) A statement showing in full detail the plan upon which it pro- poses to transact business. (2) A copy of all applications for securities and forms of con- tracts, securities, and other instruments which it proposes to take, enter into, sell or execute. (3) A statement which sihall show the name of officers and loca- tion of the principal office of the company. (4) An itemized account of its actual financial condition, and the amount and nature of its property and liabilities. (5) Such other information and in such form touching its affairs as said commissioner of insurance may require. If it shall be a company organized under the laws of any other state, territory or government, it shall also file with the said commissioner of insurance a copy of the laws of such state, territory or government 368 MINNESOTA under whjch it is organized or incorporated, and also a copy of its charter, or articles of incorporation, all amendments thereof, and a certificate of the proper officer of such foreign state, territory or govern- ment that it is authorized to do business therein ; its constitution and by-laws and all amendments thereof which have been made, and all other papers pertaining to its organization. Section 3. Insurance commissioner to be designated as process agent — Request for license to sell stock, securities, etc. — Fee of $2 fpr accepting service. — Before any foreign company is licensed to sell securities in this state, it shall, by a duly executed instrument, to be filed in the office of the proper commissioner of insurance, consti- tute and appoint the said commissioner of insurance and his successor in office its true and lawfiil attorney in fact, and therein irrevocably agree that summonses and lawful processes in any action or proceeding against it may be served upon ihim with the same force and efifect as if pensonally served xipon it, so long as any of its liability exists in this state, and the authority thereof shall continue in force irrevocably. Said instrument shall contain a provision and agreement declaring that such company desires to sell such securities in this state and that it will accept a license therefor according to the laws of this state, and that it will not remove or make application for removal into any court of the United States any action or proceeding commenced in any court of this state upon a claim or cause of action arising out of any business or transaction done therein. In case of the failure of any such company to comply with any of the provisions of this section, or if it shall violate any of the condi- tions or agreements contained in the instrument filed as aforesaid, its right to sell securities in this state shall cease, and it shall be the duty of the commissioner of insurance to immediately revoke its license ; and in case of such revocation said company shall not be again licensed for the period of one year from date of such revocation. The commissioner of insurance shall be entitled to charge and re- ceive a fee of two dollars ($2.00) for each summons or other process served upoti him under the provisions of this act, to be paid by the person serving the same. The fees so collected shall be paid into the state treasury as is now provided for by law for other fees collected by such commissioner of insurance. Summons and process served on the commissioner of insurance shall be in duplicate, one for filing in the office of the commissioner of in- surance, the other to be mailed to the company to be served. Summons and process so served shall be of the same force and effect as though served on the company personally. Section 4. Advertisement, etc., to bear aerial number. — No ad- vertisement, pamphlet, circular or other document relative to such se- curities or the financial condition of such company shall ije issued, MINNESOTA 369 » circulated or delivered fcy such company, or its agent, within this state, unless the same shall bear a serial number and a copy thereof shall first have been filed with such commissioner of insurance. Section 5. Contract of subscription to be in writing — Use of funds derived from sale of same. — No person, for the purpose of organizing or promoting any company, or promoting tthe sale of securi- ties of such company by it after organization as principal or agent, shall sell or agree or attempt to sell vsrithin this state any securities of such company unless the contract of subscription or of sale shall be in writing and contain a provision which shall state either by way of a percentage (.or the amount per share) what sum out of the purchase price of such securities shall be used for commission, promotion and organization ex- penses, and shall be in the following language : Xo sum shall be used for commission, promotion and organization expense on account of any share of stock in this company in excess of per cent of the amount actually paid upon separate subscriptions (or in lieu thereof, there may be inserted, $ per share from every fully paid subscription) for such securities, and the remainder of such payments shall be held or invested as authorized by the law govern- ing such company and held by the organizers (or trustees as the case may be), and the directors and officers of such company after organiza- tion, as bailees for the subscriber, to be used only in the conduct of the Inisiness of such company after having been duly authorized and licensed to transact the business of insurance. Funds held by such organizers, trustees, directors or officers of a domestic company as bailees shall be deposited with a solvent bank or trust company of this state until such company has been duly licensed to transact the business of insurance. Funds held by such 'organizers, trustees, directors or officers of a foreign company as bailees shall be deposited with a solvent bank or trust company of any other state until such company has been duly licensed to transact the business of insurance. All funds so deposited by the organizers (or trustees) as bailees, shall be held in trust for the subscribers of such company severally and individually, and shall not be subject to execution, garnishipent or attach- ment. Section 6. Interest of person making sale must appear in con- tract of subscription. — No person shall receive, directly or indi- rectly, any commission, remuneration or reward for his services in sell- ing or in aiding in the sale of any such securities, unless the name of . such person and the fact of his interest in suah commissions or rewards shall appear upon such contract of subscription. The ©mission of such statement from any such contract shall, in addition to the penalty herein provided, make such person liable to the purchaser or his assignees for 24 370 MINNESOTA all sums paid by such purchasers with interest at the legal rate from the date of payment, upon the assignment or tender of assignment of the securities so purchased. Section 7. Commissioner may make examination of applying companies, latter paying $10 per diem and expenses. — The said commissioner of insurance shall have power to make such examinations of said company at its expense, including actual expenses and a per diem of the examiners of ten dollars, and to require such further information as to its financial condition as he may deem advisahle, and if he shall find that the provisions of this act have been complied with and is satis- fied that the said company is solvent, and that its business is lawful, he may license the said company, its officers and agents to sell its securi- ties in this state. No such company or representative thereof shall sell or offer to sell any securities within this state unless a license shall have been issued to such company, and to each officer and agent thereof au- thorized to sell or contract for the sale of its securities. Such license shall recite in bold type that the said commissioner of insurance in no wise recommends the securities to be offered for sale by such company. Section 8. Change in articles to be approved by commissioner, or cessation of business. — No such company shall sell or offer to sell any securities within this state during any time after the adoption of any change in its articles of organization, by-laws or plan of doing business, or the making of any change in the form of its applications, or other contracts, before the same shall have been filed with such com- missioner of insurance. Section 9. License to sell stock — $2 annual fee. — No person shall- sell or offer to sell any securities in this state, as officer of or agent for such company, unless such company shall hold a license therefor, issued by such commissioner of insurance; nor shall any officer or agent sell or offer to sell any securities in this state unless he shall also hold a license from such commissioner of insurance. A license to an officer or agent shall only be issued upon the filing with such commissioner of insurance by such officer or agent of a bond in the sum of one thousand dollars, ($1,000.00), with such conditions as may be prescribed by such commissioner of insurance and with two sureties to be approved by such commissioner of insurance. Such license shall expire on the first day of March following its issuance, unless it shall sooner be revoked by the said commissioner of insurance. Such license shall be subject to revocation at any time by the said commissioner of insurance for cause appearing to him sufficient. The fee for such license shall be two- dol- lars ($2.00). Section 10. Annual statement to be filed. — Every such com- pany shall on or before the first day of March, file with such commis- sioner of insurance a statement as of the 31st day of December preced- ing, in such form as required by him, and in addition thereto such other MINNESOTA 371 statements and information shall be filed in such form and within such time as may be required by such commissioner of insurance. The accounts of such company shall be kept in such form as may be required by such commissioner of insurance. Section 11. False itatementi prohibited. — No officer, employee or agent of any such company shall make or cause to be made any false statement in any report required of him, or a false entry in any book of such company, or :exhibit any false paper with the intent to deceive any person authorized to examine into the affairs of such company, or shall make or publish any false statement of its condition or regarding its securities. Section 12. Commissioner given power of revocation. — The license of any company, officer or agent violating any provision of this act may be revoked by such commissioner of insurance. Section 13. Penalty for violation. — Any officer or agent of any such company knowingly or wilfully violating any provision of this act shall be punished by a fine not exceeding one hundred dollars ($100.00) or by imprisonment in the county jail for not exceeding ninety (90) days. Section 14. Fees to be paid into state treasury and re-ap- propriated for use in carrying this law into effect. — All fees herein provided for shall be collected by the said commissioner of insuiance and by him shall be turned into the state treasury, and all fees so turned into the state treasury are hereby re-appropriated to the said commis- sioner of insurance for the purpose of paying all salaries and expenses necessary for carrying .this act into effect; and the said commiisioner of insurance is hereby authorized to appoint such clerks and deputies as are actually and absolutely necessary to carry this act into full force and effect. All money actually and necessarily paid out by the said com- missioner of insurance to any clerk or deputy appointed under this act, as salaries, or any money actually and necessarily paid out by the said commissioner of insurance, or by any deputy or clerk appointed under this act for traveling or incidental iexpenses shall be paid by the state treasurer out of such fees upon the state auditor's warrants, to be issued upon vouchers containing an itemized account of such salaries and ex- penses, and approved by the commissioner of insurance. Section 15. Company to be licensed before sale of stock com- mences. — No person shall sell or offer for sale in this state stock in any insurance company organized under the laws of any other state or country unless such company has been licensed to dO' business in this state. Section 16. This act shall take effect and be in force from and after its passage. Approved April 19, 1913. 372 MINNESOTA AN ACT Relating to the organization of banks, and prescribing the duties of the State Securities Commission, and the Superintendent of Banks, in respect thereto. (Chapter 86, Laws of 1919). Be it enatted by the Legislature of the State of Minnesota: Section 1. The incorporators of any bank proposed to be organ- ized under the laws of this state shall execute and acknowledge an ap- plication in writing in the form prescribed by the State Securities Com- mission, and shall file the same in its office, which application shall be signed by two or more of the incorporators, requesting a certificate au- thorizing the proposed bank to transact business at the place, and in the name stated in said application. Thereupon the State Securities Commission shall fix a time within thirty (30) days after the filing of said application, for a hearing at its office at the State Capitol, at which hearing it shall decide whether or not such application shall be granted. A notice of such hearing shall be published in the form prescribed by the State: Securities Commission in some newspaper published in the municipality in which said proposed bank is to be located, and if there is no such newspaper, then at the county seat of the county in which such bank is proposed to be located. Such notice shall be published once, at the expense of the applicants,- not less than ten (10), nor more than twenty (20) days, prior to the date of such hearing. At such hear- ing the State Securities Commission shall consider the application, and shall hear the applicants and such witnesses as may appear in favor of or against the granting of the application of such propos.ed bank. If upon such hearing it shall appear to the State Securities Com- mission that said application should be granted, it shall, not later than thirty (30) days after such hearing, and after said applicants have otherwise complied with the provisions of law applicable to the organiza- tion of a bank, including the provisions herein contained make and file in the office of the Superintendent of Banks its order, in writing, direct- ing said Superintendent of Banks to issue the certificate of authorization as provided by law. If, however, said State Securities Commission shall decide that said application should not be granted, it shall deny such ap- plication and make its order, in writing, to that effect, and tile the same in the office of the Superintendent of Banks, and forthwith give notice thereof by registered mail to one of the incorporators named in the ap- plication for such proposed bank, addressed to such incorporator at the address stated in such application and thereupon said Superintendent of Banks shall refuse to issue the certificate of authorization, which is prescribed by law, to such proposed bank. Section 2. The expenses of organization and incorporation of any such banks shall not exceed the necessary legal expenses incurred in MINNESOTA 373 drawing- articles of incorporation, publication and recording thereof, and such incorporators shall, prior to the issuance of the certificate of au- thorization provided for by law, file with the Superintendent of Banks, a verified statement, showing the amount of such expense incurred in the organization of such bank. Section 3. If the applicants are of good moral character and finan- cial integrity, and if there is a reasonable public demand for such bank in such location, and if the organization expenses being paid by the sub- scribing shareholders does not exceed the necessary legal expenses in- curred in drawing incorporation papers and publication and recording thereof, as required by law, and if the probable volume of business in such location is sufficient to insure and maintain the solvency of the new bank, and the solvency of the then existing bank or banks in such locality, without endangering the safety of any bank in said locality as a place of deposit of public and private money, and if the State Securi- ties Commission is satisfied that the proposed bank will be properly and safely managed, such application shall be granted, otherwise it shall be denied. In case of the denial of such application, the State Securities Commission shall specify the grounds for such denial and the supreme court upon petition of any person aggrieved may review by . certiorari any such order or determination of the commission. Section 4. Any and all parts of acts, inconsistent herewith, are hereby repealed. Section 5. This act shall take effect and be in force from and after its passage. Approved March 21, 1919. Effective from and after date of ap- proval. Administration Firit Annual Report of the State Securities Commission of Minne- sota, Being for the year ending June 30, 1918. HISTORY OF AND REASONS FOR THE LAW To appreciate some of the problems and difficulties which confronted the commission when it took up its duties a year ago, it will be necessary to review briefly the state of affairs in Minnesota at that time in rela- tion to promotions and the sale of securities and to consider the circum- stances which led to the enactment of our Blue Sky Law. Prior to July 1, 1917, there was no law in Minnesota regulating the sale and issuance of corporate stocks or other similar securities; ex- cept that hanks, insurance companies, railroads and certain public utilities corporations were subject to a more or less limited supervision by various state departments. Miscellaneous corporations were not supervised or regulated at all as regards the sale of their stocks. Three or more per- 374 MINNESOTA sons could organize a corporation by filing articles of incorporation with the Secretary of State and paying the fee provided by law. Thereupon they could proceed to offer their stocks for sale and sell and issue the same regardless of the merits of the enterprise. As a consequence the following conditions existed in the state: 1. Numerous promotions were in progress in which commissions and other expenses incidental to the sale of the stock amounted to 30 per cent, 40 per cent, 50 per cent, and even more of the selling price of the stock. Very frequently only one-half — and sometimes less — of the money paid for the stock was used to further the enterprise; the balance being used for purely promotion purposes. 2. Mining and oil companies were selling stock to secure money with which to develop properties not worth developing. 3. Many stocks and other kinds of securities were sold at grossly excessive prices and without regard to their actual value. 4. Men with "ideas" formed companies and took 51 per cent of the stock for their "ideas" ; the other 49 per cent or a part thereof being sold to finance the project. Very often the "idea" proved valueless and only served to swell the sum total of business failures. 6. Companies were formed to manufacture or exploit patented ap- pliances, articles and devices which were mechanically imperfect or im- practicable. Frequently the money invested was dissipated in fruitless experiments and vain efforts to attain success. 6. There was no one to question the propriety or legality of the issuance of large blocks of stock for "good-will" or other similar in- tangible assets and it was not uncommon to find new concerns whose only asset consisted of "good-will." For stock-selling purposes it was, of course, necessary to label the item "good-will" or give it some other similar respectable name to conceal the fact that the capital of the com- pany was impaired. 7. In some cases impractical forms of organization were adopted, primarily to evade the corporation and tax laws. The legal rights of the shareholders in such cases were, often doubtful and illy defined and the liabilities burdensome. It was also difficult to attach any measure of responsibility or liability to the managing agents of the concern. 8. Stocks of concerns which were insolvent and whose vitality was ebbing could be legally offered and sold, subject only to the restrictions against actual fraud. 9. Grossly excessive valuations were claimed for assets in order to justify a given price for the stock or to cover up losses in operation or other impairments. 10. Enterprises which were impossible of Success were being pro- moted. 11. Foreign corporations which had no office, place of business, or permanent representative within the state, sent their agents into the state to sell their securities to our citizens. If the investor found that MINNESOTA 375 he had been defrauded he was compelled to seek redress in some foreign and perhaps remote jurisdiction. 12. None of the foregoing take into account the deliberately planned frauds, which were common. This recital could be continued indefinitely but the foregoing ex- amples will sufficiently serve the purpose of this report and show why the law was needed. It was evils like these which the law was designed to correct and the State Securities Commission, which was created by the law, was charged with the duty of effectuating that purpose. From what has been said it will be seen that the work before the commission consisted, among other things, in discovering and driving from the state unprincipled and dishonest promoters, preventing the sale of spurious and worthless securities, curbing and preventing the activities of visionary and irresponsible schemers, breaking up vicious practices in stock selling; in short, protecting the public against fraud. This was not an easy task because it meant a warfare against en- trenched evils, and opposition from those who were to be adversely af- fected by the new order of things. PURPOSE OF THE LAW The purpose of the law as stated in the preamble is to prevent fraud in the sale and -disposition of stocks, bonds or other securities. The term fraud as here used does not have reference to premeditated fraud alone. It includes transactions which are fraudulent in effect even though bad faith is not present. Just as much money is lost through the failure of bona fide but misguided business ventures as through out and out frauds. In either case the stockholder generally loses. Both should be pre- vented as far as possible and this was the object of the law. The primary question before the commission in every case is whether or not the sale of the particular security is fraudulent or will work a fraud on purchasers thereof. The commission has interpreted the law to mean that the sale of a security is fraudulent, or tends to work a fraud on the purchaser, if the latter does not have a fair chance to gain by his investment. It is not sufficient that the money invested is secure against loss. There must be a fair chance to gain. What is a fair chance will, of course, depend upon the circumstances of each case. This does not mean that the state shall attempt to remove the ordi- nary hazards of business, or limit the right to engage in speculative ventures so long as they are fairly conceived and honestly conducted. Neither is it the purpose of the law to establish a new code of business ethics or principles. Fraud and misrepresentation in the sale of secur- ities, which the law is intended to reach, have always been condemned by honest business and honest men. There is no need to impose onerous burdens upon the financing of clean enterprises or to teach honest men to be honest in newly discovered ways. The law was passed to the end 376 MINNESOTA that promotions generally shall conform "to the standards which have been followed by successful and reputable concerns both before and after the law went into effect. It was also designed to prevent, as far as possible, the profligate waste and appalling financial losses which the unrestricted sale of securities inevitably entails. GENERAL REVIEW The commission commenced business July 1, 1917, with a number of applications pending. A secretary and clerk were employed to handle the details of the work. A little later a stenograplier and an examiner were added. The first work of the commission included the preparation and adop- tion of the necessary blanks, the establishment of a system of records and accounts, and formulating ways and means of properly handling the business of the new department. This was not the work of a day or week. It took months to systematize things so that t)he business could be taken care of properly and with reasonable dispatch. During the early months of operation the volume of business was so great that almost daily meetings of the commission and numerous hearings were necessary. The work was new to all the members of the commission, as well as to the employes, and ground had to be broken in a new field. Fully six months elapsed before the commission was fairly abreast of the incoming applications. In this connection it should be observed that there was little or no precedent to guide tlie commission in the performance of its duties. True, there were Blue Sky laws in several other states, but these differed from the Minnesota law in the details of their provisions, as well as in their practical application. Again, the law was not as clear and explicit in many respects as might be desired. For these reasons the work com- menced and proceeded under difficulties and amid uncertainties as to how the law should be administered. At the outset it was not known what the work would amount to. Even after the first three or four months it was not certain to what extent applications would continue to come in. Neither could it be foreseen what the needs of the department would be as regards clerical assistance. It was not clear that a larger force would be needed permanently, nor that the annual appropriation for the maintenance of the department and the fees would be sufficient to pay all the expenses including the salaries of an increased office force. The unsettled conditions due to the war also raised doubt as to the wisdom of further expansion. However, when it became apparent that a definite volume of applications could be safely counted on, more examiners and stenographers were added. At the present time the department consists of the secretary, a chief examiner, three examiners, all of whom are attorneys, a chief clerk, three stenog- raphers and a clerk. Schedule G attached includes a list of the employes of this department for the year. MINNESOTA 377 The commission soon discovered that it could not safely rely on the representations made by applicants and that independent investigation was necessary in nearly every case. The legislature had wisely provided for this by authorizing the commission to make such special investiga- tions as it deemed necessary to put it in possession of all facts relevant to the questions before it. Pursuant to this authority the commission employed experts as occasion demanded it. The subject, "Employment of Experts," is discussed at length further on in this report. For the purpose of determining whether or not a particular security is fraudulent the commission generally requires a great deal of informa- tion about the investment company issuing the same. Much of this information has to be submitted in writing, or in the form of exhibits. As a result, applications are often so voluminous that the commission cannot take the. time necessary to make a complete examination of the same. The work of analyzing the applications and exhibits and preparing a digest thereof for the commission is, therefore, assigned to the ex- aminers. As soon as it became evident that the commission was attempting in good faith to carry out the purpose of the law, those hindered thereby began to devise schemes, which, it was thought, v^^ould remove them from the operation of the law. Fortunately, the law was found to be broad enough to include them because it embraced all "stocks, bonds, invest- ment contracts or other securities" not specifically excepted. Clean and worthy enterprises which had nothing to hide came for- ward voluiitarily. They did not hesitate to make full disclosures regard- ing any relevant matter concerning which the commission wanted in- formation, because the truth was a factor in their favor. On the other hand, those who had something to conceal kept aloof from the commis- sion as long as possible, and when they were forced to come in with an application they generally placed as many obstructions as they could in the way of a complete investigation. Prior to March, 1918, there had been no co-operation of any conse- quence between the various Blue Sky departments. Each liad operated independently of all the rest, and no effort had been made to co-ordinate them to the attainment of the ends for which each had been created. Each department had its own requirements and methods of procedure, and generally took no particular interest in similar departments in other states. A few of the departments, however, recognized the need of a na- tional organization, and in Maroh, 1918, this commission, jointly with three other securities departments, called a conference at Chicago and organized the National Association of Securities Commissioners. This association consists of the officials of the various states who are engaged in the ad- ministration of Blue Sky laws. The National Association of Securities Commissioners was organized primarily for the purpose of co-operation and to bring about more uniform 378 MINNESOTA laws and procedure. To bring this about the following standing commit- tees were created by the constitution of the association: Committee on Membership ; Committee on Law and Legislation ; Committee on Law Enforcement and Publicity; Committee on Pro- cedure and Practice; Committee on Joint Investigations. The commission ihas derived many benefits from the activities of the association. The various securities departments have thereby been brought closer together and have learned to co-operate with one another, partic- ularly in the matter of law enforcement. Each department is adopting the superior practices and methods which it has found to exist in other states, and as a result the efficiency of each has been correspondingly increased. Since the activities of the stock promoter are generally not limited to one state, the value and aid of an organization of this kind will be apparent. During the year the commission has held 190 meetings. These in- cluded hearings in 168 cases. Occasionally an application is disposed of at the meeting at which it is first presented, but more often an application is considered a number of times before final action is taken. In a great many cases a series of hearings have been held and repeated consideration given to the same application. Some applications were received, investigated and considered all in one day, others were pending for several months before they were finally disposed of. These were exceptional cases and the average time it now takes to dispose of an application for an investment company's license is from ten days to two weeks. Quick action is constantly being urged, but the commission has had occasion to regret undue haste, and has long since learned the wisdom of taking whatever time is necessary for proper action. Nevertheless, applications are now disposed of as rapidly as is consistent with safety. The commission has had numerous problems to solve. Most of them have related to individual cases and not to a class of cases, or to applicants as a whole. It would not be practical for this reason to enter upon an extensive discussion of the various details of the work. In the following pages of this report a few subjects will be discussed be- cause of their relative importance and general application to all com- panies. It will be assumed that this will constitute a sufficiently "accurate review of the work of the commission" to satisfy the requirements of the law. INVESTMENT COMPANIES During the year 379 applications for investment companies' licenses were filed. Of this number 215 (57 per cent) were granted. The re- mainder, 164 (43 per cent), were either denied, withdrawn, abandoned or were still pending on July 1, 1918. Schedules A and B hereto at- tached contain a list of all applications filed. Schedule A is a list of the applications granted. Schedule B is a list of the applications re- jected, withdrawn, abandoned or still pending. The status of the MINNESOTA 379 respective applications in Schedule B is noted in the column headed "Re- marks." The principal work of the department relates to the consideration of applications for investment companies' licenses .because these require- special investigation. Our law differs in this respect from the laws of some states where the investigation is of the brokers, dealers and agents and not of the company issuing the security. It is assumed in those states that if the broker, dealer or agent is a reputable person he will deal only in securities of merit. Experience has shown beyond a doubt that such an assumption is not warranted and is extremely dangerous to the investing public. Investment companies' licenses are granted and issued only upon written application. The commission has provided printed application blanks which applicants are required to use. In addition to the informa- tion which the law specifically states shall be furnished, applicants are required to file copies of their articles of incorporation, by-laws, stock subscription contract, stock certificate, prospectuses, etc.; a list of officers, directors, and of promoters who each own more than 5 per cent of the capital stock; a staternent showing the consideration received for the securities issued, and subscribed but unissued ; a statement of assets and liabilities ; a profit and loss statement and suoh other docimients as will help to acquaint the commission with the applicant's affairs. The course of procedure on an application .is described under the subjects of "Pro-- oedure and Practice," "Employment of Experts,'' and "Escrow of Se- curities." By reference to Schedule A it will be found that up to July 1, 1918, the commission had licensed the sale of $17,798,002.00 of stocks, bonds and other securities. Up to the same date 164 applications for invest- ment companies' licenses had been denied, withdrawn, abandoned or were still pending. These involved securities in excess of $8,000,000.00. The exact amount has not been ascertained. It should be noted that the applications actually received do not represent all of the securities the sale of which was contemplated in Min- nesota. Almost daily we have received inquiries regarding the require- ments for obtaining a license and requests for application blanks from numerous companies throughout the country. A very small number of those making inquiries and asking for application blanks have actually made application. It is altogether safe to say that much less than one- half ever filed applications. The total capitalization of the companies which filed applications up to July 1, 1918, was $228,997,329.00. This figure is not as important as it is interesting. It is given merely to show the tremendous volume of authorized securities which could have been offered promiscuously in the state except for the existence of the "Blue Sky" law. In reference to the companies enumerated in Schedule B it should be said that a number of them were and possibly are enterprises of real 380 MINNESOTA merit and such that a license could jjroperly have been granted to them had they chosen to comply with the conditions fixed by the commission to safeguard the interests of investors. Schedule F is an industrial classification of the 379 applicants for investment company's license. This schedule will indicate the great variety of problems which had to be considered and solved. The various fields of industry whioh the applicants represented had to be explored to some extent by the commission and all liad to be viewed more or less in the hght of their relation to the war. Some lines of business were regarded by the Government as "non-essential" and new exploitation along these lines was being discouraged to such an extent that progress therein was practically impossible. From an inspection of Schedule F it will be apparent that the ques- tions or problems presented by the applications of one class differed from those of all other classes. It should be added that no two com- panies of a class were entirely alike as regards organization, plans and prospects, and that widely different conditions had to be imposed even on companies in the same class. AGENTS During the year 1,347 applications for agents' licenses were received; 1,2-57 were granted. Applications for agents' licenses are granted as a matter of course on the requisition of a licensed investment company or dealer. Xo investigation is made because it is assumed that the com- pany or dealer making the requisition has satisfied itself or himself as to the agent's fitness. Of the 1,347 applications received 90 could not be granted because the principals who made the requisitions failed to secure a license from the commission. A few agents' licenses were revoked at the request of the companies or dealers for whom they were acting; others were, revoked because the agent disregarded the rules of the commission or violated the law. DEALERS During the year 149 applications for dealers' licenses were re- ceived; 128 were granted (see Schedule C) ; 21 were not granted (see Schedule D). Applications for dealers' licenses involve only a brief investigation into the character and business record of the applicant. If these are found to be satisfactory, the application is granted unless it appears that the applicant proposes to sell a security which has not been approved or licensed by the commission and which is not excepted from the opera- tion of the law. The 21 applications not granted were denied principally for this reason. MINNESOTA 381 A number of dealers' licenses were suspended as to certain se- curities because it was found that the sale of those securities would work a fraud on investors. Suspensions were also made in some cases be- cause the dealer disregarded the rules of the commission or engaged. in fraudulent practices. PROCEDURE AND PRACTICE The law does not prescribe a definite form of procedure except that applicants are required to furnish upon oath, in such form as the commission shall prescribe, certain information specifically set forth in the law and such other information as the commission shall deem neces- sary. Blanks have been prepared, which applicants are required to use. .■Vs soon as the application and exhibits required in connection there- with are filed they are referred to one of the examiners of the depart- ment who is charged with the duty of examining and analyzing the same, determining what additional information, if any, is necessary, securing such information in satisfactory form and preparing a detailed report to the commission. Experts are engaged as needed to aid in this work. The subject "Employment of Experts" is discussed elsewhere. When the information filed by the applicant and secured by the examiner or expert is complete so that all the facts bearing upon bhe issuance of a license are fully and clearly presented, the ' application ac- companied by the examiner's analysis and report is submitted to the commission for final action. When a hearing is necessary in relation to a pending application the applicant is cited to appear before the commission. Hearings are also granted at the request of applicants and other parties in interest. At such hearings testimony is taken and methods of overcoming the objections to the issuance of a license on the plan or terms proposed by the applicant are discussed to the end that legitimate enterprises may be aided and at the same time the purpose of the law may be carried oiit. Few licenses have been granted on the terms originally proposed by the applicant. In most cases the commission requires changes to be made within the company as a condition precedent to the issuance of a license, such as an amendment to the articles of incorporation or the by-laws, the cancellation or escrowing of stock, a change in the business plans or personnel of the company, a reduction or modification in the sale price of the stock to be offered for sale, or in the commissions to be paid for the sale of same ; also such other changes as are necessary to protect the investor. When an application* is granted, a license is issued to the applicant, stating the kind and amount of stock which may be sold, the sale price per share and the maximum commission which may be paid. This license remains in force until revoked or suspended by the commission for 382 MINNESOTA cause, or until the licensee has sold the amount of stock provided for in the license. When a licensee violates the law or a rule or order of the commis- sion, the only action the commission can take is to revoke his or its license. When violations occur orders are issued, either on the written complaint of parties in interest or by the commission on its own mo- tion, requiring the licensee to show cause before the commission why the license should not be suspended or revoked. The procedure adopted in such cases is similar to that in the district court respecting orders to show cause and ultimates either in vacating the order or suspending or revoking the license. Hearings on orders of this nature and respecting pending applications have been held in 168 cases. The examiner having charge of the case attends the hearing. PROMOTION STOCK AND COMMISSIONS The first problems of importance which confronted the commission were the amount of stock which might be issued for promotion pur- poses and the amount which might be paid for commissions and other expenses incidental to the sale of seciirities. A custom had been estab- lished under which greatly excessive commissions were being paid to brokers, promoters and other stock spelling agents and the theory that those who were in on the "ground floor" in the organization of. a com- pany were entitled to a large amount of promotion stock had been put into practice to an undue extent. Consequently the commission found it absolutely necessary to fix a maximum stock selling expense and adopt a rule with reference to the issuance of promotion stock. As regards commissions the following rates were fixed: For mining and oil companies, not to exceed 20 per cent. For industrial concerns, not to exceed 15 per cent. For financial corporations, not to exceed 10 per cent. These rates, which are still in force, are based upon the selling price of the security rather than upon the face value thereof and in- clude all expenses incidental to the sale of the security. This was a substantial reduction in the rates which] were" customary at that time. It has been stated elsewhere that in some cases as much as 50 per cent was being paid as commission for the sale of stock. This meant that only one-half of the selling price was used to develop and promote the business. A company which commenced business under such circumstances had an impairment of 50 per cent of its capital at the outset. Naturally it was difficult to overcome such an impairment and many failed to do so. In many cases large amounts of stock had been issued for services rendered and to be rendered in the organization and promotion of a company. This is what is commonly called promotion stock. A favorite method of proceeding was to issue 51 per cent of the stock to the pro- MINNESOTA 383 moter for his services so as to insure control of the company and be able to give away a portion of the 51 per cent as a bonus to those who should buy liberally of the treasury stock. Very often the promoter would sell the promotion stock he owned instead of selling the treasury stock and th^s at a lower price than the treasury stock. This tended to discredit the treasury stock and create distrust in the company with the inevitable result that stock selling ceased at a critical point and the company was compelled to suspend operations for lack of capital. The commission, while recognizing that those who are promoting a legitimate enterprise are entitled to a fair compensation for their services in that behalf, have found it necessary to adopt a rule with reference to promotion stock; namely, that no more stock shall be issued for pro- motion services than represents the fair and reasonable value of those services. EMPLOYMENT OF EXPERTS The law provides for special investigations and requires that the expense thereof shall be paid by the applicant. In most cases such investigations have been made by experts employed by the commission, although in a few cases the investigation has been made by an exammer. Frequently, applications come in which involve technical questions relating to mechanics, manufacturing, mining, farming, etc. The com- mission has deemed it advisable in such cases to secure the assistance of men possessing the requisite technical knowledge and skill. This has also teen necessary as a means of securing the facts and information which the commission must have to qualify it to properly pass upon the question presented. For example: 1. When an oil company makes application for a license the prin- cipal question generally relates to the prospects of the applicant as regards the production of oil. The safest and most satisfactory way of securing the information bearing upon this question is to cause an investigation to be made by an expert in that particular line. Hence, a geologist familiar with oil geology and the oil industry is employed. He inspects the property under consideration, determines the prospects with reference to the presence, quantity and depth of oil in so far as these can be determined from surface indications and surrounding pro- duction. He also ascertains the cost of drilling and other details, and reports his finding to the commission. Less than one-half of the prop- erties inspected by the geologist were found to have a reasonable pros- pect of producing oil in commercial quantities. 2. A great many applications have been filed by mining com- panies. A mining engineer has been employed to make the investiga- tion in such cases and to report to the commission. Applications from mining companies involve questions regarding the quantity and grade of ore in the property, the experience and ability of the management, transportation facilities, location with reference to market, labor, 384 MINNESOTA supplies, etc., and many others which can be correctly determined only by a mining engineer and by a personal inspection of the properties. 3. Mechanical engineers have been employed in many cases to examine mechanical appliances of various kinds. Only those thoroughly familiar with mechanics and with the manufacture and sale of the devices, appliances and inventions under consideration, or "with similar devices, appliances and inventions, can furnish the necessary information to the commission. 4. Many of the applicants are going concerns having large plants, equipments and established businesses. Experts have been em- ployed' in such cases to make appraisals and business surveys and to obtain such other information in reference to the enterprise as the commission must have before it can pass on the application. Similarly, experts in many other lines have been employed to secure information and data for the commission. Except for the authority to cause such special investigations to be made, the commis- sion would, to a very large extent, have been compelled to rely on the claims and representations of applicants and to grant applications with- out any investigation. A great many of the applications have involved impossible or fraudulent schemes and these havQ been so camouflaged that nothing short of a rigid investigation by an expert would have brought the true facts to light. Special investigations were made in 122 cases at a total cost of $7,733.12 (See Schedule E). y The commission has made advantageous working arrangements with a number of experts and has secured their s^vices on a per diem basjs plus actual expenses. They are employed only in individual cases and the applicant is advised in advance as to the probable cost. He then deposits an amount sufficient to cover such cost, whereupon the expert proceeds with his work and on the completion thereof is paid out of the deposit. ESCROW OF SECURITIES Before a license can be granted in any case, the commission must lind that the security under consideration is reasonably worth the price at which it is to be sold. This makes it necessary to ascertain the net value of assets; that is, the value after deducting liabilities other than the stock liabilities. Where the assets consist in whole or in part of patents, secret processes or formulas, franchises, undeveloped oil or min- ing leases, good will or going-concern values, or other intangible assets, it is often difficult, if not impossible, to determine values. There is no fixed rule by which this can be done. Values in such cases are largely a matter of opinion. Applicants often place excessive valuations on assets of this char- acter in order to justify the issuance of large blocks of stock in pay- ment therefor. In many instances, the commission has required the cancellation of all or a substantial portion of such stock as a condition precedent to granting a license. Where the commission has permitted MINNESOTA 385 the retention of stock issued for assets of this nature it has required the holders thereof to deposit all or a portion thereof with a trustee, designated by the coitimission, who retains the same until the value of the assets tor which the stock was issued, has been demonstrated on an earnings basis or -until the other stockholders have received back a specified portion of their investment. The depositors and the trustee are required to enter into a written trust agreement (also commonly, al- though perhaps improperly, called an escrow agreement), defining the terms under which the stock is deposited and upon which it will be re- leased or cancelled. During the year stock of the par_ value of $4,764,651.00 has been placed in escrow pursuant to the direction of the commission. The escrowing of stock on the plan above referred to goes a long way towards minimizing and preventing losses to investors because it does not permit the holders of stock, issued for debatable or unknown values, to par- ticipate in the earnings on an equal basis with those who hold stock paid for in cash or its equivalent. The effect of the escrow is to keep the depositor, who is, generally the promoter, back of the project; to compel the cancellation of watered stock; to keep the escrowed stock off the market during the trust period or until the valiie of the asset which it represents has been demonstrated; to compel the cancellation of the stock if such value is not demonstrated during the trust period. In other words, to. protect investors and at the same time not work an injustice to the persons holding the stock issued for such unknown and debatable values. The escrow agreement has been found to be a very fair and effi- cient means of solving questions of value with respect to untried devices and ideas and undeveloped properties, and a very good test of the sin- cerity and good faith of an applicant. INVESTMENT COMPANIES' REPORTS All investment companies which had been licensed prior to April 1, 1918, -were required to file a report during the month of June, 1918, showing the progress made since the granting of the license and other relevant information. This was necessary because it had been discovered that a number of licensed companies were going backward instead of forward and others were disregarding the corylitions under which they had been licensed. To compel a proper observance of the law and the rules and regulations of the commission and to protect the public accord- ing to the spirit of the law, it was found necessary to maintain some surveillance of each licensed company and its activities during the stock selling period. Unless this had been done the same frauds would have been perpetrated as if there had been no "Blue Sky" law in the state. Some companies were willing to agree to any conditions in order to secure a license. Afterwards they resorted to the same mischievous 25 386 MINNESOTA practices as before the law was passed. Hence continued supervision and regulation by the commission were imperative. The simplest method of maintaining such supervision and regulation was to require a periodical report and further consideration of the company in the light of events that had transpired after -the license had been granted. One hundred thirty investment companies were required to file a report. Forty-three failed to do so and their licenses w-ere revoked or canceled for that reason. Ihe remaining eighty-seven filed reports and were further investigated by the exammers and in a few cases by ex- perts. As a result twenty-two more licenses were revoked or canceled, leaving in force only one-half of the licenses issued between July 1, 1917, and April 1, 1918. These revocations and cancellations were made subsequent to July 1, 1918, and are mentioned in this report only for the purpose of bringing the report up to date as much as possible as to the companies which were licensed during the first year. (See Schedule "A"). It is not sufficient that a company lie required to start right; it should be required to stay right and the only means of compelling this so far as the commission is concerned is to require periodical reports and examinations and also to require that such changes.be made from time to time within the company as are necessary for the proper pro- tection of investors. RECEIPTS AND DISBURSEMENTS ***** Distributing the expense of the department among the 379 invest- ment companies lyhich made application, we find that the average cost per company is $71.82. However, this does not take into account the 149 dealers and the 1,347 agents which made application. A portion of the department expenses is, of course, chargeable to them and if this is done the average of $71.82 per investment company is correspondingly decreased. Compared with the service rendered to the people of this state and to the country as a whole, the expense of maintaining the department is insignificant. Indeed, a far greater expense would have been justified to correct the evils which had such a firm foothold in the state. One case alone justified the whole expense of the department. That was a case where the promoter planned to conduct an intensive advertising and selling campaign to dispose of $40,000 of securities. His scheme looked so plausible and success seemed so probable that he would most likely have sold the entire issue in Minnesota. We kept him out of the state because we found his scheme to be a plain fraud. In that one case the public was saved at least as much as it cost to run the depart- ment for the year; but it was not the only case of its kind, nor more aggravated than ' many others. MINNESOTA 387 If it were necessary to do so we could cite here a number of similar cases in each of- which the people of Minnesota were saved much more than it cost to operate this department for the whole year. In fact it is safe to say that as A result of this law the people of the state have been saved large sums of money. The receipts have been sufficient to meet all expenses to date. The expense will be a little greater in the future, owing to the increased cost of maintenance and the necessity of broadening the scope of the work and increasing the efficiency of the department. Few of the applicants were licensed to sell as much stock as they asked permission to sell. Most of them were limited for the time to amounts which would meet their present needs. Many of these will return later and request that the sale of additional stock be authorized. All such requests for extensions will require practically the same time and labor as an original application, and the work of the office will be increased to the extent that old matters of this kind must be taken up for consideration. There is, however, no corresponding increase in the cash receipts of the office. Filing fees are paid at the time of filing the application and are based on the face value of the securities to be sold in the state. Only a fixed amount is received in any case, regard- less of the number of times an application has to be considered and the time and work necessary for investigation. LAW ENFORCEMENT Since the organization of the commission there has been a large number of applications to consider and these have entailed so much work that it has been impossible to devote sufficient attention to the matter of violations of the law and to law enforcement. Nevertheless, much has been done to stop the illegal sale of securities and to compel observance of the rules of the commission and the conditions upon which licenses are granted. Illegal sales are occurring with less and less frequency because it is becoming increasing:ly difficult to sell unlicensed stocks. This is due to the publicity which has been given to the law. Notices calling attention to the law and warning the public against un- licensed agents and against the purchase of unlicensed stocks have been posted in banks, postoffices, depots and other places throughout the state. When a person is solicited to invest in a security he usually asks whether it has been approved by the State Securities Commission. If he learns that it has not, he mistrusts that all is not as it should be and inquires of the commission concerning the status of the agent and the company. In this' way the commission receives notice when unlicensed securities are being offered and can then take steps to restrain further activities while the person inquiring secures information which will put him on his guard. A law enforcement division has been established and an examiner has been placed in charge thereof. He has already gathered evidence 388 MINNESOTA regarding a number of violations and in some of these cases prosecu- tions are pending. Hereafter this branch of the work will require alld receive special attention. Some good has already been done, in that questionable promoters have been obliged to move along to other states where they can bilk the public without fear of arrest and prosecution. A recent incident furnishes a good illustration of what is being ac- complished by the law enforcement division of the department : An inquiry regarding a certain company brought to light the fact that two representatives of the company were endeavoring to interest certain Minnesota people in the purchase of shares in the company. Investiga- tion was commenced and it was found that one party had agreed to invest $50,000.00 on certain conditions which could probably have been easily met and complied with. From the facts brought to light through the investigation the prospective investor learned that he had been all but taken in on a gold brick scheme, while the men who had endeavored to interest him departed well within the limit of the time fixed by the police authorities. This is one case in which a single individual saved as much through a timely warning from the department as it cost to operate the department for the first year. We have, of course, had many other similar cases. Law enforcement has also been greatly facilitated and strengthened by the co-operation of other Blue Sky departments since the organiza- tion of the National Association of Securities Commissioners referred to earlier in this report. The several departments have aided one another materially in suppressing illegal sales. The benefit of this co-operation has been experienced by the commission in several' instances. The law provides that the commission may from time to time issue in pamphlet form, or by newspaper advertisement or otherwise, informa- tion regarding offerings it considers fraudulent offered by persons or parties within or without the jurisdiction of the state for sale to parties within the state by mail, advertisement or otherwise. (Chapter 429, General Laws of Minnesota 1917, section 13). The value of this pro- vision cannot be over-estimated because it enables the commission to publish warnings through the newspapers regarding offerings which have not been licensed or approved. This remedy serves to curb violations and to warn the public. It is not a substitute for prosecutions. A f«w warnings of this nature were inserted in some of the larger papers in the state. The advertisement contained the name and address of the company or agent, and a statement to the effect that the security had not been licensed or approved. These advertisements have a restrain- ing influence. They have been used only in the more flagrant cases and where criminal prosecutions could not be readily secured. A number of the newspapers of the state have extended genuine and effective co-operation by refusing to accept advertisements of un- licensed stocks. By excluding from their columns advertisements con- cerning stocks which have not been licensed or approved by the com- MINNESOTA 389 mission, the newspapers have rendered a real service both to their read- ers and to the commission. Not all newspapers in the state have seen their way clear to help in this respect. Some continue to publish the stock advertisements offered even where the company has not made application to the com- mission for a license. The newspapers, which control one of the prin- cipal avenues of publicity, coiild accomplish much towards purifying and elevating business if they would refuse to lend themselves to the promotion of dubious enterprises. It is not alone the unlicensed which offend. Sometimes licensed companies, dealers and agents disregard and violate the rules and regula- tions of the commission and even the law. The licenses of such are suspended or revoked. Before they can he reinstated, restitution must be made if the situation requires it and satisfactory guarantees must -be given that there will not be a repetition of the offense. EFFECT OF THE LAW It has been stated earlier in this report that the purpose of the law is to prevent fraud in the sale and disposition of stocks, bonds and other securities. It may be said without any hesitation that it has served this purpose in a very large measure, and that as a result of the work of the department many of the abuses and evils which the law was intended to reach have been corrected. The clean business interests of the state have manifested and expressed hearty sympathy with the law and with the work the commission is endeavoring to do. They have also co- operated with the commission to an admirable extent. Legitimate busi- ness is greatly aided by an' efficient administration of a law of this kind and the occasional cry that business is being hurt by the enforcement, of the law comes from those who do not understand the operation of the law or from those whose business will not stand investigation. It is not alone in the prevention of fraud that the law has proven beneficial; its effects have been felt and observed in many other respects as well, notably the following : 1. Get-rich-quick promoters have been obliged to depart to other fields less carefully guarded. 2. Brokers who formerly dealt in "snide" stocks are now dealing in a better class of securities because the other variety has been ex- cluded to a large extent from the market. 3. New concerns starting up in business and financing themselves through the sa,le of stock in this state have been compelled to start right and to stay right, at least during the stock-selling period. 4. Legitimate business concerns have been greatly aided in the sale of their stocks because they are no longer compelled to compete with the "fly-by-night" variety. 5. -The administration of the law tends to standardize and stabilize business because it compels the concerns which come within its opera- 390 MINNESOTA tion to adopt practical forms of organization instead of resorting to unusual, involved and complicated forms which are often burdensome and hazardous to investors. 6. It has brought to light unwholesome conditions within concerns of respectable size and reputation and compelled changes for the good of stockholders. 7. It has conserved capital, material and energy. In this connec- tion it is proper to call attention to the lamentable extravagance which has existed in the business world in relation to promotions. Thgre has been a constant flow of capital into enterprises which were doomed from their inception. No one has had authority to prevent such from going ahead. After absorbing large amounts of capital and dissipating the same, the enterprise has generally been abandoned and forgotten. One instance of this kind may not absorb a large amount of money, but in the aggregate the waste is considerable and is often made up of the savings of those who can ill afford to lose. 8. Some corporations have received valuable suggestions as to their business from the experts employed by the: commission and have profited by making suggested changes. 9. Excessive fiscal contracts have been canceled in many instances and as a result considerable sums of money have been saved for the applicants concerned. 10. The investing public has become more critical and discerning with reference to promotions and securities. This is illustrated by numerous inquiries received from prospective investors who wish to obtain such information as the department has regarding the company whose stock has been offered. A number of such inquiries are received every day and special effort is being made to give the inquirer such in- formation as he appears to need for the purpose of deciding upon the desirability of the investment. 11. It is not only the prospective investor who makes inquiry. Very frequently stockholders ask for information regarding the com- panies in which they have invested. The department is becoming more and more a clearing house of information respecting corporations gen- erally and new enterprises and promotions in particular. 12. Public confidence in licensed securities is increasing. There- fore, such securities can be sold more readily and economically than other kinds. AMENDMENTS RECOMMENDED Experience has already taught that amendments to the law are necessary. It is recommended that the law be so amended as to make it less difficult to draw a complaint or an indictment for a violation of the provisions of the law. It should also be amended so as to prohibit newspapers publishing advertisements of securities which are not exempt from the operation of the law and which have not been licensed or ap- proved by the commission. MINNESOTA 891 The following words of sub-division D, section 2, of the law should be stricken out, "or of insurance coippanies under control of the com- missioner of insurance complying with chapter 385, General Laws 1913." That chapter should be repealed so that the companies coming within its operation will be subject to the Blue Sky law. A' number of minor changes could also be made to advantage but as these relate largely to making the law mo're clear and definite it is .not necessary that a further discussion thereof should be given in this report. Forms PENALTY FOR FALSE STATEMENT. Any person who shall knowingly make or file, or cause to, be made or filed any statement, information, or proof required hereunder, by said commission, which is in whole or in part materially false, or any investment company or dealer who shall sell or promote, or cause to he promoted by advertisement, circular letter, prospectus, by word of mouth, or by any other form of public or general offering, the sale of any securities without complying with the provisions of this act, or without furnishing to the conunission any information or proof in the possession of or reasonably obtainable by him or it, after the sajme is required by the commission under this act, shall be guilty of a gross misdemeanor. * * * and upon conviction thereof shall be fined not more than one thousand dollars or shall be imprisoned for not more than one year or both such fine and imprisonment in the discretion of the court. (Chap. 429, G. L. Minn. 191Y as amended.) STATE OF MINNESOTA State Securities Commission investment company application To the State Securities Commission of the State of Minnesota, St. Paul, Minn. hereby makes application under Chapter 429, General Laws of Minnesota for 1917, as amended by Chap. 105 G. L. 1919, for a license to sell the following of its securities in the State of Minnesota : Shares of Preferred Stock ; par value $ Shares of Common Stock; par value $ Shares Stock ; par value $ Shares ^. Stock ;' par value $ Total Shares Total $ In conformity with said laws and for the purpose of obtaining sucTi license, applicant represents : 1. That it is a corporation duly organized, created and existing under and by virtue of the laws of the State of 2. That its business address is 3. That the following is a true and correct statement of its au- thorized capital stock and of its outstanding capital stock and securities: Amount of authorized capital stock Common $ Pre- ferred $ SS2 MINNESOTA Amount of authorized capital stock $ Common $ ; Preferred $. . .' Amount of bonds authorized - $ Amount of bonds issued - $ Amount of other securities called Authorized $ Amount of other securities called Issued $ 4. That the following is a true and correct list of all officers, di- rectors and promoters, and of all stockholders who each own 5% or more of the capital stock, showing their respective addresses, holdings, salaries, official position and time devoted to the Company: • Address Number of Shares Owned. l-l o s.s ill S i. P Name. 6 •6 V •s Officers and Promoters: Pt 1 V. P. Sec^y. G. M. Prom. Directors other than officers: ~ Stockholders (other than officers, directors and pro- moters) who eac* hold .5% or more of the capital slock: \ 5. That the following is a true and correct statement of the con- sidrtation received for the securities issued and outstatiding to date, and for the securities subscribed but unissued: MINNESOTA COMMON STOCK 393 No. Shares. •Actual Value. •Book Value. Remarks. Notes Plant Equipment Organizing Promotion Commissions ' '! 1 Dividends Totals PREFERRED STOCK No. Shares. •Actual Value. •Book Value. Remarks. Real Estate Plant Equipment Organizing Promotion Commissions Dividends Totals * These columns should specify the actual amount of cash or notes received and the actual value of real estate, etc., received in exchange for stock issued, and should show the value at which these different items were turned over to the com- pany and are carried on the books. If this cannot be fully shown in the above spaces or requires further explanation, submit additional or separate statement. 394 MINNESOTA (Other Securities.) No. Sliares. 'Actual Value. •Book Value. Kemarks. Actual Cash Real Estate Equipment Organizing Promotion Commissibnt Dividends . Totals 6. That the following is a true and correct , statement of appli- cant's assets and liabilities as of this date: ASSETS Actual Value. Book Value. Remarks. Accounts Receivable Stock Subscriptions Unp'd. Totals MINNESOTA 395 LIABILITIES Amount. - Remarks, Explanations, Etc. Common Stock Subscribed, but un- Pref erred Stock OutsUnding Preferred Stock Subscribed, but Bills Pavable Sinking Fund or Reserve . 7. That the following is a true and correct statement of applicant's profit and loss account for one year prior to the date of this application : Loss. Profit. Carried to Surplus Dividends, Common Stock, per cent Dividends, Preferred Stock per cent Interest Paid on Bonds Interest, Borrowed Money. Operating Expenses Commissions Salaries Gain Total Undivided Profits . ; Gross Earnings, (Specify Source) Loss Total 396 MINNESOTA 8. That the following is a true and correct statement of receipts and disbursements for one year prior to the date of this application : RECEIPTS. (Classify.) DISBURSEMENTS. (Classify.) ^ 9. That the plan of selling said securities is as follows : (Explain in detail and state whether sale is to be made by appli- cant's officers or agents ; or by a dealer under a fiscal contract ; who will have charge of the selling; what commission will be paid; and whether it is to be pjud in stock or cash or both): 10. That the general plan upon which the company is doing and expects to do business and the purposes for which the money derived from the sale of its securities is to be used are as follows : MINNESOTA 397 (Answer in detail and give estimates of capital required to carry- out the company's plans). 11. That applicant expects to sell in other states : Shares of its Common Stock and pay. % Commission Shares of its Preferred Stock and pay % Commission Shares of .' and pay % Commission Shares of and pay % Commission Total Shares 12. Applicant proposes to sell its securities at the following prices in Minnesota: Preferred at $ per share; Common at $ per share; other securities called at $ per share. (If two or more kinds of securities are to be sold in combination, state fully the proposed plan). 13. That applicant has made no similar applications in other states except (Give names, of states and status of application) 14. That Exhibit "A" filed herewith is a copy of its Articles of Incorporation and all amendments thereto, all duly certified to by the Secretary of the State of Incorporation. 15. That Exhibit "B" filed herewith is a true and correct copy of its, by-laws now in force, which copy is certified to by its president and secretary and identified by an impression of its corporate seal. 16. That Exhibit "C" filed herewith is a statement describing fully the real estate, plant, equipment, patents, good will, formulae, and other assets. (Each item should be fully described and explained so that the Commission will be able to understand its nature and approximate value). 398 MINNESOTA 17. That Exhibit "D" filed herewith is a true and correct copy of applicant's last trial balance 18. That Exhibit "E" filed herewith is a true and correct copy of the last audit of aplicant's books 19. That Exhibit "F" is three references as to the character and financial standing of each officer, director and promoter 20. That Exhibit "G" filed herewith is a list of insurance policies covering applicant's properties. 21. That Exhibits filed herewith are true copies of all con- tracts made or which will be made for the sale of its stock; and that the«e are no agreements, understandings 'or contracts, either verbal, writ- ten or implied, by which any one has received or is to receive any cash, stock, securities or other compensation for the sale of its securities, for its promotion or for any other consideration, except as specified in this application and the "several exhibits hereto attached 22. That Exhibits filed .herewith are true and correct copies of the securities to be sold in Minnesota ' 23. That Exhibit filed herewith is a true and correct copy of the stock subscription blank or contract to be used in the sale of said securities in Minnesota 24. That Exhibits filed herewith are copies of prospectuses, circulars and advertising matter to be used in connection with the sale of its securities in Minnesota 25. That Exhibit filed herewith is a resolution by applicant's Board of Directors, appointing the Public Examiner of the state of Min- nesota its agent in Minnesota for the service of process and pleadings. (Only necessary when the applying company is organized under the laws of some other state than Minnesota). 26. That Exhibit is the appointment referred to in the previous paragraph. (Only necessary when the applying company is organized under the laws of some other state than Minnesota). 27. That Exhibit "N" filed herewith is a list of the officers and directors of said Company together with a true, and correct statement of the business or employment in which each of said officers and directors have been engaged during the FIVE YEARS last past 28. That Exhibit filed herewith is. 29. That if this application is granted, applicant will not sell or offer for sale or otherwise deal in its securities in Minnesota, except in conformity with the laws of said state and the rules and regulations of your Commission. MINNESOTA 399 Wherefore, applicant prays that it be licensed as an itivestraent company to sell shares of its common stock and shares of its preferred stock and shares of and shares of in the state of Minnesota. (Corporate Seal) By. State of fss. being first duly sworn, de- poses and says that he is the of , the corporation described in the foregoing application ; that he has read said application and knows the contents thereof ; that the facts stated therein are true and except as to the matters stated on information and belief deponent knows them to be true. Subscribed and sworn to before me this day of 19... Notary Public, County, My commission expires • State of Minnesota STATE SECURITIES COMMISSION ST. PAUL APPOINTMENT OF PUBLIC EXAMINER OF THE STATE OF MINNESOTA AS AGENT TO ACCEPT SERVICE OF PROCESS OR PLEADING (Chapter 429, General Laws of Minnesota, 1917) Be It Known By These Presents that I, of , State of ; do hereby appoint the Public Examiner of the State of Minnesota as my agent in said State of Minnesota upon whom process or pleadings may be served for and on my behalf within the meaning of Chapter 429 of General Laws of said State of Minnesota for 1917. Such appointment shall be deemed to be and is irrevocable. Sealed with my hand and seal this day of 191.. Dealer. 400 MINNESOTA State of . . County of On this day of A. D. 191..,- personally appeared before me, a notary public in and for said county and state, , to ime known to be the person described in and who executed the foregoing instrument and acknowledged that he executed the same as his free act and deed. Notary Public. My commission expires (If a corporation, certified copy of resolution authorizing the fore- gbing must be attached). "On motion, the following resolution was duly made, passed and adopted : Whereas, This corporation proposes to make application to the State Securities Commission of the State of Minnesota for permission to sell securities within the said State of Minnesota, in accordance with the laws therein made, and provided, and, Whereas, This corporation is organized under the laws of the State of , and. Whereas, It is therefore necessary to file with said application the consent of this corporation that suits and actoins may be commenced against it in the proper court of any county in said State of Minnesota in which a cause of action may arise against it, or in which the plaintiff in said action may reside, by the service of any process or fadings au- thorized by the laws of said State of Minnesota on the Public Examiner of said State of Minnesota, and that such consent be irrevocable. Be It Therefore Resolved, That the president and secretary of this corporation be hereby au- thorized and directed for and in behalf of said corporation to execute and file with the State Securities Commission of the State of Minnesota in the form prescribed by said Commission, the irrevocable consent of this corporation that suits and actions may be commenced against it in the proper court of any county in said State of Minnesota in which a cause of action may arise, or in which the plaintiff in said action may reside, by the service of any process or pleadings authorized by the laws of the said State of Minnesota on the Public Examiner of said State of Minnesota, and that such service of such process or pleadings on such Public Examiner shall be taken and held in all courts to be as valid and binding as if due service had been made upon such corporation itself." I , Secretary of Company, Hereby Certify MINNESOTA 401 that the foregoing is a true and exact copy of a resolution of the Board of Directors of .the ;..... Company, which resolution was duly made, passed and adopted at a legal meeting of said Board held on the day of , A. D. 19...., and that the passage of said resolution was in all respects regular and according to the By-Laws of said corporation. In Testimony Whereof, I have hereunto- set my hand and the seal of said corporation, this (seal) •. day of. A. D. 19... Secretary. APPLICATION FOR DEALER'S LICENSE Any person who shall knowingly make or file, or cause to be made or filed, any statement, information, or proof required hereunder, by said commission, which is in whole or in part materially f^lse, or any investmeiit company or dealer whp sh^ll sell or promote, or cause to be promoted by advertisement, circular, letter prospectus, by word of mouth, or by any other form of public or 'general offerirg, the" sale oi' any securities without complying with fhe provisions of this act, or without furnishing to the commission any information or proof in the possession of or reasonably obtainable by him or it, after the same is required by the- commission under this act. shall be guilty of a gross misdemeanor. (Chapter 429, Minnesota General Laws, 1917.) State of Minnesota STATE SECURITIES COMMISSION ( To the State Securities Commission, St. Paul, Minn. of • ; ^ hereby applies for a dealer's license under Chapter 429, General Laws of Minnesota, 1917, and respectfully shows : 1. That applicant's name is 2. That business address is 3. That the names and addresses of all officers and directors of the applicant (if a corporation) — of all partners and associates com- prising the company (if a partnership or association) — are as follows: NAME OFFiaAL CAPACITY ADDRESS 4. That the place oir office wljer? applicant's business in this State is to be conducted is at 26 402 MINNESOTA 5. That applicant's business in this State will be in charge of : NAME ADDRESS 6. That the general character of the securities to be sold or dealt in is as follows : 7. That applicant has made similar application in the following states (state whether such application has been granted or refused, and if licensed, whether such license has ever, been revoked or suspended) : 8. That Exhibit filed herewith is a list of three references as to the character and financial standing of applicant and each officer, di- rector, partner and associate. 9. That if this application is granted, the applicant will not deal in any securities in the State of Minnesota 'except in conformity with the laws of said State'and the rules and regulations of your Commission. Wherefore, applicant prays that a dealer's license be issued to By (Corporate Seal) Dated day of 191. . State of . County of of being first duly sworn, deposes and Bays that he is •, the applicant above named ; that he has read the foregoing application and knows the contents thereof, and that MINNESOTA 403 the facts stated therein are true; and 'except as to matters stated on in- formation and belief, deponent knows them to be true. Subscribed and sworn to before me this day of 19... Notary Public, County, My commission expires IMPORTANT TO APPLICANTS If applicant is a corporation, a copy of the articles of incorporation and of the amendmients thereto, certified to by the Secretary of State of the state of incorporation, should accompany the application. A certified check for $25.00 should also accompahy the application. If the applicant is a non-resident or a foreign corporation, com- pany or association, he or it shall file with the application a written duly authorized, executed and acknowledged appointment of the Public Ex- aminer of the State of Minnesota, as his or its agent in Minnesota, upon whom process or pleadings may be served. Requisition of Dealer or Investment Company To THE State Securities Commission of the State of Minnesota : of holding license No having appointed '. agent for ITS the sale of his securities, as authorized by said license, does hereby re- quest that license be issued to agent above named in accordance with the provisions of Section 4, Chapter 429, Minnesota G. L. 1917, as amended by G. L. 1919. By Business address Dated 19,... (Three-dollar fee must accompany each requisition) 404 MINNESOTA Application of Agent for License To the State Securities Commission of the State of Minnesota : I hereby apply for a license as agent for operating under license No ^ , to s«]l securitise in the State of Minnesota, as authroized by said license and in accordance with the laws of said state and the rules and regulations of your Commission ; and hereby accept the agency set forth in the above requisition. During the past five years I have been engaged in the business of in the employ of and I have been engaged in the business of selling securities for years. I have not been refused a license to sell securities in this or any other state. Signed Residence address.. Date 19. Reference : (If license has been revoked or suspended in this or any other state, give reasons.) State of Minnesota, County of , being duly sworn, deposes and says that he is the applicant named in the foregoing applica- tion; that he has read said application and that the statements therein contained are true. Signature of Applicant. Subscribed and sworn to before me this day of , A. D. 19.... Notary Public. (notarial seal) County 'State of My commission expires MISSISSIPPI 405 MISSISSIPPI STATUTES AN ACT To regulate and supervise the sale and purchase in this state, of stocks of private, foreign and domestic corporations organized for profit which propose to increase their capital stock; to reg- regulate and supervise the sale and purchase in this state of stocks of private, foreign and domestic corporations being organized and hereafter organized or proposed to be organized, for profit; and to. regulate and supervise the offering or con- tracting for sale and purchase of such stocks of such corpora- tion or proposed corporation, and to fix commission and promo- tion fees allowed to be charged; and providing for the service of process, examination fees, and exempting certain corpora- tions from the effect of this act; providing penalty for the vio- lation of the provisions of this act. (L. 1916, ch, 97). Section 1. Be it enacted by the legislature of the state of Mis- sissippi, That every private corporation, foreign or domestic, organized for profit, which is now attempting, or shall hereafter attempt to in- crease its capital stock, and every proposed corporation, foreign or do- mestic, attempted to be organized which shall directly or indirectly, through itself, its agents or employees, or_through any person or asso- ciation of persons, holding companies, sales companies, or otherwise, or through any other agents, sell or contract to sell any stock of such cor- poration or proposed corporation, upon which sale proposed or contract of sale any part of the proceeds derived or to be derived therefrom are used or to be used, directly or indirectly, for the payment of any com- mission, promotion, organization fees, or other expenses incident, directly or indirectly to the sale of its shares of stock, except attorneys' fees, charter fees, franchise tax, permit fees, and stationery and supplies, shall be subject to the (provisions of this act. Section 2. This act shall also apply to any mining, oil or gas cor- poration increasing its stock or any proposed mining, oil or jgas corpora- tion attempting to sell its stock in which any land or mineral or other thing of value is to be procured from, in or under such land that has been or is to be placed as an asset with or in the corporation or pro- posed corporation whether any promotion fee is charged or not, apd to any townsite corporation or proposed townsite corporation. This act shall also apply to every person, firm, association, company or corpora- tion that shall either directly or through representatives or agents sell, offer or negotiate .for sale within this state, any stocks, bonds or other securities except as herein otherwise provided. 406 MISSISSIPPI Section 3. Before offering for sale or coptracting to sell, directly or indirectly, any stock of such proposed corporation, or such increased stock of any existing, corporation, before selling any stock in any town- site corporation, as provided in section 2, such corporation, or those promoting or having charge of the sale of stock of any proposed cor- poration, shall file under oath in the office of the secretary of state, together with a filing fee of fifty dollars, the following documents: A statement showing in full detail the plan upon which the corporation proposes to increase its capital stock or plan upon which the promoters or those having charge of the sale of stock of any proposed corporation proposes to sell its stock and organize the corporation together with a copy of all forms of contracts, stock, or deeds, if the same shall come under section 2 hereof, to be used by the corporation or its promoters, or those having charge of the sale of stocks of any proposed corpora- tion in connection with such stock sales. The statement shall further show the name, location and domicile of such corporation, and the names of its officers or its proposed officers, if any, or promoters, and the ad- dresses of all the parties ; the amount of capital stock of any corpora- tion already organized, the proposed increase, or the proposed capital stock of the corporation to be organized, and the price at which the stock is proposed to be sold ; and the price at which the stock is proposed to be sold shall not be changed without the filing with the secretary a statement of such change, which shall be subject to his approval. Any such corporation or promoters of such proposed corporation shall furnish the secretary with such other information as may be necessary or proper concerning the sale of its stock. If it shall be a corporation organized under the laws of any other jurisdiction it shall file with the secretary a copy of its original charter and all amendments thereto, and such other evidences of its authority as the secretary may require. Said statement shall also show the commission, promotion fee, and other estimated incidental expenses proposed to be charged for the organization of such proposed corporation or the increase in the capital stock of any corporation already organized, and how the commission or fees are to be paid. If the corporation, or proposed corporation, comes under section 2 hereof, the officers of the corporation or the promoters of the proposed corporation shall state the facts upon which they base their estimate of the actual value of the property which is to become an asset of the cor- poration, and the secretary shall require such proof as he may deem proper to establish the actual value of the property. The secretary shall have the right to employ such experts as he may deem necessary, and the experts shall be employed at the expense of the corporation or promoters of the proposed corporation. No corporation proposed to be organized for the purpose of buying or selling town sites and town lots shall hereafter be granted a charter MISSISSIPPI 407 by the secretary of state, or if a foreign corporation the same shall not be granted a permit to do business in the state of Mississippi, unless the incorporators of the said proposed corporation or officer of such foreign corporation shall file with the secretary of state each and every docu- ment, contract and papers referred- to in section 3 of this act, as well as a general statement of the plan of its proposed townsite, and a gen- eral statement of its methods of advertising same, together with a sample copy of its advertising literature, and no charter shall be granted any corporation unless after the compliance with provisions of this act and in the judgment of the secretary of state, such business of any proposed townsite corporation will be honestly and fairly conducted both to the corporation and to the public. And each and every corporation in this state now existing or hereafter organized, desiring to engage in the sale of townsite lots or sites shall, prior to such sale, file with the secre- tary of state a general plan of the said proposed lots, or sites, to be sold, as well as a copy of any and all proposed contracts to be made with the public in the sale ther.eof, and a general statement of the literature proposed to be used, and all matter referred to in section 3 hereof, and, if in tbe judgment of the secretary of state the said sale will be conducted both honestly and fairly to the corporation and to the public, a permit to conduct the said sale shall be granted. This provision shall not be construed to authorize the creation of any corporation for any purpose not now authorized by the laws of this state. Each and every certificate granted by the secretary of state under the provisions of this act shall be in substantially the following form : "This is to certify that the has this date been given permission to sell $ , of its stQcks, bonds or securities within the state of Mississippi. The secretary of state does not recomme-nd the purchase of this or any other security. Dated at Jackson, Mississippi, this day of In Witness Whereof, I have hereunto affixed the corporate seal of the secretary of state. (Seal) Secretary of State. The words, "The secretary of state does not recommend the pur- chase of this or any other security" shall be printed in larger, bolder faced type than the other part of the said certificate. Any person, firm, association, company or corporation that makes any reference in any statement, advertisement or printed matter to the fact that a permit has been received from the secretary of state to transact business in this state shall, with equal prominence, state in the same circular, advertisement or printed matter that "The secretary of 408 MISSISSIPPI state does not reconmiend the purchase of the security of this or any other company." Section 4. The secretary upon receipt of the information as pro- vided for in section 3 shall grant or refuse such permit. If the secretary shall decide that the sale of stock will be fairly and honestly conducted, both to the corporation and to the public such permits shall be granted, provided that the commissions, promotion and other incidental expenses, exclusive of the exempted expenses mentioned in section 1 of this act shall not be more than fifteen (15) per cent of the price at which such stock is to be sold as shown by the application or the amended applica- tion. Provided, that, where any proposed corporation has already sold its stock or a part thereof, or any part thereof has been subscribed at the time this act shall take effect, this act shall" not effect stock previously sold or subscribed nor any contracts made in reference to same; but if any of the stock of said proposed corporation remains unsold or un- subscribed said corporation shall, nevertheless be entitled to a permit upon complying with the other conditions of this act, including the iuture sale or subscription of any of its stock. The commission or promotion fee shall be paid to the agent or pro- moter as the stock is sold by him and paid for by the purchaser. The stock shall be considered as paid for when paid for in cash, property or labor. I No permit shall be gi-anted unless there shall appear upon the sub- scription lists and contracts of such corporation or proposed corpora- tion in bold type, the amount of the commissions, promotion fees and other estimated expenses incident to the sale of such stock, and the in- terest which the officer, agent, employe or promoter selling or contract- ing to sell such stock has in such sale; nor shall such permit be granted until the applicants thereof have entered into bond for not less than one thousand ($1,000.00) dollars nor more than one hundred thousand ($100,000.00) dollars, the same to be fixed by the secretary at not more than ten per cent (10%) of the stock proposed to be issued. The said bond shall be payable to the state of Mississippi, condi- tioned that the facts set forth in the application for such permit, and the ^repf an4 statements offered to such secretary, upon which. the ap- plication is based, are true and that they will comply with the provisions o\ thi§ act in the sale of stock of such corporation or proposed corpora- tion. Said Ijond may be made with individual sureties, or a surety com- pany authorized to do business in the state of Mississippi and the bond shall be, approved 'by the secretary. gEGTiON 5. If a permit shall be refused by the secretary the parties ^.pplying therefor may bring suit in the chancery court of the first district of Jlinds county, Mississippi, to require the secretary . to issue such pertnit. MISSISSIPPI 409 Section 6. Any person who shall be induced to purchase aiiy stock of any corporation, or proposed corporation, by the officers, agents, em- ployees, promoters or trustees, by reason of any misrepresentation of any material fact concerning such stock, such person or persons shall have the right to bring suit upon the bond above, provided for, and such bond shall be subject to and security for such person so purchasing the stock provided that such person shall not be entitled to recover more than the money paid, or the aclual value of the property given, or the labor performed, in exchange for such stock, with ' legal interest from the date of the payment or the performance of the service, or the trans- fer of the property, and reasonable attorney's fee. Such stiit may be brought in the chancery court of any county in this state. One or more recoveries upon such bond shall not vitiate the sarne, but it shall remain in full force and effect, but no recoveries upon such bond shall ever exceed the full amount of same, and upon suits beiilg filed in excess of the amount of the bond, the secretary may require a new bond, and if the same is not given within thirty days he may cancel the permit herein provided for. Whenever any permit has been issued, the corporation or persons receiving the same shall file a list of the names of their or its authorized officers, agents and employees, and the postoffice address of each ; and in case of the change of any of its officers, agents or employees, it shall file a list of such chan|;es with the secretary. Section 7. All money or other things of value collected by such corporation or the promoters of a proposed corporation, for the sale of its stock, shall be deposited by the said corporation to its credit, or by the promoters of a proposed corporation, to the credit of its proposed officers or trustees, with the exception of the amount allowed for com- missions, promotion fees and other incidental expenses with a bank, bank and trust company, or trust company, incorporated under the laws- of this state, or of the United States, and doing business in this state. Section 8. All such corporations^ and the organizers or trustees of proposed corporations shall keep a set of books which shall show the amount of money or other things of value .received by such corporation or proposed corporation, from the sale of its stock, or from the con- tracts of sale of its stock and such books shall show the number and amount of stock sold or contracted to be sold, and to whom sold or to be sold, and the postoffice address of each. Said books shall at all times be open for inspection to the secretary or bis duly appointed agent. Section 9. Whenever the secretary shall have information that any corporation or the promoters of any proposed corporation, its officers, agents or employees, are not complying with the terms of this act in the sale of its stock, they shall notify such corporation, or the officers, agents, employees, or promoters of the proposed corporation to appear within thirty days and show cause why such permit should not be cancelled, 410 MISSISSIPPI and after the hearing the secretary shall have the right to cancel such permit if the proof shall show that such corporation, or proposed corpora- tion, or its officers, agents, employees or promoters are not complying with the terms of this act ; provided the parties or the corporation hold- ing such permit shall have the right to bring suit in the proper jurisdic- tion, against the secretary, to reinstate the permit to sell stock upon the proper showing of compliance with the provisions hereof. Section 10. No permit to sell stotk shall ever be issued to any foreign corporation which has not at the time of the making of the ap- plication for a permit, at least fifty per cent of its capital stock sub- scribed and paid in, providing that this shall not apply to any foreign corporation engaged in lending money in this state. Section U. Each foreign corporation or the promoters of any proposed foreign corporation desiring to sell, or contract to sell its stock in this state, shall first file with the secretary a like power of attorney to that provided for foreign insurance companies in section 2606 of the code of 1906 of Mississippi, under articles third and fourth thereof, and service of all process may be had upon the corporation and the secre- tary as the case may be as therein provided for, and the secretary upon receipt of such process as therein provided for shall act and proceed as is provided for the insurance commissioner to do under section 2596 of the said code of 1906 when served with process thereunder, with exactly the same penalties on the secretary as is therein provided for against- the insurance commissioner. Section 12. It shall hereafter be unlawful for any officer, agent, employee or trustee, or promoter, or holding company, or sales agent, or person, or association of persons in this state to sell or offer to sell or contract to sell directly or indirectly any stock of any corporation or proposed corporation, subject to this act, without first complying with all the -provisions of same and any person so offending shall be guilty of a misdemeanor, and upon conviction shall be fined not less than fifty dollars nor more than two thousand dollars, and in addition thereto may be imprisoned in the county jail for a period of not more than one year or both such fine and imprisonment. Section 13. At the expiration of two years from the date of grant- ing the permit hereinabove defined and set out if the proposed corpora- tion has failed to organize then all the subscribers must be refunded the amount paid by each of them to the promoter, trustee or agent; pro- vided that the secretary may for good cause shown grant an extension of the time for the sale of the securities. Section 14. The terms of this act shall not apply to — (a) Securities of this state, or of the United States, or of any state or territory thereof, or any foreign government or of any district, county, township, city, town or other public taxing subdivision of any state or territory of the United States, including all drainage, county, school or other municipal bonds of this state. MISSISSIPPI 411 (b) Securities of state, saving or national banks of any state Or territory of the United States, or of trust companies or building and loan associations of this state including the unsecured commercial paper of such institutions. (c) Securities of public or quasi-public corporations, the issue of which securities is regulated by any public board or commission now or hereafter created by the laws of this state. (d) Promissory notes and the mortgages, contracts, collateral or other things, if any, securing the same, when said notes and securities have, in a bona fide way, been issued, given or acquired in the ordinary course of legitimate business, trade or commerce. (e) The stock of any corporation organized under the laws of this or any other state or territory of the United States, or of the fed- eral government, provided that under the laws of such state or territory or federal government no capital stock of a corporation can be legally issued unless the par value of said stock is paid for in full in either cash or property at its actual value before the issuance of such stock and where all property and any other thing given in exchange for such stock other than cash must be valued at not more than its actual cash value by some duly appointed officer or commission of such state, ter- ritory, or federal government under the laws of which such corporation is organized and where such stock has been issued in accordance with the provisions of such laws. (f) The sale of stocks, bonds or other securities at judicial sale or by administrators or executors. (g) Nor shall the provisions of this act apply to any state bank or trust company or other banking corporation organized under the laws of this state. (h) Nor to the sale of the stock of a corporation by a bona fide owner of the same who is not intending to act directly or indirectly for a corporation prohibited by this act. Section 15. All money collected under this act by the secretary shall be accounted for by him as other charter fees coming into his offiice. The secretary shall be furnished .with all the necessary record books, blanks, folders or filing devices to keep the proper records under this act to be chosen by him and paid for as the other necessary matter is paid for in his office. Section 16. Whenever the secretary shall deem it necessary to ex- amine the books of any corporation or proposed corporation subject to the provisions of this act, or investigate its financial condition he shall do so at the expense of the corporation or proposed corporation under investigation, and the corporation or agents of same shall pay to the secretary or his agent making the investigation his actual expenses and seven dollars and fifty cents per day for such investigation which shall be paid at the end of the investigation by the concern investigated. 412 MISSISSIPPI Section 17. Any person, firm, association, company or corporation, or any agent or representative thereof, whether subject to the provisions of this act-or otherwise, that sells, offers for sale or negotiates for the sale of any stock, bonds, or other securities within this state, and know- ingly makes any false representations or statement as to the nature, character or value of. such security or the amount of the earning power of such security whether in the nature of interest, dividends or other- wise, or knowingly makes any false or fraudulent representation con- cerning the financial condition, the assets or the property of the company, firm or corporation issuing said security or knowingly makes any other false or fraudulent representation to any person for the purpose of inducing said person to purchase said security, or conceals any material fact in the advertisement or prospectus of such security for the purpose of misleading or defrauding the purchaser, shall be guilty of a misde- meanor and upon conviction be punished by a fine of not more than two thousand dollars or by imprisonment of not to exceed six months in the county jail or by both such fine and imprisonment." Section 18. When the word ''secretary'' is used in this act it shall ■be considered to mean the secretary of state of Mississippi. Section 19. That if, for any reason, any section or part of this act shall be held to be unconstitutional or invalid, then that fact shall not invalidate any other part of this act, but the same shall be enforced with- out reference to the part so held to be invalid. Section 20. This act shall not in any way apply to or affect co- operative marketing corporations, clubs or associations, organized for ■ the purpose of marketing farm produce, which may hereafter be or- ganized or incorporated in this state. Section 21. This act shall be construed to be cumulative of any other law or laws of this state and not as repealing any such law or laws. And this act shall take- effect and be in force from and after sixty days after its passage. Approved April 3, 1916. Administration The policy of this state "is to admit as few concerns as possible and to see that these are substantial." — Report of Secretary of State. MISSOURI 413 MISSOURI STATUTES Banks, Trust Companies^ Saving Banks and Safe Deposit Institutions: Domestic and Foreign Invest- ment Companies. AN ACT Providing for domestic and foreign investment companiies and defi- nition of such companies; what this act shall apply to; fees thereof; what papers and documents to be filed and w^hen; papers and documents; to be verified; foreign investment com- panies to file consent to be sued; bank commissioner's duty to examine papers and documents; amendments; charters and by- laws to he filed — when; agent of such companies to register and pay fees; semi-annual reports of such companies; how their • accounts shall be kept; examination of such companies; ap- pointing receiver for same; fees of to be paid into treasury; and also providing penalties for violations of this act. (L. 1913, p. 112). Section 1. Domestic and foreign investments companies defined. '2. Domestic and foreign, investment companies to file documents in office of bank commissioner be- fore offering for sale stocks, bond or other securities. 3. Documents to be visrified, how. 4. Service on foreign and domestic investment companies^ how made. 5. Duties of bank commissioner and requirements of companies. 6. Investment companies may transact business, when. 7. Agents of investment companies to register with bank commissioner — fee — authority, how revoked. 8. Investment companies to furnish statements to bank commissioner, when— filling fee— failure to file right to do business forfeited. Section 9. Books of investment companies, how kept— open to inspection of whom. 10. Bank commissioner to supervise and control investment companies —examinations, how made, 11. Receivers, when and how ap- pointed. 12. Penalties for false statements by investment companies. 13. Penalty for non-compliance with act. 14. Bank commissioners authorized to collect fees— to appoint deputies and clerks to carry out act- salaries. 15. Conflicting acts repealed. Be it enacted by the General Assembly of the State of Missouri^ as follows: Section 1. Domestic and foreign investments companies de- fined. — Every corporation, every co-partnership or company, and every association (other than state and national banks, trust companies, real estate mortgage companies dealing exclusively in real estate mort- gage notes, building and loan associations, co-operative companies, train- 414 MISSOURI ing schools for miners,^ police and firemen's relief association, bond in- vestment companies, insurance companies, investment and brokerage houses dealing (in the opinion of the bank commissioner) in municipal securities and other high grade stocks, bonds and securities, exposition companies and corporations not organized for profit) organized or which shall be organized in this state, whether incorporated or unincorporated, which shall sell or negotiate for the sale of any stocks, bonds, or other securities of any kind or character (other than bonds of the United States, of the state of Missouri, and notes secured by mortgage on real estate located in the state of Missouri, special road district bonds, tuber- culosis hospital bonds, ii,rBiimge district bonds, levee district bonds, bonds of any county, township, city, town, village or school district or other legal subdivision of the state of Missouri) to any person or per- sons in the state of Missouri, other than those specifically exempted herein, shall be known for the purpose of this act as a domestic invest- ment company. Every such investment company organized in any other state, territory or government, or organized under the laws of any other state, territory or government, shall be known for the purposes of this act as a foreign investment company. The bank commissioner may re- quire all companies operating as real estate mortgage companies to file affidavit that they are dealing in ^real estate mortgage or trust deeds only, and as such not subject to examination. Section 2. Domestic and foreign investment companies to file documents in office of bank commissioner before offerin|r for sale stocks, bonds or other securities. — Before offering or attempting to sell any stocks, bonds or other securities of any kind or character other than those specifically exempted in section 1 of this act to any per- son or persons or transacting any business whatever in this state, except- ing that of preparing the documents hereinafter required, every such investment company, domestic or foreign, shall file in the office of the bank commission of this state, together with a filing fee of twenty-five dollars, the following documents to-wit: A statement showing in full detail the plan upon which it proposes to transact business. A copy of all contracts, bonds or other instruments which it proposes to make with or sell to its contributors. A statement which shall show the name and location of the investment company, and an itemized account of its actual financial condition, and the amount of its property and liabilities, and such other information touching its affairs as said bank commis- sioner may require. If such investment company shall be a co-partner- ship or an unincorporated association, it shall also file with the bank commissioner a copy of its articles of co-partnership or association, and all other papers pertaining to its organization, and if it be a corporation organized under the laws of Missouri it shall also file with the bank commissioner a copy of its articles of incorporation, constitution and by-laws, and all other papers pertaining to its organization. If it shall b? an investment company organized under the laws of any other state. MISSOURI 415 territory or government, incorporated or unincorporated, it shall also file with the said bank commissioner a copy of the laws of such state, ter- ritory or government under which it exists or is incorporated, and also a copy of its charter, articles of incorporation, constitution and by-laws- and all amendments thereof which have been made and all other papers pertaining to its organization. Section 3. Documents to be verified, how. — All of the above described papers shall be verified by the oath of a member of a co- partnership or company, if it be a co-partnership or company, or by the oath of a duly authorized officer, if it be an incorporated or unin- corporated association. All such papers, however, as are recorded or are on file in any public office shall be further certified to by the officers of whose records or archives they form a part, as being correct copies of such records or archives. Section 4. Service on foreign and domestic investment com- panies, how made. — Every foreign investment company now doing or hereafter admitted to do business within this state and not having its principal office in this state, and not having organized under the laws of this state, shall appoint, in writing, the secretary of state and his suc- cessors in office to be its true and lawful attorney, and upon whom all lawful process in any action or proceeding agairist it may be served, and it [in] such writing agree that any lawful process against it which is served on said attorney shall be of the same legal force and validity as if served upon the investment company, and that the authority shall continue in force so long as any liability remains outstanding in this state. Copies of such certificates, certified^ by said secretary of state, shall be deemed sufficient thereof, and shall be admitted in evidence with the same force and effect as the original thereof might "be admitted. Service upon such attorney shall be deemed sufficient upon such foreign investment company. When legal process against any such foreign in- vestment company is served upon said secretary of state, he shall im- mediately notify the foreign investment company of such service by registered letter, prepaid and directed to its secretary or corresponding officer, and shall, within two days after such service, forward in the same manner a copy of the process served on him to such officer. The plaintiff in such process so served shall pay the secretary of state at the time of such service a fee of two dollars, which shall be recovered ,by him as a part of the taxable costs, if he prevails in the suit. The said secretary of state shall keep a record of all process served upon him, which record shall show the day and hour when ?uch service was made and by whom made. All domestic investment companies shall be served with process in the manner now provided by law for service of process on domestic corporations. Section 5. Duties of bank commissioner and requirements of companies. — It shall be the duty of the bank commissioner to ex- 416 MISSOURI amine the statements and documents so filed, and if said bank commis- siofter shall deem it advisable he shall make or have made a detailed examination of such investment company's affairs, which examination shall b^ at t;he expense of such investment company, as hereinafter pro- vided; and if he finds that such investment company is solvent, that its articles of incorporation or association, its constitution and by-laws, its proposed plan of business and proposed contract contain and provide for a fair, just and equitable plan for the transaction of business, the bank commissioner shall issue to such investment company a statement recit- ing that such company has complied with the provisions of this act, that detailed information in regard to the company and its securities is on file in the bank commissioner's office for public inspection and informa- tion, that such investment Company is permitted to do business in this state, and such statement shall also recite in bold type that the bank commissioner in no wise recommends the securities to be offered for sale by such investment company. But if said bank commissioner finds that such articles of incorporation or association, charter, constitution and by-laws, plan of business or proposed contract contain any provision that is unfair, unjust, inequitable or oppressive to any class of con- tributors, or if he decides from his examination of its affairs that said investment company is not solvent and does not' intend to do a fair and honest business, theti he shall notify such investment company in writ- ing of his findings, and it shall be unlawful for such company to do any further business in this state until it shall so change its constitution and by-laws, articles of incorporation or association, its proposed plan of busi- ness and proposed contract and its general financial condition in such manner as to satisfy the bank commissioner that it is solvent, and its article's of incorporation or association, its constitution and by-laws, its proposed plan of business and proposed contract provide for a fair, just and equitable plan for the transaction of business; and provided, that all expenses paid or incurred and all fees or charges received or collected for any examination made under the provisions of this section of this act shall be reported in detail by the bank commissioner and a full report and record thereof made in detail ; and provided further, that any in- dividual, association or corporation on receiving notice from the bank commissioner that it shall do no further business in the state, may apply to a judge of the circuit court of the county where the individual, associa- tion or corporation has its main office, if a domestic company; or to a judge of the circuit court of Cole county, if a foreign company, for an- order addressed to the commissioner of banking to show cause why the commissioner's order should not be revoked, and such judge shall have full power to summarily hear and determine the matter, and to make sUch provision and order as justice and equity may require. Section 6. Investment companies may transact business, when. — It shall not be lawful for any investment company either as principal or agent, to transact any business, in form or character similar to that MISSOURI 417 set forth in section 1 of this act, except as is provided in, section 2 of this act, until it shall have filed the papers and documents above provided for. No amendment of the charter, articles of incorporation, constitu- tion and by-laws of any such investment company shall become operative until a copy of the same has been filed with the bank commissioner as provided in regard to the original filing of charter, articles of incorpora- tion, constitution and by-laws, nor shall it be lawful for any such in- vestment company to transact business on any other plan than that set forth in the statement required to be filed by section 2 of this act, or to make any contracts other than that shown in the copy of the pro- posed contract required to be filed by section 2 of this act, until a writ- ten statement showing in full detail the proposed new plan of transact- ing business and a copy of the proposed new contract shall have been filed with the bank commissioner, in like manner as provided in regard to the original plan of business and proposed contract, and the consent of the bank commissioner obtained as to making such proposed new plan of transacting business and proposed new contract. Section 7. Agent of investment companies to register with bank commissioner — fee — authority, how revoked. — Any invest- ment company may appoint one or more agents, but no such agent shall do any business for said investment company in this state until he shall first register with the bank commissioner as agent, for such investment company, and for each of such registrations there shall be paid to the bank commissioner the sum of fivf; dollars. Such registration shall en- title such agent to represent said investment company as its agent until the 1st day of March following, unless such authority is sooner revoked by the bank commissioner; and such authority shall be subject to revoca- . tion at any time by the bank commissioner for cause appearing to him sufficient. Section 8. Investment companies to furnish statements to bank commissioner, when — filing fee — failure to file right to do business forfeited. — -Every investment company, domestic or for- eign, shall file within sixty days after the close of business on Decem- ber' 31st of each year, and at such other times as required by the bank commissioner, a statement verified by the oath of a merhber of the co- partnership or company, if it be a co-partnership or company, or by the oath of a duly authorized officer, if it be an incorporated or an unin- corporated association, setting forth in such form as may be prescribed by the said bank commissioner, its financial condition and the amount of its assets and liabilities, and furnishing such other information con- cerning its afifairs as said bank commissioner may require. Each regular statement shall be accompanied by a filing fee of two dollars and fifty cents, ^ny investment company failing to file its report as herein pro- vided or failing to file any other or special report herein required within 27 418 MISSOURI thirty days after receipt of request or requisition therefor, shall forfeit its right to do business in this state. Section 9. Books of investment companies, how kept — open to inspection of whom. — The general accounts of every investment company, domestic or foreign, doing business in this state, shall be kept by double entry, and such company, its co-partners or managing officers, shall at least once in each month make a trial balance of such accounts, which shall be recorded in a book provided for that purpose; such trial balances and all other books and accounts of such company shall at all times during business hours, except on Sundays and legal holidays, be open to the inspection of stockholders and to the bank commissioner and his deputies. Section 10. Bank commissioner to supervise and control in- vestment companies — examinations, how^ made. — The bank com- missioner shall have general supervision and control, as provided by this act, over any and all investment companies, domestic or foreign, doing business in this state, and all such investment companies shall be sub- ject to examination by the bank commissioner or his duly authorized deputies at any time the bank commissioner may deem it advisable and in the same manner as is now provided for the examination of state banks. The rights, powers and privileges of the bank commissioner in connection with such examination shall be the same as is now provided with reference to examination of state banks ; and such investment com- pany shall pay a fee for each of such exaiminations of not to exceed ten dollars for each day or fraction thereof plus the actual traveling and hotel expenses of said bank commissioner or deputy that he is absent from the seat of government for the purpose of making such examina- tion, and the failure or refusal of any investment company to pay such fees upon the demand of the bank commissioner or deputy while mak- ing such examination shall work a forfeiture of its rights to do busi- ness in this state. Section 11. Receivers, when and how appointed. — Whenever it shall appear to the bank commissioner that the assets of any invest- ment company doing business in this state are impaired to the extent that such assets do not equal its liabilities, or that it is conducting its business in an unsafe, inequitable or unauthorized manner, or is jeopardiz- ing the interest of its stockholders or investors in stocks, bonds or other securities by it offered for sale, or whenever any investment company shall fail or refuse to file any papers, statements or documents required by this act, without giving satisfactory reasons therefor, said bank com- missioner shall at once communicate such facts to the attorney-general who shall thereupon apply to the supreme court or to the circuit court where such company is located or is doing business, or to a judge of either of said courts for the appointment of a receiver to take charge of and wind up the business of such investment company and if such MISSOURI 419 fact or facts be made to appear it shall be sufficient evidence to authorize the appointment of a receiver and the making of such orders and decrees in such cases as equity may require. Section 12. Penalties for false statements by investment com- panies. — Any person who shall knowingly or willfully subscribe to or make or cause to be made any false statements or false entry in any book of such investment company, or exhibit any false paper with the intention of deceiving any person authorized to examine into the affairs of such investment company, or shall make or publish any false statement of the financial condition of such investment dompany, or the stocks, bonds or other securities by it offered for sale, shall be deemed guilty of a felony, and upon conviction thereof shall be punished by im- prisonment in the penitentiary not exceeding ten years or in the county jail not exceeding six months or by a fine of not less than two hundred dollars nor more than one thousand dollars or by both such fine and im- prisonment. Section 13. Penally for non-compliance with act. — Any person or persons, agent or agents, who shall sell or attempt to sell the stock, bonds or other securities of any investment company, domestic or for- eign, or the stock, bonds or other securities by it offered for sale, who, have not complied with the provisions of this act, or any investment company, domestic or foreign, which shall do" any business, or offer or attempt to do any business, except as provided in section two of this act, which shall not have complied with the provisions of this act, or any agent or agents who shall do or attempt to do any business for any investment company, domestic or foreign, in this state, which agent is not at the time duly registered and has fully complied with the pro- visions of this act, shall be deemed guilty of a misdemeanor, and upon conviction thereof shall be fined for each offense not less, than one hun- dred dollars nor more than five thousand dollars, or by imprisonment in the county jail for not more than ninety days, or both such fine and imprisonment. Section 14. Bank commissioner authorized to collect fees — to appoint deputies and clerks to carry out act — salaries. — All fees herein provided for shall be collected by the bank commissioner and by him shall be turned into the state treasury, and all fees so turned into the state treasury, or so much thereof as may be necessary, are hereby re-appropriated to the bank commissioner for the purpose of paying all salaries and expenses necessary for carrying this act into effect; and the bank commissioner is hereby authorized to appoint sUch clerks and deputies as are actually and absolutely necessary to carry this act into full force and effect. Such, [clerks] and deputies shall receive the same salaries as now provided by law as other clerks and deputies in the department of the bank commissioner. All money actually and neces- sarily paid out by the bank commissioner to any clerk or deputy appointed 420 MISSOURI under this act, as salaries, or any money actually and necessarily paid out by the bank commissioner, or by any clerk or deputy appointed under this act, for traveling or incidental expenses shall be paid by the state treasury [treasurer] out of such fees upon the state auditor's warrants, to be issued upon sworn vouchers containing an itemized account of such salaries and expenses. Section IS. Conflicting acts repealed. All acts or parts of acts- in conflict herewith are hereby repealed. Approved April 7, 1913. AN ACT To regulate bond investment companies and companies organized to place or sell bonds, certificates or debentures on the install- ment or partial payment plan. (Laws of Missouri, 1892-1893, page 121). Be it enacted by the General Assembly of the State of Missouri^ as follo-ms: Section 1. That every corporation doing business in this state as a bond investment company, or company to place or sell bonds, certifi- cates or debentures on the partial payment or installment plan shall, and the same is hereby required to, deposit with the state treasurer, in cash or securities approved by the state treasurer, the sum of one hundred thousand dollars, for the protection of the investors in such bonds, certificates or debentures. Section 2. If any such company, being a domestic corporation, shall fail for thirty days after the passage of this act, or for thirty days after the organization of such company, to make with the state treasurer the deposit required by this act, it shall be considered to ha^•e forfeited its charter, and fhe prosecuting attorney (circuit attorney if in the city of St. Louis) shall, immediately upon receiving information thereof, bring suit in the name of the state, before the circuit court, to have such charter or certificate of incorporation declared forfeited and of non- effect, and said court shall declare such charter forfeited, and appoint a receiver for such company, whose duty it shall be, under the order of the court, to distribute to the shareholders the assets of the company. The court shall, out of the assets of the company, make such allowance for compensation to the prosecuting attorney and the receiver as shall appear to be equitable and just. Section 3. If any officer, agent or representative of such comranv or companies, whether they be foreign or domestic corporations, sball attempt to place or sell shares, or to transact any business whatsoever in the name or on behalf of sudh company or companies while they fail or refuse to comply with the provisions of' this act, said officer, agent or representative shall be deemed guilty of a misdemeanor, and, on con- viction thereof, shall Ibe fined not less than $100 nor more than $1000 MISSOURI 421 for each offense, or be imprisoned in the county or city jail for not less than thirty days nor more than six months, or by both such fine and imprisonment. Section 4. In case of the failure of any company covered by this act, the circuit court of the county or city in which the principal office is located, upon the application of one or more shareholders, shall ap- point a receiver for such company, whose duty it shall 'be to wind up its affairs, liquida,te its debts and distribute its assets, using therefor, upon the order of the court, the deposit previously made, to secure the shareholders, with the state treasurer ; and the state treasurer is hereby authorized to pay out such deposit in accordance with requisitions made upon the state auditor by said receiver and approved by the court, upon . the warrant of the state auditor. Approved April 21, 1893. Annotations THE STATE EX REL, STEVENSON ET AL., V. STEPHENS, STATE TREASURER 136 Missouri 537 ; 37 'S. W. 506 1. Where, under the act of the legislature of April 2l, 1893 (Laws, ■ p. 121) requiring bond investment companies to deposit with the state treasurer in cash or in securities approved by him, $100,000 for the pro- tection of investors, within thirty days, or on failure to forfeit their charter, the treasurer received from such compaiiy $10,000 in cash and a note for $100,000 secured by a deed of trust on land on which there was an incumbrance of $10,000 and agreed to apply the $10,000 so re- ceived in cash to the discharge of said incumbrance as soon as the holder of it would accept payment, mandamus will lie, on his refusal, to compel the treasurer to apply the $10,000 in accordance with the agreement. 2. The evidence examined and held to show that the $10,000 in cash was received by the state treasurer under an agreement to apply it to the discharge of the incumbrance. 3. The treasurer was authorized under the act of April 21, 1893, to agree to apply the $10,000 received by him in cash to the extinguish- ment of the incumbrance so soon as its holders would accept payment. 4. Money deposited by bond investment companies with the state treasurer under the act of the legislature of April 21, 1893, for the pro- tection of investors, is not money belonging to the state within the meaning of the constitution (Art. 10, Sec. 15 and 19) and Revised Statutes 1889, Section 8662, requiring money to be paid out of the treasury only pursuant to appropriation by law. See also Morrill v. American Reserve Bond Co. of Kentucky, 151 Fed, 305, 422 MISSOURI Forms Form No. 8. Sheet 1. BEFORE THE MISSOURI STATE BANKING DEPARTMENT In the matter of the application of Name. No. Address. for authority to sell its stock, bonds and other securi- ties in Missouri under the provisions of an act providing for Domestic and Foreign In- vestment Companies, Laws of Mis- souri of 1913, approved April 7, 1913. The Company of represents to the Missouri State Bank Commissioner : 1st. That its principal business office is located at , and that it has branch offices at 2d. That it was incorporated on the day of , 19 .... , under the laws of the state of i , with an authorized capital of $ , divided into shares of common and shares of preferred, with a par value of $ each; and that it has an authorized bond issue of $ 3d. That the following is a full and correct statement of its capital stock and securities on this date: .Authorized Capital | Common Stock $ Preferred Stock $ Issued and Outstanding f Common ' Stock $. \ Preferred Stock $. Bonds authorized $ Bonds issued $ Other securities called , Authorized $. Other securities called , Issued $. 4th. That the following is a true and complete statement, show- ing the consideration received from the stock issued and outstanding to date: MISSOURI COMMON STOCK 423 No. Shares. •Actual Value. Remarks. Actual Calk 1 Real Estate....... Plant Equipment Organiang ....... Promotion Commissions ..... 1 i Dividends I Totals Form No. 6. Sheet 2. PREFERRED STOCK No. Shares. ♦Actual Value, Remarks, Actual Cash Real Estate Equipment Organizing Promotion Commissions ..... ^ Dividends Totals * This column should specify the actual amount of cash or notes received, or the actual value of real estate, etc., received in exchange for stock issued, and should correspond with value at which these diflferent items were given in to the company and carried on the book. 424 MISSOURI BONDS • No. Shares. •Actual Value. Remarks. Actual Cash Notes Kta'i Estate , Plant , Equipment ., Organizing Promotion Commissions ..... Dividends •« Totals 5th. Attached hereto, marked Exhibit A, is a statement giving a true and complete list of the holders of the stock, bonds and other se- curities of this company, indicating the consideration which was given for same. 6th. Attached hereto, marked Exhibit B, is a statement describing fully the real estate, plant, equipment, patents, etc., received in exchange for stock, bonds and other securities. 7th. That the following is a complete and correct statement of its assets and liabilities. ASSETS Amount. Write Nothing in this Column. Bills Receivable Accounts Receivable Cash in Banks 1 1 • Footnote preceding page. Form No. 6, MISSOURI LIABILITIES 425 Sheet 3. T- ' Amount. Write Nothing in this Cojumn. Common Stock outstanding.-. Preferred Stock outstanding. Bills Payable Sinking Fund or Reserve Other liabilities as follows: Totals 8th. That attached hereto, marked Exhibit C, is a true and correct trial balance sheet of its books on the date of the above statement. 9th. That the following is a true statement of its profit and loss account for the months prior to this date : (6 or 12) Loss. Profit. , Undivided profits , 19.... Gross earnings (Specify sources) Dividends, Comtnon Stock Dividends, Preferred Stock.... Interest borrowed money — — Total * 426 MISSOURI 10th. That attached hereto, marked Exhibit D, is a true and com- plete statement of its receipts and disbursements for the past months, as shown by its books. (6 or «) 11th. That the following is the general plan upon which the com- pany is doing and intends to do business, and the purposes for which said stock, bonds and other securities are to be sold : 12th. That it has adopted tiae following plan for the sale of its stocks, bonds and other securities : 13th. Additional requirements as follows: 1. An itemized statement of its actual financial condition, and the amount of its assets and liabilities. 2. A copy of all contracts, stocks and bonds or other securi- ties which it proposes to make, sell or negotiate to sell to its con- tributors. 3. Sample copies of all literature or advertising matter used or to be used by such investment company in the sale of its securi- ties. 4. A copy of its constitution and by-laws or articles of co- partnership or association. 5. If it be an incorporated investment company it shall also file a copy of its charter and articles of incorporation. MISSOURI 427 Form No. 6. Sheet 4. 14th. That the following is a true statement in regard to its oflScers and directors : Address. No. shares and bonds owned. a B tJ p-a < 1 S, 1 H to?* o Name. d o u en* § President. Vice-President. Secretary. Treasurer. General Manager. Trustees and Directors; 1. •2. 3. 4. • 5. 6. 7. ■ 8. 9. 10. 15th. That its stock, bonds and other securities will be sold for the following named prices and on the following terms, and will not be sold at any other price or on any other terms without the consent of the Banking Department : 16th. That attached hereto, marked Exhibit J, is a true and com- plete copy of each contract made, or which will be made, with any per- 428 MISSOURI son, officer, agent or other representative of this company for the sale of its stock; and that there are no agreements, understandings or con- tracts, either verbal, written or implied, by which any one has received, or is to receive, any cash, stock .securities or other compensation for the sale of its securities, for its promotion, or for any other causes except as specified in this application and its several exhibits attached, and that all of the stock securities of this company will be sold or disposed of for cash or its equivalent, as provided in the contracts or agreements attached, except as herein excepted. Remarks : .-_• NOTE— Please give at least four references as to the character, responsibility and financial standing of each director. Also eight references as to the company itself. Wherefore, your petitioner, in view of the showing herein made, does respectfully pray that authority be granted it to sell its securities as follows : $. . . , Common Stock, $ Preferred Stock, $ Bonds, and $ other securities, in accordance with the provisions of the above-mentioned law. In Testimony Whereof, We have 'hereunto set our hands and affixed the official seal of this company, this the day of 191 [Seal] By. Attest : (Company.) President. Secretary. State of , County of , ss. President, and Secretary, of the : Company of of lawful age, being first duly sworn, depose and say that they have each read the foregoing application and know the contents thereof, and that the statements and allegations therein contained and attached are true. President. Secretary. Subscribed and sworn to before me, this the day of 191.... Notary Public. (My commission expires .) MONTANA 429 MONTANA STATUTES AN ACT Creating the office of Investment Commissioner, and giving such official certain powers in relation to investment comi>anies and stock-brokers for the protection of investors, including the power to license the sale by such companies and stockbrokers to the public of securities; defining investment companies, and regulating or providing for the regulation of the promotion, organization and operation thereof; providing for the inspec- tion and investigation of property, books, papers, business methods and affairs of any investment company whose securi- ties shall be offered for sale to the public; defining stock- brokers and providing for the regulation of their business as such; and providing penalties for the violation of this Act." (L. 1913, c. 85). Be It Enacted 6y the Legislative Assembly of the State of Mdntana: Section 1. The name "Investment Company" as used in this Act shall include: 1. Every corporation, company, co-partnership or association whether incorporated or unincorporated except as otherwise provided in this Act which shall hereafter engage in the business of selling or re- pairing or negotiating for the sale of, or of taking subscriptions for any stock, bonds or other securities of any kind or character issued by any other corporation, company, co-partnership or association (other than bonds of the United States, State, County or Municipal bonds or war- rants, stock of State or National Banks located in the State of Montana, Building and Loan Associations, corporations not organized for profit, by notes secured by mortgages for real estate located in the State of Montana), to any person or persons in the State of Montana. 2. Every corporation, company, co-partnership or association which shall outside of the county in which such land is located sell, offer or negotiate for thd sale of any contract for deed, bonds for deed or other papers by whatsoever names such instruments may be designated, not originally issued by such corporation, company, co-partnership or asso- ciation, providing that when certain payments are made or certain con- ditions fulfilled a deed or title will be delivered to certain parts or parcels of land. 3. This Act shall not apply to any person, bank, corporation, co- partnership or association of Montana selling stock or securities actually owned by said person, corporation, co-partnership or association, pro- 430 MONTANA vided that they shall not he engaged in the brokerage business of buy- ing and selling stocks for securities nor shall this be so construed so as to prevent any corporation either foreign or domestic from selling its own stock, bonds or securities thru an officer or agent of such cor- poration providing that two-thirds or more of the assets of said corpora- tions shall consist of properties situated within the State of Montana. Section 2. The name "Stock-broker" as used in this Act shall include every person, set of persons, associations, companies, co-partner- ship or corporation, who shall, in the State of Montana, engage in the business of dealing in stocks, bonds or other securities covered by this Act, selling or offering or negotiating for the sale thereof, or under- writing or purchasing such securities and reselling them to any person or persons, at a commission or profit. Section 3. The name "Domestic"' as used in this Act shall apply to those investment companies or stock-brokers incorporated under the laws of Montana or having their principal office in the State of Mon- tana, and the word "foreign" shall apply to those incorporated under the laws of another state, or foreign country or haying their principal office outside of the State of Montana. Section 4. The name "Agent" as used in this Act shall include any person who shall act for any investment company or stock-broker in offering for sale, taking subscriptions for or negotiating for the sale, or selling any securities for any investment company or stock-broker, either as an employee on a salary basis or for a commission. Section 5. It sihall be unlawful for any investment company or stock-broker, or any representative thereof, to sell, offer for sale, take subscriptions for or negotiate for the sale in any manner whatsoever, of any stocks, bonds or other securities of any kind or character, other than those exempted from the provisions hereof by the definitions herein provided, without a permit from the State Investment Commissioner as hereinafter provided. INVESTMENT COMPANIES Section 6. Before securing such permit it shall be necessary for each and every investment company to file in the office of the Invest- ment Commissioner, together with a filing fee of Twenty-five ($25.00) Dollars, the following papers,^ documents, etc., together with such other information and documents as said Investment Commissioner shall deem necessary in each case, to-wit : 1. An itemized statement of its actual financial condition and the amount of its properties and liabilities. 2. A copy of all contracts, bonds or other securities which it pro- poses to make with or sell to its contributors. MONTANA 481 3. Sample copies of all literature or advertising matter used or to be used by such investment company. 4. A copy of its constitution and by-laws, or articles of co-partner- ship or ' association. 5. If it shall be an incorporated investment company, it sihall also file a copy of its charter, and if it be a foreign investment company, such copy shall bear the certificate of the Secretary of State, or other state officer having custody of such records, that it is a true, complete and correct copy. Section 7. All of the above described papers shall be verified "by the oath of a duly authorized member of a co-partnership or associa- tion, if it be a co-partnership or association, and by the oath of the president and secretary, if it be incorporated, provided that the Invest- ment Commissioner shall have the power to require such officers to make affidavit to such other reports or information as he may call for. Section 8. Every foreign investment company shall also file its written consent, in such form as may be approved by the Investment Commissioner, that actions may be commenced against it, in the proper court of any county in this State in whicih a cause of action may arise or in which the plaintiff may reside, by the service of process on the Investment Commissioner, agreeing that such service of process on the Investment Commissioner shall be taken and held, in all courts, to be as valid and binding as if due service had been made upon the company itself, according to the laws of this or any other state, and such written consent for servicee of process sihall ibe irrevocable. Such written con- sent shall be accompanied by a certified copy of an order or resolution of the board of directors, trustees, ovimers or managers of such invest- ment company authorizing the execution of same. When a case shall be brought, the summons shall be directed to the Investment Commis- sioner, and shall require the defendant to answer by a certain day, not less than forty days nor more than sixty days from the date thereof. Said summons shall be forthwith forwarded by the clerk of the court to the Investment Commissioner, who shall immediately forward a copy thereof to the secretary of the corporation sued, by registered mail, and thereupon the Investment Commissioner shall make return of said sum- mons to the court whence it issued, showing the date of its receipt by him, the date of forwarding such copy, the name and address of the person to whom he forwarded said copy, and the costs of service and return thereof, which in each case shall be two ($2.50) dollars and fifty cents. Such return shall be under his hand and seal of office, and shall have the same force and effect as a due and sufficient return made by the sheriff on process directed to him. The Investment Commissioner shall keep a suitable record book, in which he shall docket each action commenced against a foreign investment company as aforesaid. This 432 MONTANA record shall show the court in which the suit is brought, the title of case, the time when commenced, the date and manner of service, and the date of payment of fee taxed as costs in the case. Section 9. It shall ibe the duty of the Investment Commissioner to examine the statements and documents so filed, and if said Invest- ment Commissioner shall deem it advisable, he shall make or have made a detailed examination, audit an investigation of such investment com- pany's affairs, providing that such investment company may at its option, in writing, refuse to have such investigation made, in which event said Investment Commissioner shall reject its application. If he finds that such investment company is- solvent, that its articles of incorporation or association, its constitution and by-laws, its proposed plan of business and proposed contracts contain and provide for a fair, just and equitable plan for the transaction of business, and in his judgment promises a fair return on the stocks, bonds, or other securities by it offered for sale, the Investment Commission shall issue to such investment company a statement, entitling it to sell such securities in the State of Montana, and reciting that such company has complied with the provisions of this Act, that detailed information in regard to the company and its securi- ties is on file in the Investment Commissioner's office, that such invest- ment company is permitted to do business in this State; and such state- ment shall also recite in bold type that the Investment Commissioner in no wise recommends the securities to be offered for sale by such investment company. Such permit, however, shall be subject to revoca- tion at any time by the Investment Commissioner for cause to him suffi- cient. But if said Investment Commissioner finds that such articles of incorporation or association, charter, constitution and by-laws, plan of business or proposed contract contains any provision that is unfair, un- just, inequitable or oppressive to any class of contributors, or if he de- cides from his investigation or examination of its affairs that said in- vestment company is not solvent, or does not intend to do a fair and honest business, or in his judgment does not promise a fair return on the stocks, bonds or .other securities by it offered for sale, then he shall not grant such company a permit as herein provided and shall notify said company in writing of his decision. STOCK BROKERS Section 10. The foregoing 6, 7, 8 and 9 shall apply to stock brok- ers, providing that stock brokers shall not be required to file a copy of each stock, bond or other security it shall handle, and that said Invest- ment Commissioner shall make special investigation and ascertain the reputation of such stock broker, especially as to the class of stocks, bonds and other securities handled by such broker, and that the granting of a permit of such stock broker shall be further contingent upon such stock broker having the reputation of handling such stocks, bonds and MONTANA 433 other securities as said Investment Commissioner shall decide to be good legitimate investment. Such permit sihall entitle such stock broker to handle such stock, bonds and other securities in the State of Montana as are not objected to by the Investment Commissioner, providing that such stock broker shall file on the first day of each month a list of the stocks, bonds and other securities on bonds for sale, and handled by it during the preceding month; and providing further, that said Invest- ment Commissioner shall have authority to prohibit said stock broker from handling any such issues at any time, or to cancel said broker's permit at any time he decides that said broker is not harjdling sijch securities as he deems good legitimate investments. Section 11. An appeal may be taken from the decision of the Investment Commissioner refusing to grant a license to any investment company or stock broker, to the State Board of Examiners of this State. Such appeal shall be taken by filing with said State Board of Examiners an application for a hearing on its case. When such hearing is set, it shall be the duty of the Investment Commissioner to produce for the inspection and consideration of the State Board of Examiners all papers regarding such company on file in his office and other information, and such State Board of Examiners shall have authority to call for any ad- ditional information it may desire under oath from the company or stock broker under consideration. If said State Board of Examiners shall re- verse the decision of the Investment Commissioner, it shall so notify him in writing, and it shall then become the duty of the Investment Commissioner to forthwith issue said applicant a permit. Section 12. ■ No amendment of the charter, articles of incorpora- tion, constitution or by-laws of any such investment company shall be- come operative until a copy of the same has been filed with the Invest- ment Commissioner as provided in regard to the original filing in Sec- tion 6 of this Act, nor shall it be lawful for such investment company to transact business on any other plan than set forth in its application, or to make any contracts other than that shown in copy of proposed contract required under Section 6 of this Act, until a written statement showing in full detail the proposed new contract shall have been filed with the Investment Commissioner, in like manner as provided in, regard to the original plan of business and proposed contract, and the consent of the Investment Commissioner obtained as to making such proposed new plan of business or contract. Section 13. Any Investment Company or stock broker may appoint one or more agents, but no such agent shall do any business as provided in this Act for said investment company or stock broker in this State until he shall be registered with the Investment Commissioner as an agent of such investment company or stock broker, and for each of 434 MONTANA such registrations there shall be paid to the Investment Commissioner the sum of One ($1.00) Dollar, and said Investment Commissioner shall issue to each agent so registered an individual permit, entitling him to represent such investment company or stock broker in the State of Montana as its agent until the 1st day of March following, when it shall be necessary to re-register such agent. Such permit, however, shall be subject to revocation at any time by the Investment Commissioner for cause appearing to him sufficient. Section 14. Every investment company or stock broker licensed under this Act shall file at the close of business December 31st, of each year, and such other times as required by the Investment Commissioner, a statement setting forth, in such form as may be prescribed by said Investment Commissioner, its financial condition, amount of its properties and liabilities, and such other information concerning its affairs as said Investment Commissioner may require. Each such statement shall be accompanied by a filing fee of Two ($2.50) Dollars and Fifty cents. Any investment company or stock broker failing to file its report as herein provided within ten days of the dates herein specified, or fail- ing to file any special report within thirty days after receipt of request from the Investment Commissioner therefor, shall forfeit its right to do business in this State by reason thereof. Section 15: The general accounts of every investment company, domestic or foreign, doing business in this State, shall be kept in such manner and form as may be prescribed by the Investment Commissioner and all books, papers, business, methods and affairs of such investment company shall be at all times subject to inspection and investigation by said Investment Commissioner or any person thereto by said Com- missioner authorized and designated for the purpose of enforcing the provisions of this Act. The Investment Commissioner shall have the power of a court of general jurisdiction to enforce the: attendance of witnesses and production of evidence by subpoena, attaohment and punishment, which said power shall extend throughout the state ; said Commissioner shall have power to take testimony under deposition either within or without the State. Section 16. The Investment Commissioner shall have general supervision and control, as provided by this Act, over any and all in- vestment companies and stock brokers, domestic or foreign, licensed under this Act, and all such investment companies or stock brokers shall be subject to examination by the Investment Commissioner or his duly authorized agents, or deputies at any time the Investment Commissioner may deem it advisable and in the same manner as is now provided for the examination of state banks. The rights, powers and privileges of the Investment Commissioner in connection with such examinations shall be the same as is now provided with reference to the examination of MONTANA 435 state banks. Such investment company or stock broker shall pay a fee for each examination made by said Investment Commissioner, or his deputies or agents, of not to exceed Ten ($10.00) Dollars for each day or fraction thereof plus the actual traveling and hotel expenses of said Commissioner, or his agent or deputy, thalj he is absent from the Capitol Building for the purpose of making such examination, and the failure or refusal of any investment company or stock broker to pay such fees upon the demand of the Investment Commissioner, or his deputy or agent, while making such examination, shall work a forfeiture of his or us right to do business in this State. Section 17. It shall be unlawful for any investment company or stock broker or his or its agent to issue, circulate or deliver any ad- vertisement, pamphlet, circular or other document in regard to his or its stocks, bonds or other securities in the State of Montana until after such investment company or stock broker shall have been licensed to sell his or its securities in the State of Montana as provided in this Act, and it shall be unlawful for any such licensed investment company or stock broker or his or its agent to issue, circulate or deliver any such advertisement, pamphlet, circular or other document, unless the same shall be signed and bear a serial number and a copy thereof first filed with the Investment Commissioner and the approval of the Investment Commissioner obtained thereto, nor shall it be lawful for such invest- ment company or stock broker or his or its agent to issue, circulate or deliver such advertisement, etc., after he or it has been notified of ob- jection thereto by said Investment Commissioner. Section 18. Whenever it shall appear to the Investment Commis- sioner that the assets of any investment company doing business in this State are impaired to the extent that such assets do not equal its liabili- ties, or that it is conducting its business in an unsafe, inequitable or unauthorized manner, or is jeopardizing the interests of its stockholders or the investors in stocks, bonds or other securities by it oflfered for sale, or whenever any investment company shall refuse to file any papers, statements or documents required under this Act, or sihall refuse to permit an examination by said Investment Commissioner, or his deputies or agents, as provided in this Act, without giving satisfactory reasons therefor, said Investment Commissioner shall at once cancel its permit, and if he shall deem advisable, shall communicate such facts to the at- torney general, who shall thereupon at once make an investigation, and if the facts as presented to him by the Investment. Commissioner are substantiated, he shall thereupon apply to a court of competent juris- diction for the appointment of a receiver to take charge of and conclude the business and affairs of such investment company, and if such fact or facts be made to appear it shall be sufficient evidence to authorize the appointment of a receiver and the making of such orders and decrees in such cases as equity may require. 436 MONTANA Section 1 9. All papers, documents and other instruments filed with said Investment Commissioner under this Act shall be subject to inspection of any one affected by this Act upon application therefor, ex- cept that the Investment Commissioner may, in his discretion, withhold any information relating to the affairs of any investment company or stock broker that, in his judgment, is not required for the best interests of its stockholders and the public welfare. Section 20. It shall be unlawful for any investment company, after it has been granted a permit under the provisions of this Act, to issue, sell or distribute any stocks, bonds or other securities for promotion or for any other causes, or on any other conditions than those set forth in its application, without first securing the approval of the Investment Commissioner therefor. Neither shall it be lawful for any investment company, after it has been granted a permit under the provisions of this Act, to pay any dividends in stocks, bonds or other securities without the approval of the Investment Commissioner. Section 21. Any person who shall knowingly or wilfully subscribe to, or make or cause to be made, any false statements or false entry in any book of such investment company or stock broker, or exhibit any false paper with the intention of deceiving any person authorized to examine into its affairs, or who shall make or publish any false or mis- leading statements of its financial condition or of the stocks, bonds or other securities by it offered for sale, shall be deemed guilty of a felony, and, upon conviction thereof, shall be fined not less than Two Hundred ($200.-00) Dollars nor more than Ten Thousand ($10,000) Dol- lars, and shall be imprisoned for not less than one year nor more than ten years in the State penitentiary. Section 22. Any person or persons, agent or agents, investment company or stock broker who shall violate any of the provisions of this Act shall be deemed guilty of a felony, and upon conviction thereof shall be fined for each offense not less than One Hundred ($100.00) Dollars, nor more than Ten Thousand ($10,000) Dollars, or by im- prisonment in the State penitentiary for not less than ninety days nor more than one year, or by both such fine and imprisonment. Section 23. All fees herein provided for shall be collected by the Investment Commissioner and by him shall be turned iftto the State Treasury, and all fees so turned into the State Treasury are hereby re-appropriated to the Investment Commissioner for the purpose of paying all salaries and expenses necessary for the proper carrying this Act into effect; and the Investment Commissioner is hereby authorized to appoint such clerks, deputies and agents as are actually and absolutely necessary to carry this Act into full force and effect, none of whom shall be related by blood or marriage to such Investment Commissioner or any of his deputies, or agents. All money actually and necessarily MONTANA 437 paid out by the Investment Commissioner, or any clerk, or deputy or agent, appointed under this Act, as salaries, or any money actually and necessarily paid out by the Investment Commissioner, or by any clerk or deputy or agent appointed under this Act, for traveling or incidental expenses shall be paid by the State Treasurer out of such fees' upon the State Auditor's warrants, to be issued upon sworn vouchers containing an itemized account of such salaries and expenses. Section 24. The office of Investment Commissioner is hereby created and the State Auditor of Montana is hereby made and con- stituted ex-officio Investment Commissioner. Section 25. Should the courts declare any section of this Act un- constitutional or unauthorized by law or in conflict with any other sec- tion or provision of this Act, then such decision shall afifect only the section or provision so declared to be unconstitutional or void and shall not affect any other section or part of this Act. Section 26. No investment company or stock broker as defined in this Act, now organized, or in process of organization in this State, shall be compelled to comply with the provisions of this Act until Janu- ary 1st, 1914. Section 27. All Acts and parts of Acts in conflict herewith are hereby repealed, in so far as they conflict with this Act. Section 28. This Act shall take effect and 'be in force from and after its passage and approval by the Governor; Approved March 13, 1913. Annotation Under the Blue Sky Law of Montana (L. 1913 C. 85) a corpora- tion whose plan of doing business is fraudulent can not maintain an action to question the constitutionality of such law. National Mercantile Co. V. Keating. 218 Fed. 477. OPINION OF ATTORNEY GENERAL, APRIL 15TH, 1919 Hon Geo. P. Porter, State Auditor, and Investment Commissioner ex officio, State Capitol, Helena, Montana. Dear Sir : — I am in receipt of your letter of April 2nd enclosing copy of letter received by you from Messrs. Speer, Bennett & Lohrke, attorneys of Great Falls, Montana. You desire to know whether or not the Wyoming Exploration Com- pany, a corporation organized and existing under the laws of the State 438 MONTANA of Montana and operating in the State of Wyoming, is subject to the provisions of Chapter 85, Laws of the Thirteenth Legislative Assembly. As I understand the matter, while this is a Montana corporation practically all of its assets are located outside of the State of Montana, and that as a matter of fact, said corporation operates almost entirely in the state of Wyoming. The provisions of said Chapter 85 are vague and uncertain and I must confess some doubt as to the construction thereof. However, con- sidering the general purposes of the Act, I am inclined to believe that the legislature intended that Montana corporations that did not have two-thirds or more of their assets within the State of Montana should be required to qualify under this Act. I am therefore of tl:e opinion that until such time as the Supreme Court lays down a different con- struction that this company, and all others similarly situated, should be. required to qualify under the Blue Sky law of this State. Respectfully, (Signed) S. C. Ford, Attorney General. Instructumis To Applicants A number of exhibits are required to be filed in connection with the applications for which printed forms are not supplied, but all inust have the careful consideration of the company desiring license. One of the most important matters in connection with the application is that of references. It will be noticed that thei application calls for eight references regarding the company and four for each director and officer, and a ruling of the Department of the Investment Commissioner re- quires that five of the eight references must come from banks or banking connections and two of the four must be from banks or banking con- nections. The Department also requires that this file be complete be- fore license is issued. Information regarding the reputation, personnel of the officers and the general character and prospects of the company is desired and as to each director and officer the Department desired information as to his financial standing, reputation, responsibility and reliability. _ The law also requires that all stock brokers must file monthly reports with this Department. Also all companies and stock brokers operating under this law must file an annual statement with the De- partment as of December 31st of each year, in order that their license may continue, together with a filing fee of $2.50. The fees for license under this act are Twenty-five Dollars for the company's license and One Dollar for each agent. It is also a rul- ing of this Department that all agents soliciting the sale of stock of MONTANA 439 companies operating under this law must be bona fide residents of the state of Montana. The agent's license expires on the first day of March of each year. State Auditor and Investment Comm'r., ex oMcio. RULINGS OF THE INVESTMENT COMMISSIONER 1. All exhibits called for in the application blanks must have the careful consideration of the company making application, and in any event where information called for cannot be furnished, a sheet should be inserted, giving same the proper designation and stating thereon the reason why the required data cannot be supplied. 2. All assignments, deeds, leases and mortgages of property ownej by the company must be duly recorded with the proper recording officer before filing application for license. 3. Eight references are required as to the company, five of which must be banks or banking connections. Four references are required as to each director and officer, two of which must be banks or banking connections. 4. All agents and salesmen selling stock, bonds and other securities in this State must be bona fide residents of the State of Montana. 5. All applications for agents' licenses must come from the com- pany direct. 6. Each company shall be required to file with application for li- cense a letter of authority, signed by the officers of the company under seal, that they agree to an audit or investigation of the company's affairs at any time the Investment Commissioner may deem it advisable and that they agree to pay a fee of Ten ($10.00) Dollars per day for each day or fraction thereof plus, actual traveling and hotel expenses of said Commissioner or his deputy or agent, that he is absent from the Capilol Building for the purpose of making such examination, in accordance with Section 16 of the law. 7. No license will be issued to any company within two v. eeks' time subsequent to the filing of application papers, pending reports from outside sources. ADDENDUM TO RULES , , ,r„n June 1, 1919. 8. When reference is made in advertisements of any company to the fact that such company has been licensed by the Investment Commis- sioner the following wording must be used in its entirety: "This company has been licensed under the Montana Investment Law and is permitted to do business in this State but the Investment Conunissioner in no wise recommends the security to be offered for sale by such investment company." 4-a. All agents or salesmen must be citizeng of the United States as well as bona fide residents of Montana, 440 MONTANA Forms Form No. 6. Sheet 1. BEFORE THE DEPARTMENT OF THE MONTANA INVEST- MENT COMMISSIONER In the matter of the application qf Name. y No. Address for authority to sell its securities in Montana under the provisions of chapter 85, Session Laws 1913. The Company of represents to the Montana Investment Commission ; 1st. That its principal business office is located at , and that it has branch offices at 2n(i. That it was incorporated on the day of 191.., under the laws of the state of , with an authorized capital of $ , divided into shares of common and shares of preferred, with a par value of $ each; and that it has an authorized bond issue of $ 3d. That the following is a full and correct statement of its capital stock and securities on this date : Authorized Capital I Common Stock, $ [ Preferred Stock, $ Issued and Outstanding f Common Stock, $ 1^ Preferred Stock, $ Bonds authorized ■. $ Bonds issued , $ Other securities called Authorized, $ Other securities called , Issued, $ 4th. That the following is a true and complete statement, show- ing the consideration received from the stock issued and outstanding to date: MONTANA COMMON STOCK 441 No. Shares. ♦Actual Value. Remarks. Actual Cash . . - , ' Notes Plant Equipment . Organizing Commissions ...., Totals * This column should specify the actual amount of cash or notes received, or the actual value of real estate, etc., received in exchange for stock issued, and should correspond with value at which these different items were given in to the company and carried on the books. Form No. 5. PREFERRED STOCK Sheet 2. No. Shares. Actual Value. Remarks. 1 Notes Real Estate Plant Equipmeiit Organizing Commissions Totals 442 MONTANA BONDS No. Shares Actual Value. Remarks. Actual Cash Real Estate J Plant Kquipment Patents Organizing Promotion Commissions C^alaripB < 6th. Attached hereto, marked Exhibit A, is a statement giving a true and complete list of the holders of the securities of this company, indicating the consideration which was given for same. 6th. Attached hereto, marked Exhibit B, is a statement describing fully the real estate, plant, equipment, patents, etc., received in exchange for stock. 7th. That the following is a complete and correct statement of its assets and liabilities : ASSETS Amount. Write Notking in This Column. Ttpnl F<;tnte Accounts Receivable Cash on Hand Cash in Banks Form No. 6. MONTANA LIABILITIES 448 Sheet 3. Amount. Write Notking in This Column. Common Stock outstanding.. Preferred Stock outstanding. / Accounts Payable. Sinking Fund or Reserve Other liabilities as follows: ~ Total 8th. That attached hereto, marked Exhibit C, is a true and correct trial balance sheet of its books on the date of thef above statement. 9th. That the following is a true statement of its profit and loss account for the months prior to this date: C6 to 12) Loss. Profit. Undivided profits 19.... Gross earnings (Specify sources) Dividends, Cornmon Stock Dividends, Preferred Stock.... Interest borrowed money • Total : — Total 444 MONTANA 10th. That attached hereto, marked Exhibit D, is a true and com- plete statement of its receipts and disbursements* for the past months, as shown by its books. <^6 to 12) 11th. That the following is the general plan upon which the com- pany is doing and intends to do business, and the purposes for which said securities are to be sold : 12th. That it has adopted the following plan for the sale of its stock : 13th. That attached hereto, marked Exhibit E, is a blank certificate of its stock or other securities it desires to sell, together with a true copy of its subscription blank, and all other blanks used in connection therewith. 14th. That attached hereto, marked Exhibit F, is a true and com- plete copy of its constitution and by-laws or articles of co-partnership. 15th. That attached hereto, marked Exhibit G, is a true and com- plete copy of its charter, further certified to as being a true copy by the recording officer of the state under which it is incorporated. NOTE — Questions Nos. 16 and 17 are for companies only which are incorpo- rated under the laws of another State than Montana. 16th. That attached hereto, marked Exhibit H, is the written, ir- revocable consent for service of process, as provided in section 8 of chapter 85, Session Laws of 1913. ITth. That attached hereto, marked Exhibit I, is a certified copy of the resolution passed by its board of directors, authorizing the execu- tion of the blank designated as Exhibit H. MONTANA 445 Form No. 5. Sheet 4. 18th. That the following is a true statement in regard to its of- ficers and directors ; Address. Number Siiares and Bonds Owned f(3 1.S Sin S 3 oj rt tJftt <1 1 >> •a at O 0) Name. o e B 3 1 V •a pq ^1 President, Vice-President, Secretary, Treasurer, General Manager, Trustees and • Directors: 1. 2. 3. i. 5. 6. T s. 9. 10. 1 19th. That its securities -will be sold for the following-named prices and on the following terms, and will not be sold at any other price or on any other terms without the consent of the Investment Commis- sioner's Department : 446 MONTANA 20th. That attached hereto, marked Exhibit J, is a true and com- plete copy of each contract made, or which will be made, with any per- son, officer, agent or other representative of this company for the sale of its stock; and that there are no agreements, understandings or con- tracts, either verbal, written or implied, by which any one has received, or is to receive, any cash, stock, securities or other compensation for the sale of its securities, for its promotion, or for any other causes except as specified in this application and its several exhibits attached, and that all of the stock securities of this company will be sold or dis- posed of for cash or its equivalent as provided in the contracts or agree- ments attached, except as herein excepted. Remarks : NOTE — Please give at least four references as to the character, responsibility and financial standing of each director. Also eight references as to the company itself. Wherefore, your petitioner, in view of the showing herein made, does respectfully pray that authority be granted it to sell its securities as follows: $ Common Stock, $ ...Preferred Stock, $; Bonds, and $ other securities, in accordance with the provisions of the above-mentioned law. In Testimony Whereof, We have hereunto set our hands and affixed the official seal of this company, this the day of , 191.... (Company) [Seal] By President. Attest : Secretary. State of , County of , ss. President, and. .'. Secretary of the Company, of of lawful age, being first duly sworn, depose and say that they have each read the foregoing application and know the contents thereof, and that the statements and allegations therein contained and attached are true. President. Secretary. MONTANA 447 Subscribed and sworn to before me this the day of ;., 191... Notary Public. (My commission expires ) APPLICATION For Stock Broker's License (I or we), the undersigned, whose address is do hereby make application for a license as Stock Broker under the provisions of Section 10 of House Bill No. 325, enacted by the Thirteenth Legislative Session, and listed below are references as to the character, financial standing and reputation of the applicant. Dated this day of , 19 References Furnished (Please furnish at least five references, two of whom must be banks.) Name Address State your employers for the past five years, giving their address and in what capacity you were employed, or if in business for yourself, give the location of same and the nature of the business. This information must be furnished. APPLICATION FOR AGENT'S LICENSE UNDER INVESTMENT •ACT State of Montana Name and address of company Applicant's name in full Post oifice address Age Are you a citizen of the United States? If naturalized citizen, state where papers were taken out Are you at the present 448 MONTANA time a bona fide citizen of the State of Montana? State length of time that you have been a resident of this State Give name and address of last employer. State duties briefly. State occupatibn for the past five years, giving as references, name of employers, together with full post office addresses : Have you ever been licensed by the Investment Department of Montana to act as agent in any other company? If so give names of companiej: Give five references, three of which mu6t be banks or banking connec- tions : The statement must be sworn to before a Notary Public or some other person authorized to administer oaths. State of Montana, County of >■ ss. , being first duly sworn, upon oath deposes and says, that he is the person named in the within application ; that he has read the same, knows the contents thereof, and that the same is true of his own knowledge. Subscribed and sworn to before me this day of 191.. ANNUAL STATEMENT The Company of , hereby makes the following MONTANA 449 report for the year ending December 31st, 19 as provided by Sec- tion 14 of House Bill No. 325, as enacted by the Thirteenth Legislative Session. (Company) By President. Attest : Secretary. State of ") I ss. County of .• j , President, and Secretary, of the Company of lawful age, being first duly sworn, depose and say, that they have read the following annual statement and know the contents thereof, and that the statement is a true one. President. Secretary. Subscribed and sworn to before me this day of .,19 Notary Public. My commission expires Sheet 2. A: That the following amount of stock was sold in Montana for the year ending Dec. 31, 19 Common : No. of Shares Par Value Preferred : No. of Shares Par Value B : That the following is a complete and correct statement of its assets and liabilities : ASSETS Real Estate $ Bills Receivable $ Accounts Receivable $ Cash on Hand $ Cash in Banks $ 450 MONTANA Other Assets as follows : $ : $ $ Total $ LIABILITIES Common Stock outstanding $. Pref'd Stock outstanding $ ^ ■ • Bonds outstanding $ Mortgages $ Bills Payable . .' ".'. $ Accounts Payable $ Sinking Fund or Reserve $ Surplus $ Other liabilities as follows : $ ? • $ Total $ C: That the following is a complete and true statement of its receipts and disbursements : RECEIPTS Sale of stock $ Interest on deposit in banks $ Interest on mortgage loans...' $ Receipts from other sources : Total $. Sheet 3 DISBURSEMENTS Commissions to agents $. Home office salaries and traveling ex- penses $ . Rent and office supplies $. Advertising $. Legal Expense $. Other Disbursements ; Total $. MONTANA 451 D : In the event that during the preceding year there has been any change in the Articles of Incorporation or Constitution and By- Laws, a certified copy should be hereto attached. E: That the following is a true and complete list of the officers and directors : Name Address President : Vice President : Secretary : Treasurer ■ Directors : .' F : That attached hereto is a copy of all advertising matter that the company is now using to promote the sale of itsj stock in this State. G : That attached hereto is a certified copy of any and all examinations that may have been made of your company, during the preceding year. NOTICE : — Question D refers only to companies not incorporated under the laws of Montana. ANNUAL REPORT OF STOCK BROKER of Stock Broker, doing business in Montana under the provisions of House Bill No. 326, an enactment by the Thirteenth Legislative Session, hereby makes the following report for the year ending December 31, 19.... in accordance with the provisions of Section 14 of House Bill No. 325, above men- tioned : And Further, hereby certifies that the following is a true and complete statement of the stocks, bonds and other securities handled by said stock broker, for the year ending December 31, 19 Subscribed and sworn to tffefore me this day of ,19 Notary Public. My commission expires 452 MONTANA STOCKS BOUGHT. STOCKS SOLD, No. of Shares. Name. Purchase Price. Par Value. No. of Shares. Name. Selling Price. Par Value. ' 1 1 . i 1 1 t 1 1 1 1 1 MONTANA 453 MONTHLY REPORT OF STOCKS HANDLED (Address) (Date) (I or we), the undersigned, do hereby make the following report of stocks bought and sold for the month of 19. . . ., as required under the provisions of Section 10 of House Bill No. 325, as enacted by the Thirteenth Legislative Session: (Name of Stock Broker) STOCKS BOUGHT. STOCKS SOLD. No. of Shares. Name. Purchase Price. Par Value. No. of Shares. Name. Selling Price. Par Value. \ 454 MONTANA State of Montana Investment Department APPOINTMENT OF ATTORNEY TO ACCEPT SERVICE OF PROCESS Know All Men By These Presents That the of the City of , in the State of having been admitted or having applied for admission to transact busi- ness in the State of Montana, in conformity with the laws thereof, does hereby consent that action may be commenced against it in the proper court of any county in the State of Montana, in whidh) a cause of action may arise or in which plaintiff may reside, by the service of process on the Investment Commissioner of the State of Montana, and agrees that such service of process on such Investment Commissioner shall be taken and held in all courts to be as valid and binding as if due service had been made upon the company itself, according to the laws of the State of Montana or any other state ; And for such purpose does hereby make, constitute and appoint GEO. P. PORTER, DULY ELECTED, QUALIFIED AND ACTING STATE AUDITOR AND EX-OFFICIO INVESTMENT COMMIS- SIONER OF THE STATE OF MONTANA, AND HIS SUCCESSORS IN OFFICE, its true and lawful Attorney, on whbm all process of law, wihether mesne or final, against said Investment Company, may be, served in any action or special proceedings against said Company in the State of Montana, subject to and in accordance with all the provisions of the statutes and laws of said State of Montana, now in force, and such other acts as may be hereinafter passed amendatory thereof and supplementary thereto. And the said Company does hereby authorize the aforenamed Commissioner to acknowledge service of process for and in behalf of said Company in this State, and hereby waives all claim or right of error by reason of such acknowledgment of service. This appointment is to remain in force so long as any debt, liability, obligation or cause of action shall exist against said Company in the State of Montana. In Witness Whereof, The said Company has to these presents affixed its corporate seal, and caused the same to be subscribed and attested by its President and Secretary at the City of in the State of , on the day of , A. D. 19. . . President. Secretary. NEBRASKA 455 NEBRASKA STATUTES Blue Sky Law A BILL For an Act to icegulatA and supervise corporations, associations, companies, partnerships and persons issuing, selling or nego- tiating for the sale within the state of Nebraska, of stocks, bonds or securities, to prevent fraud in the issue, sale or nego- tiation for sale thereof prescribing penalties for violations of this act, creating a commission consisting of the Governor and Attorney General to be known as the State Trade Commission, and committing to said commission the administration of this act, and to repeal sections 796, 797, 798, 799, 800, 801, 802, 803, 804, 805, 806, 807, 808, 809, 810, and 811 of the Revised Statutes of Nebraska for 1913, and to repeal Chapter 14 of the session laws of Nebraska of 1917. (Laws 1919). Be it Enacted by the People of the State of Nebraska: Section 1. There is hereby created a commission to be known as the State Trade Commission which shall consist of the following state officers : The Governor who shall be ex officio chairman thereof, and the Attorney General. The State Trade Commission shall appoint a Secretary of said Commission who shall receive a salary of Three Thou- sand ($3000) Dollars per year. Such Secretary shall enter into a bond to the State of Nebraska before taking his office, his surety to be ap- proved by the Governor in the sum of Twenty-five Thousand ($25,000) Dollars conditioned .for the faithful performance of the duties of said office. The enforcement of this Act and of all of its provisions is hereby committed to The State Trade Commission hereby created. The Secre- tary of the Commission shall perform such duties in the enforcement of the provisions of this Act as shall be directed by the Commission. The Commission is hereby authorized and empowered to employ such other persons in the enforcement of this Act, and at such salaries as to the Commission may seem necessary. Section 2. The term "securities" as used in this act shall be taken to mean stock certificates, shares, bonds, debentures, certificates of par- ticipation, or other instruments in the nature thereof, by whatsoever name known or called, or undivided interests in thei capital, property, assets, profits or business of any corporation, partnership, joint stock company, declaration of trust association or other association, or individual. 456 NEBRASKA / The term, "'stock" shall mean and include all shares or undivided interests in the capital, property, assets, profits or business of any corpo- ration, partnership, joint stock company, or other association or in- dividual, whether evidenced by written or printed certificates or not. The term "person" shall include every corporation, partnership, joint stock company, declaration of trust association, and every other character of association, and every individual, whether such corporation, partnership, joint stock company or association is foreign or domestic and whether such individual is a resident or non-resident of this state. The term "commission" as used in this act shall refer to the State Trade Commission consisting of the Governor and Attorney General as created by Section 1 of this Act. Section 3. The provisions of this act shall not apply to the disposal of securities; (a) To a licensee under this act; nor shall they apply to (b) Bonds of a municipality, government or governmental agency; (c) Bonds or notes secured by first mortgage liens upon real estate; (d) Stock and securities issued by national banks; (e) Stocks and securities issued by State banks, insurance companies, building and loan associa- tions, and trust companies, when such corporations are legally authorized to do business in this state; (f) Stocks and securities issued by au- thority of the Nebraska State Railway Commission; (g) Stocks and securities of domestic corporations or associations organized not for profit, but solely for religious, educational or charitable purposes ; (h) Stocks and securities acquired by the owner in t!he usual course of busi- ness, owned and held in good faith, and sold in the usual course of busi- ness when the expenses of sale shall not, directly or indirectly, exceed two per cent of the sale price. Section 4. Every person, before selling or negotiating for the sale of any securities not specifically exempted from the provisions of this act, shall apply to the commission for a permit in the manner herein- after set forth. Section 5. No person either as principal or through brokers or agents, shall sell or offer for sale or, by means of any advertisement circular or prospectus, or by any other form of public offering, attempt to promote the sale of any securities in this state, unless there shall first have been filed with the Commission (1) A verified written applica- tion setting forth the name of the applicant, the names and addresses of all stockholders and subscribers for stock, the amount of stock held or subscribed for by each, a statement of the assets and liabilities of the applicant, the total amount of suoh securities, and of all securities prior in time and superior in interest or lien, the nature of the business tran- sacted or to be transacted, the amounts and kinds of stock desired to be issued and such other information as the commission may require; (2) A copy of the securities to be offered; (3) If such securities are secured by mortgage or other lien, a copy of such mortgage or of the NEBRASKA 457 ins'trunient creating such lien, and a competent appraisal or valuation of the property covered thereby, with a specific statement of all prior liens thereon, if any; (4) A full statement relative to the character or value of such securities or of the property or earning power of the com- pany making or issuing or guaranteeing the same; (5) A copy of any advertising matter which is to be used in connection with such promo- tion, and no advertising matter shall be used unless a correct copy of the same shall have been filed as herein provided ; (6) The names and addresses of any and all agents by or through whom such securities are to be sold, and no agent shall be employed unless such information shall have been filed, and unless there shall have been paid into the State Treasury a registration fee of One Dollar for each such agent, which fee shall be payment in full of all fees for registration of such agent until and including the first day of March next following; (7) A state- ment showing in detail the plan on which the business or enterprise is to be conducted; (8) A true copy of the articles or agreement of in- corporation or co-partnership, together with a copy of the charter and by-laws, if the securities be issued by a corporation. Section C. The application shall be accompanied by a receipt from the state treasurer for ten ($10.00) dollars for co-operative companies and all other organizations coming within the provisions of this act hav- ing a capital not exceeding twenty-five thousand ($25,000) dollars, and a receipt for twenty-five ($25.00) dollars in all other cases. Section 7. The commission shall prescribe the forms of applica-, tions and the forms of all other blanks and documents to be used in connection with the administration hereof. Section 8. The commission shall make a careful examination con- cerning the application and such other matters as it may deem necessary. The expenses of such examination shall be borne by the applicant who shall make a sufficient deposit to cover such expenses. Section 9. When demanded a public hearing shall be had upon the application as soon as may be after the examination by the cominission at which hearing witnesses may be heard on behalf of the applicant, the commission, or any person desiring to resist the application. Section 10. The commission shall have authority to issue sub- poenas to bring witnesses from any part of the state, and such witnesses shall receive the same fees and mileage as witnesses in the district court. Any person who shall fail to obey a subpoena so issued, shall be deemed guilty of a misdemeanor, and, upon conviction thereof, be fined in the sum of one hundred dollars ($100.00). Section U. If the Commission find that the applicant has com- plied with all the requirements of law, and that tihere is no fraud in the proposed plan of organization or of doing business, or in the pro- posed sale of securities, the commission shall issue to the applicant a permit to sell stock and securities for one year, in such amount as the 458 NEBRASKA commission may determine. No stock shall 'be sold at less than 'par value or above par, except with the permission of the commission, and all stock must be paid for either in money, in property, or in services at their actual market value. No watered or bonus stock or security shall be issued. All common and preferred stock shall have equal voting power. Section 12. The Commission, as a condition precedent to- the issuance of any permit herein provided for, may require all officers, agents and persons handling moneys of the applicant to be sufficiently bonded. Section 13. If the Commission sihall find that the applicant is in- solvent or has not complied with all the requirements of law, or that" there is fraud in the proposed plan of doing business or in the sale of securities, or that the applicant has not sufficient net assets on which to base an issue of stock or securities, such application shall be denied. Section 14. An appeal may be taken, by any person interested, from any order of the Commission to the District Court of Lancastef County, Nebraska, as appeals are taken from boards of County Com- missioners. Section 15. No business shall be transacted or attempted to be transacted after any change in the articles of incorporation or associa- tion, without notice to and the approval of the commission. Section 16. When a permit shall have been granted to any appli- cant, such applicant may appoint agents to sell its stock or securities by making application to the Commission accompanied by a receipt from the State Treasurer for one ($1.00) dollar and a showing that such agent is a proper person. Section 17. The commission may authorize the use and expenditure of a reasonable percentage of the par value of stock or securities for the purpose of marketing the same but in no event shall the commission allow to exceed 15% of the par value of such stock or securities for such purpose. In addition thereto the commission may allow not to exceed 2i% of the par value of such stock and securities to be used for the purpose of paying the expenses of organization and promotion. Section 18. Prior to issuing or selling any stocks or securities the applicant, if a non-resident of the state, and under the supervision of this act, shall file with the Commission an irrevocable power of attorney making the secretary of the commission the attorney in fact of the applicant, and all process issued in this state against the applicant in any action instituted in the county where the cause of action arose, may be served upon said attorney with the same force and effect as if sudi applicant were a domestic company having its principal office in such county. Section 19. Every person within the purview of this act shall, -while selling securities under the permit therein provided for, on or before NEBRASKA 459 Maroli 1st, of each year, file with the commission a balance sheet and an income and property account for the year ending the thirty-first day of December preceding, and shall, at any time, upon request of the Com- mission, file such a showing and submit to an examination of the records and affairs by the commissio.n Section 20. Except as otherwise specifically provided herein the commission shall have general supervision, regulation and control over the issuance of stocks and securities as defined in this act and shall have authority to' revoke any permit granted, after notice and hearing for tllie infraction of any provision of this act, or any order of the com- mission or for fraud or deceit in the sale of securities. Section 21. No applicant receiving a permit under this act shall declare a dividend in any amount whatsoever, unless such dividend has been earned. Section 22. In administering this act, the commissioner is au- thorized and empowered to institute and prosecute in its name all civil actions, 'both legal and equitable, including mandamus and quo warranto. Section 23. The commission is authorized to employ such assistants as may be necessary to properly administer this act. It shall also fix their compensation. Section 24. Any person within the purview hereof, failing to file any statement required, shall be deemed guilty of a misdemeanor and shall be fined not more than one hundred ($100.00) dollars for each day in default. Any person refusing to submit to the examination herein provided shall be deemed guilty of a misdemeanor, and shall be fined not less than one hundred ($100.00) dollars nor more than five hundred ($500.00) dollars. Any person selling or negotiating the sale of any stock or securities, not herein exempt, without a permit from the com- mission as herein provided, shall be deemed guilty of a misdemeanor and shall be fined not less than one hundred ($100.00) dollars nor more than one thousand ($1000.00) dollars and the sale or negotiating for sale of each share of stock and each security shall constitute a separate offense. Section 25. If any person as provided by this act, shall, after procuring a license to sell the stocks and securities as provided herein, sell the, same in accordance with the license procured and shall thereafter convert the funds procured from such sale to a different purpose or in a different manner than that which was represented to the commission and upon which the license of the commission was issued, such person shall be guilty of a felony and upon conviction thereof shall be punished by imprisonment in the penitentiary for not less than one year nor more than ten (10) years. 460 NEBRASKA Section 26. That Sections 796, 797, 798, 199, 800, 801, 802, 803, . 804, 805, 806, 807, 808, 809, 810, and 811 of the Revised Statutes of Nebraska for 1913, and chapter 14 of the session laws of 1917, are hereby repealed. Effective July 16, 1919. Installment Investment Companies (Revised Statutes — Chapter 6, Article II) Section 346. (Designation — Name). Every association, other than building and loan associations, savings banks, insurance companies or fraternal 'berieficiary associations organized under the laws of this state, or admitted under the laws of this state, to do business herein, whidh is or shall be organized for the purpose of raising money from its members or others, by m.eans of stated installments or payments, to be held, invested or disbursed by said association, whether the money so contributed is paid in for shares in such association, or is held by the association for investment and accumulation for the benefit of the contributors, or as an advance on merchandise, or property of any kind, to be delivered in the future, or is held by the association to be disbursed among the contributors, or any of them, in accordance with any agreed plan or scheme, and whether the relation of the contributor to the asso- ciation be that of a member, shareholder, vendee, creditor or beneficiary of a trust ; and every incorporated association, every unincorporated asso- ciation, every co-partnership, every corporation whether organized under the laws of this or any other state, territory or government, and every individual doing business, or attempting or offering to do business in the state of Nebraska, in form or diaracter similar to that hereinabove set forth, shall be known, for the purposes of this act, as an installment investment company. Every such installment investment company that is a resident or a citizen of any other state, territory or government, or that is a co-partner- ship or imincorporated association, of which any member or members is a resident of any other state, territory or government, or is an in- corporated association, organized under the laws of any other state, territory or government, shall be further known for the purposes of this act, as a foreign installment investment companj-. Section 347. (Control of Banking Board). The governor, the auditor of public accounts, and the attorney-general, hereinafter desig- nated as the state banking board, or any two of them, shall have power to issue certificates of approval to any such installment investment com- pany, and shall have general supervision over and control of any and all such companies. Section 348. (Papers filed with banking board). Before tran- sacting any business whatever in this state, excepting that pertaining to NEBRASKA 461 its organization, every such installment investment company shall file in the office of the state banking board the foUowign documents, to-wit : 1. A written statement, showing in full detail the plan upon which it proposes to transact business. 2. A copy of the contract which it proposes to make witli con- tributors. 3. .A written statement which shall show the name and locality of the association, and an itemized account of its actual financial condition, and the amount of its property and liabilities, and such other informa- tion touching its affairs, as said state banking board, or any two mem- bers thereof, may require. And if such installment investment company shall be a co-paitner- ship, or an unincorporated association, it sihall also file with the state banking 'board a copy of its articles of co-partnership or association, and all other papers pertaining to its organization ; if it .be a corporation organized under the laws of Nebraska, it shall also file with the state banking board a copy of its articles of incorporation, constitution, by- laws and all other papers pertaining to its organization, and if it be an incorporated or unincorporated association, organized under the laws of any other state, territory or government, it shall also file with the state banking board a copy of the laws of the state, territory or government under which it exists or is incorporated, and also of its ciliarter, articles of incorporation or association, constitution, by-laws and all amendments thereof, and all other papers pertaining to its organization. All of tlie above described papers shall be verified by the oath of such installment investment company, if it 'be an individual, or by the oath of a member of the co-partnership, if it be a co-partnership, or by the oath of a duly authorized officer, if it be an incorporated or unincorporated association. All such papers, however, as are recorded or are on file in any public office, shall be further certified to by the .officer of whose records or archives they form a part, as being correct copies of such records or archives. Every foreign installment investment company shall also appoint an attorney in each county in which it proposes to transact or solicit busi- ness, who shall be a resident of suoh county, and shall file with the state banking board a written instrument duly signed, sealed and acknowl- edged, authorizing such attorney in such county to acknowledge service of process in behalf of such company consenting that service of process, mesne or final, upon such attorney shall be taken and held as if served upon the company, according to the laws of this or any other state, and waiving all claim or right of error by reason of such service, or such, acknowledgment of service. Every foreign installment investment company shall also file anew with the state banking board, annually, in the month of January, and at such other times as the state banking board, or any two members thereof, 462 NEBRASKA may deem it expedient to demand the same, all statements and documents required by this section to be filed with the state banking board by foreign installment investment companies, before transacting any business except that pertaining to organization. Section 349. (Banking board examine application and papers). It shall be the duty of the state banking board, or any two members thereof, to examine carefully the statements and documents so filed, and if they find that such installment investment company is solvent, that its articles of incorporation or association, its constitution and by-laws, its proposed plan of business and proposed contract contain and provide for a fair, just and equitable plan for the transaction of buisness they, or any two of them shall issue to such installment investment company a certificate of their approval; but if they, or any two of them find that such articles of incorporation or association, charter, constitution, by- laws, plan of business or proposed contract contain any provision that is unfair, unjust, inequitable or oppressive to any class of contributors, they shall withhold their approval provided, however, all certificates of approval issued to foreign installment investment companies shall be limited to those counties for which said company has filed with the state banking board appointments of attorneys, as required hy Section three of this act, and that all certificates issued to such foreign installment in- vestment companies shall expire on the 31st day of January of the fol- lowing year. Section 350. (Unlawful to do other business). It shall not be lawful for any corporation, association, co-partnership or individual, either as principal or agent, to transact any business in form or character similar to that set forth in section one. of this act, except such as pertain to its organization, until it shall have procured the certificate of ap- proval above provided for, nor even then, in any county of this state not included in such certificate, nor after the expiration or revocation of such certificate. No amendment of the charter, articles of incorpo- ration, constitution or by-laws of any such installment investment com- pany shall become operative, until a copy of the same has been filed with the state banking board, and a certificate of its approval obtained, as provided in regard to the original filing of charters, articles of incorpo- ration, constitution and by-laws; nor shall it be lawful for any such installment investment company to transact business on any plan other than that set forth in the statement required by section three of this act, or to make any contract other than that shown in the copy of the proposed contract required to be filed by section three of this act, until a written statement, showing in full detail, the proposed new plan of transacting business, and a copy of the proposed new contract shall have been filed with the state banking board, and a certificate of approval of said state banking board obtained as to such proposed new plan of NEBRASKA 463 transacting business, or proposed new contract, in like manner as above provided in regard to the original plan of business and proposed contract. Section 351. (Statements — Annual, etc.). Every such install- ment investment company shall, at the close of business on June 30th of each year, and at suoli other times as required by the state banking board, or any two members thereof, file in the office of said state bank- ing board a statement verified by the oath of such installment investment company, if it be an individual, or by the oath of a member of the co- partnership, if it be a co-partnership, or by the oath of a duly authorized officer, if it be an incorporated or unincorporated association, setting forth in such form as may be prescribed by said board, or any two mem- bers thereof, its financial condition and the amount of its assets and lia- bil;ties, and furnishing such other information as to its affairs, as said board or any two members thereof, may require. Any installment in- vestment company failing to file the report required at the close of busi- ness, June 30th of each year, within ten days of that date, or to file any other or special report herein required, within thirty days after the receipt of a request or requisition therefor, shall forfeit its rights under the certificate of approval provided for in section four of this act. Section 352. (Accounts — how kept). The general accounts of every such company sJiall be kept by double entry, and such company, its co-partners or managing officer shall, at least once a month, make a trial balance of such accounts, which will be recorded in a book provided for that purpose ; suoh trial balance and all other "books and accounts of such company shall, at all times during business .hours, except on Sunday and legal holidays, be open to the inspection of contributors to the company. Section 353. (Examination of). The person or persons ap- pointed under the law of this state to make examination of corpora- tions, firms or individuals doing a banking business, shall make an ex- amination and report of every installment investment company doing business in this state, as often as the state banking board, or any two members thereof, shall deem it necessary and proper, and at least once a year ; and the rights, powers, duties, privileges and compensation of such person or persons, in connection with suoh examinations, shall be the same as is or may be provided :by law with reference to examina- tions of banks and corporations, firms or individuals transacting a bank- ing business ; and such installment investment company shall pay the same fees for such examinations as is or may be provided by law in case of the examination of banks. And whenever it is necessary for examiners to go into another state for the purpose of examining the affairs of any suoh installment investment company transacting business in this state, a per diem fee of ten dollars ($10.00) per day and expenses of the ex- aminer for the time required to be absent from the State Capitol on 464 ♦ NEBRASKA such examinations shall be paid to the examiner by such installment in- vestment company so examined. Section 354. (Assets impaired — Receiver). Whenever it shall appear to the state banking board, or any two members thereof, that the assets of any installment investment comipany are impaired to the e»tent that such assets do not equal its liabilities, or that it is conduct- ing its business in an -unsafe or inequitalble or unauthorized manner, or is jeopardizing the interests of its contributors, or that it is unsafe for such installment investment company to transact business, said board, or any two members thereof, shall revoke its certificate of approval, — shall communicate such facts to the attorney-general, who shall thereupon apply to the supreme court, or to the district court where such company is located, or to a judge of either of said courts, for the appointment of a receiver to take charge of and wind up the business of such install- ment investment company; and if such fact or facts be made to appear, it shall be sufficient to authorize the appointment of a receiver, and the making of such orders and decrees in such cases as equity requires. Section 355. (False statement — Penalty). Every person who shall wilfully or knowingly subscribe, or make or cause to be made any false statement or false entry in any book or any installment investment company, or exhibit any false paper with the intention of deceiving any person authorized to examine into the affairs of such installment invest- ment company, or shall make, state or publish any false statement of the financial condition of such installment investment company, shall be deemed guilty of a felony, and, upon conviction thereof, shall be fined not exceeding ten thousand dollars, and be imprisoned in the state peni- tentiary not less than one nor more than five years. Section 356. (Agent doing business illegally — Penalty). Any persons, agent, or company doing business or offering or attempting to do business in this state for any such installment investment company which shall not, at the time, be the holder of a valid, unrevoked and un- expired certificate of approval as provided for in section four of this act, shall be deemed guilty of a misdemeanor, and upon conviction thereof shall be fined in any sum not exceeding one thousand dollars or by im- prisonment in the county jail not more than thirty days or both at the discretion of the court. NEBRASKA 465 Annotation STATE OF NEBRASKA, EX REL, FRANK N. PROUT, ATTORNEY GENERAL, V. NORTHWESTERN TRUST COMPANY 72 Nebraska 497, 101 N. W. 14 If the organization of a corporation and its plan of doing business involve receiving from each of its members a stated sum at stated in- tervals until a specified amount is received from such members, and in- vesting this money in property for the benefit of its members, it is an installment investment company within the meaning of chapter 29, laws of 1903. It is competent, for the legislature to provide for publicity of the condition and business methods of such corporations, and to make reason- able classification of corporations, companies and individuals for that purpose. The statute in question is not in violation of Article III or of Sec- tion 1 of Article IV of the constitution, nor does it give the State Bank- ing Board such arbitrary powers as to be unconstitutional for that reason. Administration Concerning the administration of the law, I venture to ofifer some information. Recently there have been applications before this Com- mission to sell stocl^ under so-called trust agreements, the parties in each case claiming and advertising that there was no personal liability upon s.hareholders. These so-called trust agreements are along the lines of those in use in Massachusetts. The matter has been extensively argued before the Commission lately and it has been determined that such so- called trust agreements do not relieve the shareholders from personal liability and they are treated as ordinary partnerships. Our Commission takes the view that it is simply an attempt to evade the law of corpora- tions and such agreements receive no special consideration here. We find in a number of states that the matter is covered by statutory pro- visions relating to trusts and partnerships. This is particularly true in Texas from which the first one of the applications to our Commission came. The practice in this state is to require the applicant to file his ap- plication in writing. The matter is then submitted to the Examiner of Securities. He makes the examination provided in the statute and if the Commission is not satisfied of the suiEtiency of the examination made by him, further examination is made by experts, In case of mining and 30 466 NEBRASKA oil companies the Commission invariably requires a field examination. This is also true in the more important cases involving real estate. The examination is rigid and concerns of doubtful character do not get through. The Blue Sky Law of Nebraska has not yet been passed upon by the Supreme Court of this State. We have had a number of rulings by the district courts, all of which have sustained the statute, but none thus far has reached the Supreme Court. In a recent case promoters divided up a tract of land into a number of small tracts which they sold, together with the right to participate in the prospective profits derived from drillings upon other tracts not specifically mentioned in the deed. The court held that the company was selling securities within the mean- ing of the Blue Sky Law, and the information was accordingly sustained. The Attorney General made some rulings in regard to the law prior to the decision of Hall vs. Geiger Jones Co., by the Supreme Court of the United States. Our present Attorney General considers the entire law unconstitutional The most important ruling made by this department and which has hetn, sustained by the Commission is that so-called common law corpora- tions are not recognized in Nebraska. They are regarded here as pure partnerships. We think that there should be greater co-operation among the various states in the administration of the Blue Sky Laws. We have a number of times received valuable information from other states in making investigation of applicants in this state, and we believe in many instances we have supplied valuable information to other commissions. The work should be systematized so that each commission will have the benefit of the labors of the others in investigating applicants. ' Most of the applicants here under the so-called common law cor- porations have relied upon Massachusetts cases. The case of Milton v. Williams 215 Mass. 1 is not recognized as stating the law in Nebraska. We have no common law corporations in this state. A concern consist- ing of a. number of persons is either a corporation or a partnership. A declaration of trust associations is merely a partnership, unless regularly incorporated, and in the latter case they are not recognized as having authority to issue trust certificates, unless they are properly organized as regular trust companies. It is a favorite method of the so-called oil companies to organize a company with a small capital and then issue what they call profit sharing certificates. These bear some analogy to the certificates issued by trust companies. If such concerns were allowed to carry on business large sums of money would be collected by corpora- tions of very small capital and there would be no security to the investor and he might become involved in partnership liability. Counsel. State Railway Commission. NEBRASKA 467 Forms ^°™ N°- 1 (In use under prior law) Sheet i Application for Sale of Securities BEFORE THE NEBRASKA STATE RAILWAY COMMISSION In the matter of the application of Name Address >No. For authority to sell its securities in Nebraska under the provisions of Senate File No. 4 approved April 21st, 1913. The Company of represents to the Nebraska State Railway Commission : 1st. That its principal business office is located at , and that it has branch offices at 2nd. That it was incorporated on the day of , 1 .... , under the laws of the state of , with an authorized capital of $ , divided into shares of common and .shares of preferred stock, with a par value of $ each; and that it has an authorized bond issue of $ 3rd. That the following is a full and correct statement of its capital stock and securities on this date: Authorized capital. Issued and outstanding. Common Stock $. . Preferred Stock $. Common Stock $. . Preferred Stock $. Bonds authorized $ Bonds issued $ Other securities called Authorized $. Other securities called Issued $ 4th. The following is a true and complete statement, showing the consideration received from the stock issued and outstanding to date : 468 NEBRASKA COMMON STOCK. No. Shares. *ActuaI Value. Remarks. Actual Cash Plant Commission ' * This column should specify the actual amount o£ cash or notes received, or the actual value of real estate, etc., received in exchange for stock issued, and should correspond with the value at which these different items were given in to the company and carried on the books. Form No. I PREFERRED STOCK. Sheet 2 No. Shares. Actual Value- Remarks. Actual Cash. Notes Real Estate.. Plant Equipment . . Patents Organizing . . Promotion Commission . Salaries Dividends ... Totals NEBRASKA 469 BONDS. No. Shares. Actual Value. Remarks. Actual Cash [ Notes Plant i Commission Totals 5th. Attached hereto, marked Exhibit A, is a statement giving a true and complete list of the holders of the securities of this company, indicating the consideration which was given for same. 6th. Attached hereto, marked Exhibit B, is a statement describing fully the real estate, plant, equipment, patents, etc., received in exchange for stock. 7th. That the following is a complete and correct statement of its assets and liabilities. ASSETS. Amount. Write nothing in this col:iian. Real Estate Accounts Receivable Cash on hand,.: Cash in banks 470 Form No. 1 NEBRASKA LIABILITIES. Sheet b Amount. Write nothing in this columa. Com'n Stock outstanding. Pref'd Stock outstanding.. Bonds outstanding IVjUk Pnvahlp Sinking Fund or Reserve.. « Other Liabilities, Viz. 8th. That attached hereto, marked Exhibit C, is a true and correct trial balance sheet of its books on the date of the above statement. 9th. That the following is a true statement of its profit and loss accovmt for the months prior to this date. (6 or 12) Loss. Profit. Dividends, Common Stock -per cent Dividends, Preferred Stock Gross earnings (Spec. sources) Interest, borrowed money Commissions Gain Total Total lOth. That attached hereto, marked Exhibit D, is a true and com- plete statement of its receipts and disbursements for the past months, as shown by its books. (6 or 12) ♦ NEBRASKA 471 11th. That the following is the general plan upon which the com- pany is doing business, and the purpose for which said securities are to be sold. 12th. That it has adopted the following plan for the sale of its stock. 13th. That attached .hereto, marked Exhibit E, is' a blank certificate of its stock or other securities it desires to sell, together with a true copy of its subscription blanks and other blanks used in connection there- with. 14th. That attached hereto, marked Exhibit F, is a true and com- plete copy of its constitution and by-laws or articles of copartnership. 15th. That attached hereto, marked Exhibit G, is a true and com- plete copy of its charter, further certified to as being true copy by the recording officer of the state under which it is incorporated. (Required if not incorporated in Nebraska.) , 16tli. .That attached hereto, marked Exhibit H, is the written, ir- revocable consent for service of process, as provided for in Sec. 14 of Senate File No. 4 approved April 21, 1913. 17th. Attached hereto and marked Exhibit I, is a certified copy of the resolution passed by its board of directors, authorizing the execu- tion of the document designated as Exhibit H. 18th. That attached hereto and marked Exhibit J, is a certified copy of the laws under which the company was organized. (Required only if not incorporated in Nebraska.) 472 NEBRASKA Form No. 1 Sheet i 19th. That the following is a true statement regarding its officers and directors. Address. Number of Shares and Bonds Owned. lis CO ti 2 1 Name. i E K en O President Vice-President Secretary Treasurer General Manager — Trustees and Directors 1 2 1 1 3 4 5 6 1 1 . M,| 7 1 8 1 1 1 I 1 9 10 ! i 20th. That its securities will be sold for the following named prices and on the following terms, and will not be sold at any other price or on any other terms without the consent of the Nebraska State Railway Commission NEBRASKA 473 21st. That attached hereto, marked Exhibit K, is a true and com- plete copy of every contract made, or which will be made, with any per- son, officer, agent or other representattive of this company for the sale of its stock; and that there are no agreements, understandings or con- tracts, either verbal, written or implied, by which any one has received, or is to receive, any cash, stock, securities or other compensation for the sale of its securities, for promotion, or for any other cause except as specified in this application and its several exhibits attached, afld that all stock securities of this company will be sold or disposed of for cash or for its equivalent, as provided in the contracts or agreements attached, except as herein stated. Remarks : Note. — Please give at least four references as to the character, responsibility and financial standing of each director. Also eight references as to the company itself. Wherefore, your petitioner, upon the showing herein made, does respectfully pray that authority be granted it to sell its securities as fol- lows : $ Common Stock, $ Preferred Stock, $ Bonds, and $ other securities, in accordance with the provisions of the above mentioned law. IN TESTIMONY WHEREOF, We have hereunto set our hands. and affixed the official seal of this company, this, the day of 19 (Company) ( Seal) By President Attest Secretary State of County of ss. President and Secretary of the Company of of lawful age, being first duly sworn, depose and say that they have each read the foregoing application and know the contents thereof, and that the statements and allegations therein contained and attached are true. President Secretary Subscribed and sworn to before me this. . : day of 19 Notary Public My commission expires 474 NEBRASKA COMPLAINT — Criminal. THE STATE OF NEBRASKA, Lancaster County, lASKA, \ Before Justice of the Peace IN AND FOR SAID COUNTY. The State of Nebraska vs. For > The complaint and information of of County aforesaid, made in the name of the State of Nebraska, before Justice of the Peace within and for said County, this day of 191. . . who, being duly sworn, on his oath, says that on or about the day of 191..., in the County and State aforesaid, did then and there wilfully, maliciously, purposely and unlawfully sell to , a person residing in the state of Nebraska and not a dealer in such securi- ties, certain securities of the to-wit : Certain undivided interests and shares of the property and busi- ness of said without the said having first obtained a permit therefor from the Nebraska State Railway Commission contrary to the form of the Statutes in such cases made and provided, and against the peace and dignity of the State of Nebraska. Subscriber! in my presence and sworn to before me this, dav of ....A. D. 191.... Justice of the Peace NEBRASKA 475 STATE OF NEBRASKA Neb. State Railway Commission Blue Sky Department Special Examiner IMS been duly registered with this Deprn'tment iiu accordance with the pro- THIS IS TO CERTIFY THAT visions of Art. il, Chap. Vi, of the Revised Statutes of Nebraska for the year ISIS, as agent of which. y is permitted to do business in this state under and in accordance with the conditions of the order of the Nebraska State Railway Com/mission made and entered on the day of ISl in re-application of permit number and such registration entitles said agent to represent the said -.as its agent until the.., day of 191 unless said authority is sooner revoked by said Commission. THE NEBRASKA STATE RAILWAY COMMISSION IN NO WISE RECOMMENDS THE SECURITIES OFFERED BY SUCH AGENT. Approved and Executed at Lincoln, Neb., this day of 191 NEBRASKA STATE RAILWAY COMMISSION ■ By Special Examiner Chairman EXHIBIT "H" powe;r of attorney The Co., of hereby irrevocably consents that any action may be commenced against it in the proper court of any County in the State of Nebraska where cause of action, or any pari; thereof, may arise, or in the county where any contract or portion of a contract entered into by said company is to be performed, by service of summons or other process on the Secre- tary of the Nebraska State Railway Commission and said Secretary of the Nebraska State Railway Commission is hereby constituted and ap- pointed its true and lawful agent and attorney for and in its place and stead for service of such process. And it is stipulated and agreed that such service shall be taken and held in all courts to be as valid and bind- ing as if due and legal service had been made upon the company itself in the State of Nebraska, or in any other state. Signed at this day of 191. . Witnessed, Co. By President. Attest Secretary 476 NEW HAMPSHIRE NEW HAMPSHIRE STATUTES AN ACT To protect the public against the sale of worthless securities. (L 1917, c. 202) Be it enacted by the Senate and House of Representatives in General Court convened: Section 1. Under this act, the term dealer shall mean any indi- vidual, partnership, association or corporation engaging in the selling or offering for sale of securities,. except to or through the medium of, or as agent or salesman of, a registered dealer. But sales made by or in behalf of a vendor in the ordinary course of bona fide personal invest- ment of his personal holdings or change of such investments shall not constitute such vendor or the agent of such vendor, if not otherwise engaged either permanently or temporarily in selling securities, a dealer in securities. Nor shall the offer of or sale of its own securities by an association or a corporation to its own members or stockholders con- stitute such association or corporation a dealer in securities nor in the case of the foundation of a New Hampshire corporation organized to do business within the state shall the offer of a sale of its securities by such corporation constitute it a dealer in securities. The term "securities" s'hall include all classes of stocks, bonds, debentures or certificates of participation. Section 2. No dealer in securities shall in this state by direct solicitation or through agents or salesmen or by letter, circular or adver- tising, sell, offer for sale, or invite offers for or inquiries about securities unless registered as a dealer under the provisions of this act. No sales- man or agent shall in this state in behalf of any dealer, sell, offer for sale, or invite offers for or inquiries about securities unless registered as a salesman or agent of such dealer under the provisions of this act. Section 3. Any dealer desiring registration shall file written ap- plication therefor with the insurance commissioner accompanied by a registration fee of twenty-five dollars, the fee to be returned if the ap- plication is not granted. The application shall be in such form as may be prescribed by the commissioner and shall state in writing the principal place of business, the name or style of doing business, and the address of the dealer, the names, residences and business addresses of all persons interested in the business as principals, officers, directors or managing agents, specifying as to each his capacity and title, and the lengrth of time during which the dealer has been engaged in the business. Every non-resident dealer shall file a power of attorney, irrevocable, properly NEW HAMPSHIRE 477 authorized, and with satisfactory certificates or other evidence of the authorization, appointing the commissioner his agent for the service of legal process upon the dealer in any action in the courts of this state based upon or arising in connection with any sale of, attempt to sell, or advertising of securities in this state, or any violation of this act. Upon the filing of the application the commissioner shall forthwith give notice of the fact and date of such application and of the name, principal place of business and address of the dealer, by advertisement inserted in one or more newspapers of general circulation. The registration certificate shall not be issued before the expiration of two weeks from the com- pletion of such publication. Any person may within such two-weeks period file objection to the proposed registration. Each application shall be accompanied by certificates or other evidence sufficient to reasonably establish the dealer's good repute. The commissioner may make such other and further investigation thereof as he may deem desirable. Upon being satisfied of the dealer's good repute the commissioner shall, in case no objection to the proposed registration be filed, register the dealer. If the commissioner shall not be satisfied of the dealer's good repute or if, within the two-weeks period succeeding the publication aforesaid, ob- jection shall be made to the proposed registration, he shall give notice of either fact to the dealer, and upon request from the dealer shall fix a time and place for hearing of which fourteen days' notice shall be given by mail to the dealer and to the objectors; and at such hearing opportunity shall be given to said dealer and to any other persons in- terested or objecting to offer further evidence as to the dealer's character and repute. If satisfied as a result of such hearing of the dealer's good character and repute in business, the commissioner shall thereupon register the dealer. Upon registration of any dealer a registration certificate shall be issued stating the name, principal place of business and address of the dealer, the names, residences and business addresses of all persons interested in the business as principals, officers, directors or managing agents, and the fact that the dealer has been registered for the current calendar year as a dealer in securities. The certificate shall in other respects be in such form as the commissioner may determine, but shall state in bold type that the commissioner does not recommend and as- sumes no responsibility for, securities offered by the dealer. Certified copies of this certificate shall be furnished to the dealei? at one 'dollar each. Changes in the certificate necessitated by changes in the personnel of a partnership, or in the principals, officers, directors or managing agents of any dealer, may be made at any time upon written application to the commissioner, accompanied by statement of the facts necessitating the change upon the payment of the required fee of one dollar. Upon' the issue of the amended certificate, the original certificate and the certified copies thereof outstanding shall be promptly surrendered to the com- missioner for cancellation. 478 NEW HAMPSHIRE Section i. Upon written application by a registered dealer, ac- companied by a registration fee of ten dollars for each person, the com- missioner shall, if he is satisfied that they are suitable persons, register, as agents or salesmen of such dealer, such persons as the dealer may request. The application shall be in such form as the commissioner may prescribe and shall state the residences and addresses of the persons whose registration is requested. The commissioner shall issue to each person so registered a registration certificate stating his name, residence and address, the name, principal place of business and the address of the dealer, and the fact that he is registered for the current calendar year as agent or as salesman (as the case may be) of the dealer. The certifi- cate shall in other respects be in such form as the commissioner shall determine, but shall state in bold type that the commissioner does not recommend or assume any responsibility for securities offered by . the dealer or the dealer's agents or salesmen. Such registration of agents may be renewed from year to year upon the request of the dealer and the payment of the registration fee of ten dollars. Upon application by the dealer, the registration of any agent or salesman shall be cancelled. Section 5. All registrations of dealers or agents shall expire at the close of the calendar year, but new .registrations of dealers for the succeeding year shall be issued as of course without the filing of further statements or furnishing any further information, unless specifically re- quested by the commissioner, upon written application of the dealer and payment of a registration fee of twenty-five dollars' for each registration. Section 6. The commissioner shall at least twice during each year publish in a state paper a list of the then registered dealers, and of their registered agents or salesmen, and shall also at any time on request by mail or otherwise inform any inquirer as to whether or not any in- dividual, partnership, corporation or association is registered either as dealer, agent or salesman. Section 7. Any dealer may, and any person named in a registra- tion certificate as above provided may, in behalf of any dealer, sell, offer for safe or invite offers for or inquiries about securities in this state, but shall at all times when so engaged carry widi him the registration certificate, or a copy thereof Certified by the commissioner, which shall at any time be shown to any prospective customer upon request. No dealer, agent or salesman shall advertise publicly the fact of his registra- tion or use such fact or the registration certificate in connection with any sale or effort to sell securities, lexcept by statement of the fact or by exhibiting the certificate or a certified copy thereof. Section 8. The commissioner may require a dealer to file with him ' a list of the securities which he is at the time offering or is about to offer for sale, and if he deem it expedient he may require the filing of statements of assets, liabilities and earnings, or any other facts he may deem pertinent in relation to any of the securities offered or to be offered NEW HAMPSHIRE 479 by the dealer or the associations or corporations issuing them; and may require the filing of copies of any or all printed or otherwise reduplicated circulars or printed advertisements relating to securities which the dealer has within six months offered for sale or which the dealer shall there- after offer for sale; and, thereupon if the commissioner is of the opinion that such securities are of such a character that there is a serious financial danger to the purchaser in buying them or that the circulars and ad- vertisement do not disclose pertinent facts sufficient to enable intending purchasers to form a correct judgment of the nature and value of the securities, he may prohibit the dealer from selling or offering the securi- ties, or any of them, or in any way advertising the same; but nothing in this section shall be construed to require a registered dealer to file with the commissioner any statement, circular or advertisement as a con- dition precedent to the selling or offering of any security or to refrain from the selling or offering of any security at any time unless the selling or offering of such security shall have been thus specifically prohibited by the commissioner. ' Section 9. The commissioner may, unless furnished with satis- factory evidence as provided in the preceding -sections, or in case of violation of any provision of this act, or in case of dishonest, deceitful or fraudulent conduct on the part of any dealer in connection with. the carrying on of the business, revoke such dealer's registration, and rriay, having reasonable cause to believe that any dealer has been guilty of violation of the provisions of this act, or of dishonest, deceitful or fraudulent conduct in connection with th'e carrying on of the busmess, suspend such dealer's registration until satisfied to the contrary. In either case the dealer shall not be regarded as registered under the pro- visions of this act until restored to registration by the commissioner. The revocation or suspension of the dealer's registration shall constitute a revocation or suspension of the registration of any agent or salesman of the dealer. The commissioner may, in case of violation of any pro- vision of this act, or in case of dishonest, deceitful or fraudulent con- duct, on the part of any agent or salesman in connection with the busi- ness, revoke such agent's or salesman's registration ; and may, having reasonable cause to believe that any agent or salesman has been guilty of violation of the provisions of this act, or dishonest, deceitful or fraudulent conduct in connection with the business, suspend the agent's or salesman's registration until satisfied to the contrary. In either case, the agent or salesman shall not be regarded as registered under the provisions of this act, until restored to registration by the commissioner. In case of sus- pension or revocation of registration, all certificates shall at once be surrendered to the commissioner upon his request. Section 10. Notice of any requirement or decision of the commis- sioner shall be sufficient if sent by mail addressed to the dealer, agent 480 NEW HAMPSHIRE or salesman, as the case may be, at the address designated in the applica- tion for registration. Section 11. Nothing in this act shall apply to the banks or trust companies of this state acting as agents for their customers in the pur- chase of securities. Section 12. Any dealer or any person violating any provisions of this act, or knowingly filing with the commissioner or furnishing to him any false or misleading statements or information, shall be punishable upon conviction thereof by a fine of not more than two thousand dollars, or by imprisonment for not more than six months, or by both such fine and imprisonment ; and such false or misleading statements or information so furnished shall be evidence in court that any sales of such stock or bonds made thereafter were made on false representation in a suit to recover damages on account of loss sustained through the purchase thereof. Section 13. There is hereby appropriated from the revenue collected under this act five hundred ($500) additional salary for the insur- ance commissioner, upon whom devolves the duty of enforcing this act; and the sum of eight hundred dollars ($800) for the salary of a clerk; and out of the revenue collected under this act his actual expenses. All fees . collected under this act shall be paid by said commissioner to the state treasurer. Section 14. This act shall take effect on its passage but no registra- tion shall be necessary or become effective under this act before the first day of September, 1917. Approved April 19, 1917. Administration The New Hampshire Law regulating the sale of securities has been in effect since Sept. 1, 1917. The administration of the same is in the hands of the Insurance Commissioner, who has created a Division in his Department called "Division of Investment Securities" which handles the work of administering the Blue Sky Law. We have about a hundred dealers and the same number of s.alesmen registered. In registering a dealer we endeavor to establish the reputation and business standing' of the personnel of the applying dealer, believing that the character of the people behind the offerings to a very great extent determine the character of the offering. After a dealer is registered, the rules of the Department require him to furnish us with all printed matter issued relative to the offerings being made, and special permission must be obtained from the' Insurance Commissioner to offer or sell any kind of mining or oil stock. We have already had several prosecutions under this law and have gotten convictions in every case. Such cases w.ere for selling stock without registration. NEW HAMPSHIRE 481 Legitimate dealers are in hearty accord with our effort to protect the public against the sale of worthless securities, and we look for con- siderable development along more progressive lines as we gain experi- ence. The need is already evident for a Federal law to cover inter-state advertising, correspondence and use of telephone and telegraph. Report of Division of Investment Securities. Forms Form 101. 7-B-'17— 760 No STATE OF NEW HAMPSHIRE ^J^ ..'... .........' Insurance Department Fee DIVISION OF INVESTMENT SECURITIES Ctf . isSUed Register Co. card DEALERS APPLICATION FOR REGISTRATION To THE Insurance Commissioner : The undersigned Name. a State whether corporation, partnership or individual, hereby applies for registration as a Dealer under Chapter 202, Laws of 1917, entitled "An act to protect the public against the sale of worthless securities" and makes the following statement of fact: 1 . Principal place of business 2. Name or style of doing business 3 . Dealer's address 4. How long have you been a dealer in securities ? 5. Give the names, residences, business addresses, capacity and title of all persons interested in the business as principals, officers, directors or managing agents. 482 NEW HAMPSHIRE Name. Residence. Business Address. Capacity and ' 6 . In what other states licensed or registered ? ." ■ 7. The following are suggested as three references as to applicant's business repute and the business repute of applicant's officers, di- rectors and agents (if there are any). Name. Address. 8. State briefly the general plan and character of the business of ap- plicant, specifying the nature of property in which it is proposed to deal, and method of transacting business, whether by personal solici- tation, advertisement, correspondence or otherwise, whether as prin- cipal or broker. NEW HAMPSHIRE 483 There are attached hereto and made a part hereof — (a) Copy of charter or articles of incorporation certified by the proper state official. (b) Copy of regulations and by-laws. (c) Certified copy of articles of co-partnership, or of association. (Strike out papers not enclosed.) (d) Power of attorney appointing the Insurance Commissioner agent for service of process if applicant is a non-resident. There is enclosed herewith Twenty-five Dollars, being the fee due on filing this application. (Sign here) ( Corporate Seal if Incorporated.) If applicant is a corporation, or association, the name must be signed by the officers duly authorized to execute papers on behalf thereof. If applicant be a co-partnership, the names and addresses of all partners must be signed. POWER OF ATTORNEY Know All Men By These Presents, that the undersigned Name. a Corporation, partnership or individual. being an applicant for registration as a dealer in securities under the provisions of chapter 202, Laws of 1917, entitled "An Act to Protect the Public against the Sale of Worthless Securities," does hereby appoint the insurance commissioner of the state of New Hampshire for the time being agent for the service of legal process upon the dealer in any action in the courts of this state based upon or arising in connection with any sale of, attempt to sell, or advertising of securities 484 NEW HAMPSHIRE in this state, the sale of which is regulated by said act, or based upon or arising in connection with any violation of said act. This 'appointment and the authority of said agent are irrevocable. Signed and sealed this day of , 19.., by the afore- said applicant (pursuant to a resolution or vote of its Board of Directors duly passed (Corporation Seal if on the day of , Corporation.) 19..). Clause in parenthesis not required of individuals or partnerships. Note": If applicant is a partnership, all partners must sign. If a corporation or association, the application must be signed by two officers of the applicant, thereunto duly authorized, by resolution of the board of directors. State of . . County of Personally appeared before the undersigned, a notary public in and for the above named County and State, the day and date above named, and acknowledged the execution of the foregoing instrument to be the voluntary act and deed of such applicant for the purposes therein set forth (if applicant is a corporation or association the following) and that they are and respectively, of such corporation, and are duly authorized to execute the foregoing instrument. (Notarial Seal.) Notary Public in and for. County, State of NEW HAMPSHIRE 485 No c e r tificate No Rec'd .. STATE OF NEW HAMPSHIRE App'd will be issued until Insurance Department Fee ALL blanks in Ctf. issued...: this form are division of investment securities Register properly filled out. Co. card.'.'. . . . . Agent's card. . . STATEMENT OF AGENT OR SALESMAN 1 . Name Age (Give first name.) 2. Have you read the New Hampshire law regulating the sale of securities ? 3 . Business address (Street and number or P. O. Box.) (Town or city.) 4. Residence for past five years • 5 . Present occupation How long 6 . Occupation for last five years 7. If employed give name and address of employer 8. If member of firm give firm name and names of partners. 9 . What other business i« to be carried on ? 10. How many years experience in selling securities? 11. What part of your time do you intend to devote to the business? 12. In what other states are you registered or licensed?. 13. State briefly the general plan and method of transacting business, whether by personal solicitation, correspondence or otherwise. I desire to be registered as an agent or salesman of. (Give dealfer's name.) Signed Signed and sworn to before me this day of m... Form 103, l00O-7-5-'l7. Justice of the Peace. 486 NEW HAMPSHIRE Each applicant's statement must accompany this Rec'd application. Ck. . . O.K. STATE OF NEW HAMPSHIRE Insurance Department division of investment securities APPLICATION FOR REGISTRATION OF AGENTS OR SALESMEN. Agents' or salesmen's registration continues in force until the first day of next January unless sooner revoked. Registration certificates will be sent to the dealer unless otherwise requested. The fee of Ten Dollars for each registration certificate must ac- company this application! This is to Certify, That the persons named herein, being suitable, have been appointed agents or salesmen for the transaction of the busi- ness of (Name of Dealer.) The said Dealer requests the Insurance Commissioner of New Hamp- shire to register them as such agents or salesmen in said state. Dated at day of 191 Signed NAME. Give first name in full. RESIDENCE. Give full address. Form 102. 1090— 7-6-17. New HAMPSHIRE 487 The following slip is attached to each certificate issued : IMPORTANT This Certificate is issued subject to the pro- visions of Chapter 202, N. H. Laws of 1917, and to the following rules promulgated by the In- surance Commissioner. 1. The holder of a Certificate of Registration as a Dealer in Securities shall furnish the In- surance Commissioner with a copy of all ad- vertising matter issued, relative to any se- curity offered by him. 2. The holder of a Certificate of Registration as a. Dealer in Securities shall not sell nor offer for sale any mining or oil se- curities until permission in each case shall have been granted by the Insurance Com- missioner. Insurance Commissioner. 488 - NEW JERSEY NEW JERSEY Chapter 318 A SUPPLEMENT To an act entitled "An act for the punishment of crimes" (Revision of 1898). (P. L. 1913 C. 318.) Be it enacted by the Senate and General Assembly of the State of New Jersey: 1. Any person, firm, corporation or association who, with intent to sell or in any wise dispose of merchandise, securities, service, or any- thing offered by such person, firm, corporation or association, directly or indirectly, to the public for sale or distribution, or with intent to in- crease the consumption thereof, or to induce the public in any manner to enter into any obligation relating thereto, or to acquire title thereto, or an interest therein, makes, publishes, disseminates, circulates, or places before the public or causes, directly or indirectly, to be made, published, disseminated, circulated, or placed before the public, in this State, in a newspaper or other publication, or in the form of a book, notice, hand- bill, poster, bill, circular, pamphlet or letter or in any other way, an advertisement of any sort regarding merchandise, securities, service, or anything so offered to the public, which advertisement contains any as- sertion, representation or statement of fact which is untrue, deceptive or misleading, shall be guilty of a misdemeanor, and upon conviction thereof shall be fined in a sum not to exceed one thousand dollars ($1,000) or imprisoned in the county jail for a period not exceeding one year, or by both such fine and imprisonment. 2. This act shall take effect immediately. Approved April 9, 1913. NEW YORK 489 NEW YORK STATUTES AN ACT To amend the insurance law, in relation to the sale of the securi- ties of insurance corporations and of corporations organized to promote or hold the capital stock of insurance corporations. Became a law March 6, 1913, with the approval of the Governor. The People of the State of New York, represented in Senate and As- sembly, do enact as follows: Section 1. Chapter thirty-three of the laws of nineteen hundred and nine, entitled "An act in relation to insurance corporations, constitut- ing chapter twentyneight of the consolidated laws,'' is hereby amended by adding thereto, at the end of article one thereof, a new section, to be section sixty-six, to read as follows : § 66. Promotion of insurance corporations; sale of securities. 1. As the terms are used in this section "promoting corporation" means a corporation or joint stock association, engaged in the business of or- ganizing or promoting or endeavoring to organize or promote the or- ganization of an insurance corporation or corporations, or in any way assisting therein; "holding corporation" means a corporation or joint stock association, which holds or is engaged in the acquisition of the capital stock or a major portion thereof of one or more insurance cor- porations for the purpose of controlling the management thereof, as voting trustee or otherwise; and "securities" means the shares of capital stock, subscription certificates, debenture bonds and any and all other contracts or evidences of ownership of or interest in insurance corpora- tions, or in promoting or holding corporations as defined in this section. 2. No individual, partnership, association or corporation, as the agent of another or as broker, shall sell or offer for sale or in any way assist in the sale in this state of the securities of any promoting or hold- ing corporation, as defined in this section, or of any insurance corpora- tion which is not at the time of such sale or offer of sale, lawfully en- gaged or authorized to engage in the transaction of the business of insurance in this state, without flrst procuring, as hereinafter provided, a certificate of authority from the insurance department to sell such securities ; nor shall any individual, partnership, association or corpora- tion sell or offer for sale in this state the securities of any promoting or holding corporation as defined in this section, or of any insurance corporation which is not at the time of such sale or offer of sale, law- fully engaged or authorized to engage in the transaction of the business of insurance in this state, unless such corporation shall have first pro- 490 NEW YORK cured from the superintendent of insurance, as hereinafter provided, a certificate that said corporation has fully complied with the provisions of this section and is authorized to sell such securities. Every certificate issued by the superintendent of insurance pursuant to the provisions of this section shall state in bold type that the superintendent in no way recommends the securities thereby authorized to be sold, and shall be renewable annually, upon written application, filed on or before the first day of January of each year, and may be revoked for cause at any time by such superintendent. The superintendent shall prepare and furnish upon request suitable blank forms of application for the certificates re- quired by this section. 3. Every individual, copartnership, association or corporation who or which desires or intends to sell or to offer for sale in this state, the securities of any insurance corporation or of any promoting or holding corporation as defined in this section, shall file with the superintendent of insurance an application for a certificate of such authority. Such applica- tion shall contain a statement, verified by oath, setting forth the name and address of the applicant, previous business experience, date and place of birth or organization, and such other and further information as the said superintendent may require. It shall be the duty of the superin- tendent of insurance to examine the application so filed, and to make any further inquiry or examination of any such applicant as he may deem advisable. If upon such examination the superintendent shall find that the applicant, or applicants, or if a corporation, the officers and directors thereof, is or are all trustworthy persons of good business credit, the superintendent may issue to such applicant a certificate of authority to sell or offer for sale in this state, the securities of any in- surance corporation or corporations and of any promoting or holding corporation previously authorized under this section which shall be men- tioned therein. 4. Every such unauthorized insurance corporation, and every pro- moting or holding corporation, as defined in this section, whose securi- ties are to be offered for sale in this state, shall file with the superin- tendent of insurance copies of all securities to be offered for sale, and an application for a certificate of authority under this section which shall contain a statement in detail of the plans and purposes of such corporation, the amount and par value of the securities to be offered for sale and the selling price thereof, the manner in which the moneys paid in therefor are to be spent or employed, the rate of commissions to be paid for the sale of such securities, the salaries to be paid to the officers of such corporation, and such other and further information as the said superintendent may require. No change shall thereafter be made in the form or character of the securities to be offered for sale, pr in the plans or purposes of any such corporation without the approval NEW YORK 491 thereof in writing by the said superintendent. It shall be the duty of the superintendent of insurance to examine the application and other documents so filed, and to make any further inquiry or examination of any such corporation as he may deem advisable. If upon such examina- tion the superintendent shall find that the plans and purposes of any such corporation are proper, that its condition is satisfactory, that the amount of its securities is reasonable, that the price at which sjich securities are to be sold is adequate, and that the manner in -which the moneys paid in therefor, the rate of commissions to be paid and the salaries of officers are fair, the superintendent may issue a certificate that such corporation has complied with all the provisions of this section and is authorized to sell or oflfer its securities for sale in this state. 5. The superintendent of insurance may refuse to issue or renew, any certificate provided for by this section, if, in his judgment, such refusal will best promote the interest of the people of the state. No in- dividual whose certificate of authority granted under this section is revoked, nor any copartnership of which he is a member, nor any cor- poration of which he is an offiter or director, shall be entitled to any certificate of authority under this section for a period of five years after such revocation ; and if any such certificate held by a copartnership or corporation is so revoked, no member of such copartnership or officer or director of such corporation shall be entitled to any such certificate for the same period of time. 6. No printed matter shall be used in connection with the sale of securities of any such promoting, holding or insurance corporation, for advertising purposes, or in the dissemination of information with reference thereto, unless such . printed matter shall first be submitted to the superintendent of insurance and approved by him in writing. No such corporation and no 'officer, director or agent thereof, or any other person, copartnership, association or corporation shall issue, circulate or employ or cause or permit to be used, issued, circulated or employed any circular or statement, whether printed or oral, of any sort, misrepresent- ing or exaggerating the earnings of insurance corporations or the value of their corporate stock, or other securities or the profits to be derived either directly or indirectly from the organization and management of insurance corporations or of organizing or holding corporations as de- fined in this section. No insurance or other corporation, and no in- dividual, copartnership or association, transacting business in this state shall place or offer to place insurance in any corporation in connection with the sale or purchase of the securities of any insurance corpora- tion or of any promoting or holding corporation as defined in this sec- tion. Section 2. This act shall take effect immediately. 492 NEW YORK Provisions of Banking Law Concerning Investment Companies (Cons. Laws, Chap. 2, as amended, Laws 1914, Chap. 369) Section 290 (as amended Laws 1917, Chapter 227. When authorized by the superintendent of banks, as provided by section twenty-three of this chapter, five or more persons may form a corporation to be known as an investment company. Such persons shall subscribe and acknowledge and submit to the superintendent of banks at his office an organization certificate in duplicate which shall specifi- cally state: 1. The name by which the investment company is to be known. 2. The place where its business is to be transacted. 3. That the investment company is, or is not, being organized for the purpose of exercising the powers set forth in subdivisions four and five of section two hundred and ninety-three of this chapter. 4. The amount of its capital stock and the number of shares into which such capital stock shall be divided, which capital stock shall amount to not less than one hundred thousand dollars, except that, if, such invest- ment company is being organized for the purpose of exercising the powers conferred by subdivisions four and five of section two hundred and ninety-three of this chapter, it may have a capital stock of not less than twenty-five thousand dollars if the place where its business is to be transacted is a city or village the population of which does not exceed fifty thousand, and a capital stock of not less than fifty thousand dollars if the place where its business is to be transacted is a city the popula- tion of which exceeds fifty thousand but does not exceed one hundred and fifty thousand. 5. The full name, residence and post-office address of each of the incorporators and the number of shares subscribed for by each. 6. The term of its existence, which may be perpetual. 7. The number of its directors, which shall not be less than five, and the names and addresses of the incorporators who shall be its di- rectors until the first annual meeting of stockholders. Such certificate may provide for the manner in which the stock of the corporation may foe transferred and for the number of directors necessary to constitute a quorum. Section 291. When the superintendent shall have endorsed his ap- proval on the organization certificate, as provided by section twenty- three of this chapter, the corporate existence of the investment company shall begin and it shall then have power to elect officers and transact such other business as relates to its organization. But it shall transact no other business until : 1. All of its capital stock shall have been fully paid in cash and an affidavit stating that it has been so paid, subscribed and sworn to by NEW YORK 493 its two principal officers, shall have been filed in the clerk's office of the county in which its place of business Ts located, and a certified copy thereof in the office of the superintendent; 2. It shall have made the deposit with the superintendent required by section two hundred and ninety^wo of this article; 3. The superintendent shall have duly issued to it the authorization certificate specified in section twenty-four of this chapter. Section '292. Every investment company shall, until an order of the supreme court is obtained declaring its business closed, keep on de- posit with the superintender(t of banks as a pledge of good faith and as a guaranty of compliance with the provisions of this chapter, interest bearing - stocks or bonds of this state Or of the United States to the amount of one thousand dollars, which shall be registered in the name of the superintendent of banks of the state of New York in trust for such investment company. The investment company, so long as it shall continue solvent and comply with the laws of the state,^ may be per- mitted by the superintendent to collect the interest on the securities so deposited, and from time to time to exchange such securities for others as provided by section thirty-five of this chapter, and may examine and compare such securities as provided by section thirty-six of this chapter. Section 293. In addition to the powers conferred by the general and stock corporation laws, an investment company shall, subject to the restrictions and limitations contained in this article, have the following powers : 1. (As amended. Laws 1916, Chapter 247). To sell, offer for sale or negotiate bonds or notes secured by deed of trust or mortgages on real property situated in this state or outside of this state, or ohoses in action owned, issued, negotiated or guaranteed by it; to advance money upon the security of such bonds, notes or choses in action; to purchase or otherwise acquire sudh bonds, notes or choses in action and to pledge them to secure the payment of collateral trust bonds or notes; to sell or otherwise negotiate such collateral trust bonds or notes. 1-a. (Laws 1917, Chapter 591). To accept bills of exchange or drafts drawn upon it payable on demand or on time not exceeding one year from the date of acceptance; to issue letters of credit authorizing the holders thereof to draw drafts upon it at sight or on time not ex- ceeding one year from the date of any such letter of Credit; to discount bills of exchange, drafts, notes, acceptances, or other choses in action. 2. To receive money or property in installments or otherwise from any person or persons, with or -without an allowance of interest upon such installments; to enter into any contract or understanding with such persons for the withdrawal of such money or property, at any time, with any increase thereof, or for the payment to them or to any person of any sum of money at any time, either fixed or uncertain. 494 NEW YORK 3. (As amended, Laws 1918, Chapter 98). To engage in the busi- ness of receiving; deposits, provided that it shall not engage in such busi- ness in this state until it shall have first made such deposit of securities with the superintendent of banks as is required of trust companies by section one hundred and eighty-four of this chapter. 4. (As amended, Laws 1915, Chapter 139). To deduct interest in advance on loans at the rate of six per centum per annum, provided such loans are secured by assignments of ohoses in action or other evidences of indebtedness issued by it and to be paid for in uniform monthly or weekly installments. To charge for a loan exceeding fifty dollars made pursuant to this subdivision one dollar for each fifty dollars or fraction thereof loaned for expenses including any examination or investigation of the -character and circumstances of the borrower, co-maker or surety, and the drawing and taking the acknowledgment of necessary papers, or other expenses incurred in making the loan ; provided, that no fee collected' hereunder shall exceed five dollars. If any such loan made pursuant to. this subdivision is fifty dollars or less, such charge- shall not be more than one dollar. Whenever an additional loan shall be made to anyone borrowing within three months of the date of a previous loan, no further charge for examination, investigation, drawing of necessary papers and taking acknowledgments, shall be made against him under any pretext what- ever. No such charge shall be collected unless a loan shall have been made as the result of suoh examination or investigation. 5. (Laws 1915, Ch. 139, as amended. Laws 1917, Ch. 228). To im- pose a fine of five cents for each default in the payment of one dollar or fraction thereof at the time any periodical installment upon a certifi- cate assigned as collateral security for the payment of a loan made pur- suant to subdivision four of this section becomes due, provided, however, that such fines shall not be cumulative; that the aggregate of such fines collected in connection 'with any such loan of fifty dollars or less, or any renewal thereof, shall not exceed fifty cents, and that the aggregate of such fines collected in connection with any such loan of more than fifty dollars, or any renewal thereof, shall not exceed one per centum of such loan and shall in no event exceed five dollars. 6. To establish branches pursuant to section fifty-one of this chapter. Section 294. An investment company shall not. 1. (As amended. Laws 1918, Chapter 98). Exercise the powers conferred by subdivision one-a of section two hundred and ninety-three of this chapter, unless it shall have a paid up capital stock of at least two million dollars ; exercise, within this state, the powers conferred by both subdivisions one-a and three of section two hundred and ninety- three of this chapter, or exercise the powers conferred by both subdi- NEW YORK 495 visions three and four or by both subdivisions one-a and four of sec- tion two hundred and ninety-three of this article. 2. Hold at one time the obligations of one person for more than five thousand dollars, secured by assignments of choses in action or other evidences of indebtedness issued by it and to be paid for in uni- form monthly or weekly installments. 3. Make any loan under the provisions of subdivision four of sec- tion twoTiundred and ninety-three of this article for a longer period than one year from the date thereof. 4. Deposit any of its funds with any other moneyed corporation unless such other corporation has been designated as such depositary by a vote of a majority of the directors of the investment company, ex- clusive of any director who is an officer, director or trustee of the de- positary so designated. 5. Be the holder of any shares of its own capital stock unless such stock shall have been taken to prevent loss upon a debt previously con- tracted in good faith, and stock so acquired shall, within six months from the time of its acquisition, be sold or disposed of at public or private sale; nor shall it, either directly or indirectly, make any discount to any person for the purpose of enabling him to pay for or hold shares of its stock either subscribed for or purchased by him. Any investment company making such discount shall forfeit .to the people of the state ttwice the amount of such discount. Section 295. 1. No investment company shall by any system of accounting or any device of book-keeping, directly or indirectly, enter any of its assets upon its books in the name of any other individual, partnership, unincorporated association or corporation, or under any title or designation that is not truly descriptive thereof. 2. Every investment company shall conform its methods of keep- ing its books and records to such orders in respect thereto as shall have been made and promulgated by the superintendent pursuant to section fifty-six of this chapter. Any investment company that refuses or neglects to obey such order shall be subject to a penalty of one hundred dollars for each day it so refuses or neglects. Section 296. Any investment company may make a written applica- tion to the superintendent of banks for leave toi change its place of busi- ness to another plac^ in the same county. The application shall state the reasons for such proposed change, and shall be signed and acknowl- edged by a majority of its board of directors and accompanied by the written assent thereto of stockholders owning at least two-thirds in amount of its stock. If the proposed place Of business is within the limits of the village, borough or city, if in a city not divided into boroughs, in which the principal place of business of the investment company is located, such change may be made upon the written apj>roval of the superintendent; if beyond suoh limits, notice of intention to make such 496 NEW YORK application, signed by the two principal officers in charge of its affair.- shall be published once a week for two successive weeks immediately preceding such application in a newspaper published in the city of Albany in which notices by state officers are required by law to be published, and in a newspaper to be designated by the superintendent, published in the county in which the place of business of such investment company is located. If the superintendent shall grant his certificate authorizing the change of location, as provided in section fifty of this chapter, tWe invest- ment company shall cause such certificate to 'be published once in each week for two successive weeks in the newspapers in which the notice of application was published. When the requirements of this section shall have been fully complied with, the investment company may, upon or after the day specified in the certificate, remove its property and' effects to the location designated therein, and thereafter its principal place- or business shall be the location so specified ; and it shall have all the rights and powers in such new location w'hich it possessed at its former location. Section 297. Each official communication directed by the superin- tendent of banks or one of his deputies to an investment company or to any officer thereof, relating to an examination or investigation con- ducted by the banking department or containing suggestions or recom- mendations as to the conduct of the business of tlie investment company, shall be submitted, by the officer receiving it, to the board of directors at the next meeting of such board, and duly noted in the minutes of the meetings of such board. Section 298. On or before the first day of February in each year, every investment company and every foreign corporation licensed by the superintendent to transact the business of an investment company in this state, shall make a written report to the superintendent of banks which shall contain a statement of its condition on the morning of the first day of January in said year and shall be in the form and contain the matters prescribed by the superintendent. Every such report shall be verified by the oaths of the two principal officers in (jharge of the affairs of the investment company or foreign corporation at the time of such verification, which shall state that the report is true and correct in all respects to the best of the knowledge and belief of the persons verifying it, and that the usual business of the investment company or foreign corporation has been transacted at the location required by this article and not elsewhere. ' Every such investment company and foreign corporation shall also make such other special reports to the superintendent as he may from time to time require, which shall be in such form and filed at such date as may be prescribed by the superintendent and shall, if required by him, be verified in such manner as he may prescribe. If any such investment company or foreign corporation shall fail to make any report required by this section on or before the day desig- NEW YORK 497 nated for the making thereof, or sJiall fail to include therein any matter required by the superintendent, it shall forfeit to the people of the state the sum of ten dollars for every day that such report shall be delayed or withheld, and for every day that it shall fail to report any such omitted matter, unless the time therefor shall have been extended by the superintendent as provided by section forty-nine of this chapter. Section 299. When the superintendent, pursuant to the powers con- ferred on him by artitcle two of this chapter, shall have levied any assess- ment upon any investment company and shall have duly notified such investment company of the amount thereof, the amount so assessed shall become a liability of and shall be paid by such investment company to the superintendent. Section 300'. Every investment company shall preserve all its records of final entry, including cards used under the card system and deposit tickets, for a period of at least six years from the date of mak- ing the same or from the date of the last entry thereon. Section 301. No offi'cer, director, clerk or other employee of any investment company, and no person in any way interested or concerned in the management of its affairs, shall as individuals discount, or directly or indirectly, make any loan upon any note or other evidence of debt, which he shall know to have been offered for discount to such corpora- tion, and to have been refused. Every person violating the provisions of this subdivision, shall, for each offense; forfeit to the people of the state twice the amount of the loan which he shall have imade. No officer, director, clerk or other employee of any investment com- pany shall borrow, directly or indirectly, from such investment company any sum of money without the written approval of a majority of tho board of directors thereof filed in the office of the investment company or embodied in a resohition adopted by a majority vote of such board pxclLi=ive of the director to whom the loan is made. If an officer, di- rector, clerk or other employee of any investment company shall own or control a majority of the stock of any other corporation a loan to that corporation shall be considered for the purpose of this subdivision as a loan to such officer, director, clerk or other employee. Every person violating this provision shall, for each offense, forfeit to the people of the state twice the amount which he shall have borrowed. Section 302. No person shall act in this state as the representative of any foreign corporation in transacting the business described in this chapter as the business of an investment company unless such corpo- ration shall have complied with the provisions of this article relating to such corporations. Section 303. Every foreign corporation before being licensed by the superintendent of banks to transact in this :tate the business of an investment company, or any part thereof, and annually thereafter during 32 498 NEW YORK the month of November shall subscribe and acknowledge and submit to the superintendent of banks at his office, an application certificate in duplicate, which shall specifically state : 1. The name of such foreign corporation. 2. The place where its business is to be transacted in this sta'e. 3. The amount of its capital stock actually paid in cash and the amount subscribed for and unpaid. 4. A complete and detailed statement of its financial condition as of a date within sixty days prior to the date of such application ceriifi- cate. At the time such application certificate is first submitted to the superintendent, such corporation shall' also submit a duly authenticated copy of its charter. Section 304. No foreign corporation shall transact in this state the business defined in this chapter as the business of an investment com- pany or any part thereof, unless such corporation shall have 1. Been authorized by its charter to carry on such business and shall have complied with the laws of the state or country under which it is incorporated; 2. Made the deposit with the superintendent of banks required by section three hundred and six of this article; 3. Designated the superintendent of banks, by an instrument in writing duly executed, its true and lawful attorney upon whom all process in any action or proceeding by any resident of the state against it may be served with the same effect as if it were a domestic corpora- tion and had been lawfully served with process within the state; 4. Received a license duly issued to it by the superintendent as pro- vided in section twenty-seven of this chapter. Section 805. When the superintendent shall have issued a license to any such foreign corporation, it may engage in the business of an in- vestment company at the location specified in such license until the first day of January succeeding the date of such license, subject to all the provisions of article two of this chapter relating to foreign investment corporations doing business in this state. Section 806. Every such foreign corporation, before receiving a license to transact business in this state, shall deposit with the superin- tendent in trust as security for the depositors with and creditors of such corporation in this state, registered public stocks or bonds of the United States or this state or of any city, county, town, village or free school district in this state authorized by the legislature to be issued, of the value of one hundred thousand dollars. Such foreign corporation so long as it shall continue solvent and comply with the laws of this state, may be permitted by the superintendent to collect the interest on the securities so deposited and from time to time to exchange such securi- ties for others, as provided by section thirty-five of this chapter, and NEW YORK 499 may examine and compare such securities, as provided by section thirty- •six of this chapter. Section 307. Every foreign corporation, duly licensed by tie superintendent, to transact in this state the business of an investment company, or any part thereof, shall within thirty days after the date of such license, submit to the superintendent of banks a statement verified by two of its principal officers, which shall contain the full name and business address of every individual, partnership or unincorporated asso- ciation, who is acting or whom it proposes to have act as its agent or representative in this state. Whenever any such corporation shall en- gage any person to act for it in this state and the name and address of such person is not contained in such verified statement submitted to the superintendent' such foreign corporation shall forthwith submit to the superintendent an amended statement verified in the same manner as the original. A violation of this provision shall subject such foreign corporation to a forfeiture of one thousand dollars for each offense. Section 308. Whenever the superintendent shall have revoked his license of any such foreign corporation and shall have taken the action to make such revocation effective specified in section twenty-nine of this chapter, all the rights and privileges of such foreign corporation to tran- sact the business in this state of an investment company, or any part thereof, shall forthwith cease and determine. Section 309. Any business corporation heretofore organized under the business corporations law whose corporate purposes include the tran- saction of any part of the business of an investment company and which has not heretofore sold any securities issued by it or guaranteed any securities sold by it or transacted any business which a savings and loan association is empowered to transact, may, within ninety days after this act takes effect, become an investment company under its former name with all the powers and subject to all the obligations and duties of investment companies organized under the provisions of this article. Such a corporation desiring to become an investment company shall pro- ceed in the following manner : 1. It shall call a meeting of its stockholders upon not less than twenty days' written notice to each stockholder, which notice shall be served personally or by mail, postage prepaid, directed to each stock- holder at his last known post-office address, and shall contain a state- ment of the purpose for which such meeting is called. Proof by affidavit of the due service of such notice shall be filed in the office of the corpo- ration at or before the time of such meeting. 2. At the meetiijg so called the stockholders of such corporation may by a vote of at least two-thirds of the entire capital stock direct that such corporation shall be transformed into an investment company. In the event that such action is taken by the prescribed vote, a resolu- tion may be adopted directing not less than five of the stockholders: of 500 NEW YORK such corporation who shall be designattd by name in such resolution to execute an organization certificate in the form and manner required by« section two hundred and ninety of this article. The proceedings of such meeting shall be entered in the minutes of such croporation. 3. The persons named in such resolution shall thereafter subscribe and acknowledge, in duplicate the said organization certificate and attach thereto copies of the minutes of such meeting duly verified by the presi- dent and secretary of the meeting, and duplicates of the affidavits of service of the notice of such meeting, and sihall submit both of such duplicate certificates to the superintendent of banks at his office. 4. When the superintendent shall have endorsed his approval on the organization certificate as provided by section twenty-three of this chap- ter, such corporation shall be held and regarded as an investment com- pany subject to the provisions of this article. It shall transact no busi- ness as such investment company other than that relating to its organiza- tion until it shall have complied with the conditions precedent to com- mencing business prescribed by section two hundred and ninety-one of this article. At the time when the corporate existence of such investment com- pany begins, all the property of such corporation sihall immediately by act of law and without any conveyance or transfer, be vested in and be- come the property of such investment company, but such reincorpora- tion shall not be construed as a ratification of any ultra vires contracts theretofore entered into by such corporation. The persons named in such organization certificate shall be the directors of such investment company until the first annual election of directors thereafter, and shall have power to take all necessary measures to perfect its organization and to adopt such regulations concerning its business and management as may be proper and not inconsistent with law. Section 1. (Chap. 476 — Laws of 1913). Article eighty-six of chapter eighty-eight of the laws of nineteen hundred and nine, entitled "An act providing for the punishment of crime, constituting chapter forty of the consolidated laws," is hereby amended by adding at the end a new section, to be section nine hundred and fifty one thereof, to read as follows : § 951. Reporting or publishing fictitious transactions in se- curities. A iperson who, with intent to deceive, reports or publishes, or causes to be reported or published as a purchase or sale of the stocks, bonds or other evidences of debt of a corporation, company or associa- tion, any transaction therein, whereby no actual change of ownership or interest is effected, is guilty of a felony, punishable by a fine of not more than five thousand dollars, or by imprisonment for not more than two years, or by both. Section 1. (Chap. 475 — Laws of 1913). Article eighty-six of chapter eighty-eight of the laws of nineteen hundred and nine, entitled NEW YORK 501 "An act providing for the punishment of crime, constituting chapter forty of the consolidated laws," is hereby amended by adding at the end of a new section, to be section nine hundred and fifty two thereof, to read as follows : § 952. False statement or advertisement as to securities. Any person, who, with intent to deceive, makes, issues or publishes, or causes to be made, issued or published, any statement or advertisement as to the value or as to facts affecting the value of the stocks, bonds or other evidences of debt of a corporation, cornpany or association, or as to the fmancial condition of facts affecting the financial condition of any corpo- ration, company or association which has issued, is issuing or is about to issue stocks, bonds or other evidences of debt, and who knows, or has reasonable grounds to believe that any material representation, prediction or promise made in such statement or advertisement is false, is guilty of a felony, punishable by a fine of not more than five thousand dollars, or by imprisonment for not more than three years, or by both. Section 1. (Ohap. 707 — Laws of 1917). Chapter sixty-two of the laws of nineteen hundred and nine, entitled "An act in relation to taxa- tion, constituting chapter sixty of the consolidated laws," as amended, is hereby further amended by adding thereto, immediately after section one hundred and eighty-eight thereof, a new section, to be known as section one hundred and eighty-eight-a, and to read as follows : § 188-a. Taxation of investment companies. Every investment company incorporated, organized or formed under, by or pursuant to the banking law of this state and actually exercising the powers con- ferred by both subdivisions two and four of section two hundred and ninety-three of the banking law, shall annually pay to the state, for the privilege of exercising its corporate franchise or carrying on its busi- ness in such corporate or organized capacity, a tax of an amount equal to one and one-half mills for every dollar face value of its capital, and in addition thereto a tax equal to one per centum of its surplus and un- divided profits. Annotations SYLLABI OF OPINIONS OF ATTORNEYS GENERAL OF NEW YORK Report of Attorney General 1906, p. 513 (Horace M'Guire, Deputy Attorney General in Charge) Addressed to Superintendent of Banks, Dated Sept. 6, 1906 Title : Banking Law. Whether real estate companies organized under the Business Corporations Law may exercise certain powers of a mortgage loan or investment corporation. HELD could hot. 502 NEW YORK Note : Powers which were exercised consisted of : "The issuing of installment bonds containing the pro- vision that the company will accept the bond on the second or later anniversary thereof as collateral security for the loan equal to the amount set forth in the schedule, and for which a charge of 6% per annum will be made." A corporation organized under Business Corporations Law is pro- hibited from engaging in any business provided for by the Banking Law. Report of Attorney General 1910, p. 851 (Edward R. O'Malley, Attorney General) Addressed to Hon. O. H. Cheney, Superintendent or Banks, Dated October 28, 1910 Title: Banking Law, Art. VIIL Syllabus reads : "Corporations organized under the General Corpora- tion Law or the Stock Corporations Law, may not engage in the business of mortgage, loan and investment companies without the approval of the Superintendent of Banks, and said Superintendent may, in his discretion, decline an au- thorization certificate." Report of Attorney General 1912, Vol. II, p.. 188, Opinions (Thomas Carmody, Attorney General) Dated Aprh, 5, 1912 Syllabus reads : "A corporation formed under the Business Corpora- tions Law is prohibited from engaging in the business of issuing collateral trust income bonds secured by real prop- erty, the title of which is in a trustee under a trust agree- ment. Such powers may be exercised only by a corpora- tion formed under the provisions of the Banking Law." Addressed to Hon. George C. Van Tuyl, Jr., Superintendent of Banks NEW YORK 503 Report of Attokney General 1914, Vol. II, p. 55 (Thomas Carmouy, Attorney General) Addressed to Hon. George C. Van Tuyl, Jr., Superintendent of Banks, Dated February 26, 1914 Syllabus reads : "BANKING LAW, MORTGAGE, LOAN AND IN- VESTMENT CORPORATIONS, JURISDICTION OI' SUPERINTENDENT OF BANKS OVER SUCH COR- PORATIONS — REMEDY WHERE CORPORATIONS EXERCISING LIKE POWERS NOT INCORPORATED UNDER BANKING. LAW. (1) Corporations incorporated for the purpose of selling, offering for sale or negotiating bonds or notes se- cured by deeds of trust or mortgages on real property or choses in action owned, issued, negotiated or guaranteed by it 01 for the purpose of receiving any money or prop- erty either from its own members or from other persons, and entering into any contract, engagement or undertaking with them for the withdrawal of such money or property at any time with any increase thereof, or for the payment to them or to any person of any sum of money at any time, either fixed or uncertain, were unauthorized after the passage of chapter 452 of the Laws of 1896, to incorporate under the Business Corporations Law, and thereafter were required to incorporate under the Banking Law." (2) A corporation organized and incorporated under the Business Corporations Law, or any other law except the Banking Law or the Insurance Law, after the passage of said Chap. 452 of the Laws of 1896, is not authorized to engage in mortgage, loan or investment business above de- scribed, and proceedings should be brought to dissolve such a corporation in the event it attempts to carry on or engage in the business above described, upon the ground that it would be exercising a privilege or franchise not conferred upon it by law." (3) So far as corporations which are organized under any law of the State prior to the enactment of said Chap. 452 of the Laws of 1896 are concerned, the Superintendent of Banks is authorized and it is his duty to supervise and control such corporations pursuant to Sec. 8 of the Bank- ing Law, and the other sections applicable thereto. Corporations of this State lawfully authorized to do a mortgage loan and investment business prior to the enact- 504 NEW YORK ment of laws requiring them to incorporate under the Bank- ing Law of this State are, nevertheless, now subject to the inspection and supervision of the Superintendent of Banks." Report of Attorney General 1907, p. 479 .(Wiixiam S. Jackson, Attorney General) Addressed to Hon. George I. Skinner, Acting Superintendent of Banks, Dated Sept. 11, 1907 Syllabus reads : "Banking Law — Mortgage, loan and investment corpo- rations may conduct a general deposit business on comply- ing with Section 14." Note: The Sec. 14 referred to is Sec. 14 of the Banking Law. Report of Attorney General, 1895, p. 153 (T. E. Hancock, Attorney General Addressed to Hon. James F. Pierce, Superintendent of Insurance, Dated May 14, 1896 Title: "Insurance, United Security Life Insurance and Trust Company. In the matter of said Company's application to do a species of banking business in connection with insurance." There is no syllabus, but it was held that an insurance company could not engage in the mortgage loan business, i. e., business similar to that of a building and loan association. It is said that the business proposed would require the visitorial assistance of the Banking Department. Report of Attorner General, 1895 (T. E. Hancock, Attorney General) Addressed to Hon. Rodney R. Crowley, Deputy Superintendent of Banks, Dated Nov. 13, 1895 Title : Banks, Investment Corporations — "The American Invest- ment and Guaranty Company." Syllabus reads : "The said corporation, for reasons stated below, should be required to procure a license for the transaction of busi- ness in this State, as provided in the Banking, Law." Note : Company, an Illinois Corporation, entered into contracts with applicants by which, on consideration of the payment of a certain sum annually, it guarantees to pay the appli- cant's (the nominator in the contract)- du€s and assess- NEW YORK 505 merits to a certain fraternal benefit society, and beside, at the termination of the contract, to pay him a fixed sum. There are further provisions in the contract against absolute loss of the moneys paid in should the nominator (the ap- plicant) fail to keep up his payments, in which event a paid-up contract is issued under proper conditions. The opinion says : "The question is, does such acts upon the part of said company, as evinced by the said contract, bring it within the meaning of any of the definitions found in Section 2 of the Banking Law." The section provides that the term mortgage, loan or investment corporation, when so used, means any corporation * * * formed under the laws of this * * * or any other State, and doing business in this State for the purpose of receiving any money or prop- erty either from its own members or from other persons, and entering into any contract, engagement or undertaking with them for the withdrawal of such money or property at any time with any increase thereof, or for the payment to them or to any person of any sum of money at any time, either fixed or uncertain." "I might stop here and reach, in my opinion, a correct judgment upon the effect of the contract hereinbefore de- scribed. But, reflecting taht the said Corporation styles itself an 'investment' corporation, it estops itself from claim- ing that it is not amendable to the provisions of our Bank- ing Law. The said company having impressed upon it the character already indicated, should be required to procure a license for the transaction of business in this State as re- quired by Article VII of the Banking Law." 506 NEW YORK Forms (Agent or Broker Corporation Form) [ ] 6-27JS-600 (14-7089) No Examined by. No application will be Certificate considered unless all in- issued formation called for in Certificate this blank is furnished. refused Certificate Approved by. . revoked State of New York, INSURANCE DEPARTMENT, Application for Certificate of Authority Under Section 66. of the Insurance Law (corporation form) To the Superintendent of Insurance of the State of New York: The UNDERSIGNED hereby applies for a certificate of authority to sell or offer for sale in this State the securities of the promoting, holding and unauthorized insurance corporations below named, as defined and provided by section 66 of the Insurance Law, and for that purpose submits the following verified statement and answers to the questions contained in this application : 1 . Name of applicant (Give corporate name in full) 2 . Post-ofiice or business address 3 . Principal place of business in this State (Street and number) (City or village) (County) 4 . Date of incorporation 5. Und'er the laws of what State or country is applicant incorporated? 6. Give name, title of office and address of each corporate officer and director of applicant: NEW YORK 507 NAMB TITLE OF OFFICE ADDRESS 7 . State what securities applicant intends to sell or offer for sale, giving : NAME OF CORPORATION CHARACTER OF AMOUNT OF ISSUING SECURITIES SECURITIES SECURITIES Give the names and post-oifice addresses of all promoting, holding and insurance corporations whose securities applicant intends to sell or offer for sale: NAME ADDRESS 9. Will applicant be required to give a fidelity bond in connection with the . sale of such securities ? If so, in what amount? 10. Give the names and post-office addresses of all promoting, holding and insurance corporations whose securities applicant has hereto- fore sold or endeavored to sell: NAME ADDRESS 11. Has applicant applied for or received from the Superintendent of Insurance a certificate of authority to act as agent or broker or otherwise ? 12. Has applicant ever been connected with or interested in the busi- ness of insurance, either as principal or as agent or broker? 508 NEW YORK If so, give full particulars 13. Applicant attaches hereto and submits herewith, for the purpose of affording the Superintendent of Insurance further information as to applicant's trustworthiness and good business credit, schedules as hereinbelow indicated, which said schedules are hereby made parts of this application as fully as though here set forth in full : Schedule "A" — Copy of applicant's certificate of incorporation. Schedule "B" — ■ Copy of the contract or contracts made by applicant with the corporation or corporations named in the answer to ques- tion 7. Schedule "C" — Individual applications for certificates under section 66 of the Insurance Law, duly verified by all of applicant's officers and directors. Dated 191... (Signalure of corporation) By •(Signature of president) (Signature of secretarj') AFFIDAVIT OF VERIFICATION State of . . County or City of . . . I and being severally duly sworn, depose and say and each for himself de- poses and says that they are the president and secretary of the applicant above named ; that they signed the foregoing application for and as the act of the said corporation by authority of its board of directors; that they know the contents thereof and that each of the statements made and answers to questions contained therein is true. (Signature of president) (Signature of secretary) Subscribed and sworn to before me this day of , 191.. Notary Public Commissioner of Deeds NEW YORK 509 (Agent or Broker Partnership Form) 6-27-is-5o6 (14-7088) [ ] ^fo ; Examined by iW No application will be Approved by considered unless all in- Certificate formation called for in issued this blank is furnished. Certificate refused Certificate revoked State of New York, INSURANCE DEPARTMENT, Application for Certificate of Authority Under Section 66 op the Insurance Law (partnership form) To the Superintendent of Insurance of the State of New York: The UNDERSIGNED hereby applies for a certificate of authority to sell or offer for sale in this State the securities of the promoting, holding and unauthorized insurance corporations below named, as defined and provided by section 66 of the Insurance Law, and for that purpose submits the following verified statement and answers to the questions contained in this application ; 1 . Name of applicant (Give partnership name in full) 2 . Post-office or business address > 3. Principal place of business in this State (Street and number) (City or village) (County) 4 . Date of formation of partnership 5 . Give names and addresses of partners : name address 6. State what securities applicant intends to sell or offer for sale, giving : 510 NEW YORK NAME OF CORPORATION CHARACTER OF AMOUNT OF ISSUING SECURITIES SECURITIES SECURITIES 7. Give the names and post-office addresses of all promoting, holding and insurance corporations whose securities applicant intends to sell or offer for sale: NAME ADDRESS 8. Will applicant be required to give a fidelity bond in connection with the sale of such securities ? If so, in what amount? ^. . 9. Give the names and post-office addresses of all promoting, holding and insurance corporations whose securities applicant has heretofore sold or endeavored to sell : NAME ADDRESS 10. Has applicant applied for or received from the Superintendent of Insurance a certificate of authority to act as agent or broker or otherwise ? ; 11. Has applicant ever been connected with or interested in the busi- . ness of insurance, either as principal or as agent or broker? If so, give full particulars 12. Applicant attaches hereto and submits herewith, for the purpose of affording the Superintendent of Insurance further information as to applicant's trustworthiness and good business credit, schedules as hereinbelow indicated,' which said schedules are hereby made parts of this application as fully as though here set forth in full : Schedule "A" — Copy of the contract or contracts made by applicant with the corporation or corporations named in the answer to question 6. NEW YORK 511 Schedule "B" — Individual applications for certificates under sec- tion 66 of the Insurance Law, duly verified by all of the partners comprising applicant's firm. Dated , 191... By. (Signature of partnership) (Signature of copartner) This application must (Signature of copartner) be signed here by all copartners. (Signature of copartner) (Signature of copartner) (Signature of copartner) AFFIDAVIT OF VERIFICATION (The following affidavit of verification must be made by ALL of the members of the partnership.) State of County of ^ ss. : City of (Give names of all of the members of the partnership) being severally duly sworn, depose and say and each for himself deposes and says that they are copartners, engaged in the transaction of busi- ness under the firm name and style of and constitute all of the members of the "said firm. Deponents further say that they are the persons named in and who signed the foregoing application ; that they know the contents thereof and that each of the statements made and answers to questions therein is true. (Signature of copartner) (Signature of copartner) (Signature of copartner) (Signature of copartner) (Signature of copartner) Subscribed and sworn to before me this day of 191.. Notary Public Commissioner of Deeds 512 NEW YORK (Unauthorized Insurance Corporation) 6-i7-i3-60o (14-6818) [ ] Mo Examined by mr- No application will be Approved by considered unless all in- Certificate formation called for in issued this blank is furnished. Certificate refused Certificate revoked State of New York, INSURANCE DEPARTMENT, Application for Certificate of Authority Under Section 66 of the Insurance Law (unauthorized insurance corporation) To the Superintendent of Insurance of the State of New York: The UNDERSIGNED hereby applies for a certificate of authority to sell or offer for sale its own securities, pursuant to the provisions of Section QS of the Insurance Law, and for that purpose submits the fol- lowing verified statement and answers to the questions contained in this application : 1 . ■ Name of applicant 2 . Post-office or business address 3 . Principal place of business in this State (Street and number) (City or village) (County) 4 . Date of incorporation 5. Under the laws of what State or country is applicant incorporated? 6. If applicant is- authorized to transact the business of insurance, give: STATES WHERE AUTHORIZED DATES OP AUTHORIZATION iSlEW YORK 513 State the names and addresses of all of applicant's officers and di- rectors, salaries paid °^, to be paid to each and the amount of the fidelity bonds, if any, given to the corporation by each officer and director : NAME ADDRESS OFFICE SALARY BOND 8. State the amount of applicant's authorized capital, $ ; the number of shares ; par value, $ ; and the total amount thereof outstanding, $ 9. Does applicant intend to transact the business of insurance in this State prior to the payment into its treasury of the full amount of its authorized capitol stock? '. 10. State the character and amount of the securities which applicant intends to sell or offer for sale : CHARACTER OF SECURITIES AMOUNT OF SECURITIES 11. State the names and addresses of any and all persons, partnerships, associations and corporations now employed by applicant in the sale of such securities : NAME ADDRESS 33 514 NEW YORK 12. State the names and addresses of any and all persons, partnerships, associations and corporations to be employed by applicant in the sale of such securities in this State : NAME ADDRESS 13. State (a) amount of securities heretofore sold, $. ; (b) amount to be sold, $ ; (c) price received per share, $ ; (d) price per share at which such securities are tot be offered for sale, $ ; (e) com- mission paid ; (f ) commission to be paid, 14. State in detail any and all bonuses ° , other inducements offered '"'^j to be offered to purchasers of such securities 15. Does applicant intend to solicit insurance in connection with the sale of such securities ? If so, give full details 16. Does applicant intend to offer such securities for sale to persons in certain professions or occupations ? 17. State in detail terms under which subscriptions for applicant's own securities have been paid , are to be paid NEW YORK 515 18. State the amount of capital and surplus which applicant will have after the sale of its said securities 19. State the names and addresses of all banks , trust companies and wherein the funds of applicant *''\ of subscribers to said securities are deposited' °'\ are to be deposited: NAME ADDRESS 20. Applicant attaches hereto and submits herewith, for the purpose of affording the Superintendent of Insurance further information as to applicant's trustworthiness and good business credit, schedules as hereinbelow indicated, which said schedules are hereby made parts of this application as fully as though here set forth in full : Schedule "A" — Copy of applicant's certificate of incorporation. Schedule "B" — Statement showing financial condition of applicant on the date of this application. Schedule "C" — Statement, in narrative form, setting forth details of the plan under which the securities named in the answer to question 10 have been sold . are to be sold. Schedule "D" — Copies of all such securities sold °^j to be sold or offered for sale by applicant. Schedule "E" — Copies of all printed matter intended to be used for advertising purposes or in the dissemination of in- formation with reference to such securities. Schedule "F" — Copies of all agency contracts for the -writing of insurance, made or proposed to be made, directly or indirectly, by applicant or by any of applicant's officers or directors with any person, partnership, corporation or individual whomsoever. Schedule "G" — Copies of any and all contracts, agreements or verbal understandings, not included in the copies of contracts or agreements hereinabove referred to, creating rights or obligations between applicant °'\ applicant's officers and directors, on the one hand, and any and all persons, partnerships, asso- ciations or corporations, on the other hand, en- gaged in or in any way connected with the sale of said securities. 516 NEW YORK Schedule "H" — Individual applications for certificates under section 66 of the Insurance Law, duly verified by all of applicant's officers and directors. Schedule "I" — Verified copy of the last annual or other statement filed by. applicant with the supervising insurance official of the State or states , country or coun- tries wherein applicant is authorized to transact the business of insurance. (If applicant is not authorized to transact the business of insurance in any state or country, all reference to Schedule "I" above should be stricken from this application. All other schedules mentioned in ques- tion 20 above must be attached to and submitted with this application). Dated. , 191.. (Signature of corporation) By (Signature of president) (Signature of secr-etary) AFFIDAVIT OF VERIFICATION State of . . County of City of . . . and being severally duly sworn, depose and say and each for himself de- poses and says that they are the president and secretary of the applicant above named; that they signed the foregoing application for and as the act of the said corporation by authority of its board of directors ; that they know the contents thereof and that each of the statements made and answers to questions contained therein is true. (Signature of president) (Signature of secretary) Subscribed and sworn to before me this , day of 191.. Notary Public Commissioner of Deeds NEW YORK (Promoting or Holding Corporation) [ ] No application will be considered unless all in- formation called for in this blank is furnished. 517 0-17-13-600 (14-6819) No Examined by . Approved by. . Certificate issued Certificate refused . . . . Certificate revoked . . . . State of New York, INSURANCE DEPARTMENT, Application for Certificate of Authority Under Section 66 of the Insurance Law (promoting or holding corporation) To the Superintendent of Insurance of the State of New York: The UNDERSIGNED hereby applies for a certificate of authority to stil or offer for sale its own securities and the securities of the pro- moting, holding and insurance corporations hereinafter named, pursuant to the provisions of Section 66 of the Insurance Law, and for that pur- pose submits the following verified statement and answers to the ques- tions contained in this application : (If applicant does not intend to sell its own securities, strike out reference thereto in the foregoing statement.) 1. Name of applicant 2 . Post-office or business address 3. Principal place of business in this State (Street and number) (County) (City or village) 4 . Date of incorporation 5. Under the laws of what State or country is applicant incorporated? 6. State the names and addresses of all of applicant's officers and di- rectors, salaries paid "„ j to be paid to each and the amount of the fidelity bonds, if any, given to the corporation by each officer and director : 518 NEW YORK NAME ADDRESS OFFICE SALARY BOND State the amount of applicant's authorized capital, $ ; the number of shares, ; par value, $ ; and thei total amount thereof outstanding, $ State what securities applicant intends to sell or offer for sale, giving : NAME OF CORPORATION CHARACTER OF AMOUNT OF ISSUING SECURITIES SECURITIES SECURITIES 9. If applicant intends to sell or offer for sale, or has heretofore sold its own securities, state the details thereof, giving (a) amount sold, $ ; (b) amount to be sold, $ ; (c) price received per share, $. . . , ; (d) price per share at which such securities are to be offered for sale, $ ; ^e) commission paid, ; (f ) commission to be paid, ; (g) other compensation, if any, paid ""j to be paid for the sale of such securities, $ 10. State in detail any and all bonuses ^°^, other inducements offered ^*^ io be offered to purchasers of applicant's own securities New YORK 519 11. Does applicant intend to solicit insurance in connection with the Sale of its own securities ? : 12. Does applicant intend to offer its own securities for sale to persons in certain professions or occupations ? 13. State in detail t«rms under which subscriptions for applicant's own securities have been paid ° , are to be paid . 14. State sum per share of subscriptions to which expenses of promotion shall be limited, $ 15. State the amount of capital and surplus which applicant will have after the sale of its said securities. $ 16. If applicant intends to sell or offer for sale, or has heretofore sold the securities of the insurance corporation or corporations, if any, named in the answer to question 8, state the details thereof, giving (a) amount sold, $ ; (b) amount to.be sold, $ (c) price received per share, $ ; (d) price per share at which such securities are to be offered for sale, $. ; (e) commission received, ; (f) commission to be- received, ; (g) other compensation, if any, received °^, to be received for the sale of such securities, $ 17. State in detail any and all bonuses , other inducements offered """l to be offered to purchasers of the securities of the insurance corporation , corporations named in the answer to question 8 18. Does applicant intend to solicit insurance in connection with the sale of the securities of the insurance corporation °J. corporations named in the answer to question 8 ? 19. Does applicant intend to offer for sale the securities of the insurance corporation °!^. corporations named in the answ^er to question 8 to persons in certain professions or occupations? 520 NEW YORK 20. State in detail terms under which subscriptions for the securities of such insurai are to be paid of such insurance corporation or corporations have been paid ^^^ 21. State sum per share of subscriptions to which expenses of promo- tion shall be limited $ 22. State the amount of cash capital and surplus which the insurance corporation or corporations named in the answer to question 8 will have after the sale of their authorized capital stock $ •■• 23. State the names and addresses of all banks °'\ trust companies wherein the funds of applicant , of subscribers to said securities are deposited ^j are to be deposited: NAME ADDRESS 24. State whether applicant has heretofore engaged in the promotion of any insurance or other corporation, giving full details 25. Applicant attaches hereto and submits herewith, for the purpose of affording the superintendent of Insurance further information as to applicant's trustworthiness and good business credit, schedules as hereinbelow indicated, which said sdiedules are hereby made parts of this application as fully as' though here set forth in full: Schedule "A" — Copy of applicant's certificate of incorporation. Schedule "B" — Statement showing financial condition of applicant on the date of this application. NEW YORK 521 Schedule "C" — Statement, in narrative form, setting forth details of the plan under which applicant's own securities have been sold °'\ are to be sold. Schedule "D" — Statement, in narrative form, setting forth the full details of the plan under which the securities of the insurance corporation or corporations named in the answer to question 8 have been sold . are to be sold. Schedule "E" — Copies of all such securities sold to be sold or offered for sale by applicant. Schedule "F" — Copies of all printed matter intended to be used for advertising purposes or in the dissemination of information with reference to such securities. Schedule "G" — Copies of all agency contracts for the writing of insurance, made or proposed to be made directly or indirectly, by applicant or by any of applicant's officers or directors with the insurance corporation or corporations named in the answer to question 8. Schedule "H" — Copies of any and all contracts, agreements or verbal understandings creating rights or obligations between applicant Ji'j applicant's officers and di- rectors, on the one hand, and the insurance cor- poration or corporations, on the other hand, for any purpose whatsoever, not included in the copies of contracts or agreements hereinabove referred to. Schedule "I" — Individual applications for certificates under sec- tion 66 of the Insurance Law, duly verified, by all of applicant's officers and directors. (All schedules mentioned in question 25 above, must be attached to and submitted with this application.) Dated, , 191... (Signature of corporation) By (Signature of president) (Signature of secretary) 522 NEW YORK AFFIDAVIT OF VERIFICATION State of ") County of [■ ss. : City of ) and -• being severally duly sworn, depose and say and each for himself de- poses and says that they are the president and secretary of the applicant aiove named; that they signed the foregoing application for and as the act of the said corporation by authority of its board of directors ; that they know the contents thereof and that each of the statements made and answers to questions contained therein is true. (Signature of president) (Signature of secretary) Subscribed and sworn to before me this day of , 191.. Notary Public Cgmmissioner of D?eds NEW YORK- 523 (Agent or Broker — Individual Form) e-iT-lsaooo (146817) [ ] No Examined by Wr No application will be Approved by considered unless all in- CerHficate formation called for in issued this blank is furnished. Certificate refused Certificate revoked State of New Yoek^ INSURANCE DEPARTMENT, Application for Certificate of Authority Under Section 66 of the Insurance Law (individual form) To the Superintendent of Insurance of the State of New York: The UNDERSIGNED hereby applies for a certificate of authority to sell or offer for sale in this State the securities of the promoting, holding and unauthorized insurance corporations below named, as defined and provided by section 66 of the Insurance Law, and for that purpose submits the following verified statement and answers to the questions contained in this application : L Name of applicant (Give name in full) 2. Name under which applicant transacts business 3. If an assumed or trade name is used, give legal authority therefor 4 . Residence ; ; (Street and number) (City or village) (County and state) 5 . Principal place of business in this State (Street and number) (City or village) (County) 6. Give (a) age: years, (b) Place of birth. (City or village)' (State or country) 524 NEW YORK 7 . Is applicant a citizen of the United States ? 8. State character and extent of applicant's education: State in detail applicant's business experience and present occupa- tion, giving the name and address of applicant's employer, if em- ployed by another : 10. Has applicant heretofore been connected with the promotion of any insurance or other corporation or corporations ? If so, give names of corporations and details of applicant's con- nection therewith : 11. State whether applicant intends to act as a principal or as an ofiScer or director of a corporation, or as the agent or employee of an individual, partnership, association or corporation engaged in the sale of securities as defined in section 66 of the Insurance Law. 12. If applicant intends to act otherwise than as a principal, give name and address of the individual, partnership, association or corpora- tion for which aplicant intends to act, and state the capacity in which applicant will be employed : NEW YORK §25 13. Has applicant ever been charged by any person with irregularities in money transactions ? '. If so, state particulars, giving names and addresses of parties con- cerned 14. Has applicant ever compromised his obligations with creditors, been insolvent or adjudged a bankrupt? If so, give full particulars 15. Has applicartt ever been arrested or indicted for, or convicted of, any crime ? If so, give full particulars IC . Give the names and postoiifilce addresses of all promoting, holding and insurance corporations w.hose securities applicant intends to sell or offer for sale : NAME ADDRESS 17. Will applicant be required to^give a fidelity bond in connection with the sale of such securities ? If so, in what amount ? 18. Give the names and postoffice addresses of all promoting, holding and insurance corporations whose securities applicant has heretofore sold or endeavored to sell: NAME ADDRESS 526 NRW YORK 19. Has applicant applied for or received from the Superintendent of Insurance a certificate of authority to act as agent or broker or otherwise ? 20. Has applicant ever been connected with or intea-ested in the busi- ness of insurance, either as principal, or as agent or broker, or as an officer or employee of an insurance corporation? If so, give full particulars 21. Give names and addresses of not less than three persons not related to applicant from whom further detailed information can be had as to applicant's trustworthiness and good business credit: NAME BUSINESS ADDRESS Dated , 191... (Signature of applicant in full) AFFIDAVIT OF VERIFICATION State of . . County of City of . . . being duly sworn, deposes and says that he is the person named in and who signed the fore- going application; that ha knows the contents thereof and that each of the statements made and answers to questions contained therein is true. (Signature of applicant) Subscribed and sworn to before me this .day of... , 191.. Notary Public Commissioner of Deeds NORTH CAROLINA 527 NdRTH CAROLINA STATUTES Law (Chapter lOO, Revisal 1905, as amended. — Bond, Investment, etc., .Com- panies.) Section 4805. License; capital; supervision. Before any bond, investment, dividend, guarantee, registry, title guarantee, debenture, or such other like company (not strictly an insurance company as defined in this chapter), or any individual, corporation, or copartnership who shall by agents offer for sale or sell the stocks, bonds,/ or obligations of any foreign corporation, whether organized or to be organized or being pro- moted, shall be authorized to do business in this State, it must be licensed by the Insurance Commissioner, which the Commissioner is. authorized to do when he is satisfied that such company or corporation is safe and solvent, and has complied with the laws of this State applicable to fidelity companies and governing their admission and supervision by the In- surance Department. If such company is chartered and organized in this State and h'as its home office within the State, it may, if a stock company, commence business with a capital stock of twenty-five thousand dollars : Provided, it is solvent to the extent of not less than fifteen thousand dollars. The license issued to such companies and their agents shall be issued and paid for as provided for those of insurance companies. 1899, c. 54, s. 87; 1901, w. 706, =. 2; 1911, c. 196, s. i. Penalty Section 3484. Agent acting without license. If any person shall assume to act as an insurance agent or insurance broker without license therefor as required by law, or shall act in any manner in the negotiation or transaction of unlawful insurance with a foreign insurance company not admitted to do business in this State, or as principal or agent shall violate any provision of the law in regard to the negotiation or effecting of contracts of insurance, or shall violate any provision of law as laid down in chapters one hundred, eighty-three, and seventy-three of the Revisal of one thousand nine hundred and five of North Carolina, the penalty for which is not provided for elsewhere, he shall be guilty of a misdemeanor, and upon conviction shall be punished by a fine of not less than one hundred nor more than five hundred dollars for each offense. 1899, c. 64, s. 94; 1907, t. 1000, s. 8. 528 NORTH CAROLINA Investment and Other Companies [Chapter 156, Laws 1913] AN ACT To provide for the regulation and supervision of Bond, Investment, and other companies. The General Assembly of North Carolina do enact: Section 1. That subchapter fourteen, chapter one hundred, Revisal of one thousand nine hundred and five of North Carolina, section four thousand eight hundred and five, to be amended by adding the following: (1) 480Sa. License; capital; supervision. Every corporation, company, copartnership, or association, all of which are in this act termed company, organized, proposed to be organized, or which shall hereafter be organized without this State, whether incorported or unincorporated, which shall in this State sell or negotiate for sale of any stocks, bonds, or other evidences of property or interest in itself or any other com- pany, all of which are in this act termed securities, upon which sale or proposed sale the whole or any part of the proceeds are used, or to be used, directly or indirectly, for the payment of any commission or other expenses incidental to the organization or promotion of any such company, shall be subject to this act. Provided that this act and its provisions shall apply also to every corporation, company, co-partnership or association organized in this State, where such company or organization by its organizers or pro- moters puts or proposes to put the stock of the company on the market in person or by agents. — Amended Laws, 1919. (2) Before offering or attempting to sell any such securities to any person or persons, doing or offering to do any business whatever in this State, excepting that of preparing the documents hereinafter required, every such company shall file in the office of the Insurance Commissioner of this State, together with the fees prescribed for fidelity companies, the following documents, to-wit : A statement showing in full detail the plan upon which it proposes to transact business. A copy of all ap- plications for and forms of contracts, securities, bonds, or other instru- ments which it proposes to make with or sell to its contributors. A statement which shall show the name, location, and head office of the company and an itemized account of its actual financial condition, and the amount of its property and liabilities, and such other information and in such form touching its affairs as said officer may require. It shall also file with the said Insurance Commissioner a copy of the laws of such State, territory, or government under which it exists or is incor- porated, and also a copy of its charter of its home State and certificate NORTH CAROLINA 529 of the proper officer of such State that it is authorized to do business therein, articles of incorporation, constitution and by-laws, and all amendments thereof which have been made, and all other papers per- taining to its organization ; and shall, to do business in this State, be licensed by the Insurance Commissioner, which the commissioner is au- thorized to do when he is satisfied that such company or corporation is safe and solvent and has complied with the laws of this State applicable to fidelity companies and governing their admission and supervision by the Insurance Department. (3) No advertisement, pamphlet, circular, or other document shall be issued, circulated, or delivered by such company or its agent within this State, unless the same shall bear a serial number, and a copy thereof shall first have been filed \yith the Insurance Commissioner, nor after such company has been notified of objection thereto by said officer. (4) No person, for the purpose of organizing or promoting any company, or promoting the sale of securities of such company by it after organization, as principal or agent, shall sell or agree or attempt to sell within this State any securities in such company unless the contract of subscription or of sale shall be in writing and contain a provision in the following language: (a) "No sum shall be used for commission, promotion, and or- ganization expenses on account of any share of stock in this company in excess of one per cent of the amount actually paid upon separate sub- scriptions (or in lieu thereof may be inserted: or one dollar per share from every fully paid subscription) for such securities, and the re- mainder of such securities shall be held or invested as authorized by the law governing such company and held by the organizers (or trustees as the case may be), and the directors and officers of such company after organization as bailees for the subscriber, to be used only in the con- duct of the business of such company after .having been licensed and authorized therefor by proper authority." Funds and securities held by such organizers, trustees, directors, or officers as bailees shall be deposited with any bank or trust company of this State until such company has been licensed as aforesaid. (5) No person shall participate in, receive or accept any part or promise of any part of any of the commissions or rewards of any or- ganizer, promoter, or agent for the sale of any such securities, unless the name of such person and the fact of his interest in such commissions or rewards shall appear upon such contract of subscription. The omission of such statement from any such contract shall, in addition to the penalty herein provided, make such person liable to the purchaser or his assignees for all sums paid by such purchasers, with interest at the legal rate from date of payment, upon the assignment or tender of assignment of the securities so purchased. 34 530 NORTH CAROLINA (6) That the Itisutatice Commissioner shall have power to make such examination of said company at its expense, including actual ex- penses and the per diem of examiners twenty-five dollars, and to require such further information as he may deem advisable; and if, he shall find that the provisions of the law have been complied with, and is satisfied that the company is safes and solvent, and that its business is proper and legitimate and is so conducted, he may license the said company to trans- act business in the State upon the payment of a license fee of one hundred dollars ($100) ; and no such company or representative thereof shall transact or offer to transact business within the State unless a license shall have been issued to such company as aforesaid. Such license shall recite in bold type that the Insurance Commissioner in no wise recom- mends the securities to be offered for sale .by such company. (7) No such company shall transact, or offer to transact, any busi- ness within this State during any time after the adoption of any changa in its articles of organization, by-laws, or plan of doing business, or the making of aryf change in the form of its applications, or other contracts, before the same shall have been filed with the said Insurance Commis- sioner. (8) No person shall transact or offer to transact business in this State as agent for such company, or transact or offer to transact any business described in this act, unless such person shall hold a license issued by the Insurance Commissioner. Such license shall only issue upon the filing with the said Insurance Commissioner by such agent a bond in the sum of one thousand dollars ($1,000), with such conditions and sureties as may be required and approved by the Insurance Commis- sioner. Such license shall expire on the first day of April following, uniess the authority is sooner revoked by the Insurance Commissioner, and such authority shall be subject to revocation at any time by such officer for cause appearing to him sufficient. The fee for such agent's license shall be the same as prescribed for fidelity companies. (9) Every company shall, on or before the first day of March, file with the Insurance Commissioner a statement as of the thirty-first day of December preceding, in such form as required by him,, and such other statements and information shall be filed in such worm and within such time as may be required by the said Insurance Commissioner. The ac- counts of such company shall be kept in such form as required by the Insurance Commissioner. (10) No such company shall fail to comply with any provision of the law or any requirement of the Insurance Commissioner pursuant to the law, and no officer, agent, or employee of any such company shall make or cause to be made any false statement in any report required of him, or a false entry in any book of such company, or shall make or publish any false statement of its condition or regarding its securities; and upon any violation of this section the Insurance Commissioner may revoke its license to do business in this State. NORTH CAROLINA 531 (11) Any officer or agent of any such company knowingly of will- fully violating any provision of this act shall be punished by a fine of not exceeding two hundred dollars ($200) or by imprisonment in jail or worked on the roads for not exceeding two years, or by both such fine and imprisonment. Section 2. This act shall take effect and be in force from and after its passage. Ratified this the 12th day of March, A. D. 1913. AN ACT In relation to. the sale of securities of insurance corporations and of corporations organized to promote or hold the capital stock of insurance corporations. (Public Laws, 1913, Chilpter 182). The General Assembly of North Car'olitta do enact: Section 1. Promotion of insurance corporations; sale of se- curities. As the terms are used in this act "promoting corporation'' means a corporation or joint-stock association, engaged in the business of or- ganizing or promoting or endeavoring to organize or promote the or- ganization of an insurance corporation or corporations, or in any way assisting therein; "holding corporation" means a corporation or joint-stock association, which holds or is engaged in the acquisition of the capital stock or a major portion thereof of one or more insurance corporations for the .purpose of controlling the management thereof ; as voting trustee or otherwise ; and "securities'" means the shares of capital stock, sub- scription, certificates, debenture bonds and any and all other contracts or evidences of ownership of an interest in insurance corporations, or in promoting or holding corporations as defined in this section. Section 2. No individual, partnership, association or corporation, as the agent of another or as a broker, shall sell or ofTer for sale, or in any way assist in the sale in this State of the securities of any promot- ing or holding corporation, as defined in this section, or of any insurance corporation, which is not, at the time of such sale or offer for sale, law- fully engaged or authorized to engage in the transaction of the business of insurance in this State, without first procuring, as hereinafter pro- vided, a certificate of authority from the Insurance Department to sell such securities ; nor shall any individual, partnership, association or cor- poration sell or oflfer for sale in this State the securities of any promot- ing or holding corporation as defined in this section, or of any in- surance corporation which is not at the time of such sale or oflfer of sale, lawfully engaged or authorized to engage in the transaction of t'e business of insurance in the State, unless such corporation shall have first procured from the Insurance Commissioner, as hereinafter provided, 532 NORTH CAROLINA a certificate that said corporation has fully complied with the provisions of this section, and is authorized to sell such securities. Every certifi- cate issued by the Insurance Commissioner pursuant to the provisions of this section shall state in bold type that the Insurance Commissioner in no way recommends the securities thereby authorized to be sold, and shall be renewable annually, upon written application, filed on or before the first day of April of each year, and may be revoked for cause at any time by such Insurance Commissioner. The commissioner shall prepare and furnish upon request suitable blank' forms of application for the certificates required by this section. Section 3. Every individual, partnership, association or corpora- tion who or which desires or intends to sell or to offer for sale in this State the securities of insurance corporations or of any holding or pro- moting corporation as defined in this section, shall file with the Insurance Commissioner an application for a certificate of such authority. Such application shall contain a statement, verified by oath, setting forth the name and address of the applicant, previous business experience, date and place of birth or organization, and such other and further informa- tion as the said Insurance CommissioneT may require. It shall be the duty of the Insurance Commissioner to examine the application so filed, and to make any further inquiry or examination of any such applicant as he may deem advisable. If upon such examination the Insurance Commissioner shall find that the applicant or applicants, or if a corpo- ration, the officers and directors thereof, is or are all trustworthy persons of good business credit, the Insurance Commissioner may issue to such applicant a certificate of authority to sell or offer for sale in this State the securities of any insurance corporation or corporations, and. of any promoting or holding corporation previously authorized under this sec- tion which shall be mentioned therein. Section 4. Every such unauthorized insurance corporation, and every promoting or holding corporation, as defined in this act, whose se- curities are offered for sale in this State, shall file with the Insurance Commissioner copies of all securities to be offered for sale, and an application for certificate of authority under this section which shall contain a statement in detail of the plans and purposes of such corpora- tion, the amount and par value of the securities to be offered for sale, and the selling price thereof, the manner in which the moneys paid in therefor are to be spent or employed, the rate of commission to be paid for the sale of such securities, the salaries to be paid to the officers of such corporation, and such other and further information as the In- surance Commissioner may require. No change shall thereafter be made in the form or character of the securities to be offered for sale, or in the plans or purposes of any such corporation without the approval thereof in writing by the said Insurance Commissioner. It shall be the duty of the said Insurance Commissioner to examine the application and other documents so filed, and to make any further inquiry or examina- NORTH CAROLINA 533 tion of any such corporation as he may deem advisable. If upon such examination the Insurance Commissioner shall find that the plans and purposes of any such corporation are proper, that its condtiion is satis- factory, that the amount of its securities is reasonable, that the price at which such securities are to be sold is adequate, and tbat the manner in which the moneys paid in therefor, the rate of commissions to be paid and the salaries of officers are fair, the Insurance Commissioner may issue a certificate that such corporation has complied with 'all the provisions of this section, and is authorized to sell or ofifer its securities for sale in this State. Section 5. No printed matter shall be used in connection wibli the sale of securities of any such promoting, holding or insurance corpora- tion, for advertising purposes, or in the dissemination of information with reference thereto, unless such printed matter shall first be sub- mitted to the Insurance Commissioner and approved by him in writing. No such corporation, and no officer, director, or agent thereof, or any other person, copartnership, association or corporation shall issue, circu- late or employ or cause 'or permit to be used, issued, circulated or employed any circular or statement, whether* printed or oral, of any sort, misrepre- senting or exaggerating the earnings of insurance corporations or the value of their corporate stock or other securities, or the profits to be , derived either directly or indirectly from the organization and manage- ment of insurance corporations, or of organizing or 'holding corporations as defined in this section. No insurance or other corporation, and no individual, copartnership or association transactting. business in this State shall place or oflfer to place insurance in any corporation in connection with the sale or purchase of the securities of any insurance corporation or of any promoting or holding corporation as defined in this section. Section 6. This act shall be in eflfect on and after its ratification. In the General Assembly read three times and ratified this the 12th day of March, 1913. Annotation Sec. 4806-a of Gregory's Supplement, known as "Blue Sky Law" held to he constitutional. State v. Wallace Agey., 171 N. C. 831, 88 S. E. 727. Administration The working of this law in our state has been very satisfactory. You will find upon examination that Section 4805 was in use in this State prior to the general use of what is known as the "Blue Sky" law. This law left everything practically to the discretion of the Commissioner and operated very efifectively, but when they began to get the "Blue Sky" law around generally I thought it might be well to add this also to our collection. 534 NORTH CAROLINA Our courts have gone to the full limit in upholding this law, be- lieving, as I do, that it is most valuable for the protection of our people. I might say in conclusion that we have possibly less selling of stock in this state than in any other state that I know of. The law was in- tended more to prevent the sale of stock than to legalize it. Report of Insurance Commissioner. Form (FORM K— No. 1— 500-U-8-17) APPLICATION OF INVESTMENT, ETC., COMPANIES FOR AD- MISSION TO DO BUSINESS IN NORTH CAROLINA State of North Carolina \ Insurance Department j To the Insurance Commissioner of the State of North Carolina: The Company, of the City of and State of 631 , the of said\ Company, with its head oMce\ in , of the State of ., , does hereby make application to be admitted and authorised to do the business of , as a Cowrpany, in the State of North Carolina, and filing this petition., as required by laiit, respectfully shoixteth: I. That petitioner heremth files: (a) A statement showing in full detail the plan or plans upon which it proposes to transact business; (b)A copy of the lams of its home State, Territory, or Government under which it exists or is incorporated; (c) A cOrtified copy of its Charter or Articles of Incorporation and all amettdments the/reof and all papers pertaining to its organisation; (d) A copy of its Constitution and By- Laws and all amendments thereof, certified to by its Secretary or proper officer; (e) A certificate of the proper officer of its hom,e State that if is authorised to do business therein; (f) An itemised accdunt of its actual financial condition, and the amkiunt of its property and liabilities, and the receipts and disbursements of the preceding year; (g) A copy of all applications for and forms of contracts, securities, bonds or other instru- ments which it proposes to make with or sell to its contributors. II. Tliat a dM/ly executed instrument is filed herewith, constituting I AMES R. YOUNG, Insurance Commissioner, or his successor, the true and lawful attorney of said company, upon whom all lawful processes in any action or legal proceeding against it may be served. III. That said Company will appoint as its agent or agents in the State some resident or residents thereof. NORTH CAROLINA 535 IV. That said Company has a deposit of $ with ,. . of the State of and that said deposit is in exclusive trust for the benefit and security of all the Company's contracts and creditors in the United Statets. V. That said petitioner has sold contracts of the value of $ and received therefor $ VI. That it is understood and agreed that said licetise, if issued, may be revoked by said Cotmnissioner as provided by law. , President. [seal] , Secretary. , Manager. Sworn to and subscribed before me, this day of , A, D. 191.... Fees Enclosed, $. [official seal] 536 NORTH DAKOTA NORTH DAKOTA STATUTES Supervision of Investment Companies ("Blue Sky Law") CHAPTER 91 Laws of North Dakota, 1915 The following Act was passed by the Fourteenth Legislative As- sembly, was approved by the Governor March 11, 1915, .and became ef- fective July 1, 1915. AN ACT To prevent imposition or fraud in the sale or disposition of certain "securities" herein defined by requiring an inspection thereof: providing for such inspection, supervision and regulation of the business of any person, association, partnership, or corpora- tion, engaged or intending to engage, whether as principal or agent, in the sale of any such securities in the state of North Dakota, as may be necessary to prevent imposition or fraud in the sale or disposition of said securities, and repealing chapter 32 of the Civil Code of the compiled laws of 1913. Be it Enacted by the Legislative Assembly of the State of North Dakota: Section 1. The term ''securities'' as used in this Act shall be taken to mean stock certificates, shares, bonds, debentures, certificates of partici- pation, contracts, contracts or bonds for the sale and conveyance of land on deferred payments or installment plan, or other instruments in the nature thereof by whatsoever name known or called. The term "specu- lative securities" as used in this Act shall be taken to mean and include (1) All securities into the specified par value of which the element of chance, speculative profit, or possible loss equal or predominate over the elements of reasonable certainty, safety, and investment; (2) All securi- ties the value of which materially depends on proposed or promised future promotion or development rather than on present tangible assets and conditions ; (3) Any securities based in whole or material part on assets consisting of patents, formulae, good-will, promotion, or in- tangible assets ; (4) Securities made or issued in furtherance or pro- motion of any enterprise or scheme for the sale of unimproved or un- developed land on any deferred payments or installment plan when the principal value of such securities depends on the future performance of any stipulation by the promoters of such enterprise to furnish irriga- NORTH DAKOTA 537 tion or transportation facilities, or other value enhancing utility or im- provement. The term "speculative enterprise" as used in this Act shall be taken to mean any business undertaking, project, venture or activity for the promotion or furtherance of which "speculative securities" as herein defined are made, issued, sold, or offered for sale. Section 2. It shall be hereafter unlawful for any person, co-partner- ship, association or corporation, hereinafter called the promoter, either as principal, or through agents, to sell or offer for sale (except to banks, bankers, trust companies, dealers, or brokers, in securities, corporations or partnerships) or by means of any advertisement, circulars, or pros- pectus, or by any other form of public offering; to attempt to promote the sale of any speculative securities in this state, unless there first shall have been filed with the state examiner (1) A copy of the securities so to be promoted; (2) A statement in substantial detail of the assets and liabilities of the person or company making and issuing such securi- ties and of any person or company guaranteeing the same, including specifically the total amount of such securities and of any securities prior thereto in interest or lien, authorized or issued by any such person or company; (3) If such securities are secured by mortgage or other lien, a copy of such mortgage or of the instrument creating such lien, and a competent appraisal or valuation of the property covered thereby, with a specific statement of all prior liens thereon, if any; (4) A full state- ment of facts showing the gross and net earnings, actual or estimated, of any person, or company making and issuing or guaranteeing such se- curities, or of any property covered by any such mortgage or lien; (5) All knowledge or information in the possession of such promoter relative to the character or value of such securities, or of the property or earn- ing power of the person or company making and issuing or guaranteeing the same ; (6) A copy of any general or public prospectus or advertis- ing matter which is to be used in connection with such promotion, and no such prospectus or advertising matter shall be used unless the same has been filed hereunder; (7) The names, addresses and selling terri- tory in this state of any agents by or through whom any such securities are to be sold, and no such agents shall be employed unless such state- ment with respect to them has been filed hereunder, and there shall have been paid to the state examiner a registration fee of one dollar for each such agent. The payment of such fee shall be payment in full of all fees for registration of such agent until and including the first day of March next following; (8) The name and address of such promoter, including the names and addresses of all partners, if the promoter be a partnership, and the names and addresses of the directors or trustees, and of any person owning ten per centum, or more, of the capital stock, if the promoter be a corporation or association ; (9) A statement) show- ing in detail the plan on which the business or enterprise is to be trans- acted; (10) The articles of co-partnership or association, and all other papers pertaining to its organization, if the securities be insured or 538 NORTH DAkOT A guaranteed by a co-partnership or unincorporated association; (11) A copy of its charter and by-laws if the securities be issued or guaranteed by a corporation; (12) A filing fee of twenty-five ($25.00) dollars. Section 3. Every foreign corporation before selling or oflfering for sale any speculative securities, shall also file its written consent, irre- vocable, that actions may be commenced against it in the proper courts of any county in this state in which a cause of action may arise, by the service of process on the secretary of state, and stipulating and agreeing that such service of process on the secretary of state shall be taken and held in all courts to be as valid and binding as if due service had been made upon the company itself, according to the laws of this or any other state, and such instrument shall be authenticated by the seal of said foreign corporation, and shall be accompanied hy a duly certified copy of the order or resolution of the board of directors, trustees, or managers of the corporation authorizing the said secretary and president to execute the same. Section 4. It shall be the duty of the state examiner as soon as is practical, to examine the statement and documents so filed and if said state examiner shall deem it advisable, he shall make, or have made, a detailed inspection, examination, audit and investigation of the affairs of the makers or guarantors of such securities which said inspection, ex- amination, audit and investigation shall be at the applicant's expense. As a part of the aforesaid inspection, examination, audit and investiga- tion, the state examiner may cause an appraisal to be made of the prop- erty of the maker or guarantor, including the value of patents, formulae, good-will, promotion, and intangible assets and shall furnish a full and complete statement or report of his inspection and investigation aforesaid to the state banking board. The state banking board shall, within ten days thereafter, examine the statements or report, and give the promoter a hearing if he so desires. If the state banking board finds no legal ob- jection to the enterprise, or secuaties, it shall direct the state examiner to acknowledge compliance with Section 3 of this Act. But if, from the statements, papers and documents on file, and the investigations and report of the state examiner, or from other evidence submitted, it shall appear, and the state banking board shall find: (1) That the makers and guarantors of said securities are insolvent, or that the applicant's plan of business is dishonest, or fraudulent ; (2) Or that the applicant's literature or advertising is misleading and calculated to deceive pur- chasers or investors ; (3) Or that the securities offered, or to be offered, are issued, or are to be issued in payment for property, patents, formulae, good-will or promotion and intangible assets in excess of the reasonable value thereof ; (4) Or that the enterprise of the applicant is unlawful or against public policy; (5) Or is a mere scheme of a promoter, or promoters to get rich quick at the expense of the 'purchasers of the aforesaid securities, the said state banking board shall reduce its said findings to writing and attest the same by the signature of the chair- NORTH DAKOTA 539 man and secretary thereof. Notice of such finding, or findings, shall immediately be given to the applicant by registered mail. And it shall thereafter be unlawful for the promoter or any agent of said promoter to sell, offer for sale, or by means of any advertisement, circular, or prospectus, or by any other form of public offering to attempt to promote the sale of any such speculative security or securities in this state. Section 5. The state banking board shall at any time have the au- thority and jurisdiction to investigate the affairs of any speculative enterprise, the securities of which are being sold or offered for sale in this state, and after giving the promoter a hearing, may if the evidence warrant, make any of the adverse, findings enumerated in Section 4 of this Act, and it shall thereafter be unlawful for any person, co-partner- ship, association or corporation to sell, offer for sale, or by means of any advertisement, circular, or prospectus or by any other form of pub- lic offering to attempt to promote the sale of the securities of such speculative enterprise in this state. Section 6. Any person, co-partnership, association or corporation being dissatisfied with any finding or findings' of the state banking board, made in accordance with the provisions of this Apt, may within thirty days from the making thereof, commence an action in any court of competent jurisdiction against said banking board as defendant, to vacate and set aside said finding or findings on the ground that the said find- ings are unjust or unreasonable. The rules of pleading and procedure in such action shall be the same as are provided by law for the trial of equitable actions in the district courts of this state arid on the hear- ing the judge of said court may set aside, modify, or confirm said find- ings as the evidence and the rules of equity may require. Appeals may be taken from the decision of the district court to the supreme court by either party in the same manner as is provided by law in other civil actions. Pending any such action, the said findings of said state banking board shall be primai facie evidence that they are just and reasonable and that the facts found are true, and pending any such action the said findings of the state banking board shall remain in full force and effect. If no action be brought to set aside said findings withm thirty days, the same shall become final and binding. Section 7. No' amendment of the charter, articles of incorporation, constitution or by-laws of any sucih corporation or the articles of asso- ciation or by-laws of any unincorporated association subject to this Act, shall become operative until a copy of the same has been filed with the state examiner as provided in regard to the original filing of charters, articles of incorporation, or association, constitution and by-laws, and it shall be unlawful for any such person, co-partnership, association or corporation to transact business on any other plan than that set forth in the statement required to be filed by Section 2 of this Act, or to make, tsue, sell or offer for sale any "security" or "securities" required to be 540 NORTH DAKOTA filed by Section 2 of this Act, until a written statement showing in full detail the proposed new plan of transacting business and a copy of the proposed new ''security" or "securities'" shall have been filed with the state examiner, in like manner as provided in regard to the original plan of business and proposed "security" or "securities." Section 8. The provisions of this Act shall not apply to (a) Se- curities of the United States; or any foreign government; or of any state or territory; or of any county, city, township, district or other public taxing sub-division of any state or territory of the United States or any foreign government, (b) Securities of public or quasi-public corporations, the issues of which are regulated by a state officer of the State of North Dakota, or by a state officer or board of similar authority of any state or territory of the United States ; or securities senior thereto, (c) Securities of state or national banks or trust companies, or building and loan associations authorized by the state banking hoard to do busi- ness in this state, (d) Securities of any domestic corporation organized without capital stock, charitable or reformatory purposes. Section 9. The general accounts of every person, co-partnership, association or corporation, issuing or guaranteeing any securities sub- ject to the provisions of this Act, shall be kept in a business-like and intelligent manner and in sufficient detail so that the state examiner or his authorized representative can ascertain at any time the financial con- dition of such person, co-partnership, association or corporation, and the books of account and affairs of any such person, co-partnership, as- sociation or corporation, shall be subject to examination by the said state examiner or upon his direction by his assistants, accountants or examiners, at any time said state examiner shall deem it advisable, and in the same manner as is now provided for the examination of state banks ; and such person, co-partnership, association or corporation Shall pay a fee for each of such examinations, of not to exceed fifteen dollars ($15.00) for each day or fraction thereof, plus the actual traveling and hotel expenses of said state examiner, assistant, accountant or examiner, that he is absent from the capitol of the state for the purpose of making such examination. And it is provided further, that every person, co- partnership, association or corporation making or guaranteeing any se- curities subject to the provisions of this Act, shall file at the close of business December 31st, March 31st, June 30th, and August 31st of each year, and at such other times as may be required by the state examiner, a statement certified by the oath of some person having actual knowledge of the facts therein stated, setting forth, in such form as may be prescribed by said state examiner the financial condition, amount of property and liabilities of such person, co-partnership, asso- ciation or corporation and such other information as said state examiner may require. Each statement shall be accompanied by a filing fee of two dollars and fifty cents ($2.50). It shall be unlawful for any person, co-partnership, association, or corporation subject to the provisions of NORTH DAKOTA 541 this Act, failing or refusing to comply with the provisions of this sec- tion within ten days after compliance is required, to thereafter sell or offer for sale in this state any speculative stock which said person, partnership, association or corporation is selling or offering for sale in this state. Section 10. The state examiner shall have power upon reasonable notice either upon his own initiative or upon complaint of any responsible person, to make or have made such special inspection or investigation as he may deem necessary, in connection with the promotion, sale, dis- posal, or offering for sale or disposal in this state, of any certificates, shares, stocks, bonds, securities, contracts or contracts or bonds for deeds to determine whether the same constitute a violation of this Act or any other statute of this state by any individual, co-partnership, corporation, or association, promoting, offering, selling or pledging the same ; and the state examiner, his assistants or deputy shall have the power to issue subpoenas and process compelling the attendance of any person and the production of any papers or books for the purposes of such investigation and examination, and shall have power to administer an oath to any person whose testimony may be required on such examination or investi- gation ; and any person who shall refuse to obey any such subpoena or make answer to any competent and material question propounded to him> by the state examiner shall upon conviction in any court of competent jurisdiction be deemed guilty of a misdemeanor, and fined in any surrt not exceeding five hundred dollars ($500.00) or be punished by confine- ment in the county jail for not more than ninety days, or both by such fine and imprisonment. Upon the conclusion of any such investigation, the state examiner may make findings of fact touching the matter or matters under investigation, and such findings shall be prima facie evi- dence of the truth of the matters therein found by the state examiner in any action, either civil or criminal, instituted under any of the laws or statutes of this state against the person, persons, partnership, cor- poration or association. The notice herein provided for may be given by registered letter mailed to the last known address of person, or per- sons, or corporations to be investigated and the state examiner's certifi- cate shall be sufficient evidence of such notice and the mailing thereof. Section 11. Any person who shall knowingly make or file or cause to be made or filed with the state examiner any statement, document, circular, advertisement or prospectus, required to be filed by this Act, which is false in any material respect or matter, shall be deemed guilty of a felony, and on conviction in any court of competent jurisdiction punished by a fine of not less than one hundred dollars ($100.00), or more than five thousand dollars ($5,000.00), or by imprisonment in the state penitentiary for not less than one nor more than five years, or by both •such fine and imprisonment. Section 12. Any person, partnership, association or corporation who shall cQmmit in this state any Act d?clar?d unlawful by Sections two, 542 NORTH DAKOTA four, seven, or nine. of this Act shall be deemed guilty of a felony and on conviction in any court of competent jurisdiction be punished by a fine of not less than one hundred nor more than five thousand dollars, or by confinement in the North Dakota State Penitentiary for a term of not less than one nor more than seven years. Section 13. This Act shall not apply to the owner of any specu- lative security who is not the maker or issuer thereof, who shall acquire and sell the same for his own account in the usual and ordinary course of business and not for the direct or indirect promotion of any enter- prise or scheme within the purview of this Act, providing that such ownership is in good faith. Repeated or successive sales of any such speculative security or securities shall be prima facie evidence that the claim of ownership is not bona- fide, but is a mere shift or device to evade the provisions of this Act. Section 14. All fees herein provided for shall be collected by the state examiner and by him shall be turned into the state treasury, and shall be kept in a special fund for the payment of the actual and neces- sary expenses herein provided. All money actually and necessarily paid out by the state examiner for traveling or incidental expenses on duties performed under this Act, shall be audited as other claims against the state and paid out of the special fund herein created. Section 15. In any case wherein the value of the securities or con- tracts hereinbefore enumerated are in any way dependent upon the present or proposed development of land or mines, oil or gas wells, the boards of the Agricultural College or State University shall, on the request of the state examiner, cause such investigation thereof as the state examiner may desire to be made by experts from the appropriate departments of the State Agricultural College or State University, or both, as the case may be. Section 16. Any person who shall knowingly or willfully subscribe to, or make, or cause to be made any false statements or false entry in any book of account of any person, co-partnership, association, or corpora- tion, subject to the provisions of this Act, or exhibit any false paper with intention of deceiving any person authorized to examine into the affairs of such person, co-partnership, association, or corporation, or shall make or publish any false statement of the financial condition of any person, co-partnership, association or corporation subject to the pro- visions of this Act, or shall knowingly make any false statements ma- terially affecting the value of the stocks, bonds, or other securities of- fered for sale by any such person, co-partnership, association or corpora- tion,. shall be deemed guilty of a felony and upon conviction thereof, shall be fined not less than one hundred dollars nor more than five; thou- sand dollars, or shall be imprisoned not less than one year nor more than ten years in the State Penitentiary. Section 17. Persons, partnerships, associations or corporations NORTH DAKOTA 543 holding permits under the statutes hereby repealed shall be deemed to have complied with Section 2 of this Act. Section 18. Should the courts declare any section or clause of this Act unconstitutional, then such decision shall affect only the section or clause so declared to be unconstitutional, and shall not aifect any other section or part of this Act. Section 19. Chapter 32 of the Civil Code of the Compiled Laws of 1913 is hereby repealed. Approved, March 11, 1915. ^ Section 5238. Foreign Corporations Can Do Business In This State, When.] No foreign corporation, association or joint stock company, except an insurance company, shall sell or otherwise dispose of its capital stock or transact any business within this state, or acquire, hold or dispose of property real or personal within this state until such corporation shall have filed in the oMce of the Secretary of State a copy of its articles of incorporation, and amendnvemts if any, together with a certificate to the effect that the charter of the corporation has not been cancelled and that it is engaged in active business wnder its charter, both of which copy of articles and certificate shall be certified to by the Secre- tary of State of the state in which such corporation was incorporated or by the officer authorized to issue charter to such corporation (or if in- corporated in a foreign country, then by the officer authorized to issue corporation charter) and shall have complied with the provisions of this Chapter ; provided, that the provisions of this Chapter shall not apply to corporations created for religious or charitable purposes solely nor to the holding and disposing of such real estate as may be acquired only by foreclosure or otherwise, in liquidation of mortgages or other securi- ties by corporations which may not have complied with the provisions of this Article. (Chaptef 96, Session Laws 1915.) Section 5239. Record.] Such charter or articles of incorpora- tion shall be recorded in a book to be kept by the Secretary of State for that purpose. (R. C. 1905, § 4696; Civ. C. 1877, § 568; R. C. 1899, § 3262.) Section 5240. Appoint Secretary of State Attorney for Service.] Such corporation, association or joint stock company shall by a duly executed instrument filed in the office of the Secretary of State con- stitute and appoint the Secretary of State and his successors its true and lawful attorney upon whom all process in any action or proceeding against it may be served and therein shall agree that any process which may be served upon its said attorney shall be of the same force and validity as if served upon it personally in this state and that such appointment shall continue in force irrevocable so long as any liability of the corporation, association or joint stock company remains outstanding in this state. Service upon such attorney shall be deemed sufficient service upon the 544 NORTH DAKOTA corporation, association or joint stock company. Whenever prbcesS against any foreign corporation, association or joint stock company, doing business in this state, shall be served upon the Secretary of State he shall forthwith mail a copy of such process, postage prepaid, and di- rected to such corporation, association or joint stock company at its principal place of business, or if it is a corporation, association or joint stock company of a foreign country, to its resident manager in the United States, or to such other person as may have been previously designated by it by written notice filed in the office of the Secretary of State. As a condition of valid and effectual service the plaintiff shall pay to the Secretary of State at the time of the service the sum of two dollars which the plaintiff shall recover as taxable costs if he prevails in his action. The Secretary of State shall keep a record of all such- process which shall .show the time and hour of service. (R. C. WOS, § 4697; Civ. C. 1877, § 560; 1885, Ch. 36, § 1 ; R. C. 1895, § 3263.) Section S241. Liability of Officers, Etc., for Failure to Comply.] Any failure to comply with the provisions of the last three sections and with section 4913 of this code shall render each and every officer, agent or stockholder of any corporation, association or joint stock company failing to comply therewith, jointly and severally liable on any and all contracts of such corporation, association or joint stock company made within this state during the time such corporation, association or joint stock company is so in default. Each and eyery officer and agent of such corporation shall further be deemed guilty of a misdemeanor. (1911, ch. 137, § 2 ; R. C. 1905, § 4698 ; 1890, ch. 193, § 1 ; R. C. 1895, § 3264.) Section 5242. Failure to Comply Renders All Contracts Void.] Every contract made by or on behalf of any corporation, association or joint stock company, doing business in this state, without first having complied with the provisions of Section 4913, if an insurance company, or with the provisions of sections 5238 and 5240, if other than an in- surance company, shall be wholly void on behalf of such corporation, association or joint stock company and its assigns, but any contract so made in violation of the provisions of this section may be enforced against such corporation, association or joint stock company. (R. C. 1905, § 4699 ; R. C. 1895, § 3265.) Regulating Corporation Indebtedness (Compiled Laws of North Dakota, 1913 — Article 13) § 4S97. Report to state bank examiner by certain corporations. All corporations engaged in transacting business in this state, which issue, sell or offer for sale, their stocks, securities, notes, obligations, bonds or other evidence of indebtedness by whatsoever name the same may be designated, shall on demand of the state bank examiner furnish him with a detailed itemized report of their assets, liabilities and business NORTH DAKOTA 545 transacted, which reports shall be made to the state examiner in such form as he may prescribe, and shall be made and filed in his office for the information of the public. Such reports shall be verified by the oath of the secretary or chief executive officer of such corporation. [1911, ch. 102, § 1.] § 4598. Examination of financial condition by state examiner. When requested in good faith by any resident of this state and when good faith and sufficient reasons are given therefor, the state examiner may, if necessary, cause an examination of the financial condition of any such corporation to be made and he shall report the findings thereof to the person applying for such examination. His powers and duties in connection therewith shall be the same as in the examination of banks and the same fees shall be charged and paid therefor as for the ex- amination of banks. His report shall be submitted to and filed with the state banking board. [1911, th. 102, § 2.] § 4599. When state banking board may take charge. Wind- ing-up action. 'The state banking board on being satisfied of the in- solvency, mismanagement, fraud or breach of trust of any such corpora- tion or of any violation of any provision of this article by any such corporation, may forthwith take charge of such corporation pending action in the district court to dissolve and wind it up, which action shall ■be brought by the attorney-general, in the name of the state under the direction of such board. [1911, 'ch. 102, § 3.] § 4600. Penalty for false report or for hindrance of examiner. Any officer, agent or employe of any such corporation who makes or subscribes any false report under this article, or who hinders, deceives or obstructs the state examiner or his deputy in the discharge of any lawful duty hereunder, shall on conviction for each offense be punished by fine of not less than fifty dollars, and not more than one thousand dollars, or by imprisonment in the county jail of the county for not more than one year or by both such fine and imprisonment. [1911, ch. 102, § 4.] § 4601. Application of this article limited. The provisions of this article shall not apply to any banking corporation organized and existing under chapter 21 of the Civil Code, Revised Codes of 1905, or to any building and loan association, organized and existing under chap- ter 19 of such Civil Code. [1911, ch. 102, § 5.] § 4602. Further limitation of provisions of this article. The provisions of this article shall not apply to corporations heretofore or hereafter placed by law under the jurisdiction of the banking department of the state. [I9II7 oh. 102, § 6.] 35 546 NORTH DAKOTA CHAPTER 21 Statements By Mining Corporations § 4989. Mining corporations to file statement before offering stock for sale. No shares or certificates of stock in any mining corporation established under the laws of this state, or any state, terri- tory, province, country or government, shall be sold or offered for sale within this state by such corporation, or by any person, firm, association or corporation acting as agent, representative, attorney or broker for such corporation, until such corporation shall have filed in the office of the secretary of state a statement under oath, showing the financial con- dition of such corporation, the location of the mine or mines, owned by such corporation, with plans of the same; the amount of work done thereon; the amount of cash expended for improvements thereon and the condition of the plant and machinery connected therewith. Such statements shall be signed by the president, secretary and treasurer of such corporation and shall be verified by the oath of each of such officers to the effect that the same is in all respects true.. [1909, ch. 169, § 1.] § 4990. Form of statement. Fee for filing. The statement pro- vided for in section 4989 shall be in substantially the following form : STATEMENT of the , a corporation organized under the laws of the state, territory or province of and operating mines located in or near the town of or mining district of .' , county of , state of 1. Amount of authorized capital stock 2. Amount of capital stock issued 3. Amount of capital stock held by corporation 4. Amount of capital stock issued in payment of property 5. Amount of capital stock sold for cash 6. Amount of cash received in payment for stock 7. Value and description of property received in payment for stock 8. Amount of debts or liabilities in (a) Bonds (stating rate of interest, and time at which bonds fall due (b) Other indebtedness 9. Amount of cash on hand NORTH DAKOTA 547 10. Amount of credits and estimated value thereof : (a) Notes , (b) Bills receivable (c) Accounts receivable 11. Present value of property of corporation 12. Number and amount of dividends declared 13. Rate of last dividend, and date when same was declared and paid II 1. Location of property owned (to be accompanied by plans of the same) 2. Amount of work done on the property, showing extent of de- velopment 3. Amount of cash expended for improvements on said properties 4. Description of plant and machinery, and their present condi- tion Dated at this day of ,...19.... President Secretary Treasurer State of ) County of ) ^' ' On this day of , 19 personally appeared president, secretary and treasurer of the who being by me duly sworn did each for himself depose and say that the foregoing staternent by them signed is in all respects correct, true and accurate. Natary Public. A fee of twenty-five dollars for filing such statement shall be paid to the secretary of state, by such corporation, at the time such statement is presented for filing. [1909, cK. 169, § 2.] § 4991. Secretary of state to keep docket open to public in- spection. It shall be the duty of the secretary of state to provide and keep in his office and open to public inspection a docket with ap- propriate blanks ?nd indices, and to forthwith and as soon as- th? state- 548 NORTH DAKOTA ment provided for in section 4989 is iiled in his office, enter therein the name of the corporation filing the same, together with a copy of the statement. [1909, ch. 109, § 3.] § 4992. Punishment for violation of preceding section*. Any person who sells or offers for sale within this state any shares or certifi- cates of stock in any mining corporation which has not filed a state- ment in accordance with the provisions of sections 4989 and 4990 of this act, is guilty of a misdemeanor. [1909, ch. 169, § 4.] § 4993. Punishment for violation of preceding sections by corporations. Any corporation or officer or agent thereof, or any broker, selling or offering for sale shares or certificates of stock in any mining corporation which has not filed the statement in accordance with the provisions of sections 4989 and 4990 of this act is guilty of a misde- meanor, and in addition thereto shall forfeit to the people of the state the sum of one thousand dollars for each and every offense, to be re- covered in an action to be brought by the attorney-general. The secre- tary of state shall report to the attorney-general at least once in three months the names of all agents, corporations or brokers who to his knowledge are engaged in the sale of shares or certificates of stock in mining corporations whi<;h have failed to comply with the provisions of this chapter. The money forfeited by this section, when recovered, shall be paid into the state treasury, except, that where the fact of the viola- tion of this chapter is brought to the knowledge of the attorney-general by a person other than a person holding a public office within this state, one-half of the moneys recovered for a violation of this chapter shall be paid to suoh person so furnishing the information and knowledge of such violation to the attorney-general as aforesaid. [1909, ch. 169, § 5.] § 4994. Making false statement. Any officer of a mining corpo- ration who, in making the statement prescribed by section 4990, wilfully makes any statement which he knows to be false, is guilty of a misde- meanor. [1909, ch. 169, § 6.] Administration All corporations incorporated in other states than North Dakota and in foreign countries, who wish to transact business in the State of North Dakota or to offer for sale corporate securities under the "Blue Sky" law of the State of North Dakota, must first qualify as a "Foreign Corporation Authorized to Transact Business in the State of North Dakota" and be granted- certificate of authority to transact business before application can be considered by the State Banking Board for permission to offer corporate stocks and securities for sale in this state Vifider the "Blue Sky" law, NORTH DAKOTA 549 Forms STATEMENT TO STATE EXAMINER Compliance with Section 2, Chapter 91, Session Laws of North Dakota, 1916. (BLUE SKY DEPARTMENT.) Any person who shall knowingly make or file or cause to be made or filed with the state examiner any statement, docutnent, circular, ad- vertisement or prospectus, required to be filed by this act, which is false in any material respect or matter, shall be deemed guilty of a felony, and on conviction in any court of competent jurisdiction punished by a fine of not less than one hundred dollars ($100.00) or more than five thousand dollars ($5,000), or by imprisonment in the state penitentiary for not less than one nor more than five years, or by both such fine and im- prisonment. (Section 11, chapter 91, Session Laws 1915.) To the State Examiner of the State of North Dakota : >■ No. (Name.) (Address.) Makes the following statements in compliance with section 2, chap- ter 91, Session Laws of the State of North Dakota, 1915 : [1] The is a corporation, incorporated under the laws of the State of on the day of 19. . ; its authorized capital stock is $ divided into. . . . ; shares of common and shares of preferred stock, with a par value of $ and that it has an authorized bond issue of $ Attached hereto are certified copies of the charter and all existing by-laws of said corporation and marked respectively Exhibits "A" and "B." [2] That the following is a true statement of its officers and di- rectors and the names of all persons owning as much as ten per cent (10%) of its capital stock: ' 550 NORTH DAKOTA OFFICERS AND DIRECTORS. Address. Number Shares and Bonds Owned. h-l o u o > ft < c6 D > (J ft >. n o Name. 1 c u 4) f 11^ ui ■V o Vice President Trustees and Directors.. • 2 4 1 Stockholders owning as much as 10% of stock each. 13 14 16 16 17 [3] That the following is a full and correct statement of its capital stock and securities on this date : Authorized Capital r Common Stock 1^ Preferred Stock, $. Issued and , Outstanding. . f Common Stock, $. \ Preferred Stock, $. Bonds authorized $ Bonds issued $ Other securities called , Authorized, $. Other securities called , Issued $. NORTH DAKOTA 5S1 [4] That the following is a true and complete statement, showing the consideration received from the stock issued and outstanding to date : COMMON STOCK. No. Shares. •Actual Value. Remarks. Actual Cash Commissions * This column should specify the actual amount of cash or notes received, or the actual value of real^ estate, etc., received in exchange for stock issued, and should correspond with value at which these dififerent items were given in to the company and carried on the books. PREFERRED STOCK, No. Shares. Actual Value. Remarks. Notes ^ Plant • 552 NORTH DAKOTA BONDS. No. Shares. Actual Value. Remarks. Actual Cash Commissions ' 1 1 [5] Attached hereto, marked Exhibit "C", is a statement describ- ing fully the real estate, plant, equipment, patents, good will, formulae, or intangible assets, received in exchange for stock.- NOTE: — The Department will insist on a full statement touching each item mentioned in this paragraph. Failure to comply will surely bring adverse action from the Board. [6] That the following is a complete and correct statement of its assets and liabilities : ASSETS. Amount. Write Nothing in this Column. Real Estate • Accounts Receivable Cash on Hand Total NORTH DAKOTA LIABILITIES. 553 Amount. Write Nothing in this Column. Com'n Stock outstanding. Pref'd Stock outstanding.. Bonds outstanding 11il1« Pnvafilf^ Sinking Fund or Reserve. Other liabilities as follows: Total Total amoutit of securities $ Total amount of securities prior in interest or lien $ [7] Attached hereto and marked Exhibit "D", is a true copy of the mortgage or instrument creating such lien (if the securities are se- cured by mortgage or other lien), and a competent appraisal of the prop- erty covered by such mortgage or lien, with a specific statement of all prior liens thereon, if any. [8] That attached hereto, marked Exhibit "E", is a true and cor- rect trial balance sheet of its books on the date of the above statement. [9] That the following is a true statement of its profit and loss account for the months prior to this date: (6 or 12) Loss. Profit. Undivided Profits Ifl Dividends, Common Stock — Gross earnings. (Specify ^ Dividends, Preferred Stock Interest borrovned money Gain Total Total 554 NORTH DAKOTA [10] That attached hereto, marked Exhibit "F", is a true and com- plete statement of its receipts and disbursements for the past months, as shown by its books. • ^^ °' ^^^ [11] Attached hereto is a true copy of the written consent of the Company, to the commencement of actions against it and the service of process upon it in the State of North Dakota by service of process on the Secretary of • State of the State of North Dakota, together with a copy of the resolution of the Board of Directors authorizing the execution of such written consent, which said company has caused to be filed in the office of the Secretary of State of the State of North Dakota. [12] Exhibit "G", attached is a true copy of the "security" which the said intends to sell in the state of North Dakota which said security will be sold for the following named price and on the following terms, and will not be sold or offered for sale, in North Dakota at any other price or on any other terras, without the consent of the Banking Department: [13] That the promotion expenses of the company will not exceed per cent of the capital stock. (There must also be in- cluded in this statement what arrangement, if any, has been made to absorb this expense.) [14] That the following is the general plan upon which the com- pany is doing and intends to do business, and the purposes for which said securities are to be sold: (Make full statement.) [15] That it has adopted the following plan for the sale of its stock: NORTH DAKOTA 555 [16] That attached hereto, marked Exhibit "H", is a true, and complete copy of each contract made, or which will be made, with any person, officer, agent or other representative of this company for the sale of its stock; and that there are no agreements, understandings or contracts, either verbal, written or implied, by which any one has re- ceived, or is to receive, any cash, stock, securities or other compensa- tion for the sale of its securities, for its promotion, or for any other causes except as specified in this statement and its several exhibits at- tached, and that all of the stock securities of this company will be sold or disposed of for cash or its equivalent, as provided in the contracts, or agreements attached, except as herein excepted. [17] Accompanying this statement and made a part hereof by reference are copies of each public prospectus and all advertising matter used by the said and to be used in the state of North Dakota. [18] References: (Note. — Please give at least four references as to the character, responsibility and financial standing of each director. . Also eight references as to the company itself.) Wherefore, your petitioner, in view of the showing herein made, does respectfully pray that authority be granted it to sell its securities as follows : $ Common Stock, $ Preferred Stock, $ Bonds, and $ other securities, in accordance with the provisions of the above-mentioned law. In Testimony Whereof, We have hereunto set our hands and affixed the official seal of this company, this the day of 191.. [SEAL] (Company.) By. Attest : President. Secretary. State of , County of , ss. President, and Secretary, of the Company, of , of lawful age, being first duly 556 NORTH DAKOTA sworn, depose and say that they have each read the foregoing applica- tion and know the contents thereof, and that the statements and allega- tions therein contained and attached are true. President. Secretary. Subscribed and sworn to before me this the day of 191.. Notary Public. My commission expires APPOINTMENT OF ATTORNEY BY CORPORATION Know All Men By These Presents, That a corporation organized, existing and doing business under and by virtue of the laws of the state of , located in the city of in said State, does hereby constitute and appoint Secretary of State of the State of North Dakota and his successors in office, its true and lawful attorney, duly authorized to accept service of process and upon whom all process in any action or proceeding against it may be served, and the said Corporation does hereby stipulate and agree that any process which may be served upon the said attorney shall be of the same force and validity as if served upon it personally in this State. This appointment shall continue in force and shall not be revoked so long as any liability of said Corporation remains outstanding in this State. This appointment is executed in compliance with and under the provisions of Section 5240 of the Compiled Laws of North Dakota for 1913. In Witness Whereof, the said Corporation, by its President and Secretary, has caused these presents to be executed, Sealed with its Cor- porate Seal and attested by its Secretary, this day of A. D. 191.. (CORPORATE SEAL) President. Attested : Secretary. NORTH DAKOTA 557 State of . . County op On this day of A. D. 191.., before me a Notary Public in and for the County of.... and State of ; , personally appeared , President, and , Secretary of said Corporation, and each being duly sworn deposes and says that they are the President and Secretary respectively of said Corporation arid that jointly they have full right and authority to execute and sign the foregoing instrument on behalf of and for the said Corporation, and that the same is as valid and bind- ing as if executed and signed by the Board of Directors of said Corpora- tion. President. Secretary. Subscribed and sworn to before me this day of , A. D. 191.. Notary Public. 558 OHIO OHIO STATUTES Blue Sky Law Section 6373-1. Except as otherwise provided in this act, no dealer shall, within this state, dispose or offer to dispose of any stock, stock certificates, bonds, debentures, collateral trust certificates or other similar instruments (all hereinafter termed "securities") evidencing title to or interest in property, issued or executed by any private or quasi-public corporation, co-partnership or association (except corporations not for profit,) or by any taxing subdivision of any other state, territory, province or foreign government, without first being licensed so to do as hereinafter provided. Section 6373-2. The term "securities", as used/ in this act, shall not be deemed to include conveyances of real estate; or, where the same have not been judicially declared invalid, and where at the time of such sale there is no default in payment of any part of the interest or principal of the same: 1. Mortgage bonds and notes (other than corporate bonds where more than fifty per cent, of the entire issue is not included in a sale to one purchased) secured by a bona fide mortgage on real estate; 2. Securities of quasi-public corporations, the issuance of which has been authorized by the public service commission of this state; 3. The stock or obligation of any national bank, or of any bank, trust company or building and loan association, organized under the laws of this state and subject to examination and supervision by the proper authorities thereof. The term "dealer", as used in this act, shall be deemed to include any person or company; except national banks, disposing, or oflfering to dispose, of any such security, through agents or otherwise, and any cornpany engaged in the marketing or floating of its own securities either directly or through agents or underwriters or any stock promotion scheme whatsoever, except : a. An owner, not the issuer of the security, who disposes of his own property, for his own account ; when such disposal is not made in the course of repeated and successive transactions of a similar character by such owner; or a natural person, other than the underwriter of the security, who is the bona fide owner of the security and disposes of his own property for his own account; b. One, who in a trust capacity created by any law of the United States or of this or any other state or by judicial authority, lawfully dis- poses of any property embraced within such trust; OHIO 559 c. A bank or trust company, organized under the laws of this state and subject to examination and supervision by the proper authority thereof, selling a security for a licensee, other than the issuer or under- writer thereof, at a commission of not more than two per cent, where such bank or trust company is not a regular dealer in securities ; d. One, not the issuer, -who disposes of securities to a licensee under this act or to a company which, as a part of its regular business, deals in or holds such securities ; e. A pledgee selling, in the ordinary course of business, a security pledged to him as security for debt in good faith and not for the purpose of avoiding the provisions of this act; f. The issuer, organized under the laws of this state, where the disposal, in good faith and not for the purpose of avoiding the provisions of this act, is made for the sole account of the issuer, without any com- mission and at a total expense of not more than two percentum of the. proceeds realized therefrom plus five hundred dollars and where no part of the issue to be disposed of is issued, directly or indirectly, in pay- ment for patents, services, good will, or for property not located in this state; provided that the president and secretary, or the incorporators if done before organization, of the issuer shall, prior to such disposal, file with the "commissioner" a written statement setting forth the existence of all such facts and that such issuer is formed for the purpose of doing business within this state. A'S used in this act, the term ''company" shall include any corpora- tion, co-partnership or association, incorporated or unincorporated, and whenever and wherever organized; "dispose of" shall be construed to mean "sell, barter, pledge or assign for a valuable consideration or obtain subscriptions for" ; "issuer", the original issuer of the security ; . and, where the context demands it, words in the present tense include the future tense ; in the masculine gender include the feminine arid neuter gender; in the singular number include the plural, and in the plural, the singular number ; the word "whoever" includes all persons, natural and artificial principals, agents and employees ; "and" may be read "or", and or and . Section 6373-3. Before such license shall be issued to any dealer, there shall be filed by him with the commissioner of securities, herein termed the "commissioner", together with a filing fee of five dollars, an application for such license, together with information, in such form as shall be determined by such "commissioner", setting forth: a. The names and addresses of the directors and officers if such applicant be a corporation or association, and of all partners if it be a partnership, and of the person if the applicant be an individual, together with the names and addresses of all agents of such applicant assisting in the disposal of such securities ; b. Location of the applicant's principal office and of his principal office in the state, if any; 560 OHIO / / c. The general plan and character of the business of said' applicant, together with references, which the "commissioner" shall confirm by such investigation as he may deem necessary, establishing the good repute in business of such applicant, directors, officers, partners and agents ; If the applicant be a corporation organized under the laws of any other state, territory or government, or have its principal place of busi- ness therein, it shall also file a copy of its articles of incorporation, certified by the proper officer of such state, territory or government, and of its regulations and by-laws; and if it be an unincorporated association, a certified copy of its- articles of association, or deed of settlement. The applicant at the same time shall also file with said "commis- sioner" a duly executed written instrument, irrevocable, consenting that any action brought against such applicant, arising out of and founded upon the fraudulent disposal of such securities by him or his agents, may be- brought in Franklin County, and that, in the event that proper service of process cannot be had upon such applicant in such county, service of process made therein by the sheriff of such county, by sending a copy thereof by registered mail, at least thirty days prior to taking judgment in such case, addressed to such applicant at the place of his principal office named in his application or such other place as the ap- plicant may thereafter designate in writing filed with the "commissioner", shall have the same effect as if personally made upon the applicant, ac- cording to the laws of this state. Section 6373-4. Notice of all application for registration as a li- censed dealer in such securities shall be published in a daily newspaper of general circulation in the city where the applicant's principal place of business in the state is located, or in the city of Columbus, if the ap- plicant has not such place of business in the state; and no such applica- tion shall be acted on by the "commissioner" until the expiration of one week from the date of such publication, but shall be acted upon within twenty days after proof of such application has been filed with him. If the "commissioner" be satisfied of the good repute in business of such applicant and named agents, he shall, upon the payment of an an- nual fee of fifty dollars, and an additional fee of five dollars for each agent named in the application, register the applicant as a licensed dealer in such securities, and issue to him a license, containing the name of the applicant and all such agents, renewable annually upon payment of such annual fee, unless revoked as herein provided. The expense of all pub- lications provided for in this act shall be paid by the applicant for license. • Pending a final disposition of such application the "commissioner" may . grant temporary permission to such applicant to transact business as a dealer under this act. All such renewals shall be made as of the first day of January in each calendar year upon proper application therefor, filed not less than twenty nor more than sixty days next preceding such date. OHIO 561 Section 6373-5. Such license shall be taken out at the beginning of each calendar year, but it may be issued at any time for the remainder of such year, and in such case the annual fee shall be reduced four dol- lars for each expired month but in no case shall it be less than ten dol- lars. Upon the payment of a fee of five dollars for each specified agent not named in such license the same may at any time be amended or supplemented to include such agent. Upon the written request of such applicant, accompanied by a fee of two dollars, such license shall be re- voked as to any agent or agents of such applicant, and an amended license shall thereupon be issued for such applicant and his remaining agents; and thereafter the applicant shall not he bound by the acts of the agent whose license has been revoked. Notice of such amendments shall also be published as aforesaid. Section 6373-6. Such "commissioner" may at any time revoke any such license, or refuse to renew the same, upon ascertaining that the licensee : a. Is of bad business repute; b. Has violated any provision of this act; or c. Has engaged, or is about to engage, under favor of such license, in illegitimate business or in fraudulent transactions. No dealer whose license has been revoked shall be relicensed within six months from the date of such revocation. The "commissioner" shall at once lay before the prosecuting at- torney of the proper county anjr evidence which shall come to his knowl- edge of criminality under this act. Section 6373-7. At least five days before revoking or refusing to grant or renew, a license, the "commissioner" shall send by registered mail to the licensee or applicant, at the address named in the applidation written notice of his intention so to do, specifying therein the reason for such revocation or refusal. Section 6373-8. Any one whose license shall be refused or revoked, or to whom a renewal of license may be denied, may file, within thirty days thereafter, in the court of common pleas of Franklin county, a petition' against the "commissioner", officially, as defendant, alleging therein, in brief detail, the plaintiff's qualifications to be licensed and pray- ing for a reversal of the official action complained of. Upon service of summons upon said defendant, returnable within three days from its date, but otherwise made as in civil actions, he shall, within one week from such return day, file an answer, in which he shall allege by way of de- fense the grounds previously assigned in his notice to such applicant or licensee, and such other grounds as shall, in the meantime, accrue or be discovered. All allegations of the answer shall be deemed to stand denied without further pleading and, upon application of either party, the cause shall be advanced and heard without delay. Merely technical 562 OHIO irregularities in the procedure of such "commissioner" shall be disregarded and the burden shall rest upon the plaintiff to disprove the grounds as- signed and specified in the official action complained of. The court's decision shall consult only the rights of the plaintiff and the protection of the public and the "commissioner" shall prosecute no proceedings to obtain a reversal, modification or vacation of. a judgment rendered in favor of the plaintiff and in such event, shall forthwith issue the license applied for. A judgment sustaining the refusal of the "commissioner" to grant or renew a license shall not bar, after thirty days, a new appli- cation by plaintiff for a license, nor shall a judgment in favor of the plaintiff prevent such "commissioner" from thereafter revoking such li- cense for any proper cause which may thereafter accrue or be discovered. - Section 6373-9. Before such licensee shall dispose of any of such securities, within this state, he shall file with such "commissioner", in such form as shall be determined by him, the following information con- cerning such securities : If issued by any company, (a) The name, location of principal office of the issuer and the names of its officers and directors, or if a copartnership, the partners; (b) A statement of the issuer, showing, in genf^ral detail, the as- sets and liabilities, and capital stock of the issuer, as of a -date as late as the close of its last fiscal year, and of its gross income, expenses and fixed charges, for one year last prior thereto, or for such time as the issuer has been in business, if less than one year; (c) A pertinent description of such securities, and the purpose of said issue, and (d) Unless the foregoing information he excused under the pro- visions of the following section, the approximate price at which the li- censee purposes to dispose of such securities. If the securities be of a taxing subdivision of any other state, ter- ritory, province or foreign government, and are not an obligation of the entire taxing subdivision and payable out of the proceeds of a gen- eral tax, there shall be filed the information required by paragraphs (c) and (d) of this section and, in addition thereto, a statement of the li- censee, setting forth the nature of the obligation of .such securities, how payment of the same is secured and that, to the best of his knowledge, there is no default in the payment of any part of the interest or principal of such securities and are no adjudications adversely affecting, or pend- ing suits questioning the validity of the same. Section 6373-10. The information required in the preceding sec- tion need not be filed : (a) Unless required by the "commissioner", if the same has been filed by any other licensee; or (b) If actual current sales of the securities, at prices quoted, shall have been, from time to time, for not less than six months next preced- ing siich disposal, published in the regular market reports of the news columns of a daily newspaper of general circulation in this state; or OHIO 563 (c) Where there is a disposal of securities, the price paid or con- sideration rendered for which, in a single transaction, by one disposee, shall amount to five thousand dollars or more; or (d) Where the securities disposed of are those of manufacturing or transportation companies, or of common carriers or other public utili- ties, issued and outstanding in the hands of bona fide purchasers for value, prior to March 1st, 1914, where such companies were, on said date, and shall be, at the tim,e of sale, actual going concerns, either di- rectly or through lessees, and where there shall be at the time of sale no default in payment of any part of the interest or principal of such se- curities; or (e) Where the information required, other than the approximate selling price, is contained in any standard manual of information, ap- proved by such "'commissioner"; or (f) Where the disposal is made for a commission of less than one percentum of the par value thereof, by a licensee who is a member of a regularly organized and recognized stock exchange and who has an established and lawfully conducted place of business in this state, regu- larly open for public patronage as such. Section 6373-11. Every dealer, before or at the time of circulat- ing the same, shall furnish to the "commissioner" one copy of each prospectus, circular or other document of like nature and of each ad- vertisement, circulated by him in connection with the sale of any securi- ties concerning which information is required tO' be filed under the pro- visions of sections ' 6373-9 and 6373-10 of the General Code. Section 6373-12. No person or company shall, for the purpose of organizing or promoting any insurance company, or of assisting in the flotation of its stock after organization, dispose or oflfer to dispose, within this state, of any such stock, unless the contract of subscription or dis- posal. shall be in writing, and contain a provision substantially in the fol- lowing langruage: "No sum shall be used for commission, promotion and organiza- tion, expenses on account of any share of stock in this company in ex- cess of per cent, of the amount actually paid upon sepa- rate subscriptions, or, in lieu thereof there may be inserted, $ per share from every full paid subscription, and the remainder of such payment shall be invested as authorized by the law governing such com- pany and held by the organizers (or trustees as the case may be) and the directors and offilcers of such company after organization, as bailees for the subscriber, to be used only in the conduct of the business of such company after having been licensed and authorized therefor by proper authority." The amount of such commission, promotion and organization ex- penses shall in no case exceed fifteen per cent of the amount actually received upon the subscription. 564 OHIO Funds and securities held by such organizers, trustees, directors or officers, as bailees, shall be deposited with a bank or trust company of this state or invested as provided in sections ninety-five hundred and eighteen and ninety-five hundred and nineteen of the General Code until such company has been licensed as aforesaid. Section 6373-13. Whoever, with intent to secure financial gain to himself, advises and procures any person to purchase any security and receive for such advice or services any commission or reward from the owner or salesman thereof, without disclosing to the purchaser the fact of his agency or his interest in such sale shall be liable to such purchaser for the amount of his damage thereby, upon tender of such security to, and suit brought against, such adviser, within one year subsequent to such purchase. Section 6373-14. For the purpose of organizing or promoting any company, or assisting in the flotation of the securities of any company after organization, no issuer or underwriter of such securities and no person or company for or on behalf of such issuer or underwriter shall, within this state, dispose or attempt to dispose of any such security until such commissioner shall issue his certificate as provided in section 6373-16 of the General Code which shall not be done until, together with a filing fee of five dollars, there be filed with the commissioner the application of such issuer or underwriter for the certificate provided for in section 6373-16, General Code, and, in addition to the other information herein- before required by paragraphs (a), (b), (c) and (d) of section 6373-9 of the General Code, the following: (a) A certified copy of the articles of incorporation or association of the issuer, its regulations and by-laws; (b) Certified copies of all minutes of stockholders and directors relative to the issue of such securities; (c) A sworn statement made by the president and secretary of the issuer, showing in detail the items of cash, property, services, patents, good will and any other consideration for which such securities have been or are to be issued in payment; (d) Like certified copies of all contracts or agreements between the issuer and any underwriters of such securities, and, if disposed of by the issuer, all contracts and agreements relative to the sale and disposi- tion thereof; and any such contracts or agreements made subsequent thereto shall be filed immediately upon the execution thereof; (e) All contracts made between such underwriter and any sales- man, agent or broker. This section shall not apply where the issuance of the securities has been approved by the public service commission or like body of any state of the United States or any province of the Dominion of Canada, or where the sale is made by or on behalf of an underwriter who, in good faith and not for the purpose of avoiding the provisions of this OHIO 565 act, purchases the securities so afterward sold by him and pays therefor, in cash or its equivaletit, before attempting to sell the same, not less than ninety per centum of the price at which such securities are thereafter sold by him ; nor where the securities are those of a common carrier or of a company organized under the laws of this state and engaged prin- cipally in the business of manufacturing, transportation, coal-mining or quarrying, and the whole or a part of the property upon which such se- curities are predicated is located w.ithin this state; nor of a real estate or building company all of whose property, upon which such securities are predicated, is located in this state ; nor in the case of an issuer ex- cepted under paragraph (f) of section 6373-2, General Code; nor in cases where the filing of information is dispensed with under the provisions of paragraphs (b), (d), (e) or (f) of section 6373-10, General Code. The information required by paragraphs (d) and (e) of this sec- tion shall be for the information of the commissioner only, and shall not be disclosed by him except when lawfully required in a judicial, pro- ceeding. Section 6373-15. No person or company, unless licensed in the manner and under the conditions applicable thereto hereinbefore pro- vided for dealers, shall, within this state deal in real estate not located in Ohio of which he is not the actual and bona fide owner and unless the "commissioner" shall issue his certificate as provided in the follow- ing section, and prior to such issuance there . shall, together with, a fil- ing fee of five dollars, be filed with the "commissioner" an application for such certificate, and a written statement of the applicant containing a pertinent description of the real estate the sale of all or a part of which is sought to be made, and the nature and source of the title of the owner thereto, and the amount or value and the nature of the consideration paid or allowed by him therefor, it shall, within this state, be unlawful : (a) For any corporation, association or co-partnership doing busi- ness under any name other than the name or names of such person or of all the members of such association or co-partnership to sell any real estate not located in Ohio. (b) For any person or company engaged in the business of deal- ing in real estate to sell or offer- for sale any such real estate, the title to which is or is represented to the purchaser to be in the name of a corporation or unincorporated company, or of a person doing business under a fictitious name. This section shall apply where the title to such property is held in the name of a trustee for any corporation or for any such described per- son or company; but it shall not be deemed to prohibit the disposal by an owner of his own property, in good faith and not for the purpose of avoiding the provisions of this act, where the transaction is not one of repeated transactions of a similar nature, performed as a part of the business of dealing in real estate; nor shall it be deemed to prohibit a 566 OHIO railroad company having an immigration bureau or department from advertising either directly or through its accredited representatives, the fact that there are along its route lands for colonization or sale; pro- vided that such advertising be not of specific tracts of real estate, and not for the purpose of avoiding the provisions of this act. Section 6373-16. Said commissioner shall have power to make such examination of the issuer of the securities, or of the property named in the two next preceding sections, at any time, both before and qfter the issuance of the certificate hereinafter provided for, as he may deem ad- visable. When in the discretion of the commissioner all or any part of the expense of such examination should be paid by the applicant for such certificate, such applicant shall deposit with the commissioner such sum of money as the commissioner may order, out of which said sum the commissioner shall pay that, portion of the expense of such examination as the commissioner determines said ap- plicant should pay. The commissioner shall render to the applicant an itemized statement of the expenditure and a proper record thereof shall be kept. And if it shall appear that the law has been complied with and that the business of the applicant is not fraudulently conducted, and .that the proposed disposal of such securities or other property is not on grossly unfair terms, and that the issuer or vendor is solvent, upon the payment of a fee of ten dollars, the commissioner shall issue his certificate to that effect, authorizing such disposal. But if it shall not affirmatively so appear he shall so notify the applicant, in writing, and of his refusal to issue such certificate. Such certificate shall be issued or refused within a reasonable time after the filing of the application therefor, which shall be within not more than 30 days from and after the applicant or certificate holder whose certificate has been revoked has fully complied with all requirements of this act precedent thereto ; provided, that the commissioner may at any time revoke any such certificate issued by him when he has reason to believe that the business of the holder thereof is being fraudulently conducted, or that such securities or other prop- erty are being disposed of upon grossly unfair terms, or in the case of securities that the issuer thereof is insolvent. Such applicant shall have the same right of review of such finding as is given to a dealer by sec- tion 6373-8. The fee provided for in this section shall not be required of an applicant who is licensed as a dealer. Section 6373-17. Such certificate shall recite in bold type that the ■'commissioner" in no wise recommends such securities or other property; and no person or company shall advertise, in connection with the sale of such securities, the fact that such certificate has been issued unless such advertisement also contains in bold type a copy of such recital. Section 6373-18. In addition to the liability now imposed by law any person or company that, by written or printed circular, prospectus staterwent or advertisement of any kind, shall offer for subscription or OHIO 567 purchase any security i. or receive the profits accruing from the disposal of securities so advertised, shall be liable to any person who, on the faith of such advertisement or document, acquires such security, for the loss or damage sustained by him by reason of any untrue statement contained therein, unless such person or company shall establish that he or it had no knowledge or notice of the publication of such advertisement prior to the transaction complained of, or had just and reasonable grounds to believe the statements thereof to be true. Wherever any corporation shall be so liable, the directors thereof shall also be, under like limita- tions, jointly and severally liable. Any such director, upon the pay- ment of a judgment so obtained against him, shall be subrogated to the rights of the plaintiff against such corporation and shall have the right of contribution for the payment of such judgment under like limitations, against any of his fellow directors. Lack of reasonable diligence to ascertain the fact of such publication or the falsity of any statement therein contained, shall be deemed to be knowledge of such publication and of the falsity of any untrue statement thereof. Any action brought agaii^st such director, based upon the liability hereby imposed, shall be brought within two years after the acquisition of the security by any person so damaged or after payment of the judgment for vyhich con- tribution is sought. Section 6373-19. If the issuer of such securities be a company in- corporated, organized or formed to make any insurance named in sub- divisions I and II, division III, title IX of the General Code, the "com- missioner", for all the purposes named in sections 14 and 16 of ithis act, shall be the superintendent of insurance of this state. In addition to the powers given to, and the duties prescribed to be performed by, such "commissioner", under said sections, the superintendent of insurance shall have, over any such company disposing or attempting to dispose of any of its securities within this state, the powers of regulation, super- vision and examination conferred on him by law, with reference to com- panies licensed to transact the business of insurance within this state. Section 6373-20. Whoever knowingly makes any false statement of fact in any statement or matter of information required by this act to be filed with the "commissioner", or in any advertisement, prospectus, letter, circular or other document, containing an offer to dispose or solicitation to purchase, or commendatory matter concerning, such se- curities or real estate, with intent to aid in the disposal of the same, or whoever knowingly violates any of the provisions of sections 12, 14 or 15 of this act, or for the purpose of aiding in the disposal of any security or real estate, knowingly makes any false statement or repre- sentation foncerning any license or certificate issued under the pro- visions hereof, shall be fined not less than one hundred dollars nor more than five thousand dollars, or imprisoned in the penitentiary not more than one year, or both ; a,nd whoever violates any of the other provisions of this act shall be fined not less than fifty dollars nor more than one 568 OHIO thousand dollars, or imprisoned in the county jail or workhouse not more than sixty days, or both. Section 6373-21. Ip any prosecution brought under this act, the accused shall be deemed to have had knowledge of any matter of fact where, in the exercise of reasonable diligence, he should, prior to the commission of the offense complained of, have secured such knowledge. Information and indictments under this act need not negative any of the exceptions enumerated in sections two, ten, and fourteen hereof. Section 6373-22. Nothing herein contained shall limit or diminish the liability of any person or company now imposed by law, or prevent the prosecution of any person or company violating any of the provisions of this act, for the violation of any other statute or of any other pro- vision hereof. Section 6373-23. Nothing herein contained shair be so construed, as to impair the obligation of prior contracts. Section 6373-24. All fees received hereunder by the "Commis- sioner" shall be deposited by him with the treasurer of state upon the warrant of the auditor of state. Annotations The Ohio Blue Sky Law (G. C. §§ 6373-1 to 6373-24) was held to be constitutional. Hall V. Geiger-Jones Company. Hall V. Coultrap. Hall V. Rose et al., 242 U. S. 539, 37 Sup. Ct. Rep. 317. (Reversing Geiger-Jones Co. v. Turner, 230 Fed. 233.) Digest of the Ohio Blue Sky Law THE OHIO BLUE SKY LAW necessitates, under certain condi- tions, taking out a license and custom has, therefore, catalogued it among those laws requiring some affirmative action by the citizen. For that reason, it is necessary that the citizens of Ohio and also non-residents of Ohio who intend to deal in securities or in real estate not located in Ohio, familiarize themselves with some of the important features of the law. Naturally, one is anxious to ascertain first of all if the law is ap- plicable to himself and his business. It is the aim here to express as briefly as possible and with as little resort as possible under the circum- stances to the use of words having a peculiar and technical significance, just what is the intent, meaning and application of the BLUE SKY LAW. It is possible that a clearer understanding of the law may be ob- tained by conducting the reader by successive stages through the pro- OHIO S69 visions of the law, with the idea that just as soon as his status and that of his business is fixed, further perusal of the law 'becomes unnecessary, and that plan has therefore been adopted. The first question which confronts us is whether or not it is neces- sary to be licensed as a dealer. At the very outset, therefore, it be- comes necessary to determine WHO MUST BE LICENSED. That question is answered by reading sections 1 and 2 of the law. In those two sections (of course including the sub-divisions) there are two words which stand out prominently. One is the word "SE- CURITIES" and the other is the word "DEALER". A proper understanding of the law and its application is impossible unless the meaning of those two words, as they are used in the law, is clear. Much confusion arises from the fact that, before understand- ing clearly the meaning of these two words, the investigator proceeds to a perusal of the other provisions of the law, which are almost, if not quite, impossible of comprehension and correct application without a correct understanding of the exact sense in which the two words are used in the law. Therefore, in order to ascertain WHO must obtain a license, we start with the knowledge that, under section 1, every "dealer" must be licensed. Section 1 reads : "Except as otherwise provided in this act, no dealer shall, within this state, dispose or ofifer to dispose of any stock, stock certificates, bonds, debentures, collateral trust certificates ' or other similar instruments (all hereinafter termed 'securities') evidencing title to or interest in property, issued or executed by any private or quasi-public corporation, co-partnership or association (except corporations not for profit) or by any taxing subdivision of any other state, territory, province or foreign government, without first being licensed so to do as hereinafter provided." WHO THEN IS A "DEALER"? That word is defined clearly and concisely by section 2 of the law and no subsequent sections, in any manner, change or qualify the defini- tion there laid down. Every person or company (and the word "company" includes corpo- rations, ca-partnerships and associations either incorporated or unin- corporated, no matter where or when organized) is a "DEALER" when disposing or offering to dispose of SECURITIES in the State of OMo excepting only (1) National banks; (2) An owner, not the issuer of the security, who disposes of his own property, for his own account ; when such disposal is not 570 OHIO made in the course of repeated and successive transactions of a similar character by such, owner; or a natural person, other than the underwriter of the security, who is the bona fide owner of the security and disposes of his own property for his own account; (3) ONE, who in a trust capacity created by any law of the United States or of this or any other state or by judicial authority, lawfully disposes of ahy property embraced within such trust ; (4) A bank or trust company, organized under the laws of this state and subject to examination and supervision by the proper authority thereof, selling a security for a licensee, other than the issuer or underwriter thereof, at a commission of not more than two per. cent, where such bank or trust company is not a regular dealer in securities; (5) One, not the issuer, who disposes of securities to a licensee tinder this act or to a company which, as a part of its regular business, deals in or holds such securities ; (6) A pledgee selling, in the ordinary course of business, a Security pledged to him as security for debt in good faith and not for the purpose of avoiding the provisions of this act; There is one instance provided for in the law when a "dealer" is permitted to offer and to sell "securities" without being required to obtain a license. That one exception is provided for in section 2, subdivision (f), which reads as follows : "The issuer, organized under the laws of this state, where the disposal, in good faith and not fof the purpose of avoiding the provisions of this act, is made for the sole account of the issuer, without any commission and at a total expense of not more than two per centum of the proceeds realized therefrom plus five hundred dollars and where no part of the issue to be disposed- of is issued, directly or indirectly, in payment for patents, services, good-will, or for property not located in this state; provided that the presi- dent and secretary, or the incorporators if done before organiza- tion, of the issuer shall, prior to such disposal, file with the 'com missioner' a written statement setting forth the existence of all such facts and that such issuer is formed for the purpose of doing business within the state." When, therefore, the facts warrant it and the "dealer" files a writ- ten statement such as is provided for in the section above quoted, he need not obtain a license. , Every other person or company disposing of or off^ering to dispose of "securities'' then is a "dealer". OHIO 571 Having now ascertained just who are "dealers'' the next inquiry in order should be, WHAT ARE "SECURITIES"? It will 'be noted that in order to determine fully just who are and who are not "dealers" it must be known, definitely, what are and what are not "securities" within the meaning of the law. Again for an answer one need not look further than Sec. 2. It will be then observed that in defining "Securities" as in defining "Dealers" everything is included except that which is especially excepted. The EXCEPTIONS are: 1. Conveyances of real estate. 2. Mortgage bonds and notes (other than corporate bonds where more than fifty per cent of the entire issue is not included in a sale to one purchaser) secured by a bona fide mortgage on real estate, where the same have not been judicially declared invalid, and where, at the time of such sale, there is no de- fault in payment of any part of the interest or principal of the same. 3. Securities of quasi-public corporations, the issuance of which has been authorized by the public service commission of this state, where the same have not been judicially declared in- valid, and where, at the time of such sale, there is no default in payment of any part of the interest or principal of the same. 4. The stock or obligation of any national bank, or of any bank, trust company or building and loan association, organized under the laws of this state and subject to examination and super- vision by the proper authorities thereof, where the same have not been judicially declared invalid, and where, at the time of such sale, there is no default in payment of any part of the interest or principal of the same. Under the law then, it will be observed, that while bonds and notes secured by mortgage on real estate are not "securities", yet there are conditions under which even bonds and notes secured by mortgage on real estate are treated as "securities" by the law. These conditions are clearly pointed out, viz. : Where the same have not been judicially declared invalid, and where at the time of such sale, there is no default in payment of any part of the interest or principal of the same. When these conditions exist, bonds and notes secured by mortgage on real estate are "securities." When these conditions DO NOT exist, bonds and notes secured by mortgage on real estate are not "securities" and hence any one handling them is not affected by the provisions of the law, 572 OHIO There is yet one other condition in which bonds and not«s secured by mortgage on OHIO REAL ESTATE are regarded as "securities" in the law, viz. : Where such bonds and notes (secured by a mortgage on real 'estate)! are issued by a corporation, where less than fifty per centum of the entire issue is included in a sale to one purchaser. Where, therefore, fifty per centum or more of the issue of such corporate bonds or notes is included in a sale to one purchaser such bonds and notes are not ''securities" and those who sell them, either the corporation issuing them or another, are not affected by the provisions of the law. They are not "dealers". The facts that bonds and notes secured by mortgage on real €state are not, generally, "securities" within the meaning of the law and yet, under certain conditions, are "securities" seems at first confusing. The confusion arises, no doubt, from the legal phraseology rather than from any real intricacy -in controlling facts. Except therefore, in the two instances above noted, bonds and notes secured by mortgage on real estate, are not "securities". With these exceptions above noted and the two hereafter noted every other written obligation is classed as a "security" by the law, and is subject to the regulations thereof. It follows therefore that selling or offering to sell any written obligation in this state other than those noted in the foregoing excep- tions and the two noted in the following paragraph can only be done by "dealers" duly licensed under the law. The two other classes of written obligations which are not "se- curities" under the provisions of Section 2 of the law are : Securities issued by a corporation not for profit, organized under the laws of Ohio. Securities of any taxing subdivision of the state of Ohio. Exceptions to "securities" as defined in the law and last above noted are made by Section 1, in a negative way, it is true, but still none the less effectively. So far we have only considered SECTION 1 and SECTION 2 of the law and by applying those provisions of the law to particular facts in mind, the remaining provisions may then be considered understand- ingly. One should, under no circumstances, take up the consideration of the subsequent provisions of the law before he thoroughly understands Sections 1 and 2. To do so can only result in confusion and annoyance. If, therefore, one finds that under Sections 1 and 2 of the law he is not a "dealer" or that he is not disposing of or offering to dispose of "securities'" he need go no further for the very manifest reason that OHIO 573 the remaining provisions of the law cannot possibly affect either him or his business. If, on the contrary, one is a "dealer'' and is disposing of or offer- ing to dispose of "securities," whether an individual or a company and whether the issuer of the "securities" or not, he must be licensed as a "dealer" and the next subject of the inquiry is, HOW TO OBTAIN A DEALER'S LICENSE All authority to grant or refuse to grant a license to a "dealer'' is vested in the Commissioner of Securities of the State of Ohio. The jurisdiction thus lodged in the Commissioner of Securities by the- law, is invoked by the filing of an application for a license. The filing of this application must be accompanied by a remittance of five dollars — the filing fee. Suitable blanks upon which this applica- tion should be made will be furnished by the department upon request. The method of procedure in the matter of the application for, and the granting of a dealer's license, is so clearly and concisely set forth in sectionsi 3, 4 and 5 of the law, and in the blanks prepared with a view to eliciting the information required, that no further discussion of that subject is required here, except as to the matter of fees. When the application for a license is filed there is a fee due of $5.00 The annual license fee is 50.00 For each agent named in the original application there is a fee due of 5.00 The annual license fee where the .license is granted at any time, (and all licenses expire with the calendar year) is reduced $4.00 for each expired month of the calendar year, but in no case is the fee for issuing a license less than $10.00. HOW AGENT'S AUTHORITY- REVOKED Where the authority of an agent named in the license is revoked, the holder of the license, in order to have such agent's name stricken from his license, must notify the department in writing, asking that such agent's name be omitted, accompanying such application with a remittance of $2.00, the fee required. HOW AGENTS ARE ADDED When the holder of a license desires to add the names of agents not included in the license he may do so by remitting the $5.00 fee due, and notifying the department in writing. It should be noted that Partnerships or Corporations cannot act as agents for a licensee, 574 OHIO PUBLICATION OF NOTICE Notice in the form prepared by the department must be published as provided in Section 4 of the law, as to all applications for license, revocation of authority of agents and adding new agents. The manner and place of publication is clearly defined in Section 4. The expense of all such publications must be borne by the applicant. RENEWAL FEE The payment of the annual renewal fee of fifty dollars (and all licenses must be renewed with the beginning of the calendar year» if the holder proposes to remain in business) carries with it all agents named. There is no fee due for agents on renewal of license. LICENSE MAY BE REVOKED Sections 6, 7 and 8 of the law clearly point out just what condi- tions the existence of which will authorize the revocation of a license, and just what procedure and the method ofi procedure necessary to bring about a complete revocation of a license. The provision of the law relating to that feature can be readily understood by any one who reads it and a detailed discussion here is not necessary. Having indicated how the problem as to who must be licensed and the matter of obtaining a license may be solved, the first task which confronts the holder of a license is to properly classify the "securities'' which he proposes to offer to dispose of to the people of Ohio under and by virtue of the authority of his license. CLASSIFICATION OF "SECURITIES" Under the provisions of the law there are certain classes of "se- curities" with reference to which the licensed "dealer" need do no more than notify the department that he is dealing in them. Indeed it is debatable whether under the law the "dealer" can be required to furnish any information with reference to that class of ''securities.'' The department, for the purpose of keeping a record of the holders of licenses and the securities in which they deal, has asked that the in- formation be filed and exemption claimed, and that request has been complied with by the dealers. The next inquiry in order then, after the "dealer" h^s been li- censed is OHIO 575 WHAT SECURITIES ARE EXEMPT FROM THE OPERATION OF THOSE SECTIONS OF THE LAW WHICH REQUIRE THAT CERTAIN INFORMATION REGARDING THEM BE FILED WITH THE "COM- MISSIONER"? That this inquiry is next in order must he apparent at once be- cause if it is not necessary under the law to file detailed information regarding the "securities"' the dealer need pursue his investigation no further, and consequently he has no concern with the remaining pro- visions of the law. The "securities" which the "dealer" may sell without first filing detailed information with th? department are : 1. SECURITIES regarding which the detailed information has been filed by any other licensee. (Sec. 10-a). 2. Section lO-'b. "If actual current sales of the securities at prices quoted, shall have been, from time to time, for not less than six months preceding such proposal, published in the regu- lar market reports of the news columns of a daily newspaper of general circulation in this state." 3. Section 10-c. "Where there is a disposal of securities, the price paid or consideration rendered for which in a single transac- tion, by one disposee, shall amount to five thousand dollars or more." • 4. Section 10-d. "Where the securities disposed of are those of manufacturing or transportation companies, or of common car- riers or other public utilities, issued and outstanding in the hands of bona fide purchasers for value, prior to March 1, 1914, where such companies were on said date, and shall be at the time of sale, actual going concerns, either directly or through lessees, and where there shall be at the time of sale no default in payment of any part of the interest or principal of such securities." 5. Section 10-a. "Where the information required, other than the approximate selling price, is contained in any standard manual of information, approved by such "Commissioner". 6. Section 10-f. "Where the disposal is made for a commission of less than one per centum of the par valUe thereof, by a licensee who is a member of a regularly organized and recog- nized stock exchange and who has an established and lawfully conducted place of business in this state, regularly open for pub- lic patronage as such." If the "securities" which the "dealer" is disposing of or offering to dispose of to the people of Ohio are such as come properly within 576 6hi6 thSt class with reference to which it is not necessary, under the law, to file detailed inforrtiation with the Department, he need pursue his investigation no further. The remaining provisions of the law have no application to himr or to his business. If, on the contrary, the "securities" which the "dealer'' is offering to dispose of or disposing of to the people of Ohio do not come, prop- erly, within the provisions of the law above referred to, then he must go further in his investigation. IN ORDER THEN, THE NEXT SUBJECT OF INQUIRY IS, WHAT SECURITIES ARE NOT EXEMPT FROM THE OPERA- TION OF THOSE SECTIONS OF THE LAW WHICH RE- QUIRE THAT CERTAIN DETAILED INFORMATION REGARDING THEM BE FILED WITH THE "COMMISSIONER" AND ARE NOT THAT CLASS OF SECURITIES REQUIRING, UNDER SECTION 16 OF THE LAW, CERTIFICATION OF THE "COMMISSIONER"? ./ALL "securities,"' other than those which come, properly, within one of the classes just mentioned are subject to those provisions of the law which require that certain detailed information be filed with the "Commissioner" and ALL require certification by the "Commissioner" except only — Section 14: 1. "Securities" the issuance of which has been approved by the public service commission or like body of any state of the United States or any Province of the Dominion of Canada. 2. "Securities" the sole disposal of which is made by or on behalf of an underwriter who, in good faith and not for the purpose of avoiding the provisions of the law purchases the securities to be disposed of and pays therefor in cash or its equivalent, before attempting to sell the same not less than ninety per centum of the price at which such securities are thereafter sold by him. 3. "Securities" of a common carrier or of a company organized under the laws of Ohio and engaged principally in the business of manufacturing, transportation, coal mining or quarrying, and the whole or a part of the property upon which such "securities" are predicated, is located in Ohio. 4. "Securities'" of a real estate or building company all of whose property upon which such securities are predicated, is located in Ohio. OHIO 577 5. "Securities'' of an issuer excepted under paragraph (f) of Section 2, and to cases where the filing of information is dispensed with under the provisions of paragraphs b, d, e or f of Sec. 6373-10. If the "dealer" has not thus far been able to find the class to which his "securities" may be properly asigned, then his "securities" are of that class, (the only one designated by the law and not yet discussed) which requires certification under Section 16 of the law. SECURITIES THAT REQUIRE CERTIFICATION This includes all others whcih do not come, properly within any one of the classes jjust enumerated and consequently requires that ap- plication for a certificate be made to the "Commissioner" and the issuance of a certificate as required by Section 16 of the' law before they can be lawfully sold or offered for sale in Ohio. A filing fee of $5.00 must be paid at the time the information and application are filed. A fee of $10.00 must be paid when the certificate is isued. When the applicant for a certificate is the holder of a license or has an application for a license on file, no fee is required for the issuance of the Certificate of Compliance. REAL ESTATE The person or company having Real Estate either as owner or as agent for another which it is proposed to offer for sale to the people of Ohio, should first direct- his attention to Section 16 of the law. That section clearly defines the meaiiing of the word DEALER as used in the law in connection with the buying and selling of real estate. WHO IS A "DEALER" IN REAL ESTATE? We have already seen that under Section 1 of the law, every person or company who is a "dealer," as defined in the law, must be licensed. The answer to the question then as to whether one is or is not a "dealer" in Real Estate as defined in the law, is to be found in Section 15 and it is not necessary to explain the language of that section. There need be no difficulty experienced by any one in determining whether he is or he is not a "dealer" in Real Estate. There is but one form of procedure provided by the law for pro- curing a license and that has already been discussed. The holder of a license can deal either in "securities" or in Real Estate NOT located in Ohio, or both. The law makes no classification of real estate not located in Ohio, and all real estate not located in Ohio offered for sale in the state, no 37 578 OHIO matter where it is located it must be approved by the department and a certificate to that effect issued as provided in sections 15 and 16 of the law before it can be offered for sale in Ohio. Blank forms will be furnished by the Department upon which an application for a certificate can be made. A filing fee of $10.00 must accompany this application and the fee of $10.00 for the certificate will be due when the certificate is issued. License holders and- those who have applied for a license need not pay the $10.00 for the issuance of the certificate. INSURANCE Before any stockj bonds or securities of any insurance company can be offered for sale or sold, the Insurance Commissioner of Ohio must first approve the securities. There is no classification of the securities of insurance companies and all must be approved by the Commissioner of Insurance. Dealers in such "securities" must be licensed as such by the Com- missioner of Securities the same as dealers in other "seicurities." The law now under discussion contains no provisions with reference to the securities of insurance companies leaving the status of such certifi- cates to be fixed by the Commissioner of Insurance, under the provisions of the General Code. Hence, a discussion of that class of securities is not now germane. FIRST AS TO COMMISSIONS Contrary to the views held by many, the law does not limit the issuer of securities in the commissions to be paid for selling securities. Section 12 of the law, limiting the commission which can be paid to 15 per centum applies only to insurance securities. The commission contracted to be paid, however, for the sale of "securities" is an important item to be considered in judging the value of the "securities". An agreement to pay an excessive commission for the sale of "se- curities" raises a presumption, quitei naturally, which does not reflect favorably upon the worth of the securities, nor the good faith of the dealer. LICENSE AND CERTIFICATE Both the "dealer" and the "securities" are subjects of regulation by the law. The license is the dealer's authority to act and authorizes the holder to offer for sale any "securities" which are either certificated or exempt from certification and any real estate not located in Ohio which has been certificated. OHIO 579 TJie certificate has reference to the security or real estate only, and once issued warrants the sale by any licensed dealer. The license fixed the status of the individual and the certificate fixes the status of the property, whether securities or real estate not lo- cated in Ohio. SECURITIES- OF OHIO TAXING DISTRICTS It is NOT necessary for those who deal ONLY in the securities issued by a taxing district of this state to be licensed as dealers. THE ISSUER A "DEALER" When the issuer of securities offers to sell its own "securities" it is both an issuer and a dealer, and consequently must be licensed as a "dealer" and also have its "securities" certificated to meet the law's requirements, when necessary. ADVERTISING The" advertising for sale of real estate not located in Ohio or "se- curities" is manifestly an offer to sell and consequently, if done without authority issued by the "Commissioner" is a violation of the law. FILING COPIES OF ADVERTISING Copies of each prospectus, circular and advertisement are required by Section 2 to be filed with the department. This is manifestly to pre- vent any dealer wjio might be so inclined, from publishing statements about the "securities" which he is offering, or the property which he is offering, not in accord with the application and information on file in the department. WHY LICENSE OHIO "DEALERS"? The law requires all dealers to be licensed for the very manifest reason that a record must be kept of all those who are engaged in offering and selling bona fide securities and real estate. WHY FORBID "OFFERING FOR SALE"? The reason for these provisions of the law which make it unlawful to offer to sell without authority from the Department is to prevent outsiders coming into this state and soliciting buyers and taking them outside the State only to consummate the sale by receiving physical possession of the "securities," or the deed for real estate and paying over the money. 580 OHIO Bond Investment Companies Section 696. By virtue of his office, the deputy inspector of build- ing and loan associations shall be the supervisor of bond investment com- panies. He shall see that the laws of this state relating to such com- panies are strictly enforced. (R. S. Sec. 3821x.) It is held in the absence of a statute, a court of equity has no power to wind up the affairs of a. bond investment or debenture company by the appointment of a receiver, at the instance of the holder of a certificate, where the certificates are to be redeemed out of money paid in by the certificate holders, even if the transaction is apparently a disguised lottery. Woods v. Equitable Debenture Co., 8 O. N. P. 125, 11 O. D. (N. P.) 154. Contra : Where the transaction is a lottery in disguise, equity will appoint a receiver and distribute the common fund among the certificate holders: Shaw v. Savings Co., 5 O. N. P. 411, 8 O. D. (N. P.) 510; see Stevens v. Times-Star Co., 72 O. S. 112. [An action arising out of a guessing contest instituted by a newspaper, for authority that in Ohio, equity will not relieve against gambling transactions by appointing a receiver to distribute the common fund paid in by the parties thereto.] Having made required deposit, need not file statement as re- quired by G. C. § 183. Having made required deposit, need not obtain certificate as required by G. C. § 179. Section 697. Every corporation, partnership or association other than a building and loan association, which places or sells certificates, bonds, debentures or other investment securities of any kind, on the partial payment or installment plan, and every investment guaranty com- pany doing business on the service dividend plan shall be deemed a bond investment company. (94 v. 147 § 1.) A corporation which issues a bond whereby it agrees to deliver a diamond upon the performance of certain conditions and upon the payment of certain installments, is a bond investment company within the meaning of this and the following sections and must make the deposit required by G. C. § 698. The contract is not merely a contract of sale : State, ex rel., v. Tontine Surety Co., 62 O. S. 428. [The contract in this case that when the promisor had paid eighty dollars in installments of one dollar and twenty-five cents weekly, the surety company would deliver to him a commercial white, clear and perfect diamond of the weight of two carats, or would purchase such diamond from him for one hundred and sixty dollars.] Section 698. Before doing business in this state, every bond in- vestment company shall deposit with the treasurer of state one hundred thousand dollars in cash or bonds of the United States or of the state of Ohio, or of any county or municipal corporation in Ohio, for the protection of investors in the securities of such company. Such deposit shall be made out of the paid-up capital stock of such bond investment company. (94 v. 147 § 1.) OHIO 581 As to procedure for collecting claims from such funds or de- posits, see G. C. § 641. Prior to the enactment of this statute in its present form (94 V. 147), it was not necessary that such deposit be made entirely from the capital stock of the company : State, ex rel., v. Matthews, 62 O. S. 146 Section 6^. The deposit made by a bond investment company with the treasurer of state shall be held as security for all claims of residents of this state against such company, and shall be liable for all judgments and decrees thereon, and subject to the payment of such de- crees in the same manner as the property of other non-residents. If - such company ceases to do business in this state, the treasurer of state may release securities, in his disclretion, retaining sufficient to satisfy all outstanding liabilities. (94 v. 147 § 1.) As to procedure for collecting claims from such fund or de- posits, see G. C. § 641. For purposes of taxation, the treasurer of state is not trustee or owner of these bonds. They are the property of the corporation and must be listed for taxation in the county where the main office of the corporation is situated. The situs of the bond for action is not affected by the fact that a judgment of ouster has been rendered against such company: Sims v. Best, 1 O. C. C. (N. S.) 41, 15 O. C. D. 149. In an action by a holder of debentures to enforce payment thereof, the treasurer of state is trustee for the corporation and its creditors and a necessary party to a proceeding in equity for the distribution of the company's assets. It is not necessary that each creditor obtain a judgment or decree, as a condition precedent to payment of his claim out of such deposit : Everhart v. Redemption Co. 8 O. N. P. 525, 11 O. D. (N. P.) 687. Evidence by a certificate holder in an investment company that he did not know that the treasurer of state had paid to the trustee appointed for such company upon its dissolution, a part of the funds of such company in the hands of such treasurer of state, is not sufficient to show that such certificate holder does not have such notice, if such payment was made in accordance with an order of a court of competent jurisdiction in an action, which was brought by a certificate holder on behalf of all the certificate holders : Mc- Cauley v. Bank, 17 O. N. P. (N. S.) 305. If the treasurer of the state pays to the trustee of an- invest- ment company, which has been dissolved by order of the court, the -balance of the deposit placed in his hands by such investment company after deducting court costs and attorneys' fees, and such trustee applies such fund to the payment of certain debts, leaving others unpaid, the statute of limitations begins to run as soon as such payment is made, if it is not shown that the fact of making such payment was concealed. Such improper use c f trust funds does not amount to fraud within the meaning of G. C. § 11224, which prevents the period of limitations from running until the fraud is discovered, if the action is one for fraud : McCauley v. Bank, 17 O. N. P. (N. S.) 305. 582 OHIO Section 700. A bond investment company may collect and use the interest on any securities deposited as required by the preceding section so -long as it fulfills its obligations and complies with the provisions, herein relating to such companies. It may exchange such securities for others of equal value and satisfactory to the treasurer of state. (94 v. 149 § 4.) Section 701. Before doing business in this state every bond invest- ment company shall comply with the following conditions : 1. It shall file with the supervisor of bond investment companies certified copies of its charter and articles of incorporation, constitution and by-laws, and other rules and regulations showing its manner of doing business. 2. It shall file with the supervisor a statement, under oath of its president and secretary, or other managing officer of its business for the preceding year, in a form required by the supervisor. 3. It shall file with the supervisor a written instrument, duly executed, agreeing that a summons may issue against it from any county in this state, directed to the sheriff of the county in which the office of the supervisor is situated, commanding the sheriff to serve such sum- mons by certified copy, personally upon the supervisor, or by leaving a copy thereof at his office. The supervisor shall mail a copy of any papers served on him to the home ofBce of such bond investment com- pany. (94 V. 148 § 2.) Section 702. When a bond investment company has complied with the provisions herein relating to such companies, and the supervisor of bond investment companies is satisfied that it is doing business in ac- cordance with law, he shall issue it a certificate of authority to do busi- ness in Ohio. Thereafter, upon the filing of its annual statement, as herein provided, if the supervisor is satisfied that such company has com- plied with all the provisions of law, he shall issue a renewal of such certificate. (94 v. 148 § 3.) Section 703. The supervisor of bond investment companies shall revoke the authority of such a company to do business, if, on investiga- tion or examination, he finds that it is not transacting its business in accordance with law, or that its statement of the condition and affairs required under the provisions herein relating to such companies, are false and fraudulent, or for its failure to file an annual statement. (94 v 148 § 3.) Section 704. A bond investment company shall pay to the super- visor of such companies the following fees : For filing each application for admission to do business in this state one hundred dollars ; OHIO 583 For filing each certificate of authority and annual renewal of certifi- cate, fifty dollars ; For filing each annual statement, twenty-five dollars ; For issuing license to each agent, two dollars ; For each copy of paper filed in his office, fifty cents per folio ; For affixing seal and certifying any paper, one dollar. The fees provided for herein shall be deposited by the supervisor with the treasurer of state, upon the certificate of the auditor of state. (R. S. Sec. 3821y.) Section 705. On or before the tenth day of January of each year, each bond investment company doing business in this state shall file with the supervisor of bond investment companies, under oath of its presi- dent, secretary or other managing officer, and in a form required by the supervisor, a statement of its business for the twelve months next pre- ceding the thirty-first day of December. Such abstract thereof as the supervisor may require shall be posted for sixty days in the principal office of such company and published in a newspaper of general circula- tion in the county in which its principal office is situated. (R. S. Sec. 3821w.) Seetion 706. The supervisor of bond investment companies shall verify the annual statement required by the preceding- section, by an examination of the affairs of such company. He may make quarterly examinations of the affairs of such company if he deems it necessary. (R. S. Sec. 3821w.) Section 707. If, upon examination of a bond investment company by the supervisor of bond investment companies, it appears that such company is not carrying on its business in accordance with law, or that its affairs are being improperly managed, the supervisor, after ten days' notice to such company, shall institute proceedings in quo warranto against it in the manner provided by law. (R. S. Sec. 3821w.) Section 708. The expenses of all examinations provided for by the laws relating to bo^d investment companies shall be paid by the state of Ohio, except that, if by the laws of any other state, district, terri- tory or nation, examinations of such companies of this state are re- quired or permitted to be made by any officer or other authority of such state, district, territory or, nation at the expense of such company, then the expenses of such examination made by the supervisor of this state of a bond investment company of such state, district, territory or nation, shall be charged to and collected from such company. (R. S. Sec. 3821w.) Section 709. An agent of a bond investment company shall not transact business in this state without being first regularly appointed by such company and licensed by a certificate of authority issued by the supervisor of bond investment companies. (95 v. 149 § 5.) 584 OHIO Administration FIRST ANNUAL REPORT OF THE DEPARTMENT OF SECURITIES AS A SEPARATE STATE DEPARTMENT The Honorable James M. Cox, Governor of Ohio. Sir: — In compliance with the law on the subject, I have the honor to submit the first annual report of the Department of Securities of the State of Ohio : On July 1st, 1917, the Department of Securities became a separate state department by legislation enacted by the 83rd General Assembly, as recommended by Governor James M. Cox, and the operation of the so-called "Blue Sky" Law was placed under the jurisdiction of a Com- missioner of Securities. From August 8th, 1913, when the Ohio "Blue Sky" Law became effective, up to July 1st, 1917, its operation was ad- ministered by a bureau chief under the Department of Banks and Bank- ing. This, therefore, is the first annual report transmitted by the Com- missioner of Securities. Brevity of Early Reports Reports of the administration of the "Blue Sky" Law by the De- partment of Banks and Banking were, of necessity, brief, and were em- bodied in the reports of that Department. On account of the constitu- tionality of the "Blue Sky" Law being challenged in the Courts, a proper respect for it was not accorded in many cases, greatly hampering its administration, and not until the United States Supreme Court rendered its decision January 22nd, 1917, declaring this law constitutional in its entirety, did those in charge of administering its provisions have an op- portunity to demonstrate the worth of this statute. As the reports here- tofore were naturally very brief and indefinite, a general review of the status of the law and its operation from the beginning is in order, as a matter of permanent record, easy of access, for future reference. Necessity for Separate Department One can readily see the wisdom and necessity for this remedial legislation. The banks, while progressive in thought and influence, are the most conservatively managed institutions in the state and nation, and this is as it should be, for the people must have confidence in the stability of the banks, else our whole financial structure would fall, bringing about widespread disaster and chaos. While the plan of organ- izing and promoting a company for the purpose of prospecting for oil, gas, lead, gold, or silver, for developing a patent or proving a supposedly valuable formula, though speculative, is just as legal and legitimate, for instance, as organizing a corporation to carry on a manufacturing busi- OHIO 585 ness ; yet nothing could be more inconsistent than to place the Superin- tendent of Banks in the position where he must authorize the issuance of millions of dollars worth of securities in which he would not permit the banks to invest, or even accept as collateral for loans. History of "Blue Sky" Law The constitutional convention in 1912 submitted an amendment to the people which provided that legislation be enacted to regulate the sale of bonds, stocks and other securities, as well as real estate not located in Ohio, and to prevent fraud in such sales. The people reg- istered their approval the following November by a majority of 88,000, and in his message to the 80th General Assembly, Governor Cox laid special emphasis on the necessity of enacting legislation in order that the legitimate sale of securities in Ohio be conserved, and the illegitimate sale forever prohibited. A bill was introduced by the Honorable J. R. Clark, Representative of Hamilton County, passed both houses, was signed by the Governor, and the "Ohio Blue Sky" Law became effective August 8th, 1913. On January 28th, 1914, the United States District Court held the Michigan "Blue Sky" Law unconstitutional, and as the Ohio law was» similar in some respects, on February 5th, 1914, eight days afterward. Governor Cox sent a special message to the General Assembly, then in extraordinary session, in which he said : Governoe's Special Message "To the General Assembly: There seems to be a well organized effort in this country to break down the so-called 'Blue Sky' laws which have been passed under the police powers of the States for the purpose of protecting investors against fraudulent enterprises. An attack was made on the Iowa law, but the Court held it to be constitutional. In Michigan, however, the federal court held that the law is an unjustifiable exercise of the police powers of the State. "The 'Blue Sky' Law adopted in Ohio justified the principle sug- gested and vitalized by the Constitutional Convention. "The most careful investigation has been made of the provisions of the law and the trend of judicial, logic in the trial of the cases in the different parts of the country, and while there is common agreement in the thought that the State has the right, through its police powers, to protect its people against the exploitation of projects fraudulent in purpose and nature, still we must at all times be reminded that our legislation must assume such form as will keep it consistent with the federal provisions regulating interstate commerce : in short, we can afford to change the form of the Ohio law, if it is obviously necessary, to re- tain the substance and preserve the principle involved. 586 OHIO "Notwithstanding the Michigan decision was rendered but a few days ago, the opinion has been fully digested, and a bill has been drawn through the combined counsel of the Attorney General, Comtnissioner of Insurance and Superintendent of Banks. "It is my recommendation that the language of the law be rendered less ambiguous, that the fees charged be sufficient to meet the cost of the service, that the restrictions be so modified as to provide against con- stitutional infirmities, and that the Commissioner be given the power, in proper instances, to grant temporary , permits during the pendency of applications, so that legitimate business may not be hampered. "In the interest of the public service, I recommend action along these lines by the Assembly." (Signed) James M. Cox, Govemor. On the next day, February 6th, 1914, the Ohio law was amended and made more nearly to conform to the Federal Constitution regulat- ing interstate commerce as viewed in the light of the above mentioned court decision. This action on the part of Governor Cox and the -Legislature was vital and timely, as succeeding events show. The Geiger-Jones Litigation In November, 1015, there was filed in the United States Federal District Court of Cincinnati, Ohio, a petition for an injunction by the Geiger-Jones Company, of Canton, Ohio, against the Superintendent of Ba:nks, as Commissioner, restraining the Superintendent of Banks from revoking the license of said company which had been granted on the first day of January, 1915. This suit was at once heard by the Court and a decision rendered in February, 1916, granting the injunction and at the same time handing down an opinion declaring the Ohio "Blue Sky" Law unconstitutional. The then Attorney General of Ohio, Hon. Edward C. Turner, appealed from this decision to the Supreme Court of the United States, which upheld the contentions of the Attorney Gen- eral and declared the law constitutional in its entirety, in the decision rendered by it January 22nd, 1917. Anyone not in touch with these happenings cannot appreciate under what adverse circumstances the law had been administered. The fact that there was practically no similar legislation in any other State; no judicial decisions as a guide, with the services of only pne inspector during a part of the first year, and at no time with a sufficient force to effectively administer thie law, and, in addition, the federal court's de- cision declaring the law unconstitutional, made it an impo.ss,ibility for .the Department to enforce any uniform policy, a& many under its, jurisdic- tion were openly defiant and the difficulties seemed insurmountable. OHIO 587 Value of the Law Now Reojgnized Had not this law been amended by said extraordinary session of the General Assembly in accordance with the recommendation of Governor Cox, the public might never have known of the full benefits to be derived . therefrom. The Governor and the Legislature were severely criticised by many well-meaning and conscientious citizens of our State because of the passage of this law in 1913. All criticism of its operations has ceased, and it now has the support of the best financiers, bankers and economists of the country. Legitimate business has not been hampered but rather conserved and stabilized. On the other hand, the law has prevented the sale of millions of dollars worth of securities based on nothing but speculative schemes which had no more substantial basis than the cupidity of crooked promoters and similar fraudulent exploitations. Functions op the "Blue Sky" Law The "Blue Sky" Law has two important functions : First- — The licensing of all individuals, co-partnerships or corpora- tions dealing in securities (the law defining securities as stock, stock certificates, bonds, debentures, collateral trust certificates or other simila;' instruments evidencing title to, or interest in, property) or real estate located outside of Ohio. To secure a license, the "appUcant must be of good business repute and submit references and other information to the Commissioner to establish this fact. The department also has authority at any time to examine the books and records of any licensee to de- ■, termine whether or not the business is being properly conducted. Second — Any securities, and real estate, located outside of the State, offered for sale, must be approved by the Commissioner before being sold or even offerfed for sale withinj the State. However, the statute contains broad and varied exemptions as to securities, and these exemptions preclude any possibility of hampering stable commercial busi- ness. After approval, a Certificate of Corporate Compliance is issued. To obtain this Certificate, very complete information must be filed with the Department by the applicant, including copy of the articles of in- corporation certified by the officers of the particular State or Province granting same, rules, regulations and by-laws, method of operation, financial condition, complete description of all property, both tangible and intangible, salaries to be paid officers, amount of stock given for promotion, organization, patents, formulas, trademarks, etc. and the terms upon which the stock is to be sold, as well as certified copies of all contracts relative to carrying on the business. 588 OHIO Thorough Investigation Is Made A personal inspection and thorough investigation is then made by an experienced examiner as to the personnel of the corporation and con- dition of the property wherever located, upon which the securities are predicated. In all cases a written report is then made by the examiner and this information is compared with that placed on file, and if a going concern is under investigation, the books are also carefully audited, with particular reference to the profit and loss account, assets and liabilities. With all this information at hand, the Commissioner is in a position to decide intelligently as to whether authority to sell the securities or real estate for which application has been made, should be granted or refused. Work of Examiners In order that the Commissioner may be fully advised as to whether or not the security an applicant is seeking to have certificated by the Department is legitimate, the Chief Examiner, or one of his six assistants, is required to visit the property of the company, whether located in Ohio or elsewhere, upon which the security is predicated, and make an exam- ination of the physical assets of said company and the reputation of its officers. He is then required to submit a report in writing of the result ,of his investigation. In the line of their said duties, these examiners have in the past year traveled all over the United States and Canada. During the past year, applications have been received from several mining companies whose securities were predicated! upon property located in Mexico, but on account of the unsettled governmental conditions ex- isting in that country, it was deemed inadvisable to make inspections as in other cases; hence the same were not accepted or considered. While this may seem a hardship, it is the policy of the Department not to cer- tificate any proposition until a written report concerning same has been placed on file by one of the examiners after a personal investigation has been made. This policy applies to every application made, and so far as the Department is informed, Ohio is the only "Blue Sky" State which in- sists upon making an examination of the physical assets of the corpora- tion and a personal investigation as to the good business repute of those in charge before taking final action, and it is felt that the results obtained justify the Department in taking this position. Some securities might possibly be favorably passed upon without the expense and delay of an examination ; yet experience has taught us that even conscientious per- sons, when vitally interested in any particular proposition, are disposed to allow their enthusiasm to lead them to make representations which do not, in a great many cases, conform to the facts procured by an examiner who has no friends to reward or enemies to punish. OHIO 589 Worthy Investments Not Hindered Concerning the intent, essence and results of the law, one thought has always been uppermost and that is to administer it uniformly and equitably, and to this end, we have had the cooperation of all fair- minded and honest business men, as they have been quick to realize that to stabilize all business strengthens greatly each particular enterprise. For instance, — a bank failure in any part of the country reacts on the confidence in banks in general. Applicants having a fair plan of organ- ization, with competent and reputable men in charge, and with a feasible system for operation, have no trouble in getting their propositions promptly acted upon. The law, though restrictive, gives the Commissioner much latitude, and, so long as a business is placed on a high plane and is to be conducted primarily for the benefit of the investors, no legal hindrance is in the way. All applications relative to business undertaking of this nature can be acted upon without delay, and no onerous conditions are exacted to cover future activities of such undertakings. When, in the opinion of the Commissioner, such conditions are necessary, they must be ac- cepted in writing before the certificate becomes effective. Safeguards To Investments A business may be hazardous and exceedingly speculative, and while it is not the intention of the law to remove such features, yet the Commissioner primarily acts as the mediator for the' purpose of making sure that the investor's money goes to develop the enterprise, less a reasonable amount paid for the sale of the stock, services rendered, etc. With these conditions prevailing, and with competent management, there is nothing either morally or legally wrong in allowing each individual who is mentally well balanced to determine as to the propriety of in- vesting. While it has been necessary in a great number of cases for the Commissioner to substantially reduce the amount of stock to be issued for promotion, services, patents, contracts, etc., and in some cases, eliminate such stock allotments altogether, as well as refuse certifications until all leases are legally executed and recorded, all patents duly granted and assigned to the corporation, all contracts properly executed, and to absolutely refuse certifications in other cases, yet there has not been a single appeal taken from the decisions of the present Commissioner to the Courts, as provided in the law. The Commissioner has endeavored at all times to be fair and reasonable with all applicants in enforcing the restrictive measures of the said "Blue Sky" Law, and the absence of appeals to the Court is an indication to the Department that care has been used to the end that no worthy business is being unnecessarily re- strained. 590 OHIO Securities Held In Escrow It is a common practice for promoters to secure patent rights, mineral lands, or other properties of probable value, and organize a com- pany to develop the same. The promoter usually seeks a generous block of stock in the company in payment for said rights. In many cases where the promotion stock is not refused outright, but where he is right- fully entitled to a reasonable compensation, the Department has followed the policy of requiring said promoter to escrow his stock, either with the Department itself, or with an individual or trust company designated by it, until such time as his company has fulfilled certain specific prom- ises made to investors or has earned and paid a certain amount of dividends. Because of this policy, the Department is either holding itself, or has caused to be held in the hands of trustees, $12,487,400 worth of securities in escrow, which practice not only prevents the promoters from disposing of stock, with possible injury to the company, until after they have proven the worth of the property by actual earnings, but also stimulates their best efforts in behalf of said company. Law Is An Aid To Investors The the enactment of the law has been more than justified and that its benefits are fast multiplying is attested by the fact that hundreds of letters are received from prospective investors with reference to the purchase of stock about which they have been approached. While the stock of any particular corporation is never recommended, yet the in- vestors are becoming more and more discerning and critical, and often refuse to buy if the agent can not produce the card issued to him by the Department, such card or license being issued yearly to each and every agent acting as such, through the appointment by the Commissioner under and by virtue of the licenses granted to the different licensees. The usual inquiries are: Has this stock been certified? Can it be legally sold in Ohio? Etc. Exemptions Are Provided Upon application, when certain provisions of the law can be com- plied with, the applicant is entitled to an exemption from certification, after affidavit is made to certain facts. The principal exemption, which applies only to Ohio corporations, provides that the securities must be sold by the issuer, without any commission, at a total expense of not more than two per cent plus $500, and that none of the stock may be issued directly or indirectly in payment for patents, services, good will or for property not located in Ohio. One can readily see that when practically one hundred cents of every dollar of the investor's money goes to develop the business, it is not a OHIO 591 case for investigation by the "Blue Sky" Department, although rigid examinations are made of such applications in order that the Depart- ment may determine as to whether or not the applicant isi legally entitled to claim the exemption and is fully complying with the intent of the law. An exemption is also provided when the securities to be issued are underwritten, and ninety per cent, of the price at which the securities are to be sold has been paid in ca^h or its equivalent previous to such sale. This exemption is never granted except when a certified copy of the contract between the issuer and the underwriter covering the transac- tion has been submitted. If the applicant can qualify as a successful and going manufacturing, cpal mining, transportation or quarrying concern, when a part, or all, of the property upon which the securities are predicated is located within this state, exemptions are also granted as provided by law. Total Securities Approved These, with a few other less important exemptions, form the basis for eight hundred and ninety-seven exemption applications which were passed upon favorably by the Department during the year just passed. The total par value of stock thus authorized for sale in Ohio during the year is $234,950,240.00. During the same period the Department examined three hundred and nineteen applications for Certificates of Corporate Compliance and the issuance of $109,314,026.00 of securities was authorized. Applicants in many cases sought the certification of much larger amounts of stock, but, after careful investigations by the Department, reductions were re- quired, which approximate $50,000,000.00. The total number of all cases passed upon favorably during the year is one thousand two hundred and sixteen, authorizing the disposal of $344,264,266.00 of securities in this State. The authority to issue certain other securities does not come under the jurisdiction of this Department, such as commercial paper, stock of national banks, securities authorized by the Public Utilities Commission of Ohio, and Building and Loan Companies, Banks and Trust Companies organized under the laws of this State. Hearings Are Held In a great many cases, before a certificate is either granted or re- fused, it is necessary to give the applicant a hearing. They are often represented 'by counsel, and in some of the more important cases a day or even longer is given up to this work before common ground can be reached and aflfairs so shaped as to give the Ohio investor the protection intended by the law, and at the same time be fair to the organizers. In at least ninety-five per cent, of the cases passed upon favorably during 592 OHIO the past year, the plans for financing the companies and for the sale of their securities, were altered at the suggestion of the Departmeat, which resulted in the direct benefit to the investors, not only of Ohio, but of other States as well. Some applications are refused outrig'ht, while a great many are withdrawn or abandoned after the applicants learn how critical and com- prehensive an examination is made of their affairs before final action is taken. The Department has dozens of inquiries from promoters, the ma- jority of whom operate in other States, relative to the rules and policy of the Department as to the sale of stock and foreign real estate in Ohio. When it is learned that it is necessary, before final disposition can be made of their proposition, to send an examiner to make an inspection of the physical assets of the corporation, as well as make a report as to what is learned concerning the reputation of the promoters from persons who know them,, and that the expense of such examination and investi- gation is to be borne by the applicant company, a very large percentage of these inquiries are never followed up with applications for certificates, which leads the Department to believe that, in a great majority of such cases, the financial structure or plans of these companies will not bear the light of a rigid examination. It is a self-evident fact that the people of Ohio are saved millions of dollars annually, which would otherwise be invested in some "fly by night" concern, visionary oil scheme, or in some distant mine which has no existence except on paper. Cases of Attempted Fraud A noteworthy instance arose during the past year in which the protection afforded to Ohio investors by the "Blue Sky" Law is shown in contrast with the lack of that protection in other States. A certain company sought permission to sell $5,000,000.00 of its stock in Ohio, the proceeds to be used in financing the manufacture of rubber by a cer- tain revolutionary process. Careful investigation by examiners of this Department revealed the impracticability of the process and gross un- fairness in the propoesd manner in which thd stock was to be sold. The company was refused permission to market its securities in this State. Later, said company sold nearly $600,000.00 of its security in one city alone of an adjoining State having no "Blue Sky" Law, and large blocks of the stock were also unloaded upon unprotected investors in other parts of the satne State, with the result that the entire amount of money paid for stock in said company was a total loss to the investors. The records of the Department reveal many similar instances where gross fraud was attempted in the sale of securities here, all of which were prevented by the operation of the "Blue Sky" Law. The amount of "securities" so rejected since the passage of this law approximate OHIO 593 $65,000,000.00, of which more than $25,000,000.00 were refused during the fiscal year just closed. Fraudulent Advertising One of the principal activities of the Department is to prevent secur- ities being sold illegally in Ohio through newspaper and circular letter advertisements. This work has been in charge of Samuel J. Black, Deputy Commissioner. The "Blue Sky" Law will never bring about the conditions intended, until those who are evidently afraid to submit their propositions to the scrutiny of the Department are forever prevented from using the newspapers and mails as a medium to sell, in a great many instances, worthless securities in this, or any other State, which has a similar law. Generally speaking, the newspapers of the State have shown the most friendly attitude in their efforts to aid the Department. Most of them feel that for every dollar received for advertising of this nature ten dollars are lost in good will, as the purchaser who is de- frauded does not soon forget the agency which carried the offer to him. The Department realizes that from the very nature of the business, the newspaper publisher cannot at all times determine the character of the goods or the securities offered for sale through the advertising medium of his paper; but it feels that he should at least discharge his obligation to his readers by exercising care to the end that such readers are not defrauded. The Department is now procuring evidence of repeated and suc- cessive transactions against certain individuals and stock-selling corpora- tions which are defying the efforts of the officers of, not only this, but other "Blue Sky" States as well, to prevent such advertising. When said evidence is complete, prosecutions will be instituted. Appeal To the Courts Dozens of letters have been written as a warning to violators to discontinue such offers of sale of securities, and we are pleased to re- port that, in the great majority of cases, the request has been complied with. But there are a few who have been openly defiant, and, as men- tioned, suits will be filed as soon as possible. The Court's decision will be awaited with much interest, not only by the citizens of Ohio, but by those of other States as well. Not until this nefarious practice is ended, can this and other States having similar laws hope to accomplish the great results which were intended. Law Should Be Strengthened This law has demonstrated that fraud and deception in the sale of securities can be practically eliminated. Legitimate corpoi'ations and dealers have become its most ardent supporters, and the investing public 38 594 OHIO will greet with hearty approval any amendment that will strengthen it and make it more efficient. Need of Spectal Examiner The entire time of the present force of Examiners is required in making investigations of new applications for the sale of securities, and, as it is also important to keep in touch with concerns making applications for exemptions, therefore, in view of the above facts, it is recommended that provision be made for the employment of a Special Examiner whose specialduty it will be to gather evidence and assist in prosecutions cover- ing the illegal circular letter and newspaper advertising, to investigate as to whether or not licenses and those to whom certificates have been granted are complying with the law, and particularly to investigate as to whether the conditions which are often imposed- by the Department be- fore it is justified in issuing a Certificate of Corporate Compliance, are being rigidly adhered' to. Forms State of Ohio, SECURITIES DEPARTMENT Form No. 1 Under an act passed by the legislature of the State of Ohio on the 28th day of April, 1913, as amended February 6th, 1914, as amended May 20th, 1915, and as amended March 21, 1917, entitled "An act to regulate the sale of stocks, bonds, and other securities, and of real estate not located in Ohio, and to prevent fraud in such sales." ^oeu. 6373-2, sub. F) 1 o the Commissioner of Securities of the State of Ohio : Th.e undersigned, President, and Secretary, of The " Company, a corporation formed and organized under the laws of the State of Ohio for the purpose of doing business in Ohio, in good faith and not for the purpose of evading the provisions of the Act of April twenty-eighth, 1913, entitled "An Act to regulate the sale of bonds, stocks, and other securities, and of real estate not located in Ohio, and to prevent fraud in such sales," and as amended February sixth, 1914, as amended May twentieth, 1915, and as amended March twenty-first, 1917, purposes to dispose of $ of an authorized issue of $ (Common or Preferred) Stock. No part of the issue of which this,$.. is a part, is OHIO 595 issued directly or indirectly in payment for patents, services, good will, or for property not located in Ohio, and the disposal is to be made for the sole account of the issuer, without any commission, and at a. total expense of not more than two per cent, of the proceeds realized there- from, plus five hundred dollars. The entire capitalization of the cor- poration is $ stock. (Common or Preferred) State of ) County of I ^' ' Personally appeared before me, a Notary Public in and for the above named county, , who being duly sworn say. . that the statements above set forth are true to the best of knowledge and belief. President Secretary Subscribed and sworn to before me this day of 191.. , ■ Notary Fublic My commission expires State of Ohio, SECURITIES DEPARTMENT Form No. 1-a Under an act passed by the legislature of the State of Ohio on the 28th day of April, 191S, as amended February 6th, 1914, as amended May 20th, 1915, and as amended March 21, 1917, entitled "An act to regulate the sale of stocks, bonds, and other securities, and of real estate not located in Ohio, and to prevent fraud in such sales." (Sec. 6373-2, sub. F) To the Commissioner of Securities of the State of Ohio: The undersigned, incorporators of The Company, a corporation to be organized under tbe laws of the State of Ohio and formed for the purpose of doing, business in this state, in good faith and not for the purpose of avoiding the pr/ovisions of the Act of April 28, 1913, entitled "An act to 596 OHIO regulate the sale of bonds, stocks, and other securities, and of real estate not located in Ohio, and to prevent fraud in such sales,'" and as amended February 6, 1914, as amended May 20, 1915, and as amended March 21, 1917, purposes to solicit subscriptions to the amount of $ of an authorized issue of $. stock. No part of said issue, of which this (Common or Preferred) $ is to be a part, is to be issued, directly or in- directly, in payment for patents, services, good will, or for property not located in this state. The solicitation is to be made for the sole account of the corporation; without any commission and at a total expense of not more than two per centum of the proceeds realized therefrom plus five hundred dollars. State of . . County of } Personally appeared before me, a Notary Public in and for the above named county incorporators of the Company, who being duly sworn say that the statements above set forth are true to the best of their knowledge and belief. Subscribed and sworn to before me this day of 191.. Notary Fublic State of Ohio, SECURITIES DEPARTMENT Form No. 2 To the Commissioner of Securities: The undersigned a Name State whether corporation, partnership or individual hereby applies for a license as a Dealer under the Act of April 28, 1913, as amended February 6th, 1914, as amended May 20th, 1915, and as amended March 21, 1917, entitled "An act to regulate the sale of bonds, OHIO 597 stocks, and other securities, and of real estate not located in Ohio, and to prevent fraud in such sales". For the purpose of procuring said license applicant makes the fol- lowing statement of fact. Applicant's principal office is located at No Street, City of State of , and its principal place of business in the state of Ohio at No Street, City The following are suggested as five references as to applicant's busi- ness repute and the business repute of applicant's directors, officers, partners and agents. Do Not Give Attorneys Or Officers of the Company As References NAME ADDRESS Has applicant heretofore been licensed?. : If so, give the serial number of license State briefly the general plan and character of the business of ap- plicant, specifying the nature of property in which it is proposed to deal, and method of transacting business, whether by personal solicitation, advertisement, . correspondence or otherwise, whether as principal or broker. 598 OHIO Applicant desires to name the following persons as agents : NAME P. O. ADDRESS (Street and Number) There is attached hereto and made a part hereof (a) The names of officers and directors if a corporation and partners if a partnership, (b) Certified copy of articles of incorporation. (If not an Ohio cor- poration.) (c) Copy of regulations and by-laws. (If not an Ohio corporation.) (d) Certified copy of articles of co-partnership, or of association, or deed of settlement. (Strike oat papers not enclosed.) There is enclosed herewith FIVE DOLLARS, being the fee due on filing this application together with the proof of publication of notice of the filing of the application. (Sign here) (1) (seal) • (1) If applicant is a corporation, corporate name must be signed and seal affixed by Secretary, attested by President. If applicant is an association, the name must be signed by the officers duly authorized to execute papers on behalf thereof.. If applicant be a co-partnership, the names and addresses of all partners must be signed. CONSENT TO SERVICE OF JURISDICTION Know All Men By These Presents : That the undersigned (Insert name under which business is transacted) a (Give legal designation of applicant, whether a corporation, co-partnership, or individual) being an applicant for license as a dealer in securities under an act en- titled "An act to regulate the sale of bonds, stocks, and other securities, and of real estate not located in Ohio, and to prevent fraud in such sales," passed April 28, 1913, as amended February 6, 1914, as amended May 20, 1915, and as amended March 21, 1917. OHIO 599 Does hereby irrevocably consent that any action brought against the above named applicant arising out of and founded upon the fraudulent disposal of any such securities or property by him or his agents, may be brought in any court in Franklin County, Ohio, having jurisdiction ot the subject matter, and that in the event proper service of process cannot be had upon such applicant in any such proceeding in such county, service of process made therein by the sheriff of such county, by sending a copy thereof by registered mail, at least thirty days prior to taking judgment in such case, addressed to such applicant at the place of his principal office named in his application filed herewith, or such other place as the above named applicant may hereafter designate in writing filed with the "Com- missioner," shall have the same effect as if personally made upon the applicant in said county of Franklin according to the laws of the State of Ohio. In Witness Whereof, the above named applicant has caused this instrument to be signed at on the. . i day of , in the year 19 (seal) NOTE: — If applicant is a partnersliip, all partners must sign. If a cor- poration or association, the application must be signed by two oificers of the applicant, duly thereunto authorized, by resolution of the board of directors in the form hereto attached, a copy of which must be filed herewith, certified by such officers. State of . . County of } Personally appeared before the undersigned, a notary public in and for the above named County and State, the day and date above named, and acknowledged the execution of the foregoing instrument to be the voluntary act and deed of such applicant for the purposes therein set forth (if applicant is a corporation or association the following) and that they are and , respectively, of such corporation, and are duly authorized to execute the foregoing instrument. Notary Public in and for. County, State of (notarial seal) 600 OHIO RESOLUTION Copy of Resolution adopted by a corporation, at a meeting of its board of directors, held at ,on the day of , 19 pursuant to notice. Be It Resolved, That and , President and Secretary, respectively, of be authorized and directed to execute for and on behalf of said Company, for the purpose of obtaining a license as a dealer in bonds, stocks and other securities and in real estate not located in Ohio an irrevocable consent, that any action brought against such ap- plicant arising out of and founded upon the fraudulent disposal of such securities or property by such corporation be brought in Franklin County in any court having jurisdiction of the subject matter, and that in the event proper service of process cannot be had upon this corporation in such county that service of process made therein by the sheriff of said county, by sending a copy thereof by registered mail, at least thirty days prior to taking judgment in such case, addressed to this corporation at its principal office named in such application, shall have the same effect as if personally? made upon this corporation in such county according to the laws of the State, of Ohio. It is hereby certified that the foregoing is a true and correct copy of a resolution adopted by , a corporation, on the day of , at Attest: ■ • Secretary (seal) President NOTE: — This resojution is required only when applicant is a corporation. OHIO 601 State of Ohiio^ SECURITIES DEPARTMENT Form No. 3 (Sec. No. 6S7S-4) NOTICE Know all men that'. a corporation organized under the laws of an association, a co-partnership, an individual, doing business under the name of with its or his principal place of business at has applied on the day of , 191.., to the Commissioner of Securities of the State of Ohio for a license to deal in , and in which application the following persons were named as agents : NOTE ; — Strike out description not applicable. Postoffice addresses of agents must be published. PROOF OF PUBLICATION One publication only. Attach notice here. Form No. 3 (a) State of "1 . County of J ■ being duly sworn, says that he is of the publisher of a newspaper published daily and of general circulation in , Ohio, and known as the and that the attached notice was published in said news- paper on the day of , 191. .. Sworn to before me and subscribed in my presence this, day of..: , 191... Notary Public. NOTE:— This proof must be forwarded with application for license. 602 OHIO State of Ohio, SECURITIES DEPARTMENT Form No. 4 (Sec. 6373-9, 10 and 14) The statement and information herein set forth is directed to the Commissioner of Securities under the Act passed by the Legislature of the State of Ohio, on the 28th day of April, 1913, as amended February 6, 1914, as amended May 20, 1915 and as amended March 21, 19l7, en- titled "An Act to regulate the sale of stocks, bonds, etc., etc., concern- ing the securities of (1) l a (2) Said securities are (3) 1 — Has the issuance of these securities ' been approved by the public service commission or like body of any state of the United States or any Province of the Dominion of Canada? 2 — Is the disposal to be made by or on behalf of an underwriter who, in good faith and not for the purpose of avoiding the provisions ot this Act, purchased the securities paying therefor in cash or its ^ equivalent, before any attempt is made to dispose of them, not less than ninety per ' centum of the price at which the securities will be disposed of? 3 — Are the securities those of a common carrier or of a company organized under the laws of this state and engaged principally in the business of manufacturing, transportation, coal mining or quarrying, and is the whole or a part of the property upon which such securities are predicated within this state? 4 — Are the securities those of a real estate or building company and is all of the property upon which such securities are predicated, located in Ohio ? « 5— Has the information regarding these securities, required on pages 2 and 3, been filed by any other licensee? If so, by whom ? 6— Have actual current sales of these securities at prices quoted, been, from time to time, for not less than one year next preceding this disposal, published in the tabulated market reports of the news columns of a daily newspaper published and of general circulation in this State I 7— Are these securities those of manufacturing or transportation Com- panies, or of Common Carriers or other public utilities and were they issued and outstanding in the hands of bona fide purchasers for value, prior to March 1. 1914, and were said companies on said date and will said companies be at the time of sale, actual going (1) — Insert the name and location of Issuer. (2)— State whether "issuer" is a corporation, association or partnership. (3) — State kind and amount of the issue. OHIO 603 concerns, either directly, or through lessees, and will there be, at the time of sale, no default in payment of any part of the interest or principal of such securities? 8— Is the information required, other than the approximate selling price contained in any standard Manual of Information approved by the Commissioner? 9 — Is the disposal to be made for a commission of less than one per centum of the par value thereof, by a licensee who is a member of a regularly organized stock exchange having an established and law- fully conducted place of business in this state, regularly open for public patronage as such? 10 — Are the securities those of a taxing subdivision of any state, ter- ritory, province or foreign government, and the obligation of the entire taxing subdivision payable out of the proceeds of a general tax? The above statements are true to the best of .-. . . .knowledge and belief and are made for the guidance of the Commissioner. (Sign Here) (4) (4) — Signature of licensee. . (Sec. 6373-9, 10 and 14) The information set forth in the following statement of fact is made to the Commissioner of Securities under an act of the Legislature of Ohio passed April 28, 1913, entitled : "An act to regulate the sale of bonds, stocks, and other securities and of real estate not located in Ohio, and to prevent fraud in such sales," as amended February 6, 1914, as amended May 20, 1915 and as amended March 21, 1917. To the Commissioner of Securities : The name of the issuer is The principal office is located at , State of The names of the officers, directors or partners are : 604 OHIO The following statement in general detail, correctly exhibits the resources and liabilities, surplus and capital stock of the issuer, as of a date as late as the close of the last fiscal year, and of its gross income, expenses, net earnings and fixed charges, for one year last prior thereto, or for such time as the issuer has been in business if less than one year. Resources. Dollars. Cts. Liabilities. Dollars. Cts. Bills receivable. - ~ - - - - - Capital paid up. — - - ~- — - — Real estate, Surplus, - - - Personal property. Undivided profits, Stocks, bonds and other securities, Bills payable, - - - - Merchandise . Accounts payable, Cash on hand, Bonded indebted- ness, X)ue from banks, - - Encumbrance on real estate or plant, Accounts receiv- able. Judgments, Total Total 'The following is a pertinent description of the securities and the purpose of the issue State of . , County of I- ..., President, and I, ^ Secretary, of the above-named corporation, do solemnly swear that the above is a full and complete statement of the resources and liabilities of said cor- OHIO 605 poration as shown by the books of the same, and that said statement and the several matters and things contained in this statement are true in every particular, to the best of my knowledge and belief. President. Secretary. Subscribed and sworn to before me, this day (seal) of , A. D. 191... Notary Public. (My commission expires... ; 191...) State of Ohio, SECURITIES DEPARTMENT Form No. 4-a (Sec. 9) The information set forth in the following statement of fact is made to the Ojmmissioner of Securities under an act of the Legislature of Ohio passed April 28, 1913, entitled : "An act to " regulate the sale of bonds, stocks, and other securities and of real estate not located in Ohio, and to prevent fraud in such sales." To the Commissioner of Securities : The name of the licensee is holding license No The principal office is located at State of The following is a pertinent description of the securities and the purpose of the issue and the approximate price at which the licensee purposes to dispose of the security If the securities be of a taxing subdivision' of any other state, territory, province or foreign government, and are not an obligation of the entire taxing subdivision and payable out of the proceeds of a general tax, the licensee must set forth the nature of the obligation of such securities, how payment of the same is secured and that, to the best of his knowledge, there is no default in the payment of any part of the interest or principal of such securities, and there are no adjudications adversely affecting or pending suits questioning the validity of the same, and the approximate price at which licensee pur- poses to dispose of such securities. 606 OHIO State of "1 gg . County of J I ' .■.......••.■...>.••■■••••*<•>..••• ....•••••••• ..■.••■•- '*) do solemnly swear that the several matters and things contained in this statement are true in every particular, to the best of my knowledge and belief. Subscribed and sworn to before me, this day (seal) of , A. D. 191... Notary Public. (My commission expires 191 . . . ) State of Ohio, SECURITIES DEPARTMENT Form No. 5 (Sec. 6373-14-16) To the Commissioner of Securities of the State of Ohio: Under an act passed by the legislature of the State of Ohio on the 28th day of April, 1913, as amended Feb- ruary 6th, 1914, as amended May 20th, 191£, and as amended March 21, 1917, entitled "An act to regulate the sale of stocks, bonds, and other securities, and of real estate not located in Ohio, and to prevent fraud in such sales." There is attached hereto and made a part hereof : (a) Certified copy of the articles of incorporation or association of the issuer, its regulations and By-laws. (b) Certified copies of all the minutes of stockholders and directors relative to the issue of such securities. (c) Fee due for filing the application five dollars. The following statement sworn to by the President and Secretary of the issuer of such securities, shows in detail the items of cash, prop- erty, service, patents, good will and any other consideration for which such securities have been or are to be issued in payment. 1st. That its principal business office is located at , and that it has branch offices at OHIO 607 2d. That it was incorporateid on the day of 19. ., under the laws of the state of ., with an au- thorized capital stock of $ , divided into. shares of common and shares of preferred,' with a par value of $ each; and that it has an authorized bond issue of $ 3d. That the following is a full and correct statement of its capital stock and securities on this date : Authorized Capital I Common Stock, $ Preferred Stock, $. Issued and Outstanding, / Common _ Stock, l Bonds authorized, $. Bonds issued $. Preferred Stock, $. Other securities called. Authorized, $ Other securities called ., Issued, $ 4th. That the following is a true and complete statement s'howing the consideration received from the stock issued and outstandiag to date : COMMON STOCK No. Shares. r-r^T. f *Actual Value. Remarks. !■ 1 Plant Commissions ' * This column should specify the actual amount of cash or notes received, or the actual value of real estate, etc., received in exchange for stock issued, and should correspond with value at which these different items were 'given in to the company and carried on the books. 608 OHIO PREFERRED STOCK No. Shares. Actual Value, Remarks. Notes PJaii* Commissions Salaries liividc ds Totals ' BONDS No. Shares. Actual Value. Remarks. PaqI 1? state Plant Totals OHIO 60d 5th. Attached hereto, marked Exhibit A, is a statement describing fully the real lestate, plant, equipment, patents, promotion, organization or other consideration, and the amount and kind of stock issued therefor. 6th. That the following is a complete and correct statement of its entire assets and liabilities, at date of this statement. ASSETS Amount. Write Nothing in this Column. Real Estate .... Cash on Hand.. . Total LIABILITIES Amount. Write Nothing in this Column. Com'n Stock outstanding. Pref'd Stock outstanding. Bonds outstanding Mortgages Bills Payable Accounts Payable Sinking Fund or Reserve. Surplus Other liabilities as follows Total , 7th. That attached hereto, marked Exhibit B, is a true and correct trial balance sheet of its books on the date of the above statement. 39 610 OHIO 8th. That the following is a true statement of its profit and loss account for the months prior to this date: (6 or 12^ Loss. Profit. Undivided Profits 19.... Gross earnings. (Specify Dividends, Common Stock Dividends, Preferred Stock... ....per cent Interest borrowed money Gain Total Total .. . . .. 9th. That attached hereto, marked Exhibit C, is a true and com- plete statement of its receipts and disbursements for the past months, as shown by its books. (6 or 12) 10th. That the following is the general plan upon which the com- pany is doing and intends to dp business, and the purposes for which said securities are to be sold : 11th. That- it has adopted the following plan for the sale of its stock : 12th. The following documents attached hereto are made a part hereof : 1. A copy of all contracts, stocks and bonds or other se- curities which it proposes to make, sell or negotiate to sell to its contributors. 2. Sample copies of all literature or advertising matter used or to be used by such company in the sale of its securities. OHIO 611 13th. That the following is a true statement in regard to its officers and directors : Address. No. Shares and Bonds Owned. "•a . <3 u d V >< a 1 o ■s Name. d B o U u § .§c3 President. v'ice President. Secretary. Treasurer. General Manager. Trustees and Directors. 1. 2. 3. i. 5. 6. 7. 8. 9. 10. 14th. That its securities will be sold for the following-named prices and on the following terms, and will not be sold at any other price or on any other terms without the consent of the Commissioner of Securities 612 OHIO 15th. That attached hereto, marked Exhibit , is a true and complete copy of each contract made, or which will be made, with aijy person, officer, agent or other representative of this company for the sale of its securities ; and that there are no agreements, understandings or contracts, either verbal, written or implied, by which any one has re- ceived, or is to receive, any cash, stock, securities or other compensation for the sale of its securities, for its promotion, or for any other causes except as specified in this application and its several exhibits attached, and that all of the stock securities of this company will be sold or dis- posed of for cash or its equivalent, as provided in the contracts of agree- ments attached, except as herein excepted. Remarks : In Testimony Wsereof, we have hereunto set our hands and af- fixed the official seal of this company, this day of 19.... (seal) By. (Company) President. Attest : Secretary. State of County of ss. President, and Secretary of the Company of , of lawful age, being first duly sworn, depose and say that they have each read the foregoing application and know the contents thereof, and that the statements and allegations therein contained and attached are true. Subscribed and sworn to before me this the. day of 191.. President. Secretary. Notary Public. ( My commission expires , ) OHIO 613 To the Commissioner of Securities of the State of Ohio: The undersigned a (1) having filed with the Commissioner all the information required pertain- ing to its securities respectfully asks that said Commissioner issue the certificate as provided in Section 16 of the act giving permission to sell its securities as follows : $ Common StocE $ Preferred stock $ Bonds $ Other securities (2) (1) State whether applicant is a corporation, partnership or individual. (2) If applicant is a corporation signature should be of corporate name signed by President and Secretary. If a partnership by all part- ners and if an individual by the individual. State of Ohio, SECURITIES DEPARTMENT Form No. 6 To the Commissioner of Securities: A fee of $5.00 must be paid when this application is iiled. The undersigned a (1) ; desiring to obtain permission to offer for sale and to sell real estate not located in Ohio, to residents of Ohio, herewith submits for the guidance of the "Commissioner", information with regard to said real estate as follows, to-wit: (1) If applicant is an individual insert the word "individual". If applicant is a corporation insert the word "corporation",, giving state under the laws of which it is organized. If a partnership insert the word "partnership". LOCATION OF LAND OFFERED FOR SALE It is located in the State of , County of Total number of acres described as follows, to-wit : , ; . . . 614 OHIO Acres upland ; acres bottom land ; acres cultivated ; acres capable of cultivation ; acres grass ; acres tittiber The land is watered by and subject to overflow. The general character and quality of the soil is What is now growing on the land?. What ar6 the principal products ? . . . Value per acre of average crop is How long has part or all of this land been under cultivation?. In whom is the title now vested? When did the present owner purchase said land?. At what price? ; Cash ; Trade What is the present cash value per acre without improvements?. What is the assessed value without improvements? What is the selling price per acre of improved land in the vicinity?. Are there any existing liens against said land? How long have you had actual and peaceable possession of said land? What is the nearest railroad station? DESCRIPTION OF LAND General surface YVh^t is the spil — sandy loam, clay Iparn or clay?. OHIO 615 How deep is the soil? How deep is the subsoil ? How is the land watered? Is any portion stony, gravelly, alkaline, wet, heavy, or in any other way unfit for cultivation? (State fully which and number of acres of each.) Does the cultivated land lie all in one body? If not, in how many pieces and how located? (Show on plat.) What improvements have you made since buying the land?. What was produced on said land in 1914?. 1915? 1916? Is the land now mortgaged ? What is the selling price per acre ? Attached hereto are the following papers, documents and statements : 1st. Abstract of title, and legal opinion on same. 2nd. Sample copies of all literature or advertising matter used or to be used in the sale of its land. In what size tracts do you sell the land ? 616 OHIO Have you platted your entire tract? Are you selling the inferior tracts at the same price you charge for the balance? (Explain fully what you did with the waste and inferior land.) What is your selling price per acre and on what terms? (State fully.) Will you, when requested by the "Commissioner", pay the necessary ex- penses of examination of said land ? OHIO 617 18th. That the following is a true statement in regard to its officers and directors : Name. Address. B III 1 U a a. b n) (J O 9 >; If iJ President, Vice President. Secretary, Treasurer, General Manager, Trustees and Direc- tors, 1. 2. 8. 4. 6. 1 6. 7. 8. 9. 10. 19th. That its land wil! he sold for the following-named prices and on the following terms, and will not be sold at any other price or on any other terras without the consent of. the "Commissioner"; 20th. That attached hereto is a true and complete copy of each contract made, or which will be made, with any person, officer, agent or 618 OHIO other representative of this company for the sale of its land; and that there are no agreements, understandings or contracts, either verbal, writ- ten or implied, by which anyone has received, or is to receive, any cas'h, land, securities or other compensation for the sale of its land, for iSie promotion or for any other causes except as specified in this application and its several exhibits attached, and that all of the land of this com- pany will be sold or disposed of for cash or its equivalent, as pfovided m the contracts or agrefemtnts Attached, except as herein excepted. Remarks : Wherefore, your petitioner, in view of the showing herein made, does respectfully pray that authority be granted it to sell its land in accordance with the provisions of the law. In Testimony Whereof, We have hereunto set our hands and affixed the official seal of this company, this the „ day of 191... Company, (seal) By President. Attest: Secretary. State of County of , ss. President, and Secretary of the Company of , of lawful age, bfeing first duly sworn, depose and say that they have each read the foregoing application and know the contents thereof, and that the statements and allegations therein contained and attached are true. President. Secretary. Subscribed and sworn to before me this the day of .^...^:. ,.;..... 19i;. Notary Public. {Wy cotninission fcxpites ) OHIO 619 State of Ohio^ SECURITIES DEPARTMENT Form No. 7 To the Commissioner of Securities: The undersigned, holder of License No hereby applies to amend and supplement said license by adding thereto the name of as agent. Dated at day of 191... NOTE: A fee of five dollars for each name requested to be added to said license mtist be remitted with this application. The license cannot be amended under the law until after proof 'of pub- lication of notice of the filing of the application has been iiled with the department. NOTE: Post office addresses of Agents— toth business and residence must be furnished. State of Ohio, SECURITIES DEPARTMENT Form No. 8 NOTICE Know all men that a corporation organized under the laws of an association, a co-partnership, an individual, doing business under the name of and holder of license No with a place of business at has applied on the day of , 191 .. , to the Commissioner pf Securities of Ohio for leave to amend such license by adding thereto the names of the following persons as agents : NOTE: Strike out description not applicable. Post office addresses of agents must be published. f 620 OHIO ONE PUBLICATION ONLY ATTACH COPY HERE PROOF OF PUBLICATION State of ~1 CouNTYj ^^•- , being duly sworn, says that he is of the Ipublisher of a newspaper published daily and of general circulation in , Ohio, and known as the , and that the attached notice was published in said newspaper on the day of 191... Sworn' to before me and subscribed in my presence this, day of , 191... Notary Public. NOTE: Send copy and proof of publication with the application and $5 liling fee for each agent. State of Ohio, SECURITIES DEPARTMENT Form No. 9 To the Commissioner of Securities of Ohio: The undersigned holder of License No hereby applies to amend said license by striking out the name of as agent. Dated at day of 191 .. . NOTE: A fee of two dollars must accompany this application. Notice of the application must be published and proof of publication filed in this department before the application can be acted upon. OHIO 621 State of Ohio, SECURITIES DEPARTMENT Form No. 10 NOTICE Know all men that a corporation organized under the laws of , an association, a co-partnership, ah individual, doing business under the name of and holder of license No with a place of business at has applied on the day of 191. ., to the Commissioner of Securities of Ohio for leave to amend such license by striking out of the same the names of the following persons as agents : NOTE: Strike out description not applicable. ONE PUBLICATION ONLY ' ATTACH NOTICE HERE PROOF OF PUBLICATION State of , being duly sworn, says that he County '' ^^' ' is of . . the publisher of a newspaper published daily and of general circulation in , Ohio, and known as the and that the attached notice was published in said newspaper on the day of 191... Sworn to before me and' subscribed in my presence this, day of , 191... Notary Public. NOTE: Send a copy and proof with applicatioii and a iiling fee of $2. 622 OHIO Opinions of the Attorney General OPINION OF THE ATTORNEY GENERAL, AUGUST 6, 1913 (Vol. I, Atty. Gen. Rep. 1913, p. 852) Section 12 of what is commonly known as the Blue Sky Law, 103 Ohio Laws 743, found on page 749 is as follows : "No person or company shall, for the purpose of organizing or promoting any insurance company, or of assisting in the flota- tion of its stock after organization, dispose or offer to dispose, within this state, of any such stock, unless the contract of subscrip- tion or disposal shall be in writing, and contain a provision sub- stantially in the following language : " 'No such sum shall be used for commission, promotion and organization expenses on account of any share of stock in this com- pany in excess of per cent, of the amount actually paid upon separate subscriptions (or, in lieu thereof there may be in- serted, "$ per share from every fully paid subscription,") and the remainder of such payments shall be invested as authorized by the law governing such company and held by the organizers (or trustees as the case may be) and the directors and officers of such company after organization, as bailees for the subscriber, to be used only in the conduct of the business of such company after having been licensed and authorized therefor by proper authority.' "The amount of such commission, promotion and organization expenses shall in no case exceed fifteen per cent, of the amount actually paid upon the subscription. "Funds and securities held by such organizers, trustees, di- rectors or officers, as bailees, shall be deposited with a bank or trust company of this state or invested as provided in sections ninety- five hundred and eighteen and ninety-five hundred and nineteen of the General Code until such company has been licensed as afore- said." Section 23 of said Act found on page 753 is as follows: "Nothing herein contained shall be so construed as to impair the obligation of prior contracts." The question in brief is does Section 23 allow persons or companies, for the purpose of organizing or promoting any insurance company to dispose or offer to dispose, within this state, of any stock in any such insurance company unless the contract of subscription or disposal of such stock shall be in writing and contaiii the provision provided in Sec- OHIO 623 tion 12. In other words, if such persons or companies have entered into contracts with other persons or companies to sell their stock at a larger commission than the amount prescribed by the statute are such contracts excepted from the operation of the law and said companies allowed to sell stock without the restrictions imposed by the law. Section 23 of the Blue Sky Law above quoted is certainly no stronger and can be given no broader effect than the provisions of our Constitu- tion, Section 28 of Article II, which is as follows : "The General Assembly shall have no power to pass retroactive laws, or laws impairing the obligation of contracts ; but may, by general laws, authorize courts to carry into effect, upon such terms as S'hall be just and equitable, the manifest intention of parties, and officers, by curing omissions, defects, and errors, in instruments and proceedings arising out of their want of conformity with the laws of this state." Indeed", it can only be regarded as a reiteration of said Constitutional provision, which is also found in the Constitution of the United States. It is contended that section 23 of the Act operates to exempt from its provisions all contracts made prior to its going into effect. Upon consideration it is difficult to see how this could be its effect. The evident purpose of the general assembly in enacting this section was to furnish a rule of construction to the courts, with -a view to preserving the validity of the act against possible attack; fearing, no doubt, that without such provision some part of the act, literally construed, might be in derogation of the constitutional inhibition against impairment of the obligation of contracts. That this must 'have been in the mind of the general assembly is apparent when we consider that either with or without this section any law impairing the obligation of prior contracts would be invalid. While, in the aljsence of this provision, if the courts should find that the legiti- mate construction to be placed on the language of the act was that it sought to impair the obligation of contracts, the courts, of necessiy, must declare the act invalid. Since the language of the) constitution is used in the statute, it must be supposed that the general assembly had in mind the construction that the courts have placed upon the constitutional provision, and that it used the words "impairment" and "obligation" as these terms had tliftretofore been judicially defined. The section does not purport to be otie of exemption, taking out certain classes of contracts fronl under the operation of the statute, but assumes merely to lay down a rule of construction. With or without it, the Eict would be powerless to impair the obligation of contracts, but; in its absence,' the courts might have held that the effect Of the statute 624 OHIO would be to attempt to do this thing, and that therefore the act would be repugnant to the constitution. As will be observed from the cases hereafter cited, the State, in the exercise of its police power, may lawfully prohibit the doing of an act even though individuals may have theretofore contracted between themselves to do it; and this prohibition by the State is not construed to be within the constitutional inhibition, even though thereby the carry- ing out of such private contract is made impossible. The power of the State is neither extended or abridged by the sec- tion in question. In the case of the contract in question, moreover, it is apparent that its obligation is in no wise impaired, even if we should take of the section under consideration the well nigh impossible view that it is one of exemption rather than of construction. The obligation of the contract referred to is not impaired.' It is only within this State that the act undertakes even to impose conditions upon the sale of stock. Both the corporate principal and the agent, or the company and the underwriter, as the case may be, can proceed to sell the company's stock under the terms of their contract any where else in the world; and, even in this State, the statute does not attempt to impair the obligation of the contract, as between the parties, but only to prevent the iagent from doing a thing as regards third parties, which it is admitted that .the principal cannot do. To put any other construc- tion than this upon the statute would be to say that while a corporation of Illinois cannot sell its stock within this State without complying with the statute, yet, if it had, prior to the 8th day of August, entered into a contract with somebody else to sell its stock for it, this act, prohibited to the principal, could be performed within our borders by the agent without let or hindrance. The mere statement of this absurd proposition furnishes its own refutation. In the light of the authorities cited, it is clear that where the State has, within the proper exercise of its police power, prohibited the doing of a certain act, such prohibition is not in conflict with the constitutional provision referred to, even if private contracts have been entered into for the doing of the prohibited thing. How, then, can it logically be contended that the passage of an act, admittedly within the legitimate exercise of the State's police powers, prescribing conditions under which a* sale of stock may be made within this State, is in derogation of such constitutional provision? Especially in view of the fact that there is nothing within the terms of the contract itself that makes it imperative that it shall be performed within this stae. I have no hesitancy, therefore, in holding that the Constitutional in- hibition does not apply to or save the contracts to which you refer from tjie operation of the statute. This statute is passed under the police power, and its object is to promote the welfare of the people at large, and the question is not raised here and it is needless to consider it as OHIO 625 the constitutionality of the Act and the right of the Legislature to regu- late the sales of stock of this kind cannot be questioned. Palmer v. State, 39 Ohio State 236. As to the question as to whether or not contracts of this character are saved by the Constitutional provision I cannot improve upon the language used by Professor Freund in his work on Police Power, Sec- tion 556, which is as follows : "It seems, however, that the constitutional prohibition applies only to laws impairing the obligation of the contract for the benefit of the party obligated. It is not an objection to an otherwise valid police regulation that it makes the performance of a contract valid in its inception impossible. Thus, the power of the state to regulate railroad rates is not defeated by the fact that the railroad company has made a contract with another railroad company that it will not charge less than the rate fixed by the existing statute (Buffalo Ea^t Side Street R. Co. v. Buffalo Street R. Co., Ill N. Y. 132, 2 L. R. R. 384), or that the railroad company has incurred indebtedness upon the basis of an earning capacity calculated on higher rates, (Chicago, B. & Q. R. Co. v. Iowa, 94 U. S. 155; this point was made in New York and New England R. R. Co. v. Bristol, 161 U. S. 556, but not considered by the court) and the mere fact that a high rate of interest on bonds cannot be paid under a proposed tariff, would not make that tariff unreasonable "The regulation by the legislature of the pressure of natural gas in pipes was held valid although it affected existing contracts, (Jamieson v. Indiana Natural Gas & Oil Co., 128 Ind. 55, 12 L. R. A. 652) and it has been held that the operation of an ordinance establishing fire limits is not affected by an existing contract to erect a frame house on premises covered by the ordinance, although lumber has been bought on the faith of the contract. (Salem v. Manyes, 123 Mass. 372; Knoxville v. Bird, 12 Lea. (Tenn.) 121. See, also, New York v. Herdje, 68 App. Div. 370, 74 N. Y. Suppl. 104.) So the validity of an act requiring a railroad company to elevate of depress its tracks would not be affected by the existence of contracts with adjoining owners for track connections. (See Branson v. Philadelphia 47 Pa. St. 329). "Contrary to this doctrine, it was formerly held in Missouri and Kentucky that the power of the state to prohibit or revoke lot- tery grants could not be so exercised as to defeat rights of pur- chasers or lenders upon the faith of the franchise, especially when the sale of the franchise had been expressly authorized ; but the United State Supreme Court has held that the abrogation of monop- olies is valid notwithstanding such contracts. If, indeed, the grantees of a lottery franchise can be deprived of rights for which they 40 626 OHIO have paid, it follows logically that those claiming under them must be equally unprotected. "Undoubtedly in all these cases the obligation of a contract is impaired, but it is not impaired in order to confer a benefit upon the obligor or debtor. The principle is that a person cannot, by entering into a contract, impair the power which -the state must have for the protection of peace, safety, health and morals. If this were not so, an owner of property who apprehended that a police regula- tion would be passed affecting his property, would have it in his power to nullify its effect in advance, by making contracts incon- sistent with its enforcement. That the relief from "the contractual obligation individually benefits the party previously bound by it, is no objection to the validity of the statute, provided such relief is not the primary object of the law. For this purpose laws which impair existing contracts as being prejudicial to public safety and morals should be treated as not enacted for the primary benefit of the party bound. Upon this theory a law limiting hours of labor in the interest of safety or health may apply to existing con- tracts, although it is within the legislative power to exempt exist- ing contracts from its operation. Strong considerations of public policy require the exemption of existing contracts, and this policy is raised into a principle of constitutional law when the object of the statute is relief from pecuniary or economic burdens." It seems that from the above authority and the decisions there cited that clearly a negative answer must be given to both of your questions, and especially to the second question for the reason, as pointed out by Prof. Freund in the paragraph quoted above, that a contrary holding would allow corporations and persons, by entering into so-called contracts, whether in good faith or not, during the referendum period, to nullify the laws of this state. A further reason why negative answers should be given to each of your questions is also found in the fact that both of the requests made of you come from corporations and our Con- stitution contains the following provisions, Section 2 of Article I, and Section 2 of Article XIII, and even if the law as it stood had allowed these corporations to enter into the class of contracts now claimed, still such laws were subject to amendment or repeal and said corporations acquired no vested rights under the same, nor no privileges which' could not thereafter be altered or taken away. OHIO 627 OPINION OF THE ATTORNEY GENERAL TO SUPERIN- TENDENT OF BANKS, NOVEMBER 25, 1913 (Vol. I, Atty. Gen. Rep. 1913, p. 827) THE WORDS "THE ISSUE" AS USED IN PARAGRAPH "F" OF SECTION 2 REFER TO A PARTICULAR BOND ISSUE WHICH THE COMPANY MAY DESIRE TO DISPOSE OF UNDER FAVOR OF THIS PARAGRAPH, AND NOT TO THE ENTIRE BOND, STOCK, OR SECURITY, ISSUED BY THE CORPORATION AP- PLYING. The words "the issue" used in line six of subdivision "f" of sec- tion 2 of the act entitled "An act to regulate the sale of bonds, stocks and securities and of real estate not located in Ohio, and to prevent fraud in such sales" found in 103 O. L, 74s, refer to the particular issue which a company may desire to dispose of undetr favor of this para- graph, and not to the entire bond, stock or security, as the case may be, issued by the corporation applying. Dear Sir : — Under date of September 4, 1913, I have letter from you asking opinion as follows : "Do the words 'the issue', used in the hne six of subdivision 'f of Section 2 of the act entitled. 'An act to regulate the sale ot bonds, stocks and securities and of real estate not located in Ohio, and to prevent fraud in such sales,' passed April 28, 1913, refer to the particular issue of bonds, stocks or securities, of which the 'securities' under consideration are a part, or do said words 'the issue' refer to the entire bond, stock or security, as the case may be, issued by the corporation applying?" Section I of the act in question (103 O. L., 743) provides as follows: "Except as otherwise provided in this act, no dealer shall from , and after the first day of August, A. D., 1&13, within the state, dispose or offer to dispose of any stocks, bonds, mortgages or Other instruments evidencing title to or interest in property or other se- curities of any kind or character (all hereinafter termed 'securi- ties'), issued or executed by any private or quasi-public corpora- tion, co-partnership or association (except corporations not for profit, organized under the laws of this state), or by any taxing subdivision of any other state, territory, province or foreign gov- ernment, without first being licensed so to do as hereinafter pro- vided." 628 OHIO Section 2 of the act states what shall not be deemed and considered •'securities," within the meaning of the term as used in the act, and, further, defines the word "dealer" as therein used as follows : "The term 'dealer', as used in this act, shall be deemed to in- clude any person or company, except national banks, disposing or offering to dispose of any such security through agents or other- wise, and any company engaged in the marketing or flotation of its own securities, either directly or through agents or underwriters, or any stock promotion scheme whatsoever." The same section by separate paragraphs thereof, from "a"' to "f", inclusive, conditionally except certain persons, both natural and artificial, from the meaning of the term "dealer" as above defined. The question submitted arises out of the exception stated in subdivision "f" of the section, which subdivision or paragraph reads as follows : "An issuer organized under the laws of this state, where tlie disposal in good faith and not for the purpose of avoiding the pro- visions of this act, is made directly to its stockholders or by its own officers, without any commission, and at a total expense of not more than two per centum of the proceeds realized therefrom, and where no part of the issue is issued, directly or indirectly, in payment for patents, services, good will, or for property not located in this state ; provided that the president and secretary of the issuer, shall prior to such disposal, file with the 'commissioner' a written statement setting forth the existence of all such facts." One purpose of this act, as disclosed by the paragraph just noted is to inhibit the issue by a company of its stock or other "securities" by exchange or payment for patents, services, good will or property not located in this state — ^considerations often taken over at gross over- valuation — unless the same be disposed of by a licensed "dealer" under the supervision of the superintendent of banks, secured by the provisions of other sections of the act. This consideration, as well as the general rule applicable in the construction of statutes, leads to the view that the provisions of the paragraph in question were intended to be pros- pective only in their operation and effect. "It is laid down as a rule of construction that a statute should have a prospective operation only, unless its terms show clearly a legislative intention that it should operate retrospectively." Bernier vs. Becker, 37 O. S., 72, 74. Allen vs. Russell, 39 U. S., 336, 339. It is manifest that if the words "the issue,'' as used in this para- graph, are to be construed as including more than the particular issue OHIO 629 a company may desire to dispose of, and to include the entire bond, stock or other security, issue or issues of such company, such construc- tion might impose a disability on the company arising out of transac- tions which took place before the enactment of the act under considera- tion ; which construction is contrary to the plain intent that provisions of this paragraph are to be prospective in their effect only. Again, a sale or other disposition of its stock or other "securities" without license under the provisions of this paragraph, is one of several exceptions to sales of "securities" which otherwise, under the provisions of the act, must be made by a licensed "dealer." By section 9 of the act it is provided that before a licensee (licensed "dealer") shall dispose or offer to dispose of securities within this state, he shall file with the "commissioner" certain information including the following: "A pertinent description of such securities, and the purpose of said issue." It is evi- dent that the word "issue" as used in this connection, is, by legislative intent, in the singular, and referable only to the particular issue that the licensee may then desire to dispose of. The meaning of the word "issue" 'being clear in this connection it is to be presumed that the legis- lature used the word with the same meaning in the paragraph out of which the question made by you arises. "Where the same word or phrase is used more than once in the same act in relation to the same subject-matter, and looking to the same general purpose, if in one connection its meaning is clear and in another it is otherwise doubtful or obscure, it is in the latter case to receive the same construction as in the former, unless there is something in the connection in which it is employed, plainly calling for a different construction." Rhodes vs. Weldy, 46 U. S., 234. For the reasons above ^stated, and on a consideration of the whole of the act in question, I am of the opinion that the words "the issue", as used in paragraph "i" of. section 2, refer to the particular issue which a company may desire to dispose of under favor of this paragraph, and not "to the entire bond, stock or security, as the case may be, issued by the corporation applying." OPINION OF THE ATTORNEY GENERAL, FEBRUARY 7, 1914 (Vol." I, Atty. Gen. Rep. 1914, page 147) Section 12 of the Blue" Sky Law is prohibitory in character; it pro- vides in part as follows : "No person or company s'hall, for the purpose of organizing or promoting any insurance company * * * dispose or offer to dispose, within this state, of any such stock, unless the contract of 630 OHIO subscription * * * shall be in writing, and contain a provision substantially in the following language : " 'No sum shall be used for commission, promotion and organization expenses on account of any share of stock in this company in excess of per cent, of the amount actually paid upon separate subscriptions * * * and the remainder of such payments shall be invested as authorized by the law governing such company and held by the organizers * * * and the directors and officers of such company after organiza- tion, as bailees for the subscriber, to be used only in the con- duct of the business of such company after having been li- censed and authorized therefor by proper authority.' "The amount of such. * * * expenses shall in no case ex- ceed fifteen per cent, of the amount actually paid upon the sub- scription. "Funds and securities held by such organizers, trustees, di- rectors or officers, as bailees, shall be deposited with a bank or trust company of this state or invested as provided by (certain) sections of ttie General Code until such company has been licensed as afore- said." Section 14, also mentioned by you, refers to and operates upon the "dealer". This term is defined in Section 2 of the act as follows : "The term 'dealer', as used in this act, shall be deemed to in- clude any person or company * * * disposing, or offering to dispose, of any such security, through agents or otherwise, and any company engaged in the marketing; or flotation of its own securities either directly or through agents or underwriters or any stock pro- motion scheme whatsoever; except (here follow certain exceptions of no interest in this connection.)" The same section also defines the term ''company'' as follows : "any corporation, co-partnership or association, incorporated or un- incorporated, and whenever and wherever organized" Coming now to Section 14, its operative provisions are as follows : "No dealer, for the purpose of organizing or promoting any company * * * shall, within this state for or on behalf of the issuer or any underwriter thereof, dispose or attempt to dispose of any such security unless such dealer be licensed as provided herein and until, together with the filing fee of five dollars, there be filed with the 'commissioner' the application, of such issuer for the' OHIO 631 certificated provided for in section sixteen of this act, and, in addi- tion to the other information hereinbefore required (here follow certain items of information, some of which could only emanate from a company already organized. However, these 'items of in- formation so required cannot, in my judgment, be held to alter the meaning of the provision already quoted from Section 14, which clearly includes within the purview of that section dealers engaged in promoting a company before its organization, as well as dealers existing in the flotation of its securities after organization.) Before going further it is necessary to define the phrase "dispose of securities", as used in Section 14. This is also defined in Section a, as follows : " 'dispose of shall be construed to mean * * * obtain subscrip- tions for' " Therefore, it is apparent that Section 14 applies, although in reality there is no "security" in existence during the technical "promotion" of a company. In other words, while the statute uses the phrase "dispose of securities", this phrase is intended to include obtaining subscriptions for securities to be thereafter issued. The word "securities" is defined by Section 1 of the law so as clearly to include stocks. You next refer to Section 16. This section authorizes the issuance of a certificate to the applicant who applies under Section 14. It con- tains certain provisions which are somewhat inconsistent with some of those of Section 14, in that it empowers the "commissioner" to make an examination of the "issuer of securities", and authorizes him to issue his certificate only in the event that "he shall find that' the law has been complied with, and is satisfied that said company is solvent, that its busi- ness is properly and legitimately conducted, and that its proposed disposal of its securities or other property is not on unfair terms". No such in- vestigation of the "issuer" could be had while the "issuer" is not yet in existence as such; clearly, no investigation of solvency or method of conducting business could be made as to a corporation still in the em- bryonic stage*; yet Section 14 clearly authorizes an application on behalf of a dealer engaged in organizing or promoting a company, as well as on the part of one, engaged in assisting in the flotation Of the securities of an organized company. Therefore, I am of the opinion that not all of the . conditions in Section 16 apply universally, but that where the certificate is sought by a promoter — or by a dealer operatiflgr in behalf of promoters, the "commissioner", if he finds that the law has bfeitfl com- plied withj and is satisfied that the business venture is a sound btte, and that the proposed disposal of Securities is not on unfair ter.ms, may issue a certificate upon the payment of a fee without satisfying himself of the 632 OHIO solvency of any company as a going concern, or the proper and legitimate conduct of its business. To hold otherwise would deprive the first provi- sion of Section 14, and many of the other provisions of the act, including some of the definitions in Section 2, of all meaning whatsoever, and would limit the issuance of certificates to those engaged in assisting in the flota- tion of the stock of an organized company. Section 19, to which you also refer, provides that "If the issuer of such securities be a company incorporated, organized or formed to make any insurance named in subdivisions I and II, division III, title IX of the General Code (evidently the legislature contemplated Title IX of Part Second) the "commisT sioner', for all the purposes named in sections 14 and 16 of this act shall be the superintendent of insurance of this state. * * *" This section operates, in my judgment, upon a situation such as that concerning which you inquire, because, although the "issuer" in the Ccise of the promotion of a company is not yet in existence, yet, the corporation to be formed in future is for all the purposes of the act the "issuer". For the promoters, while they are securing subscriptions, have no authority whatever as a matter of course to issue any security; that must be done by the corporation when organized. I am therefore of the opinion that when the securities to be sold are those of a corporation yet to be organized, which when organized will be "a company * * * organized * * * to make any insurance named" etc., as provided in Section 19, the "commissioner", for the purposes of Sections 14 and 16, supra, is the superintendent of insurance. 'Considering all the sections above quoted and referred to, together, I am of the opinion that the superintendent of insurance, as the "com- missioner" for the purposes of the Blue Sky Law, may issue his certifi- cate upon the payment of the proper fee to the incorporators of an in- surance company, other than life, who have entered into a contract with one or more persons to pay them commissions for the sale of its stock; such commissions, together with other organization expenses, coming within the fifteen per cent, prescribed by Section 12 of the act. Inasmuch as the incorporators constitute the company during its lembryonic stage, the certificate may be issued to or with respect to the company as such, using the corporate name. Only in the way which I have outlined could the "Blue Sky" law operate upon or apply to the securing of subscriptions to the capital stock of an insurance company, other than life; and as the intention to make its provisions applicable to the securing of such subscriptions is very clear, I have reached the conclusion that whatever inconsistencies and verbal difficulties may be encountered in the language of the "Blue Sky" law must be subordinated to that controlling intention. OHIO 633 OPINION OF THE ATTORNEY GENERAL, JUNE 6, 1914 (Vol. I, Atty. Gen. Rep. 1914, p. 759) On April 21st, 1914, an opinion was requested of the Attorney Gen- eral based on the following facts : The railway company was incorporated in April 1909 under the laws of the State of Ohio with a capital stock of $1,000,- 000.00 for the purpose of constructing, equipping and operating a line of electric railv/ay between Cleveland, Zanesville and other points in the State of Ohio, and on the 22nd day of October 1910, for the purpose of constructing and equipping a line of its road between Cleveland and Orrville, the railway company increased its capital stock to $2,000,000.00 and authorized and executed the issue of first mortgage coupon bonds to the amount of $2,000,000.00 in the amount of $1,000.00 each, and to secure payment of said bonds, executed and delivered to the Guardian Savings & Trust Company of Cleveland, ' as trustee, a mortgage on this property, and on the 3rd day of No- vember, 1910, the railway company caused said bonds to be placed in the hands of said trust company as trustee, and in 1910 the com- pany sold and assigned to $1,750,000.00 of its bonds. and $1,050,000.00 of its capital stock, and in consideration therefor agreed to construct and equip said line of railway. Later, on the 9th day of February, 1911, the railway company entered into an agreement with one whereby the said company sold, assigned and transferred to said $2,000,- 000.00 face value of its bonds and $1,400,000.00 par value of its stock, the portion of its bonds and stock theretofore assigned to having been re-assigned to said company, on failure of said to- complete the contract, and said agreeing to construct and ■equip said line between Cleveland and Orrville. Later, in December, 1913, the said sold and assigned to one all his right, title and interest in and to said construction contract and the bonds and stock heretofore mentioned. These securities were issued by the company prior to the enactment of the law creating the Public Utilities Commission of Ohio, and consequently the issuance of said securities was not authorized by the Public Utilities Commission of Ohio. Are the securities, being those of a character which would properly come within the jurisdiction of the Public Utilities Com- mission had that commission been in existence at the time of their issuance, subject to exemption, and do they require certification at the hands of the banking department under the act of April 28th, 1913, entitled "an act to regulate the sale of bonds, stocks, etc."? 634 OHIO Second ; Is 's right to such securities such as would con- stitute him a bona fide holder for value prior to the enactment of the said Act of April 28th, 1913, and is his holding one which would authorize him to dispose of the securities in Ohio withour the nec- essity of obtaining a license so to do? and his associates are now actively engaged in the work of organizing for a disposal of the securities and realizing funds to push the construction and equipment of the road, and an early reply to this request will be appreciated both by the Depart- ment and and his associates." Section 6373-1, General Code, provides as follows : "Except as otherwise provided in this act, no dealer shall, within this state, dispose or offer to dispose of any stock, stock" cer- tificates, bonds, debentures, collateral trust certificates or other similar instruments (all hereinafter termed "securities") evidencing title to or interest in property, issued or executed by any private or quasi-public corporation, co-partnership or association (except cor- porations not for profit,) or by any taxing subdivision of any other state, territory, province or foreign government, without first being licensed so to do as hereinafter provided." Section 6373-2 excepts from the meaning of the term "securities", certain instruments therein designated, and among them the following: (1) "Mortgage bonds and notes (other than corporate bonds where more than fifty per cent, of the entire issue is not included in a sale to one purchased) secured by a bone fide mortgage on real estate;" (2) "'Securities of quasi-public corporations, the issuance of which has been authorized by the public service commission of this state;" This section, further excepting conditionally certain persons both natural and artificial from the meaning of the term "dealer", defines that term as foUovvs : "The term 'dealer', as used in this act, shall be deemed to in- clude any person or company, except national banks, disposing, or offering to dispose, of any such security, through agents or other- wise, and any such security, through agents or otherwise, and any company engaged in the marketing or flotation of its own securi- ties either indirectly or through agents or underwriters or any stock promotion scheme whatsoever". Among those so excepted from the meaning of the term "dealer" are the following: (a) "An owner, not the issuer of the security, who disposes of his own property, for his own account; when such disposal is not OHIO 635 made in the course of repeated and successive transactions of a similar character by such owner ; or a natural person, other than the underwriter of the security, who is the bona fide owner of the security and disposes of his own property for his own account ;" The sections of the General Code, above noted, are part of an Act passed originally April 28th, 1913, entitled "An Act to regulate the sale of bonds, stocks and other securities * * * j^jid to prevent fraud in such sales ;" and of course the transactions, mentioned in your communi- cation as occurring prior to this date, are in nowise affected by said provision. It is likewise apparent that the transaction in December, 1913, whereby said sold and assigned to , all his right, title and interest in the construction contract and to the stock and bonds mentioned in your communication, was not as to such stock and bonds an Act requiring a license from your department, for the reason that with respect to said transaction, was not a dealer "but came within the exception (a) of Section 6373-2, General Code, before noted, as a bona fide owner of stock and bonds, who disposes of the same for his own account and not in the course of repeated and successive transactions of a similar character. The only questions presented are those affecting and concerning his right to dispose of the stock and bonds in his hands with- out securing the license provided for in the Act, and without having his disposals of said stock and bonds certificated as in said Act provided. In the first place, I am inclined to the viejv that the fact that this stock and these bonds were of such a character as would, if issued now, require the authorization of the public Utility Commission,' is wholly im- material. All securities which otherwise come within the provisions of the Act in question are subject to its provisions except insofar as ex- cepted by the provisions of the Act itself. It suffices to say that although the securities of a quasi-public corporation, the issuance of which has been authorized by the Public Service Commission, are excepted from the provisions of the Act requiring that their sale or disposal be by a licensed person, the fact remains that the issue of the securities here in question has not been authorized by any such commission. However, it appears from the facts stated, that the contract for the construction of the railway line of the company issuing these securi- ties, being held by said , was assigned and transferred by him to said , and that as a consideration for the contract of said to construct said line, the stock and bonds received by from the Company were assigned and transferred to . It further also fairly appears that the only purpose of :_ in effecting the proposed disposal of such stock and bonds is to secure money with vvhich to carry out his contract for the construc- tion of said line. Under these facts, I am of the opinion that the pro- 636 OHIO posed disposal of this stock and these bonds by likewise comes within exception (a) of Section 6373-2, above noted. A further question presented is whether the proposed disposal of the stock and bonds in his hands is required to be certificated under the provisions of the Act above noted. Section 6373-14, General Code, provides : "For the purpose of organizing or promoting any company, or assisting in the flotation of the securities of any company after or- ganization, no issuer or underwriter of such securities and no per- son or company for or on behalf of such issuer or underwriter shall, within this state, disposa or attempt to dispose of any such security until such commissioner shall issue his certificate as provided in sec- tion 6373-16 of the General Code, which shall not be done until, together with a filing fee of five dollars, there be filed with the commissioner the application of such issuer or underwriter for the certificate provided for in section 6373-16, General Code." Section 6373-16, above referred to, provides that the Superintendent of Banks as "commissioner" shall have power to make such examination of the securities mentioned in section 6373-14 as he may deem advisable; and if it shall appear that the law has been complied with and the busi- ness of the applicant is not fraudulently conducted, and that the proposed disposal of such securities is not on grossly unfair terras, and that the issuer of the same is solvent, then upon the payment of a fee of $10.00, the commissioner shall issue his certificate to that effect, authorizing such disposal; but that if it shall not affirmatively so appear, he shall notify the applicant in writing, of his refusal to issue such certificate authoriz- ing the disposal of the securities. It is manifest that the only regulation provided for with respect to the sale &i securities is that affecting an issuer or underwriter of such securities, and any person or company acting for or on behalf of such issuer or underwriter in organizing or promoting a' corporation or assist- ing in the flotation of its securities. The issuer of the securities in question, to-.wit, The Railway Company is not affected by the provisions of the sections above noted, providing for certification, for the reason that the securities in question were issued before this Act was passed. As before noted, it appears that said is now the bona fide holder of said bonds of the company, and of its stock to the amount of $1,400,000.00, and that the same was transferred to him in consideration of his contractual ob- ligations to construct the line of said railway company. On the foregoing facts I am of the opinion that Mr. is not an underwriter of the securities in question, nor is he a person acting on behalf of the issuer or any underwriter in his proposed disposal OHIO 637 of the same for the purpose of raising money to enable him to carry out his contract. The terms "underwriting" and "underwriter" have a well defined meaning in the affairs of corporate organization and promotion, and it is quite clear that the word "underwriter", as used in section 6373-14, was used in such defined and understood sense. "Underwriting meanS an agreement made before the shares are brought before the public, that in the event of the public taking all the s!hares or the number mentioned in the agreement, the under- writer will take the shares which the public do not take." (Cook on Corporations, Section 14). "Underwriting is a guarantee of the sale of the underwritten securities at a specified minimum price. It is, in fact, a conditional subscription for such securities, the underwriters obligating them- selves to purchase at a specified price all of the underwritten se- curities not sold at an advanced price at public offering or other- wise, on or before a fixed date, or within a certain time of the underwriting." (Conyngton on Corporate Organizations, Sec. 218). That the term "underwriter" is used in this sense in the provisions of section 6373-14 above noted is apparent from other provisions of this section providing, among other things, that the section shall not apply where the issuance of the securities has been approved by the Public Service Commission or like body, or where the sale is made by or on behalf of an underwriter who, in good faith and not for the purpose of avoiding the provisions of the Act, purchases the securities so afterwards • sold by him, and pays therefor in cash or its equivalent, before attempt- ing to sell the same, not less than ninety per centum of the price at which such securities are thereafter sold by him. On the considerations above noted, I am of the opinion that Mr. does not come within the provisions of section 6378-14, making provision with reference to certification, at all. I further note that this section provides that it shall not apply to the securities of a common carrier. There are not enough facts stated in your communication to advise me whether the company issuing these securities comes within the designation of a common carrier, as the terms are here used. On the whole, however, I am of the opinion that the proposed disposal of the securities of this railway company, now in the hands of Mr. , does not come within the provisions of the statutes with respect to either the license or certification therein provided for, and that he may dispose of the same without either such license or certificate. 638 OHIO OPINION OF THE ATTORNEY GENERAL, MARCH 14, 1914. (Vol. I, Atty. Gen. Rep. 1914, p. 352) On March 3rd, 1914, an opinion was requested of the Attorney General based on the following facts : "A corporation organized under the laws of Ohio is engaged in the business of furnishing 'suppliers' to its members — these sup- plies consisting of drugs and automobile accessories. The object is to secure a large members'hip and buy these supplies in wholesale quantity, selling to the members at a wholesale price, plus the actual overhead charges of the supply company. Memberships are sold for twenty-five dollars each and the holders of membership certifi- cates have no voice in the management of the. supply company, and by the express terms of the membership contract, have no right ,to participate in the profits of the company, and no future claim for the return of the twenty-five dollars paid for the membership certifi- cate. The theory of the supply company being that the twenty-five dollars received for membership certificates has been expended in the campaign for memberships at the time it is received from the members. "Each holder of a membership certificate deposits a certain amount of cash with the supply company for the purpose of guar- anteeing payment of his account. The member is then at liberty to buy of the company an amount not exceeding the amount of his cash deposit. That cash deposit is returned to the holder of the membership certificate at any time he sees fit to withdraw from the supply company, of course, deducting therefrom any unpaid amount due from him to the supply company at the time of such withdrawal, f The cash deposits are placed in the hands of the treasurer, who is under bond, and they never at any time pass into or become a part of the assets of the company, but remain always the property of the member. "The twenty-five dollars originally paid for the membership, as above stated, becomes the property of the supply company. No certificate of stock is issued and in fact, the member is not a stock- holder in the supply company. "Are the membership certificates, sold in this way and on these terms, 'securities' within the meaning of the so-called 'Ohio Blue Sky law?'" Section 1, 103 O. L., 743, (Section 6373-1 G. C.) provides as follows: "Except as otherwise provided in this act, no dealer shall, from and after the first day of August, A. D., 1913, within this stfite, OHIO 639 dispose or offer to dispose of any stoclts, bonds, mortgages or other instruments evidencing title to or interest in property or other se- curities of any kind or character (all hereinafter termed 'securi- ties'), issued or executed by any private or quasi-public corporation, co-partnership or association (except corporations' not for profit, organized under the laws of this state) or by any taxing subdivision of any other state, territory, province or foreign government, with- out first being licensed so to do as hereinafter provided." Section 2 of this act specifically exempts from the meaning of the term "securities" certain instruments therein designated, and further ex- cepting conditionally certain persons, both natural and artificial, from the meaning of the term "dealer", defines that term as follows: "The term 'dealer,' as used in this act, shall be deemed to in- clude any person or company, except national banks, disposing, or offering to dispose of any security, through agents, or otherwise, and any company engaged in the marketing or flotation of its own securities either directly or through agents or underwriters, or any stock promotion scheme whatsoever." It is further provided by this section of the act that the term "dispose of" shall be construed to mean "sell, barter, pledge, or assign for a valuable consideration or obtain subscriptions for". I take it that the corporation in question is one organized for profit, otherwise under the provisions of Section 1 of the Act, the question pre- sented could not arise. As a corporation for profit it must have a capital stock (Sec. 8667 G. C), and the only persons who in any proper sense can be said to be "members" of this corporation are its stockholders. The transaction between the company and its patrons, designated in your communication as "members", is that the company for a consideration of $25.00 sells to such persons the privilege of buying from it supplies at wholesale price plus an amount sufficient in the aggregate to meet the overhead expenses of the company ; and as this privilege does not appear to be assignable it is to be considered personal and exclusive to the per- sons paying the consideration to the company. , I do not have before me onfe of the "certificates'" issued by the company, but in its essence I apprehend that it but imports a receipt for the money paid and states or evidences the agreement between the com- pany and the person to whom it is issued defining his privilege to pur- chase supplies from the company at the rates above specified. The question is' whether these certificates so issued are "securities" within the meaning of this act. This act does not define the term "securities" either in general terms or by a statement of the specific instruments or things included within its meaning. Within the purview of the question presented the descriptive language of Section 1 is as follows : 640 OHIO "* * * any stocks, bonds, mortgages, or other instruments evidencing title to or interest in property or otlier securities of any kind or character, (all hereinafter termed 'securities'), issued or executed by any private or quasi-public corporation, so-partnership, or association (except corporations not for profit), organized under the laws of this state)." The certificates mentioned in your communication are not stocks, bonds or mortgages ; nor are they in any sense instruments evidencing title to or interest in property; and if they are within the purview of this act at all, they must fall within the meaning of the words "or other securities of any kind or character". The Century Dictionary defines a "security"' as "an evidence of debt or property, as a bond or certificate of stock". A similar definition of the term was noted in the case of Mace v. Buchanan, 52 S. W., Rep. (Tenn. 507), and the court in this case, by way of suggestion rather than as an attempt at accurate definition, says that this term is generally under- stood to refer to live and negotiable commercial obligations, or state, county, government or municipal bonds. Considering the current and accepted definitions of the term in the light of the provisions of Section 1 of the Act, it can be safely said that the word "security" means some instrument or thing importing or evi- dencing a debt or importing or evidencing some interest in or title to property. In no view can the certificates issued" by this corporation as de- scribed by you fall within the signification of the term "securities" above noted. Again, I apprehend that insofar as the term "securities may be ascribed to instruments executed and issued by corporations, it has, gen- erally, reference to instruments executed and issued in the exercise of its corporate functions rather than to instruments evidencing contractual obligations made or executed in the transaction of its ordinary business. Aside from the consideration last noted, however, I am of the opinion that the certificates issued by this corporation in the manner described in your communication, do not come within the purview of this act. In conclusion, I note that a number of the sections of the Act under consideration were amended at the recent special session of the legislature, said sections as amended to become effective as law within the time pre- scribed by the constitution. Within the purview of the question presented by you, the descriptive language of Section 1 of the Act as amended (Section 6373-1 G. C.) is: "* * * any stock, stock certificates, honds, debentures, col- lateral trust certificates or other similar instruments (all herein- after termed 'securities') evidencing title to or interest in property OHIO 641 issued or executed by any private or quasi-public corporation, co- partnership, or association (except corporations not for profit)" Without particular discussion it may be noted as apparent that the certificates issued by this corporation do not come within the significa- • tion or meaning of any of the particular instruments included within the descriptive language of the section as amended, above quoted. On the considerations above noted, the question presented by you is answered in the negative. OPINION OF ATTORNEY GENERAL, JANUARY 27, 1915' (Vol. I, Atty. Gen. Rep. 1915, p. 48) To Commissioner of Securities: As my opinion is based very largely upon the information contained in the letter of Mr. C. L. Ucker directed to the Attorney-General, I am quoting it in full: Southern Settlement and Development- Organization General Offices — Continental Building Baltimore, Md., Jan. 18, 1915. The Honorable Attorney-General, State of Ohio, Columbus, Ohio. Sir: — The Southern Settlement and Development Organization, hav- ing its principal office at Baltimore, Md., submits for considefation the provisions of its charter and requests your'opinion as to whether its operations in the State of Ohio, without complying with the provisions of an act of the Ohio legislature, known and referred to as the "Blue Sky Law," would be in violation of the Ohio statutes. The Southern Settlement and Development Organization is chartered by a special act of the Maryland legislature. The charter is set forth on page 47 et seq. of the pamphlet entitled "Southern Settlement and Development Organization," copy of which is hereto attached and marked "Exhibit A." Attention is also invited to a copy of the appropriation made by the legislature of Maryland in support of the Organization set forth on page 53 of the same pamphlet. No change has ever been made in this charter by sub- sequent re-enactment of the Maryland legislature. A second pamphlet entitled "Southern Settlement and Develop- ment Organization, Meeting of Executive Committee, Baltimore, March 6, 1913," marked "Exhibit B" is also attached. These pamphlets contain the minutes and proceedings leading up to the 41 642 OHIO application of the State of Maryland for the charter granted and referred to above. Particular attention is invited to that provision of the charter appearing in Section 4, reading: "And be it further Enacted, That it shall not be one of the objects of said Organization to make money for the said Organization or the members thereof; bxit the said organization may collect and receive money in any law- ful manner and hold property of any kind, real, personal or mixed, for the purposes for which said organization is chartered." The financial support of the Organization from the date of its inception to the time of presenting this application has been derived solely and exclusively from the appropriations made by the legislature of the State of Maryland and fixed contributions each year from those railroad corporations operating in the territory south of the south line of Pennsylvania and the Ohio River and east of the Mississippi River. The Organization has in practical effect been regarded as a clearing house for the industrial and land operations of the several railroad corporations operating within the territory referred to. Its activities are divided into four depart- ments, namely: colonization, agriculture, publicity, commerce and industry. In pfactice it has rigidly adhered to the policy that it will accept no direct compensation for its services, that it will own no land,- issue no' stock, make absolutely no profit, rely entirely upon contributions, as outlined above, for its support, and so com- port itself as to be truly a quasi-public institution. Attention is invited to a pamphlet apparently issued by the Bureau of Banks and Banking of the Ohio State government, en- titled "Blue Sky Law'' and reference is had to page 9 thereof to that section reading: "This section shall apply where the title to such property is held in the name of a trustee for any corporation or for any such described person or company, but it shall not be deemed to prohibit the disposal of an owner of his own prop- erty, in good faith and not for the purpose of avoiding the provisions of this act, where the transaction is not one of repeated transactions of a similar nature, performed as a part of the business of dealing in real estate; nor shall it be deemed to prohibit a railroad company having an immigration bureau or department for advertising either directly or through its accredited representatives, the fact that there are along its route lands for colonization or sale; provided that such ad- vertising be not of specific tracts of real estate, and not for the purpose of avoiding the provisions of this act." Sometime since certain representatives of an organization existing amongst the street car employes of one of the leading OHIO 643 cities of the state of Ohio got itito communication with this Or- ganization and requested its services to the end that they might be referred to a suitable location somewhere in the South where they might obtain title to an individual area of forty acres each on the colony plan. This matter was taken up, several conferences had and arrangements, made to the end that a representative of this Organization should present to them in the form of a stereoptican lecture the advantages of certain selected areas of southern land, and about this time attention was invited to the existing statutes in the state of Ohio, and all further efforts along these lines were held in abeyance until the matter could be presented to you through the State Bureau of Banks and Banking for your decision as to whether the activities of this Organization came within the purview 'of the Ohio laws and whether it would be necessary that this Or- ganization comply with the provisions of the Ohio laws. In the opinion of the officials of this Organization its activities should come within the purview of the exceptions laid down in the section referred to on page 9 of the pamphlet entitled "Blue Sky Law", it being essentially and so regarded as a clearing house for the activities of the land and industrial departments of the southern railroads. Let it be borne in mind that this Organization has no land to sell, that it consummates no sale, that it operates without profit; that its services are entirely gratuitous, that its principal object is to advance the agricultural and industrial betterment of the territory in which it operates. Very respectfully yours, (Signed) Clement S. Ucker, Acting General Manager. Sections 2 and 4 of the proposed charter of the Southern Settle- ment and Development Organization as set forth in the pamphlet marked "Exhibit A", commencing on page 47, are as follows : "Section 2. AND BE IT FURTHER ENACTED, That the purposes for which this corporation is formed are '. "1. To make a thorough and scientific study of the resources and possibilities of the States of Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, Missouri, N. Carolina, Oklahoma, S. Carolina, Tennessee, Texas, Virginia and West Virginia, and the best practical methods of developing the same. "2. To direct public attention, both in this and in other coun- tries to the resources and possibilities of said States, and more especially to the immense area of unimproved land therein. 644 OHIO "3. To attract into said States capitalists, investors and de- sirable immigrants, and more especially experienced farmers and agricultural laborers. "4. To encourage by every practical means the establishing in the several States named in the South, by said States or otherwise, bureaus of agriculture and immigration bureaus for the purpose of disseminating reliable information regarding the resources and pos- sibilities of said States. "5. To establish and maintain, so far as practical, a co-opera- tion between the United States government, the government of the several states named, the railroad and transportation companies, commercial bodies, real estate men, and members of the said South- ern Settlement and Development Organization, in placing the south- ern country properly before the. people of the world. "6. To secure from the United States Government proper port facilities at Baltimore and the South Atlantic and Gulf ports for the handling of foreign immigration. "7. To establish the principal ofHce of the Organization, head- quarters or bureau in the City of Baltimore, Maryland, with as many branches thereof, and in such cities as the Executive Committee may determine. "Section 4. AND BE IT FURTHER ENACTED, That it shall not be one of the objects of the incorporation of said organiza- tion to make money for the said organization or the members thereof ; but the said organization may collect and receive money in any lawful manner and hold property of- any kind, real, personal or mixed, for the purposes for which said organization is chartered." Section 6373-15 of the General Code of Ohio, being a part of what is known as the "Blue Skyi Law'' is as follows : "No person or company, other than a dealer licensed as here- inbefore provided, shall within this state, in repeated or successive transactions, deal in real estate not located in Ohio ; and unless ■so licensed and the 'commissioner' shall issue his certificate as provided in the following section, and, prior to such issuance, there shall, together with a filing fee of ten dollars, be filed with the 'commissioner' an application for such certificate and a written statement of the dealer containing a pertinent description of the real estate the disposal of all or a part of which is sought to be made, the nature and source of title of the owner thereto, and the amount or value and the nature of the consideration paid or allowed by him therefor, it shall, within this state, be unlawful : "(a) For any corporation or any person, association or co- partnership doing business under any name other than- the name OHIO 645 or names of such person or of all the members of such association or co-partnership to dispose or offer to dispose of any real estate not located in Ohio. "(b) For any person or company to sell or offer for sale any such real estate, the owner of which is, or is represented to the purchaser to be, a corporation, or any person or company of the character described in the foregoing paragraph, where such cor- poration, person or company is engaged in the bi:siness of dealing in real estate. "This section shall apply where the title to such property is held in the name of a trustee for any corporation or for any such described person or company; but it shall not be deemed to prohibit the disposal by an owner of his own property, in good faith and not for the purpose of avoiding the provisions of this act, where the transaction is not one of repeated transactions of a similar nature, performed as a part of the business of dealing in real estate ; nor shall it "be deemed to prohibit a railroad company having an immigration bureau or department from advertising either directly or through accredited representatives the fact that, there are along its route lands for colonization for sale; provided that such ad- vertising is not of specific tracts of real estate, and not for the purpose of avoiding the provisions of this act." The abbve section was enacted for the purpose of preventing fraud in the sale of real estate located out of the State, and with that end in view it requires, with certain exceptions therein contained, all persons and companies to secure a license from the State of Ohio- before deahng in, selling or offering for sale in Ohio, real estate not located within the State. As a preliminary to securing such a license, an applicant there- for must submit to certain inspection provided in the statutes and pay the filing and license fees mentioned in the statutes. The provisions of the statute apply only to persons, companies, etc., dealing in, selling or offering for sale, real estate not located in Ohio. Neither in the charter of the Southern Settlement and Development Corti- pany nor in the letter of explanation above quoted does it appear that said organization has any power to sell, offer for sale, or otherwise deal in real estate, or that it has any intention of dealing' in or selling real estate. On the contrary, in the last paragraph of the letter to the At- torney-General, above quoted, I find this language : "Let it be borne in mind that this Organization has no land to sell, that it consummates no sale, that it operates without profit, that its services are entirely . gratuitous, that its principal object is to advance agricultural and industrial betterment of the country in which it operates." 646 OHIO I am therefore of the opinion that the provisions of the Blue Sky Law, relative to dealers in real estate not located in Ohio, do not apply to a situation like that set forth in the letter of enquiry, and that it is not necessary for the Southern Settlement and Development Organiza- tion to secure a license from the Superintendent of Banks of the State of Ohio. It should be understood that my opinion on this matter is based very la:rgely upon the representations of the letter herein quoted, and that it applies only to the situation as therein set forth. OPINION OF THE ATTORNEY GENERAL, FEBRUARY 23, 1916 (Vol. I, Atty. Gen. Rep. 1915, p. 171) The Superintendent of Banks on February 10th, requested my opinion and advice relative to the issuance by him as commissioner under the "Blue Sky Law" of a certificate under 6373 G. C. — and at his request I attended a hearing of the matter on the same morning. I have also received from the Superintendent of Banks his files pertaining to the matter. I have considered several legal questions arising out of the applica- tion made to said superintendent of banks in such capacity for a certifi- cate authorizing the disposal of "trust certificates" to be issued by certain trustees acting under the name and style of "The Consolidated Com- panies". The existence of the questions which I have considered can be shown only by a somewhat elaborate statement of the facts involved, all of which are either matters of record or beyond dispute. Such a state- ment of facts begins most appropriately with the quotation of an instru- ment styled "Agreement and declaration of trust of The Consolidated Companies" which with certain material portions thereof italicized and with the omission of certain names is in full as follows : "It is desired to bring about a consolidation of four or more of a number of Insurance Companies now in operation in Ohio and adjoining states, for the purpose of uniting them into one strong company whose assets will be a guaranty of progressive business methods, whose surplus shall justify such expenditures of money as may be necessary to place a strong agency organization through- out Ohio and adjoining states, and 'whose net earnings by reason of savings in management, operating expense and maintenance of competing solicitors, will produce immediate dividends to its stock- holders. "For this purpose trustees have been selected to act under the following trust agreement : OHIO 647 "The plan contemplates the turning over to these trustees of all or a large majority of the outstanding stock of the companies sought to be consolidated, so that the trustees will then control the various companies, and the matter of consolidation then becomes a detail. "Inasmuch as the period of time within which the consolidation sought can be brought about is indefinite, the trustees propose to issue certificates for stocks obtained by them and held as trustees, and when the last of the desired consolidation is brought about, to retire said certificates with cash dividends and a distribution of stock or the proceeds of sale of all or any part of the stock of the one insurance company. This company will be organized under the laws of the State of Ohio and will have outstanding not in excess of $100,000 of capital stock, and will have secured a very large amount of outstanding insurance. If all the companies whose con- solidation is desirable are consolidated, the consolidated company will have at least sixty millions of insurance. "Consolidation will be brought about as rapidly as possible, so that the object of this trust may be rapidly accomplished, the prop- erty in the trustees' hands distributed, 'and the trust terminated within the shortest period of time possible. "In the discretion of the trustee's, they' m^y at any time, so long as the stock remains in their possession, call in the certificates therefor and surrender to the holders of preferred certificates the stock of any company for which such certificates were issued and abandon the attempt to consolidate or liquidate such company and they may, in their discretion, surrender all stock obtained by them and call in all outstanding preferred certificates and cancel the same. "Any holder of preferred certificates may at any time after two years from date of issue thereof demand the return of the stock exchanged therefor and the trustees, if said stock is still in their possesion, i. e., if they have not surrendered or cancelled the same in the process of effecting a consolidation, shall return the same upon surrender to them of the preferred certificates issued therefor. "The original trustees under the designation of The Con- solidated Companies will be composed of the following persons, who will serve until their successors are appointed and qualified in the manner herein provided. (Here follows a list of the names of fifteen trustees) "They will, from time to time, issue as much of preferred cer- tificates up to four million dollars in one dollar certificates and common certificates up to tvJo million dollars in one dollar certifi- cates and additional common certificates to redeem preferred certifi- 648 OHIO cates if required as may be necessary to carry out the object of this trust, the preferred certificates to be exchanged at par for stock in the various companies at u, price to he fixed by the. trustees and en- tered on their minutes — this price to be based on the par vallue of the stock of the respective companies, the surplus and the amount of outstanding insurance, assuming this insurance to be worth $20 per thousand and making proper allowance for any impairment of the reserve of such company which may be disclosed. The price fixed by the trustees may not be increased unless the increase ap- plies as well to all stock exchanged theretofore. All stock purchased to be trust property and to be administered under the terms of this trust. No preferred certificates may be issued except in exchange for stock of insurance companies at the prices fixed by the trustee. The trustees, im/mediately on organization, may contract for the work of soliciting and 'securing the exchange, but the price to be paid therefor, and for the initial expense thereof shall be payable in common certificates only and the trustees themselves may accept pay in such certificates from the party or parties until such time as dividends are received from the new Company when they may be paid for services as provided herein. "One. The trustees as such in their collective capacity shall be designated as the Consolidated Companies, so far as practicable, and under that name shall conduct all business, execute all instru- ments in writing in, the performance of their trust. "Two. The present trustees shall serve for a period of three (3) years, or until resignation, and they may at any time increase the number of trustees by appointment of additional trustees until the entire number shall not be in excess of twenty-one. In case of the resignation or death of any trustee, the remaining trustees shall fill such vacancies by a majority vote thereof. Any trustees which have been appointed as additional trustees and any trustees who may be elected to fill vacancies caused by resignation or death shall succeed to the rights of the present trustees and the trust shall vest in such trustee or trustees together with the continuing trustees without an/y further conveyance. Any new trustees appointed or trustees who have been elected to fill vacancies caused by resignation or death shall serve until the expiration of the three year period above men- tioned or until resignation. If, at the end of said three year period, the trustees by a majority vote resolve that the trust has not been fully completed or that the bringing into the consolidation of any other company or companies is desirable, the period of termination of the trust may be extended for one year,, and similarly at the end of one year the termination may be postponed another year under the same conditions, and so each successive year in the discretion of the trustees; said trustees in the event of such extension but the OHIO 649 certificate holders by a vote of a majority of each class may at any annual meeting terminate the trust. In the event, of dissolution, the trustees shall convert the securities in their hands into money and distribute the same among the certificate holders according to their respective interests. "Three. For the purpose of laying before the Cestui Que Trust a statement of the conditions of the business, the trustees shall annually call a meeting of all the certificate holders, both coni- mon and preferred, at the office of the trustees and shall submit a financial statement of the affairs of the trust. Certificate holders may be represented by vrritten proxies. "Four. The trustees as such shall own the legal title to all property or assets of any kind at any time belonging to their trust, and shall have and exercise the exclusive management and control of same. They shall not he personally liable upon any obligation incurred by them in the management of the trust and they may vote in person or by proxy any shares of stock belonging to them as trustees. "Five. So far as strangers to this trust are concerned, a reso- lution of the trustees authorizing a particular act to be done shall be conclusive evidence in favor of such strangers that such act is within the power of the trustees. "Six. The trustees may make any rule in reference to the management of the trust not inconsistent with the terms of this instrument which they may deem necessary or favorable for the conduct of the business, and may repeal or change the same from time to time by majority vote. They may adopt and use a common seal. These rules shall provide for the number of trustees con- stituting a quorum and shall be recorded in the record book of the trustees and on demand a copy shall be furnished any certificate holder. "Seven. The trustees shall annually elect a president and vice- president from their number and shall also elect a secretary and treasiirer from certificate holders. They shall have the authority to appoint such officers, agents or attorneys, which they may, from time to time, deem necessary or expedient for th« conduct of their business. . They shall keep minutes of all actions taken by them, which shall be open to the inspection of the certificate holders. They shall fix the compensation of all their agents, and after the dividends are yarned and paid on the preferred certificates they are likewise authorized to pay to themielves reasonable compensation for their own services out of the inco.me received by them. "Eight. The, trustees shall not be liable for errors in judg- ment in hijlding property or assets of any kind originally conveyed or asai^ed to theai or in acquiring and afterwards holding addi- 650 OHIO tional property, or assets nor for any loss arising out of any invest- ment, nor for any act performed or omitted by them in the execu- tion of this trust in good faith. "Nine. Certificates hereunder shall be of the par value of $1.00 each and shall be divided into preferred and common certifi- cates. The preferred certificates shall be entitled to a cumulative ^ semi-annual dividend at the rate of seven (t) per cent per annum, the same to be paid or set apart before any dividend shall be s.et apart for the common certificates. The dividends to cumulate only from time of consolidation and on resolution of the trustees to that .effect. In the meantime all dividends declared by any com- pany are to be paid to the owner of the stock of such company at the time of its transfer. The trustees may at any dividend period redeem outstanding preferred certificates at par, but they must re- deem the same fractional part of the holdings of each certificate owner and for this purpose may issue fractional certificates if neces- sary. As soon as one-half of the outstanding preferred certificates in amount are redeemed the holder may exchange his remaining pre- ferred for common certificates, and for this purpose the trustees are authorized fo issue additional common certificates for the requisite amount without the consent of the holders of common certificates. In case of liquidation the proceeds of the liquidation shall be first applied to the payment to the holders of the preferred certificates in the amount of $1.00 per certificate and any accrued and unpaid dividends thereon, and the balance remaining thereunder shall be divided among the holders of the common certificates in proportion to th^ir holdings. Provided, however, that after a divi- dend of seven (7) per cent shall have been paid on common certifi- cates from earnings in any calendar year, then all certificate holders shall participate in any further dividend distribution during that year without distinction. "Ten. The form of the common certificate shall be such as is adopted by the trustees. "Eleven. The form of the preferred certificates shall be as follows : Authorized Certificates, $6,000,000. Consolidated Companies Unincorporated. Common $2,000,000 —preferred certificates — preferred $4,000,000 "This certifies that is the owner of PREFERRED CERTIFICATES in the CON- SOLIDATED COMPANIES of the par value of One (1) Dollar each which he holds subject to an agreement and declaration of trust dated January 6, A. D., 191S ; a duplicate of which is on file 6Ht6 661 at the office of the Superintendent of Banks and Banking at Co- lumbus, Ohio, and in the office of the Superintendent of Insurance of Ohio, and which is hereby referred to and made a part of this certificate. "It is mutually agreed between the certificate holdets and the Trustees of the Consolidated Companies that there may be an issue of 4,000,000 shares of preferred certificates, of the par value of $1.00 each, such certificates to be cumulative and bear dividends at the rate of seven (7) per cent per annum, payable on the first days of January and July of each year, and to be paid or provided for be- fore any dividends shall be paid or set apart on the common certificates. Dividends to commence to accumulate as provided in the Declaration of Trust. "This certificate to be valid must be signed by the President or Vice President and by the Secretary of the Trustees of the Con- solidated Companies, and neither the Trustees nor the holder of this certificate assume any liability in reference to the shares or business of the Consolidated Companies. "After a division of 7% shall have been paid on both preferred and common certificates from earnings in any calendar year, then all certificate holders shall participate in any further dividend dis- tribution of that year without distinction. "On vote of the majority of the Trustees this certificate may be redeemed at any dividend paying period at .par and accrued dividends. "After one-half in amount of preferred certificates are re- deemed, the holder may exchange his remaining certificates for common certificates at par. "In Witness Whereof^ under said declaration of trust the Trustees herein designated as' the CONSOLIDATED COMPANIES have caused their seal to be hereto affixed and this certificate to be executed in the name and on behalf of THE CONSOLIDATED COMPANIES by its President and Secretary this day of.. 1915. By President of Trustees. Secretary of Trustees. CONSOLIDATED COMPANIES. "Twelve. The trustees may, from time to time, declare and pay dividends out of the net earnings made by them, but the amounts of the dividends and the payment of them shall be wholly in the discretion of the trustees except as provided above. 652 OHIO "Thirteen. The fiscal year of the trustees shall end with the calendar year. The trustees shall serve until their successors shall be appointed and qualified as provided herein. Of meetings of the trustees notice shall be given by mail to each trustee at his registered address at least three days before such meeting. Five (5) days' notice shall be given of meetings of certificate holders. "Fourteen. The ownership of certificates hereunder shall not entitle the holders to any title in or to the trust property or assets of- any kind whatsoever, or right to call for a partition or division ofi the same. "Fifteen. The trustees shall have no power to hind the certifi- cate holders personally, and the certificate holder and his assigns, all persons or corporations extending credit to, contracting with, or having any claim against the trustees, shall look only to the funds and property of the trust for payment of such contracts or claim, or for the payment of any debt, damage, judgment or decree, or any money that may otherwise become cme and payable to them from the trustees, so that neither the trustees nor certificate holders, either present or future, shall be personally liable therefor. "Sixteen. This declaration of trust may be amended at any time by agreement of a majority of the certificate holders and a majority of the trustees, but no amendment shall be adopted whtch shall charge the trustees or certificate holders with any personal liability, or which shall change the rights of priority of the holders of preferred certificates, nor shall the number of certifiqates author- ized to be issued be at any time increased, except as herein provided as to common certificates. The signature hereto of the trustees selected signifies their ac- ceptance of the trust and their agreement to administer the same in accordance with its terms. "Witness the hands of the several trustees at Columbus, Ohio, this 26th day of January, 1915." (Here follow the signatures of the fifteen trustees). With certain possible exceptions to which I shall hereinafter refer, the meaning of the terms of the above instrument is plain. Although no certificates have been issued or disposed of the fifteen trustees named in the original "Agreement and declaration of trust" have met, organized and entered into a contract with a certain licensed dealer in industrial securities by which they agree to turn over to the dealer the entire au- thorized issue of common certificates, i. e., such certificates of th,e par value of $2,000,C00 in consideration of an agreement by the dealer to secure and turn over to the trustees a majority in interest of the stock of the life insurance companies sought to be consolidated. OHIO 653 Here I think I ought to point out that whereas to the best of my recollection nothing was said in the course of the hearing before the superintendent of banks to the effect that the "Agreement and declara- tion of trust" and the certificates to be issued thereunder related or would relate in any way to insurance companies other than life, there is nothing in the above quoted instrument itself, which is the measure of the scope of the enterprise, to indicate that the trust is to be limited to life insurance companies only. The word "life" is not found ih the "declaration of trust". The narrowest interpretation to be put upon the instrument in this respect is that the trust may extend to the control of the stock of any kinds of insurance companies which may be con- solidated under the laws of Ohio. As stated the trustees and the dealer abov.e referred to have made application to the superintendent of banks as "commissioner" under the "Blue Sky Law" for a certificate authorizing the disposal of the "trust certificates" -referred to and designated in the above quoted "Agreement and declaration of trust" as "preferred certificates" and "common certifi- cates". The foregoing are all the facts which can be regarded as established. In addition thereto I may mention, however, that in the hearing 'before the superintendent of banks the names of certain life insurance companies were mentioned, the consolidation of which was said to constitute the real object of the enterprise; and that the aggregate capital stock and surplus of these companies so named amounts to something over two millions ($2,000,000) of dollars. The first question which was encountered under the foregoing facts was that respecting the status of the enterprise and of the trustees as "issuer" under the "Blue -Sky Law" as reflecting upon the jurisdiction of the -superintendent of banks as "commissioner" and upon the application of the "Blue S_ky Law" to the terms of the contracts of subscription or disposal of the "trust certificates". This question, which is really divisible into two distinct parts,' has in* my opinion however become subordinate to another general question which has been raised in my own mind and which I may state thus : "Should the sanction of the state through any of its depart- ments be given to- the disposal of the above described 'trust certifi- cates'?" I raise this general question because I have encountered the follow- ing specific questions : ' (1) Is the so-called "declaration of trust" effective to create a trust in the proper sense? And if not would the issuance of a "trust certifi- cate" upon the terms therein specified perfect the declaration of trust and bring a trust into existence in behalf of the certificate holder as cestui que trust? ,;tH 654 OHIO (2) Considered as a trust is the arrangement legal?; this question being predicated upon the following subordinate questions : (a) Could Ohio life insurance companies themselves enter into a partnership or pooling arrangement; and if not can the stockholders bring about the same result by assigning theii- stock in trust? And if the answer to both of these questions be in the negative would the con- summation of the purposes of the trust agreement bring about such a condition of affairs? (b) Is it lawful for any number of persons as agents of stock- holders or otherwise, and whether they be called "trustees'' or not, to control and dominate the affairs of more than one corporation? (3) Are the "trustees" under the above "agreement and declara- tion of trust" usurping a franchise ; and would the mutual relations at- tempted to be created thereunder be such as to render their acts there- under attempts to exercise corporate powrs? I may pause here to state that I am clearly of the opinion that if the answers to any one of these three subordinate questions are such as to demonstrate that the arrangement in question is yoid or illegal the certificate applied for should not be issued; by any state officer. To hold otherwise would be to do violence to the controlling purpose of the "Blue Sky Law". (4) The declared object of the "declaration of trust" being the consolidation of a certain number of insurance companies doing business in Ohio according to a specified plan, does not the answer to the main question depend upon whether or not such a consolidation if attempted could lawfully be carried into effect? This question is suggested by two subordinate questions which have arisen in my mind, namely: (a) Would the commission which by law is to pass upon the pro- posed consolidation be justified as a matter of law in permitting a- con- solidation by which the policyholders of all of the companies which it is proposed to consolidate would be relegated so to speak to the existence of a company having but one hundred thousand ($100,000) dollars capital (it being admitted that the aggregate capital of the several companies mentioned by the promoters of the scheme as within its purview is greatly in excess of one hundred thousand ($100,000) dollars?) (b) Would such commission be justified in sanctioning the pro- posed consolidation, should it appear that the capitalization of the com- panies to be consolidated had been expanded by the issuance of "trust certificates" without any actual increase in assets, (1) upon which divi- dends are to be paid to stockholders and participating policyholders ; o'r (2) which are to be accounted for and disposed of at the time of the proposed consolidation. In explanation of this question I repeat the statement that the combined assets of all the companies mentioned by the promoters as within the purview of the scheme are about two millions ($2,000,000) OHIO 655 of dollars, (the value of outstanding insurance cannot be counted as an asset in favor of policyholders), whereas this sum is to be practically absorbed in the first instance under the consolidation arrangement by the issuance of "'common trust certificates'' and that preferred trust cer- tificates are to be exchanged for stock in the company at a price fixed upon the basis not only of par value of such stock but also upon the surplus and the amount of outstanding insurance assuming the same to be worth twenty dollars per thousand. (c) Would not the fact (which I ascertain by independent investi- gation from public records) that some of the proposed constituent com- panies limit themselves in their articles of incorporation to certain divi- dends to stockholders and issue policies entitling the holder thereof to participate in dividends, preclude the consummation of the purposed consolidation ? (5) What other than control of the proposed constituent companies and their later consolidation linto a company hereafter to be organized, has the so-called "The Consolidated Companies" of value to offer to investors ? Arguments on the jurisdictional question were heard by the superin- tendent of banks ; and I have investigated and have received from counsel on both sides briefs respecting the other questions which have suggested themselves to me. Of course the question of jurisdiction is encountered first. It is raised by consideration of the following section of the "Blue Sky Law" co-called; (Section 6373-19 General Code, as enacted 103 O. L. 752) : "If the issuer of such securities be a company incorporated, organized or formed to make any insurance named in subdivisions I and II, division III, title IX of the General Code, the 'commis- sioner', for all the purposes named in sections 14 and 16 of this act, shall be the superintendent of insurance of this state.- In addition to the powers given to, and the duties prescribed to be performed by", such 'commissioner', under said sections, the superintendent of insurance shall have, over any such ccy;npany disposing or attempting to dispose of any of its securities within this state, the powers of regulation, supervision and examination conferred on him by law, with reference to companies licensed to transact the business of insurance within this state." ' The effect of making the superintendent of insurance the "commis- sioner'' for all the purposes named under "sections 14 and 16 of this act" is to confer upon the superintendent of insurance, instead of the superin- tendent of banks, among other things the authority and jurisdiction to issue or to refuse to issue a certificate or license entitling a dealer to dispose or attempt to dispose of a given security. 656 OHIO The terms "issuer" and "company'' as used in the above section are defined in section 6373-2 General Code as amended 104 O. L. 110, as follows : "As used in this act, the term 'company' shall include any cor- poration, co-partnership or association, incorporated or unincor- porated, and whenever and wherever organized; 'dispose of shall be construed to mean 'sell, barter'; 'pledge or assign for a valuable consideration or obtain subscriptions for' ; 'issuer', the original issuer of the security; and, where the context demands it, words in the present tense include the future tense; in the masculine gender in- clude the feminine and neuter gender; in the singular number in- clude the plural, and in the plural the singular number; the word 'whoever' includes all persons, natural and artificial, principals, agents and employes ; 'and' may be read 'or' and 'or' 'and'." In my opinion one effect of the "declaration of trust" above quoted is to form or organize an unincorporated association or co-partnership ; and to this extent the trustees constitute or represent a "company'' within the meaning of section 6373-2. Presumably the word "company" as used in section 6373-19 is con- trolled by the definitions of the other section just quoted as I have stated it. The presumption becomes a certainty when it is considered that the word "'company" as found in section 6373-19 is immediately followed by the words "incorporated, organized or formed." That is^ the force of section 6373-19 is obviously not intended to be limited to "incorporated companies" but to those which have been "organized or formed^' by methods less formal than incorporatiorr as well. The ultimate question then becomes as to whether or, not the "trust" is formed "to make * * * insurance." It is not my purpose in this connection to analyze the "declaration of trust" as exhaustively as might be deemed appropriate for the reason that a more complete analysis thereof is necessary in order to answer the more fundamental questions which I have myself suggested and herein- before stated. It is sufBcient^n this connection to state that the trust is certainly not a mere "dry trust". The trustees are not constituted a mere "holding" agency, but obviously are to engage in a business enter- prise. That this is true is evidenced by the following provisions of the "agreement and declaration of trust" : (1) "The plan contemplates the turning over to these trustees of all or a large majority of the outstanding stock of the company sought to be consolidated so that the trustees will then control the various companies". (2) "The trustees as such in their collective capacity shall be designaed as 'The Consolidated Companies' * * * and under that name shall conduct all business". OHIO 657 (3) "For the purpose of laying before the cestui que trust a state- ment of the condition of the business, the trustees shall annually call a meeting of allthe certificate-holders". (4) "The trustees as such shall own the legal title to all property or assets of any kind at any time belonging to their trust, and shall have and exercise the exclusive management and control of same". (5) "The trustees * * * shall have the authority to appoint such officers, agents or attorneys, . which they may, from time to time deem necessary or expedient for the conduct of their business. * * * They shall fix the compensation of all their agents and after the dividend,s are earned and paid on the preferred certificates they are likewise authorizea to pay themselves reasonable compensation * * *" (6) "The trustees shall not be liable for errors in judgment in holding property or assets of any kind * * * or in acquiring and afterwards holding additional property * * * for any act performed or omitted by them in the execution of this trust in good faith." (7) "The trustees may, from time to time, declare and pay divi- dends out of the net earnings made by them, but the amounts of the dividends and the payment of them shall be wholly in the discretion of the trustees except as provided above." It being clear that the trust is declared for a business purpose, the next question is as to whether or not that business is the making of in- surance. This is a question of considerable difficulty. The trustees them- selves are not to make contracts of insurance but they are, pending con- solidation, (which is to take place at their discretion) to control corpora- tions engaged in making contracts of insurance. Looking through the form of the transaction to the substance thereof I think it must be held that the purpose of the trustees is to conduct through the proposed constituent companies and pending their consolidation, the business which these companies are authorized to conduct. This will be done of course by controlling the selection of the directors and other officers of the companies and thus dictating their respective policies. So that in this somewhat liberal but substantially accurate view of the case "The Con- solidated Companies" is a company formed to make insurance. But thpre is another angle of view involving the raising of the sec- ond of the two specific questions into which the first general questioh resolves itself which justifies the adoption of the interpretation which I have put upon the first sentence of section €373-19, Section 12 of the Blue Sky Law being section 6373-12 as amended 104 0. L., 115, pro- vides as follows : "No person or company shall, for the purpose of organizing or promoting any insurance company, or of assisting in the flota- tion of its stock after organization, di^ose or offer to dispose, within this state, of any such stock, unless the contract of sub- 42 658 OHIO S'Cription or disposal shall be in writing, and contain a provision substantially in the following language : " 'No sum shall be used for commission, promotion and or- ganization expenses on account of any share of stock in this com- pany in excess of per cent, of the amount actually paid upon separate subscriptions, or, in lieu thereof there may be inserted, $ per share from every fully paid sub- scription, and the remainder of such payments shall be invested as authorized by the law governing such company and held by the organizers (or trustees as the case may be) and the ' directors and officers of such company after organization, as bailees for the sub- scriber, to be used only in the conduct of the business of such com- pany after having been licensed and authorized therefore by proper authority.' "The amount of such commission, promotion and organization expenses shall in no case exceed fifteen per cent, of the amount actually received upon the subscription. "Funds and securities held by such organizers, trustees, di- rectors or officers, as bailees, shall be deposited with a bank or trust company of this state or invested as provided in sections ninety- five hundred and eighteen and ninety-five hundred and nineteen of the General Code until such company. has been licensed as afore- said." I am unable to see why "The Consolidated Companies" and the trustees thereof are not mere promoters of an insurance company, viz. : a company proposed to be formed by the consolidation of the several companies contemplated by the trustees. It is true that said section 6373-12 in terms applies only to the contract of subscription or disposal of the stock of the company to be organized; and that the trustees of "The Consolidated Companies" in issuing the "trust certificates" which are provided for are not disposing or offering to dispose of stock in the new company. This is guarded against in the "agreement and declara- tion of trust" in the following language : "The trustees propose to issue certificates for stocks obtained by them and held as trustees, and when the last of the desired con- solidation is brought about to retire said certificates with cash divi- dends and a distribution of stock or the proceeds of sale of all or any part of the stock of the one insurance company." In other words while the "trust certificates" may at the discretion of the trustees be exchanged for stock in the new companyi their holders are not entitled to such stock as a matter of right under the terms of the trust agreement but -such certificates may be retired with the pro- ceeds of sale of the stock. But it is obvious that the certificates on con- OHIO 65Q solidation must be retired in one of these two ways. Whether retired by cash dividends, (a matter that will be referred to later) and distribu- tion of stock or by proceeds of the sale of the stock of the company which it is proposed to form, the common stock issued by the trustees and representing promotion expenses will have to be provided for. In either event the amount represented by the common certihcates may be a charge upon the proceeds of the stock to be issued; and to the extent that this is possible, I believe that the transaction will ulti- mately at least become subject to the regulatory provisions of section 6373-12. That is, to say if the trust agreement has any lawful purpose at all it is the organization of the consolidated company; the two mil- lions ($2,000,000) of dollars of common certificates authorized to be issued represent a part of the expense of such organization and the pro- • motion of the 'consolidated company. To use any part of the proceeds of the sale of the stock of the new company, (or surplus assets of the constituent companies) to take up outstanding common certificates would be paying organization expenses ; and a fortiori to issue new stock in exchange for outstanding common certificates would have the same effect. It is no answer to this to say as was claimed in the hearing be- fore the superintendent of banks, that at the time of the proposed con- solidation there will be no organization expenses whatever; for provision for the outstanding common certificates would be in my opinion the payment of promotion and organization expenses. I arn therefore of the opinion, for this reason, that "The Con- solidated Companies" must be regarded as an agency to promote an in- surance company within the meaning of section 6373-19 and that when the new or consolidated company is forced its stock cannot be disposed of unless on a basis that "will bring the two million dollars of common certificates within the fifteen per cent limitation of section 6373-12. That is, stock in the new company would have to be sold or exchanged on such a basis as to represent a capital and surplus aggregating over thirteen millions ($13,000,000) of dollars. There is a third reason for the view which I have taken on the first general question, a mere statement of which will suffice at this point as I shall have to elaborate upon it subsequently in this opinion. In my opinion the effect of the stockholders of the several companies which it is proposed to consolidate entering into a trust agreement and declara- tion is to make the various companies of which they are stockholders partners in a common enterprise involving the continuing conduct of their respective businesses under centralized control and management. In this sense "The Consolidated Companies" may be regarded as a part- nership of insurance companies and of course is an association or or- ganization to make insurance. This alone would bring it within the scope of section 6373-19 of the "Blue Sky Law", 660 OHIO Finally I think it is clear from an examination of the provisions of section 6373-19 General Code that its scope is intended to embrace agencies in promotion of insurarice companies as well as insurance companies, the organization of which has been perfected. If this were not the case t.'iere- would be' no reason for the second, sentence of the section which in effect vests in the superintendent of insurance, when acting as "com- missioner", the powers of regulation, supervision and examination which he possesses with reference to licensed insurance companies, to be ex- ercised with respect to any "such company disposing or attempting to dispose of any of its securities within this state." In this way as well as by consideration of /the meaning of the word "company" as defined elsewhere in the act and used in this section, the intention of the legis- lature to make the superintendent of insurance the "commissioner" in all matters relating to the promotion of insurance companies is made clear. For the foregoing reasons then I am of the opinion : First : That the superintendent of insurance is the "commissioner" under tiie "Blue Sky Law", to whom application for a license and certifi- cate authorizing a sale or disposal of the trust certificates of "The Con- solidated Companies" should be made, and Second: That the provisions of section 6373-12, General Code, while not directly applicable to the disposal of those securities (which are not stock of an insurance company within the meaning of the term as therein used) will be applicable to the sale or disposal oi the stock of any consolidated company which is formed in pursuance of the "agree- ment and declaration of trust", and that the retirement of outstanding "common certificates" as provided for in said declaration of trust at the time of such consolidation would constitute payment for "commission, promotion and organization expenses" within the meaning of said sec- tion 6373-12. For these reasons alone then the application which has been made to the superintendent of banks should not be considered by him. As I have stated the jurisdictional question and that respecting the application of section 6373-12 of the Blue Sky Law are doubtful because they involve the interpretation of a new statute. I have answered them with the view of carrying out the manifest object and purpose of the whole "Blue Sky Law". It was very clearly the intention of the legis- lature that the superintendent of insurance should be the "commissioner" in insurance matters under the Blue Sky Law; and I believe the terms which the general assembly has used in expressing its intention are suffi- ciently broad to justify the conclusion which I have reached. At any rate, assuming these terms to be of doubtful import on their face, con- sideration of the evil to be remedied and the purpose which animated the general assembly in imposing the duties of the "commissioner" upon the superintendent of insurance, justifies and compels, I think, the in- terpretation which I have put on these provisions. OHIO 661 In the view which I take of the merits of the application, how- ever, the jurisdictional question is really a subordinate one; for I think, the "agreement and declaration of trust" is so manifestly illegal and void that no certificate entitling any person to dispose of the "trust certificates" provided for therein should be issued by any state authority, however the jurisdictional question be decided. In the first place I think it will be universally admitted that "The Consolidated Companies" does not at present exist as a trust. The fifteen persons who signed it in effect merely hold themselves out to the stockholders of any insurance company doing business in Ohio or else- where as willing to a:ct as trustees for them for the accomplishment of the purposes mentioned. No trust relation will exist until some one pre- ferred certificate is disposed of, and then only as to the stockholder who surrenders his share of stock in return for such certificate or certificates. I do not think it necessary to go into this matter at any length or to give it any consideration as other reasons are sufficient for the conclusion reached herein. The second specific question bearing upon the legality of the enter- prise is a most serious one. The consolidation of life insurance com- panies, for example, is provided for hy statute and it may be said to be the policy of the state to encourage such consolidation. But that policy is qualified by specific provisions prescribing the' manner in which, the consolidation shall be effected (Sections 9351-9356 inclusive'. General Code). These provisions are to the effect that one company desiring to consolidate with another shall present a petition to the superintendent of insurance incorporating the terms and conditions of the proposed con- solidation and praying for the approval ' o'f ■ any modification thereof. Thereupon the superintendent shall give notice of a hearing on such petition which shall be held by a commission consisting of the governor or some competent person to be- appointed by him; the superintendent of insurance and the attorney general. This commission has authority as stated to approve or to modify the terms of the consolidation and to make orders with reference thereto, as well as to make orders relative to the distribution of surplus assets. I think that it is so elementary ■ as not to require the citktion of authorities that power to consolidate is a franchise and can be exercised only in the manner prescribed by law. Furthermore, it is a power which inheres in the insurance company as such and constitutes a corporate act. That is to say consolidation is not an incident of the right of the in- dividual stockholders hut the power is an ' attribute of the corporation itself. Insurance companies organized under the laws of Ohio have no authority whatever to enter into any mutual arrangements having the effect of consolidation other than by virtue of the statutes just cited. Specifically, they may not enter into any contract of partnership or pool their respective interests or otherwise provide for joint management or 662 OHIO control. If the enterprise now under consideration purported to be on^ entered into by the various companies proposed to be consolidated as such instead of by their stockholders acting through the trustees under the name and style of "The Consolidated Companies" the arrangement would be clearly ultra vires the corporations and void; or if the several companies themselves should enter into a mutual contract whereby their concerns were to be managed by a central executive board for an in- definite period or until the board deemed it wise to consolidate the com- panies into one, such a contract would be unlawful and void as against public policy whether the relation created thereby be regarded as a part- nership or as a combination or otherwise. (State V. The Standard Oil Co. 49 O. S. 137). (Geurinck v. Alcott, 66 O. S. 94). It is not necessary in order that this result shall follow that the combination of corporations affect the price of commodities or other- wise tend to monopolistic restrictions in trade and commerce. The vice of such a contract is, from the standpoint of the corporation, a sub- junctive one and finds expression in the following language from the Standard Oil case, supra, at page 185 : "The law requires that a corporation should be controlled and managed by its . directors in the interest of its own stockholders and conformable to the purpose for which it was created by the laws of its state.'' « Again, such a contrast among the companies as such would involve delegation by them to the central managing board of practically all their corporate powers and functions of a substantial nature. A corporation is not permitted to delegate such powers and functions in this manner. Southern Electric Securities Co. v. State, 44 Southern 786. Noyes on Intercorporate Relations, section 315. Eddy on Combinations, .Vol. 1, section 607, especially at page 555 and cases cited among which see Cloud v. Hood 38 Fed. 886. If the above "agreement and declaration of trust" were subscribed by the corporations as such there could be no doubt about its effect in this particular. It embodies a frank declaration of intention that "the plan contemplates the turning over to these trustees of all or a large majority of the outstanding stock of the companies sought to be con- solidated "so that the trustees will then control the various companies and the matter of consolidation becomes a detail. Parenthetically, it may be remarked that indeed and in truth should this agreement be carried out the "matter of consolidation" would actually become unnecessary save as a sort of formal compliance with the law. OHIO 663 Does the "agreement and declaration of trust" stand on any dif- ferent footing because if carried out the parties to it will be stockholders of different companies and not the companies themselves? Common sense dictates a negative answer to this question; and such an answer is forced also by authorities. In the Standard Ojl case, supra, this was the very question which controlled the decision of the ■ court. The temptation is to quote liberally from Judge Minshall's opinion relative to the nature of a corporation and the impossibility of distinguishing in substance the corporation as an entity from its stockholders ; and the dis- tinction, too, between those acts and agreements which the stockholders may commit and make as incident to their individual ownership of the shares of stock and those other acts and agreements which directly' affect the corporation as such and are therefore held to be corporate acts. The limitations of space, however, forbid quotation save from the syllabus of the case which states the unanimous decision of the supreme court of this state : "That a corporation is a legal entity, apart from the natural persons who compose it, is a mere fiction, introduced for con- venience in the transaction of its business, and of those who do business with it; but like every other fiction- of the law, when urged to an intent and purpose not within its reason and policy, may be disregarded. "Where all, or a majority of the stockholders composing a corporation, do an act which is designed to affect the property and business of the company, and which, through the control their num- bers give the mover the selection and conduct of the corporate agencies, does affect the property and business of the company, in the same manner as if it had been a formal resolution of its board of directors ; and, the act so done is ultra vires of the corporation and against public policy, and was done in their individual capacities for the purpose of concealing their real purpose and object, the act should be regarded as the act of the corporation ; and, to prevent the abuse of corporate power, may be challenged as such by the state in a proceeding in quo warranto." To the same effect see : People V. North River Sugar Refining Co. 121 N. Y., 623. Noyes on Intercorporate Relations, sections 317 to 323 inclusive. Eddy on Combinations, section 607. It is interesting to note in connection with the Sugar Refining Trust case decided by the Court of Appeals of the State of New York that the court of first instance and the supreme court of that state had for- feited the charter of the underlying company which was the defendant 664 OHIO therein in at least partial reliance upon the fact that the effect of the combination was ro destroy competition in a commodity of general u^e and consumption (54 Hun. 356) ; whereas the court of appeals in affirm- ing the judgments of the lower courts planted its decision solely upon the grounds pertaining^ to corporation law as such. As stated in the opinion of the court : "We have reached our conclusion, and it appears to us to have been established, that the defendant corporation has violated its charter and failed in the performance of its corporate duties and that in respects so material and important as to justify a judg- ment of dissolution. Having reached that result, it becomes need- less to advance into the wider discussion over monopolies and com- petition and restraint of trade and the problems of political economy. * * * Without either approval or disapproval of the views ex- pressed upon that branch of the case by the courts below, we are enabled to decide that in this state there can be no partnerships of separate and independent corporations, whether directly or indirectly through the medium of a trust; no substantial consolidations which avoid and disregard the statutory permissions and restraints, but that manufacturing corporations must be and remain several as they were created, or one under the statute." I mention this case not because anything is needed to supplement the decision of our own supreme court in The Standard Oil case, but because in spite of the very clear language of the decision in the latter case, of itself sufficient to support the judgment of the court, the economic considerations which the New York court put aside as im- material were commented upon in The Standard Oil case. I think the Standard Oil case is authority for the rule as I have stated it; but the distinctions drawn by the New York court are at least helpful to show the existence of the rule separate and apart from the principles which make a combination in restraint of trade in a commodity illegal. Returning again to the "agreement and declaration of trust" there can be no doubt that its intended effect is that which is prescribed by the rule as I have stated it. The trustees by means of exchanging pre- ferred trust certificates for shares of stock in several insurance com- panies are to acquire control of those companies. That is the stock- holders of the companies by surrendering their shares to the trustees are to aid in accomplishing a result which affects the management of the corporation as a whole and indeed will end in surrendering all their independent functions substantially to the trustees. The rule is not limited to a prohibition against a corporation entering into a technical fiartaer- shtp; it is violated when any agreement is entered into whereby agencies outside of the regular corporate agencies authorized by law, secure con- OHIO 665 trol of the corporate management and assets with a view to administering them for the benefit of the common scheme. It will be observed that I have taken the ground that the combina- tion or informal consolidation is illegal for want of corporate power to enter into it regardless of its effect as a restriction upon trade or com- merce. Decisions of lower courts of this state are at variance with respect to whether or not insurance is within the purview of the anti- trust statute. Whether or not this is true that statute is expressly de- clared to be cumulative only of the common law. (Sec. 6402 General Code). But there is another statute respecting corporations which shows quite" clearly that the policy of the state is opposed to such intercorporate relations as tend to restrain competition. I refer to Section 8683, Gen- eral Code, which provides as follows : "A private corporation also may purchase, or otherwise ac- quire, and hold shares of stock in other kindred but not competing private corporations, domestic or foreign. This shall not authorize the formation of a trust or combination for the purpose of restrict- ing trade or competition." , • Finally, on this point, it may be urged that as consolidation which »s the ultimate object of the "agreement and declaration of trust" is permissible, therefore, the trust agreement itself, which is designed to promote consolidation, should be looked upon with favor; or that putting it in another way, the power to consolidate on the part of the corpora- tions implies the power on their part and on that of the stockholders acting in their corporate capacity to take all steps which may be deemed necessary and convenient for the accomplishment of that purpose. This does not follow. I have already stated that consolidation is a corporate power or franchise which must be exercised in the manner pl-ovided by law and not otherwise ; whereas the effect of the trust agreement, if carried out would be, as it declares on its face, to make consolidation a "detail"; i. e., a thing necessary merely to put the stamp of legality upon an affair already accomplished. I think I have said enough on this point to demonstrate that in- surance companies affected by this trust agreement are without power to enter into any sort of partnership or pool arrangement; that their stockholders through agents are likewise without power to do so ; and that the persons denominated "trustees" are forbidden by the! settled policy and law of this state to dominate the affairs of more than one corporation. My attention has been called to decisions upholding the validity of voting trusts within a single corporation. There is a wide distinction between trust agreements of this kind and those of the kind exemplified by the one above quoted. This distinction was very clearly made in 666 OHIO two cases decided by the same court within a short space of time and effecting the same corporation, viz: Nafer v. Railroad company, 9 O. D. Reprint 470; Griffith v. Jewett, Id. 627. The case of State ex rel v. Railroad Company, 6 C. C. 415 has been cited to me. On its face, the trust, agreement involved in that decision was a mere voting trust among the stockholders of a single corporation. It was claimed that in reality the scheme contemplated the control of the one corporation by the directors of another. The two companies were railroad companies owning connecting and not com- peting lines. The court held, first, that the agreement was in form and substance a mere voting trust and that if any illegal use of the trust were contemplated or made that would be an entirely distinct matter; but that by virtue of the very broad provisions of section 3300 Revised Statutes, now section 8808, General Code, authorizing connecting rail- road companies to "enter into any agreement for their common benefit consistent with, and calculated to promote the objects for which they were created," it would be competent for one railroad company to per- mit itself to be managed and controlled by another provided their respective lines were connecting and not competing. Of course it is obvious that insurance companies or other corporations generally have no such powers as are expre|sly conferred by law upon railroad com- panies in this particular. I am of the opinion therefore that for the reason thus far stated the object sought to be accomplished by this trust agreement is an unlawful one. I come now to consider another question which has suggested itself to me, namely, as to the validity of the trust considered with respect to whether or not it constitutes an attempt to create a corpora- tion; or putting it in another way whether or not the trustees, should they proceed to carry out the terms of the trust, would be guilty of usurping corporate franchises and privileges. While this question may not be free from doubt I incline strongly to the view that the powers and duties vested in the trustees by the "agreement and declaration of trust" above quoted and to be exercised by them include several which are in the nature of corporate franchises. The incidents of this trust are not substantially distinguishable from those of a corporation. The trust is to have a capital stock on which dividends are to be computed and paid. This capital stock is divided into shares represented by "trust certificates" of the two classes named therein. These shares are transferable like the stock of any corpora- tion, and the death of any certificate-holder does not dissolve the asso- ciation. There is to be a board of trustees consisting of a certain num- ber and there is provision for filling vacancies therein. The trustees are to elect a president and vice-president and to appoint a secretary and treasurer. The trust is to continue until a certain object is -achieved OHIO 667 but the determination as to whether or not the object has been achieved is to be made by the trustees themselves, although it may be dissolved by a majority vote of each class of certificate-holders. The trust is to have a name and a common seal. The trustees • are to have authority to enact by-laws and rules and to appoint agents and officers, and are required to elect certain officers. Neither tlie trustees nor the certificate-holders are to be personally liable to creditors who are to look only to the funds and property of the trust. Finally the declaration of trust may be amended at any' time provided that such amendment does not affect the nature of the liability of either the trustees or the certificate holders. It seems to me that there is no vital distinction between this kind of an organization and a corporation. Section 8627, General Code, de- scribed the general corporate powers as follows : "Upon filing articles of incorporation, the persons who sub- scribed them, their associates, successors, and assigns, by the name and style provided therein, shall be a body corporate, with succes- sion, power to sue and be sued, contract and be contracted with ; also unless ■ specially limited to acquire and hold all property, real or personal, necessary to effect the object for which it is created, and at pleasure convey it in conformity with its regulations and the laws of this state. Su-ch corporation also may make, use, and at will alter a common seal, and do all other acts needful to ac- complish the purposes of its organization." In State ex rel. v. Ackerman, 51 O. S. 163, it became material to inquire whether a certain group of individuals who had entered into ar- ticles of agreement could be ousted from carrying on business thereunder by action under the statute providing for quo warranto "against an asso- ciation of persons who act as a corporation within this state without being legally incorporated." The articles of agreement involved in that case recited that the signers were desirous of entering into the business of guarantee • and accident insurance. They thereupon agreed with each other to deposit a certain sum with an "advisory committee", such sums to be held for the individual account of each subscriber, together with all earnings thereon, as a fund to meet any loss which the subscriber might sustain upon any policy of insurance subscribed by him beyond the net amount of premium earned and received on said policy. The committee was to supervise the business of the association and to direct certain attorneys in fact who were to be appointed by the subscribers. These attorneys in fact were to manage the actual business of the enter- prise which was to consist of the issuance to the subscribers of policies of insurance, all of which was provided for in great detail in the agree- ment. The supreme court of this state held that quo warranto would lie under the statute and that the defendants were unlawfully exercis- 668 OHIO ing a franchise. In the opinion of the court_, per Williams J., at page 195 appears the following : "Where, by statute, the legal exercise of a right, which at com- mon law was private, is made to depend upon compliance with con- ditions interposed for the security and protection of the public, the necessary inference is that it is no longer private, Ijut has become a matter of public concern, that is, a franchise, the assumption and exercise of which without complying with the conditions prescribed would be a usurpation of a public or sovereign function. In this case the legislature has done no more than was done by the court in the other instance, when it, from considerations of a public nature, declared, as a principle of the common law, that facts brought to its notice, or of which it then took judicial notice, warranted the application of principles existing independently of the legislative declaration to the effect that the right claimed was a matter of pub- lic and not exclusively of private concern.'' Spelling on Extraor- dinary Relief, section 1807. The same author further says : "There was no class of business, the transaction of which, as a matter of public right, was better recognized at common law than that of making contracts of insurance upon the lives of in- dividuals. But now, by statute, in almost, if not quite all the states, stringent requirements as to security of the persons dealing with insurers and the making and filing reports with public officers for public information, are provided, and must be strictly observed and complied with before any person, association or corporation may make any contract of life insurance. The effect of such statute is to make that a franchise which previously had been a matter purely of private right." Id. Section 1808. It might be supposed that the gravamen of the complaint against the defendants in the case just cited lay in the fact that they were doing the business of insurance rather than in the fact that they had assumed to create a body corporate as such. That the court did not place its decision upon this ground alone, however, is apparent from its citation of and discussion of the case of Green et al v. People, 21 N. E. Rep. 605, which will be found on page 197 of the report of the Ackerman case. Judge Williams says at that page that : "We fully concur in the doctrine announced by Scholfield J., in the opinion." and proceeds to quote from that opinion in part as follows : "We think it clear that in two respects at least, these respond- ents are acting' as a corporation, and it is not pretended that they OHIO 669 are actually incorporated, namely : First, in professedly limiting their liability to the amount of money contributed by each; Second, in assuming to give perpetuity to the business by making member- ship certificates transferable by the assignment of the member or his personal representative. It may be, as contended by counsel, that individuals may insure property against loss by fire. They can- not limit their liability to any given amount of capital they choose to set apart for that purpose, nor can they perpetuate the business without change of capital, beyond their own lives indefinitely. These things can only be done by a corporation. * * * " So it is that the Illinois supreme court held that whether or not insurance was itself a franchise, an association with limited liability and perpetual succession constituted a corporation and if not lawfully in- corporated could be ousted from transacting that business ; and the Ohio, court clearly put the stamp of its approval upon the rule laid down by the Illinois Court. I think the doctrine here is well stated in the case of People ex rel Piatt V. Woppel, 6 L. R. A., 303 which involved a corporation franchise tax and its application to what were known as "joint stock associations", the organization and existence of which were authorized by the laws of New York. . In the opinion per Danforth J., appeared the following: "It seems obvious from' these articles that the arrangement consummated by them has little in common with a private partner- ship, for they provide for a permanent investment of capital, the » right of succession, the transfer of property by an assignment of the certificates or ownership and the prosecution of suits in the name of one person. The company has therefore the characteristics of a corporation, and, so far as it can be, it assumes to itself an independent personality, and asserts powers and claims privileges not possessed by individuals or partnerships. It is precisely such an association as, when formed without authority from Parliament, was declared in England to be illegal and void, and to be deemed a 'public nuisance' * * * the statute in this respect following, it was said, the common law and enforcing its rules by the imposi- tion of penalties * * * "It is not necessary, however, to assert in what cases such a combination of individuals would not be deemed illegal at common law; for the statutes of the state render the arrangement possible and in our opinion the association in question is within their pur- view * * * "In view of the capacities and attributes with which, as we have seen, the United States Express Company is endowed, and in view also of the statutes which legalize its assured capacities, and make valid and effective it? asserted right of succession, its dis- 670 OHIO tinctive name, and the alienability of its shares, we find nothing to warrant the contention of the appellant that it is a mere partnership, existing only under its articles of agreement and association. 3|e 3): !|c " So in Express Company v. State 65 O. S. 69, the question was di- rectly raised as to whether or not one of these express companies in- corporated as joint stock associations constituted a corporation under the laws of Ohio for the purpose of service of summons. The case just cited was followed and approved and it was held that an Ohio excise tax, said to be found in part upon the corporate franchise as a subject of taxation, could be exacted from such organizations. Now the laws of Ohio permit of but one form of association of individuals under a common name with perpetual succession and limited liability. (Limited partnership associations have not been overlooked). Any voluntary organization attempting to arrogate to itself these at- tributes may be dissolved and termined under the statutes by the use of the writ of quo warranto. Therefore I am of the opinion upon the question which I have been discussing that the above "agreement and declaration of trust" amounts to an attempt to create a corporation and to vest in the trustees thereof corporate power, the exercise of which if attempted could be prevented by action in quo warranto. That being the case the agreement is unlawful and void and all things to be done in pursuance thereof would be illegal. Consideration of the fourth question which I have suggested in connection with the merits of the application is introduced by referring to the sections of the General Code above cited which provide the method of consolidation of legal reserve life insurance companies, and particularly section 9355, General Code, which provides as follows: "If satisfied that the interests of the policyholders of such com- pany or companies are properly protected, and that no reasonable objection exists thereto, the commission may approve and authorize the proposed consolidation or reinsurance, or such modification thereof as seems to it best for the interests of the policy-holders, and make such order with reference to the distribution and disposi- tion of the surplus assets of any such company thereafter remain- ing, as shall be just and equitable. Such consolidation or rein- surance shall only be approved by the consent of all the members of the commission, whose duty it will be to guard the interests of the policy-holders of any such company or companies proposing to consolidate or reinsure." The commission provided for in the foregoing section undoubtedly has some discretion. But the section clearly requires that the commis- sion be satisfied that any proposed basis of consolidation properly pro- tects the interest of the policy-holders. Should therefore the commis- OHIO mi sion sanction an arrangement which would do manifest violence to the interests of the policy-holders or to the interests of the stockholders it would abuse its discretion and its acts would not be binding on the courts, so that a consolidation sanctioned by it could be enjoined. It seems to me that the plans of the promoters of the proposed consolidation as disclosed by the declaration of trust itself suggests strongly the conclusion that no statutory commission could sanction the consolidation which is to be effected without so abusing the power im- posed in it by section 9355 as to render its act nugatory. In the first place the trust agreement proposes that preferred certificates shall be issued for outstanding stock valued on a given uni- form basis, dollar for dollar ; and that in addition thereto there be issued two millions of dollars in common trust certificates. Then at the time of the consolidation there is to be a redemption of all the outstanding preferred certificates at par and accrued dividends, and a further distribu- tion of the assets of the trust among the holders of the common trust certificates. In other words, it is at least highly probable that between four and six millions of dollars of assets would have to be distributed according to the terms of the trust agreement at the time of any con- solidation. This attempt to control the distribution of the surplus assets of the constituent companies after the merger is illegul as it attempts to forestall the prerogative, discretion and duty of ■ the commission under section 9365 G. C. If it is admitted, as it must be, that the trust agree- ment is without force in this respect, then it must be admitted further that the trustees will be unable to carry out their agreement with the certificate-holders who have surrendered their stock for certificates or who have acquired otherwise certificates for value. This conclusion is based upon the only interpretation of the trust agreement which will give any value whatever to the trust certificates and constitute any foundation whatever for the guaranteed dividends referred to in the agreement. In short, the issuance of the trust certifi- cates constitutes an attempt to impose such a liability upon the assets of the enterprise as to cut down the assets of the proposed consolidated company as compared with the aggregate assets of the constituent com- panies to the extent which I have described. In this connection, too, the result would be the same whether four companies (the minimum under the declaration of trust) are consolidated or whether seven or more are brought into the consolidation ; except that the promotion ex- pense represented by the $2,000,000 par value of common trust certificates is the same regardless of the total assets of the companies brought into the consolidation. Either the commission would feel that it could not sanction the consolidation except in recognition of the trust and the outstanding trust certificates; in which event the result to the policy-holders would. be anything but "just and equitable" ; or, safeguarding the interest of 672 OHIO the policy-holders (especially those having a right to participation in dividends), the commission would decree that the net assets of the constituent companies be maintained substantially as capital and surplus of the consolidated company; in which event the promised dividends on the preferred trust certificates and distribution to the holders of the common trust certificates could not be carried out. The one result would prevent consolidation; the other would destroy what speculative value the trust certificates had. So it .seems to me that the effect of the plan contemplated in the. trust agreement and in particular that feature of it which calls for the issuance of $2,000,000 common stock is such as is incompatible with a successful consolidation as proposed therein. From the other angle suggested by the second part of my fourth question has the statutory commission discretion to permit the consolida- tion of a company writing participating policies with one writing non- participating policies? I have already pointed out the effect of the in- crease in "Securities" upon which dividends are to be paid during the life of the trust and upon the basis of which distribution is to be made at the time of consolidation. The effect of such a process upon the in- terests of participating policy-holders needs no elaboration. I do not believe that a commissioner under the "blue sky law" would be justified in ignoring questions of this kind. The whole scheme of the trustees rests upon the supposition that_ at a certain time a con- solidation may be perfected. If it be shown that such a consolidation as is contemplated by the "agreement and declaration of trust" is of a nature as to make it impossible that it will ever be sanctioned, I do not believe that the commissioner under the sections which define his duties and to which I shall call attention in a moment, would be justified in issuing his certificate authorizing the sale or disposal of trust certifi- cates. On the last question which I have suggested it seems to me that consideration of the entire trust agreement makes it clear that until consolidation is effected the only attribute of value which is possessed by the trust certificate lies in the control of the so-called constituent companies. No dividends are to be accumulated upon the preferred certificates until the time of consolidation. Prior to consolidation the dividends on the stock issued by any of the constituent companies are to be paid to the owner thereof at the time of the transfer. It is thus seen that neither class of certificates depends upon the successful con- solidation of the companies, a thing which is in the highest sense a con- tingency. (Although one is likely to be mislead in this respect by read- ing one of the trust certificates without also carefully reading the "agree- ment and declaration of trust.") It occurs to me that the indefiniteness of the trust agreement on one of the many points on which it is indefinite, namely, the number, kinds and identity of the companies proposed to be consolidated, raises OHIO 673 a serious question under the Blue Sky Law, for even the speculative value of the certificates would depend very largely upon the identity of the companies proposed to be consolidated. The trustees are not bound to secure the consolidation of any particular companies, or even any particular kind of companies. Thus the foundation of the whole scheme is so vague and uncertain as to make the proposition hardly a fair one for the purposes of the Blue Sky Law. Heretofore I have been considering what would happen in the event that the proposed consolidation were attempted to be carried out. I have stated in substance that the holders of the common trust certifi- cates would, if their certificates are to ba given any value whatever, be entitled to share in whatever distribution of assets would then take place. In this connection I think I ought to mention a point which has not yet been considered. The second article of th^ "agreement and declaration of trust" provides for the termination of the trust in the following' language : "The present trustees shall serve for a period of three years * * *. If, ai the end of said three year period, the trustees by a majority vote resolve that the trust has not been fully completed or that the bringing into the consolidation of any other company or companies is desirable, the period of termination of the trust may be extended for one year, and similarly at the end of one year the termination may be postponed another year under the same con- ditions, and so each successive year in the discretion of the trustees ; said trustees in the event of such extension but the certificate-holders by a vote of a majority of each class may at any annual meeting terminate the trust." As I have already stated the broad efifect of these provisions is to make the trust terminable by consolidation or otherwise in the discretion of the trustees. One qualification must, however, in the ligl>t of the above language, be made, namely, the certificate holders by a vote of a majority of both classes at any annual meeting may also terminate the trust. This provision gives to the holders of the common certificates an effective veto against any movement on the part of the holders of preferred certificates in the direction of consolidation or dissolution ot the trust. Under the trust agreement the promoter and the trustees who are to be compensated in common trust certificates, and their assigns, will Constitute tht holders of such common certificates. So -that in the last analysis, while the trust purports to be created for the benefit of the holders of preferred certificates who are the real parties in interest, the actual control of the enterprise is in the hands of the holders of the common certificates who would have the power to say that no con- solidation should ever be brought about except on terms which would provide for their interests. In the meantime of course should the trustees 43 674 OHIO acquire a majority in interest of the stock of one or more companies, their control of such companies would effectually negative any disposi- tion on the part of the stockholders thereof to withdraw from the scheme. However this last statement may be qualified by observing that any holder of preferred certificates may at any time after two years from the date of the issue thereof demand the return of the stock exchanged therefor. The statute governing the "commissioner" whether the superin- tendent of insurance or the superintendent of banks, with respect to the issuance of certificates of. this sort, in section 6373-16 which provides that: "Said 'commissioner' shall have power to make such examina- tion of the securities or of the property named in the next preced- ing sections as he may deem advisable ; and if it shall appear that the law has been complied with and that the business of the ap- plicant is not fraudulently conducted, and that the proposed dis- posal of such securities or other property is not on grossly unfair terms, and in the case of securities that the issuer is solvent, upon the payment of a fee of ten dollars, the commissioner shall issue his certificate to that effect, authorizing such disposal." For the reasons stated in considering the second group of questions above discussed I am of the opinion that as a matter of law it appears with respect to the securities proposed to be issued by "The Consolidated Companies" that the law has not been complied with and that the pro- posed disposal of such securities is on grossly unfair terms. I question also whether it appears affirmatively that the proposed issuer, "The Con- solidated Companies" is solvent, inasmuch as at the time of application it undoubtedly has some debts or liabilities incurred thus far in its or- ganization whereas it does not thus far appear to have any assets what- ever, and personal liability is sought to be disclaimed. There are other matters that might be mentioned but owing to the fact that this opinion has already become quite lengthy, I shall pass by them. Accordingly, I am of the opinion that no "commissioner" under the "Blue Sky Law" can issue his certificate authorizing a disposal of the trust certificates proposed to be issued by "The Consolidated Com- panies." OPINION OF THE ATTORNEY GENERAL, MARCH 3, 1915 (Vol. I, Atty. Gen. Rep. 1915, p. 231) To Commissioner of Securities: I am in receipt of your letter of February 26th, requesting my opinion as follows : OHIO 675 "This department has on file an application by The ■ Real Estate Exchange for a license tp deal in Ohio, in real estate not located within this State. "The Real Estate Exchange is in strict sense a corporation for profit, representing the city of McAlester, Okla. Its membership is made up of the business men of that city and locality. The method of operation is, briefly, this : "Representatives and employes of the Exchange travel through Ohio, Indiana and other states, in a special car, stopping at certain points for a limited time, inviting the citizens of that locality to visit the car, talking with the representatives of the exchange and seeing the exhibits contained in the car, relative to the products of that section of the country. The residents of Ohio are to be asked to purchase a lot in the city of McAlester. These lots are located in what is now the outer section of that city, containing about seventeen thousand inhabitants at this time. "We are enclosing herewith a copy of the contract which the residents of Ohio are solicited by the representatives of the Ex- change to sign, together with some literature which they purpose to circulate in Ohio. The main talking point — the chief considera- tion offered to residents of Ohio — is that to all who sign the con- tract for the purchase of a lot in McAlester, the '■ Ex- change will act as agent, purchasing for them government lands which are to be offered at public auction, to take place in Mc- Alester next fall, the exact date of which has not yet been fixed. These government lands are designated as segregated lands, having been reserved by the government on account of timber, oil, coal and asphalt, from the original allotment made to the Indian tribes, and it is now the purpose of the government to offer these lands at public auction to the people of the United States. "You will, of course, realize at once that it will be impossible to obtain a definite description of these lands and incorporate the same in the application for a Certificate of compliance, under sec- tion fifteen of the law. It will be possible to' practically describe the lots which the Exchange is offering for sale in an application for a Certificate of Compliance. "The title to the town lots above mentioned is now vested in the Real Estate Exchange, that organization having title from the individuals who originally purchased the lots from the government, when the town site of McAlester was opened up and the lots sold. These individuals have held the lots since that time, but have engaged in business or farming in that section, and are now desirous of increasing the population of McAlester and the surrounding country, and have therefore turned over to the Exchange the lots, to dispose of for them, and the proceeds derived 676 OHIO from the sale are used in defraying the expenses of the Exchange, paying the employes, paying the expenses of the car, and maintain- ing a corps of engineers and representatives, generally. "The question is : "Does this method of procedure constitute an offering of those government lands for sale, within the meaning of the Ohio Blue Sky Law and necessitate the certification of those lands under sec- tions fifteen and sixteen of the law? "We should state that while the Real Estate Ex- change, some months ago, obtained a great deal of unpleasant notoriety on account of an adverse ruling by Mr. Cato Sells, Com- missioner of Indian Affairs, in Washington, to the effect that the Exchange had no right to offer the lands for sale, as above out- lined ; the adverse ruling was widely advertised and nearly all of . those who purchased lots under the arrangement above mentioned, were notified that the Real Estate Exchange could not fulfill its promise with regard to the Indian Lands. This ruling by Cato Sells was reversed by Franklin K. Lane, Secretary of the Department of the Interior, which not only held that the Exchange had a right to offer these government lands as above mentioned, but that it should be encouraged in so doing. "An application by The Real Estate Exchange has been pending undisposed of for quite a while, and the repre- sentatives are anxious that a final disposition be made of the same. Consequently, a ruling on the question submitted at the earliest pos- sible moment will be appreciated. "I might add that the car of the Exchange is now in the state and the representatives are at considerable expense, though are doing nothing until authorized by this department. You will see, •therefore, that justice requires that the matter be disposed of at the earliest possible moment." Attached to the original letter copied above, as therein recited, is a form of Contract for Deed. As this contract is of considerable length, I quote only the sections or parts thereof pertinent to the purposes of your question. "Section VI. First party also agrees to represent second party in the purchase of Indian lands when sold by the government, it being specifically understood that in doing so said first party merely acts as locator and attorney, and is in no way connected with the government, neither has it any preferential rights concerning the sale of said lands, and it is further agreed that all services rendered in connection therewith are to be governed by the rules of the Interior Department, said services to consist of supplying second OHIO 677 party with photos, maps, plats, soil samples, descriptions of land and an independent appraisement of 2,000 tracts, from which sec- ond party may choose land in accordance with his or her expressed desires ; and first party further agrees to secure for second party at least one tract of land at the lowest price obtainable or cancel this contract and return all money paid thereon ; provided, how- ever, said second party shall comply with all conditions of the In- terior Department at time of sale. "Section VII. It is further agreed that said first party will undertake the following leasing and selling services ; that is, to secure profitable leases on all lands purchased through the fulfill- ment of this contract within ninety dfiys after the date of purchase, or sell same prior to one year from said date, and net said second party a profit sufficient to reimburse him or her for all money paid on the above mentioned lots in addition to the amount paid the government ; provided, however, second party complies will all oi his or her agreements as stated herein, and is only released from making payments as per contract in case of loss of employment or sickness." i The portions of sections 15 and 16 of the Ohio Blue Sky Law (sections 6373-15 and 6373-16 of the General Code) referred to in your question are as follows : "Section 16. No person or company, other than a licensed dealer as herein-before provided, shall within this state, in repeated or successive transactions, deal in real estate not located in Ohio; and, unless so licensed and the 'commissioner' shall issue his certifi- cate as provided in the following section, and, prior to such issuance, there shall, together with a filing £ee of ten dollars, be filed with the 'commissioner' an application for such certificate, and a written statement of the dealer containing a pertinent description of the real estate the disposal of all or a part of which is sought to be made, the nature and source of the title of the owner thereto, and the amount or value and the nature of the consideration paid or allowed by him therefor, it shall, within this state, be unlawful: "(a) For any corporation or any person, association or co- partnership doing business under any name other than the name or names of such person or of all the members of such associa- tion or co-partnership to dispose or ofifer to dispose of any real estate- not located in Ohio. "(b) For any person or company to sell or offer for sale any such real estate, the owner of which is, or is represented to the purchaser to be, a corporation, or any person or company of the character described in the ' foregoing paragraph, where, such 678 OHIO corporation, person or company is engaged in the business of deal- ing in real estate. * * * "Section 16. Said 'commissioner' shall have power to make such examination of the issuer of the securities or the owner of the property, named in the two preceding sections, and of such, securities or property, as he may deem advisable; and if he shall find that the law has been complied with, and if satisfied that said company is solvent, that its business is properly and legitimately conducted, and that its proposed disposal of its securities or other property is not on unfair terms, upon the payment of a fee of twenty dollars he shall issue his certificate to that effect, authoriz- ing such -disposal; but if he shall not affi,rmatively so find, and is not so satisfied, he shall notify the applicant, in writing, of such finding and of his refusal to issue such certificate. Said applicant shall have the right of review of such finding given to a dealer by section eight hereof." From the information contained in your letter and the form of Contract for Deed attached, it is clear that the Real Estate Exchange is not within the purview and purpose of the law dealing or attempting to deal in the government lands referred to. The Company, in part consideration for the purchase from it of certain town lots in the City of McAlester, is offering to act as agent or attorney in fact for the purchasers of said lots in securing for them United States govern- ment lands which are to be sold at public auction. The Company does not hold itself out as being the owner or the agent of the United States government as owner of said land, nor does it pretend to have authority to sell or to deal in the same. In fact, in Section VI of the form of Contract for Deed, above quoted, the Company stipulates thj^t: "It is in no way connected with the government, neither has it any preferential rights concerning the sale of the said land." The Company simply offers to sell its services for the purposes prescribed and limited in this same section of the Contract for Deed. Sections 15 and 16 of the Blue Sky Law were enacted to regulate and prevent fraud in the sale of lands not located in Ohio. The purchase by an Ohio citizen either in person or through an agent who is present and under written authority to bid for him, of land located in Oklahoma, which is owned and offered for sale at public auction by the United States government does not come within the scope of the act. I am therefore of the opinion that the plan of procedure set forth in your letter and as revealed by the provisions of the Contract for Deed does not constitute an offering of such government lands for sale within the meaning of the Ohio Blue Sky Law, and therefore a certification of those -lands under sections 15 and 16 of the Law is not necessary. OHIO 679 I have answered your question as asked, but there are other mat- ters in connection with this application that should receive careful con- sideration and attention from your Department. Section 7 of the Contract for Deed is worded to catch the unwary. Nine persons out of ten who read the section will assume that it pro- vides a guarantee that profitable leases will be secured within ninety days, or a sale will be made within one year sufficient to net the person signing one of these contracts sufficient to reimburse him for all money paid on both the government and the McAlester lands; whereas, in fact, the agreement only provides that the company will undertake to do that. Your Department should not sanction such a contract under au- thority of Section €376-16 of the General Code. In section III of the Contract for Deed it is provided : "When all of the purchase price of the property in the applica- tion above mentioned has been paid, the purchaser of that prop- erty will be given a gold bond issued by the Federal Guaranty Com- pany of Washington, D. C, in the name of and made payable to said purchaser, conditioned that the Federal Guaranty Co. will pay to the purchaser, his or her heirs or assigns, the full amount paid for said property, provided that at the maturity of said bond the owner is willing to sell said lot or lots for that price, and will legally convey merchantable title thereto." This contract should not be sanctioned until your own investiga- tion has shown not only that there is such a coftipany as the "Federal Guaranty Company, of Washington, D. C." and that it has agreed to do all the things provided for in said section III, but that in your opinion it is financially able to carry out this provision of the contract. You should also be satisfied that the Real Estate Ex- change is financially able to carry out the provisions of Section V of the Contract. I am assuming that you have made the statement as to the action of the Secretary of the Interior only after investigation. OPINION OF THE ATTORNEY GENERAL, MARCH 10, 1915 • (Vol. I, Atty. Gen. Rep. 1915, p. 256) To Commissioner of Securities: I have your letter of March 2, 1915, requesting my opinion as fol- lows : "In your opinion can the Dredging Company properly make the statement authorized by section 2, subdivision F, of the Ohio Blue Sky Law and thus be relieved of the require- ments of the law as to the license, etc.? 680 OHIO "Under the facts as stated in their letter of February 24, copy of which is herewith enclosed, the attorney-general's Separcment has already furnished this department with a written opinion hold- ing that an authorized issue of the capital stock of a corporation can not be divided for the purpose of meeting the requirements of section 2, sub-division F, of the Law.'' Also, the enclosed copy of a letter to your department containing a statement of the facts involved, which letter is as follows : "We have your letter of February 23, in reply to ours of February 18, and again write you relative to the : Dredging Company, a corporation for profit organized for the purpose of dredging and mining for minerals, under the laws of the State of Ohio, with a common capital stock of $25,000.00. "It is the intention of this company to dispose of $16,500.00 of its capital stock directly to its stockholders by its own officers, without commission or expense and for cash, under and by virtue of Section 6373-2, subdivision F, of the General Code, and state- ment for that purpose is herewith furnished. "It is the further desire of this Company to purchase from one of its stockholders certain rights, privileges and leases for mineral properties, a dredge-boat and equipments, located in the State of Georgia. These properties have been exploited and tested by this stockholder at a large expenditure, and since same have been tested and satisfactory results obtained, the Company is now satisfied that said properties are well worth the sum of $8,500.00 and desire to purchase the same at that price. The stockholder holding and owning said porperties is willing to accept $8,500.00 in stock of this Company in payment for said rights and privileges, or is willing to purchase .$8,500.00 of the stock of the Company and pay for the same, and to assign his rights in said properties to this Company for the sum of $8,500.00. Under these circumstances is it necessary that the Company register and be licensed as a dealer by your department to complete this arrangement? This is a very close corporation and all of the stockholders are fully acquainted with the facts and are satisfied with the arrangement, and_while anxious to save the trouble and expense of registration and being licensed as a dealer if possible, yet they do not wish to violate the law in any way. W'e enclose you Form No. 1 signed by the Presi- dent and Secretary of the Company, statement covering the disposi- tion of $16,500.00, and if under the circumstances heretofore re- iterated, a statement covering the entire issue of ^5,000.00 under Form No. 1 would suffice, we will cheerfully furnish the same. If you will kindly advise us further as to what will be necessary to OHIO 681 carry out this arrangement, we shall be obliged. Thanking you for your former prompt consideration of our enquiries, we are, * * *" Section 6373-2 of the General Code (being section 2 of the Ohio Blue Sky Law) is, in part, as follows : "* * * The term 'dealer', as used in this act, shall be deemed to include any person or company (except national banks) disposing, or offering to dispose, of any such security, through agents or otherwise, and any company engaged in the marketing or flotation of its own securities either directly or through agents or underwriters or any stock promotion scheme whatsoever, except : * * * "(f) The issuer, organized under the laws of this state, where the disposal, in good faith and not for the purpose of avoid- ing the provisions of this act, is made for the sole account of the issuer, without any commission and at a total expense of not more than two percentum of the -proceeds realized therefrom plus five hundred dollars and where no part of the issue to be disposed of is issued, directly or indirectly, in payment for patents, services, good will, or for property not located in this state; provided that the president and secretary, or the incorporators if done before or- ganization, of the issuer shall, prior to such disposal, file with the 'commissioner' a written statement setting forth the existence of all such facts and that such issuer is formed for the purpose of doing business within this state. * * * " If I properly understand the situation presented in the above quoted letter to your department, certain incorporators propose to organize a corporation under the laws of Ohio, to be known as The Dredging Company, and having a total capital stock of $25,000.00. It is the intention of the Company so organized to sell $16,5CO.0O of this stock directly to its stockholders for cash through its own officers and without selling commission or expense, and to exchange the remaining $8,500 of its stock for certain rights, privileges, ' leases for mineral lands and other properties- located in the State of Georgia. I have assumed that this company is not yet incorporated and organized, otherwise it would not now have the total amount of its capital stock for disposal. Under section 2 of the Ohio Blue Sky Law, ahove quoted, a com- pany engaged in the marketing or flotation of an issue of its own securi- ties, which issues any part of such securities "directly or- indirectly" in payment jor * * * property not located in this state," is a "dealer" ; within the meaning of this statute, and must be licensed as such. The mere fact that the -^- — " ' - ■ Dredging Company's proposed. total stock isSuB, tO'Wit: $1-6,500.00 'is to be sold in such manner and upon such terriis as would relieve the company from the necessity of taking out a 682 OHIO license if all of the said stock issue were to bel sold ip the same manner, will not relieve the Company from the necessity of securing a license if the remainder of such issue is exchanged, directly or indirectly, for property not located within this State. Whether or not any part of the Company's stock is in a given instance issued directly or indirectly for property not located within the State is a question of fact to be determined as occasion may arise, and I do not believe it proper for me, as legal adviser to th« various officers and departments of Ohio, to either approve or indicate a method of procedure whereby the provisions of any law of the State can safely be circumvented or evaded. I am therefore of the opinion that the Dredging Com- pany, in the event it issues, directly or. indirectly, any portion of its capital stock mentioned in payment for any property not located in this State, is, by virtue of Section 2 of the Ohio Blue Sky Laws, a "dealer" and as such must be licensed. OPINION OF THE ATTORNEY GENERAL, MAY 1, 1915 (Vol. I, Atty. Gen. Rep. 1915, p. 697) » » To Commissioner of Securities: On April 30th, 1915, an opinion was requested based on the" follow- ing facts : "This department is informed that there are several companies, some of them organized under the laws of Ohio, and some of them organized under the laws of other states, offering for sale in Ohio 'trading stamps.' "As yet the department has no full information in regard to any particular company. It may be stated, however, generally, that the companies sell to merchants coupons or trading stamps, which the merchants give out to their customers as premiums or rebates when cash purchases are made aggregating certain amounts. The stamps or coupons are redeemable in merchandise or railroad trips, or some other thing of value, when presented at the place designated as the office of the trading stamp company. "Are coupons or stamps sold to merchants under such cir- cumstances 'securities' within the meaning of the Ohio Blue Sky Law?" Section 6373-1 of the General Code, prescribing who must be li- censed under the Blue Sky Law, is as follows: "Except as otherwise provided in this act, no dealer shall, within this state, dispose or oflfer to dispose of any stock, stock ' ' certificates, bPJids, debentures, collateral trust certificates or other OHIO 683 similar instruments (all hereinafter termed 'securities') evidencing title to or interest in property, issued or executed by any private or quasi-public corporation, co-partnership or association (except corporations not for profit), or by any taxing subdivision of any other state, territory, province or foreign government, without first being licensed so to do as hereinafter provided." If trading stamps come -within the meaning and scope of the term ■'securities" as used in the section above quoted, it must be by virtue of the language : "instruments evidencing title to or interest in property." A determination of the nature and legal effect of a trading stamp cannot be arrived at merely by an examination of the stamp itself, or of the contract entered into by the issuer of the stamp and the merchant who places it in circulation, but it must be considered in view of the provisions of Section 6386 to Section 6389, both inclusive, of the Gen- eral Code. In these sections the General Assembly has practically defined and established, at least so far as the Ohio law is concerned, the legal status of trading stamps. They have also very effectively safeguarded the public from abuse and fraud, resulting from the use of trading stamps ; and it may be further added that there was and is no real necessity or reason why the subject of trading stamps should have been further regu- lated and restricted by the provisions of the Blue Sky Law. Without quoting the sections from 6386 to 6389, both inclusive, it is sufficient to say that in substance they provide that trading stamps shall in all cases be redeemable in money when presented in amounts aggregating five cents or more, and that each stamp issued must have written or printed thereon its redeemable value in money of the United States. Section 13399 of the General Code prescribes a penalty for the violation of any of the provisions of Sections 6386 to 6389, above re- ferred to. The legal effect of these last mentioned sections of the Gen- eral Code is, in my opinion, to make trading stamps simply evidences of indebtedness, payable upon demand either in money or in merchandise at the option of the holder. This can by no interpretation, as I view it, be taken as "-evidencing title to or interest in property." No property of any kind is hypothecated for security, nor has the holder, thereof any claim upon any specific property. True, he may, if he so elects, demand merchandise for their redemption, but he has no right of any kind, by virtue of his ownership of stamps, in any specifically described or segregated property. I am therefore of the opinion that coupons or, stamps commonly known as "trading stamps" are not such securities within the meaning of the Blue Sky Law as makes necessary the securing of a license by the trading stamp company selling them or by the merchant distributing them.- 684 OHIO OPINION OF ATTORNEY GENERAL TO SUPERINTENDENT OF BANKS, JULY 1, 1915 (Vol. II, Atty. Gen. Rep., 1915, p. 1167) BANKS PURCHASING BONDS ISSUED BY MUNICIPALI- TIES OUTSIDE OF OHIO AND RESELLING THEM TO OWN CUSTOMERS WHEN SALES AMOUNT TO MORE THAN FIFTY PER YEAR COME UNDER PROVISIONS OF "BLUE SKY" LAW — SUCH BANK SHOULD BE LICENSED AS "DEALER". The Bremen Bank Company, Bremen, Ohio, which purchases quan- tities of bonds issued by municipalities outside of Ohio primarily for its own account, but many of ■mliich are sold to its own custom,ers desiring investments, such sales numbering more than fifty per year, should be licensed as a "dealer" under the provisions of the "blue sky" km>. Dear Sir ; — I have your letter of June 23, 1915, requesting my opinion as follows : "The Bremen Bank Company, of Bremen, Ohio, is organized under the laws of the state of Ohio and subject to examination and regulation by the banking department, under the provisions of the banking laws of Ohio. "The company does a general banking business at Bremen, Ohio. It carries on its books a bond account averaging about twenty-five thousand dollars. The cashier of the bank, Mr. George W. Baldwin, informs this department that the bank buys municipal bonds issued by municipalities outside the state of Ohio, and that very few of the bonds of Ohio municipalities are bought by the bank. The primary object of these purchases, Mr. Baldwin says, is to carry that amount of money invested in assets readily con- vertible into cash, in the event that the reserve of cash falls below the limit. The cashier also informs the department that the bank sells the bonds to those of its customers who insist upon -making an investment, but not in any instance does it insist or offer, or initiate an offer to sell the bonds. The profit which the bank realizes from the sale of the bonds to customers varies from one-eighth to one-half of one per cent., never exceeding, so the cashier states, one-half of one per cent. The sales would not be made, according to the statement of the cashier, except to accommodate customers of the bank and prevent them from going elsewhere to make in- vestments. The officers of the bank admit that the number ot sales of bonds, by them will exceed fifty each year. ■" "Under the above statement of facts, is the Bremen Bank Company a 'dealer' within the meaning of the Ohio blue sky law, and is it necessary for the bank to be licensed as such dealer?" OHIO 685 The term "dealer" as used in the Ohio blue sky law is defined in section 6373-2 of the General Code. This section is quite lengthy, and I quote such part only as is applicable to the situation presented in your letter : " * t * -pijg (-grm 'dealer', as used in this act, shall be deemed to include any person or company, except national banks, disposing or offering to dispose, of any such security, through agents or otherwise, and any company engaged in the marketing of [or] flotation of its own securities either directly or through agents or underwriters or any stock promotion scheme whatsoever, except : "(a) An owner, not the issuer of the security, who disposes of his own property, for his own account;- when such disposal is not made in the course of repeated and successive transactions of a similar character by such owner; or a natural person, other than the underwriter of the security, who is the bona fide owner of the security and disposes of his own property for his own account. * * *" The primary purpose of the blue sky law is to prevent fraud in the sale of securities and certain other kinds of property, and thereby to protect and assist the investing public. Since the disposition of worth- less or doubtful securities is usually accomplished through unscrupulous agents, commission brokers and promoters who do not own the securi- ties sold by them, it was natural that the supervisory and regulatory features of the law are chiefly directed towards these classes of sellers, and that the owners of such securities are, within certain limitations, excepted from the requirements of ^he act and are permitted to sell such property outside of the requirements of the law. Therefore, under the statutory definition above quoted, an owner of securities, such as are referred to in your letter, may dispose of the same without the necessity of being first licensed as a "dealer" "when such disposal is not made in the course of repeated and successive tran- sactions." If the Bremen Bank Company confines its disposal of securities to such a limited number of sales as would properly enable it to carry out what you have designated in your letter as "the primary object of these purchases," i. e., to readily secure cash in event the bank's cash reserve falls below the limit, I would be inclined to the opinion that such sales were not "made in the course of repeated and successive transactions of a similar character." It appears from the statements of your letter, however, that the bank also sells these bonds "to those of its customers, who insist upon making an investment, but not in any instance does it insist or offer pr initiate an offer to sell bonds.'' It further appears that a considerable number of such sales are made each year. The bank, therefore, has a 686 OHIO double purpose to serve in purchasing these securities ; a considerable portion of them are purchased, not simply to secure ownership for in- vestment purposes, but to be resold to its customers "in repeated and successive transactions.'' It is immaterial in such transactions whether or not the bank solicits its customers to purchase or the customer solicits its bank to sell. The point of importance is, that such sales constitute repeated and successive transactions. I am of the opinion that the facts stated in your letter bring the Bremen Bank Company of Bremen, Ohio, within the definition of the term "dealer," and that it should be required to secure a license as such dealer. OPINION OF THE ATTORNEY GENERAL, AUGUST 17, 1915 (Vol. II, Atty. Gen. Rep. 1915, p. 1629) On August 10, 1915, an opinion was requested based on the fol lowing facts : "A mining corporation, organized under the laws of the state of Washington, — The Mining Company — desires to sell some of its stock remaining unsold to its present stockholders. "The announced intention of the officials of the company is to raise about six hundred dollars for the purpose of paying the taxes now due on the property. The officers assert that there will be no stock oflfered for sale except the amount above mentioned and then only to present stockholders. "The offer to sell is to be made by the company to residents of the state of Ohio and in Ohio. "Will the company, under the above facts, require a dealer's license under the Ohio Blue Sky Law?" The term "dealer", as used in the Blue Sky Law, is defined in Sec- tion 6373-2 of the General Code (103 O. L., 744) as follows: "Sec. 6373-2. * * * "The term 'dealer', as used in this act, shall be deemed to in- clude any person or company, except national banks, disposing, or offering to dispose, of any security, through agents or otherwise, and any company engaged in the marketing or flotation of its own securities either directly or through agents or underwriters or any stock promotion scheme whatsoever; except : * * * " Following the above quoted paragraph of Section 6373-2 G. C. (103 O. L., 744) 'is a descriptive list of persons or companies disposing, or offering to dispose, of securities who are excepted from the definition of the term "dealer." OHIO 687 The facts stated in your inquiry are not such as bring the Mining Company within any one of the exceptions to the general definition of the term "dealer." The company desires to sell its stock, or at least some of its stock, in Ohio to its present stockholders. The purpose for which such stock is sold, or the limited amount -vnhich it expects to sell, or the fact that it expects to sell such stock to its own stockholders, arfi not sufficient to except the company from the re- quirements of the statute. I am therefore of the opinion that the Mining Com- pany should be required to take out a license under the Ohio Blue Sky Law before making sales of its stock as set forth in your letter. OPINION OF THE ATTORNEY GENERAL TO SUPERIN- TENDENT OF BANKS. OCTOBER 8, 1915 (Vol. II, Atty. Gen. Rep. 1915, p. 1942) I have your letter of September 9th, 1915, in which you set forth in full a copy of a letter received by you from Mr. . This letter is very long and, stripped of verbiage in the way of argument and statement of business prospects, reveals the following state of facts : ■ holds a contract with The ; Investment Company to sell all of said company's capital stock upon an eight percent •selling commission basis. represents that the Investment Company is in prosperous condition, paying good dividends, and that he has already sold $150,000.00 of its stock under the terms of his contract. His anticipated net profit for selling the remaining $850,000.00 of its capital stock is $44,000.00, which he has fixed as the value of' his stock-selling contract. A corporation known as "The Securities Company'' was incorporated, presumably by himself, with an authorized capital stock of $10,000.00 which has since been increased to $100,000.00. Its purpose is to take over : — 's stock-selling contract and to develop an organization for the purpose of handling the sale of the stock of the said The Investment Company, and of other corporations. — sold and turned over to the Securities Company his stock-selling contract with The Investment Company, and received in consideration all of its capital stock, amount- ing to $100,000.00 par value. Thereupon he ( ) voluntarily and without consideration turned back to the said The Se- curities Company stock of the said company to the amount of $34,000.00 par value, with the understanding and condition that such stock is to be sold at such price as will realize $25,500.00 net, which amount is to ht used by the corporation in building up a selling organization and as its working capital. 688 'oHIO represents that the anticipated profit of $44,000.00 which will be realized from his stock-selling contract with the • Investment Company, which he has turned over to the Se- curities Company, plus the $25,000.00 to be realized from the sale of the §aid $34,000.00 of capital stock of the Securities Com- pany, will place in the treasury of the said Securities Com- pany the sum of $69,500.00, thus making all stock -actually worth $69.50 per share. Based upon the facts above set forth, you request my opinion as follows : "This Department asks the opinion of the Attorney-General's Department as to whether or not, under the circumstances stated in the letter of Mr. , this issue of $34,000.00 of the stock above mentioned, should be certificated." In enacting the provisions of the Blue Sky Law, Section 6373-1 el seq. of the General Code, the General Assembly adopted two methods of accomplishing its purpose of restricting (and regulating the sale of securities in Ohio, and thereby protecting the purchasing public: 1st, by requiring) dealers, with certain exceptions, to be licensed. 2nd, bj requiring the certification of the securities by the Superintendent of Banks, as "Commissioner", with certain exceptions, before the same can be sold in Ohio. The law attempts to protect the public not only by eliminating dishonest and irresponsible agents or dealers, but also by pre- venting the issuance and sale of unsound or worthless securities. Sections 6373-14 and 6373-16 of the General Code are the sections providing for the investigation and certification of the securities and are in part as follows : "Section 6373-14. For the purpose of organizing or promoting any company, or assisting in the flotation of the securities of any company after organization, no issuer or underwriter of such ?,e- curities and no person or company for or on behalf of such issuer or underwriter shall, within this state, dispose or attempt to dispose of any such security until such commissioner shall issue his certili- cate as provided in Section 6373-16 of the General Code, which shall not be done until, together with a filing fee of five 'IcUars, there be filed with the con'missioner the application of such issuer or underwriter for the certificate provided for in section 6873-16, General Code, and, in addition to the other information herein- before required by paragraphs (a), (b), (c), and (d) of Section 6373-9 of the General Code, the following: * * *- "Section 6373-16. Said 'commissioner' shall have power to make such examination of the securities or of all property named in the next two preceding: sections as fie may deem advisable ; and if it shall appear that the law has been complied with and that the OHIO 689 business of the applicant is not fraudulently conducted, and that the proposed disposal of such securities or other property is not on grossly unfair terms, and in the case of securities that the issuer is solvent, upon the payment of a fee of ten dollars, the commis- sioner shall issue his certificate to that effect, authorizing such dis- posal. But if it shall not affirmatively so appear he shall so notify the applicant, in writing, and of his refusal to issue such certifi- cate. * * *" Under the provisions of Section 6373-16, above quoted, before the "commissioner" may issue his certificate it must affirmatively appear nol only '"that the law has been complied with and that the business of the applicant is not fraudulently conducted", but "'that the proposed disposal of such securities or other property is not on grossly unfair terms, and in case of securities, that the issuer is solvent." When an application is presented to him it is the duty of the Com- missioner to determine from the facts presented and from his investi- , gation whether such affirmative showing has been made. Whether a certificate should in a given instance be granted or not is rather a question of fact than of law. In the present instance, however, sufficient facts appear from the admissions and statements of Mr. 's letter to warrant me in expressing my opinion. He admittedly paid only $44,000.00 for all the $100',000.00 par value capital stock of the said Securities Company, and no part of the $44,000.00 paid for such stock is money, but consists entirely of anticipated profits in a contract to sell, upon a commission basis, the capital stock of another company named "The Investment Company." If this contract to sell the stock of the Invest- ment Company upon a commission basis is of any value, it must neces- sarily be by reason of Mr. 's ability to sell stock, and not by virtue, of any intrinsic value in the contract itself. It is to be ob- served that it does not appear from Mr. 's statement that his services in carrying out this stock-selling contract are to be at the disposal of the Securities Company without further com- pensation, or that they are to h€ rendered as part consideration for the stock issued to him. It is to be presumed that if he continues actively to sell the stock of the Investment Company he will receive compensation for his services either in commissions or by way of salary. He there- fore is selling to an Securities Company a contract of doubt- ful value at more than double .its anticipated value as fixed by himself, which anticipated value is undoubtedly based largely lipon his personal ability to make stock sales. Not only has Mr. ~- — »-- — — failed to show "that the proposed disposal of such securities * * * is not on grossly unfair terms," but 44 690 OHIO it seems clear to me that his statement of the fact discloses exactly the opposite situation, — that the whole scheme is a typical example of watered stock, the sale of which, if permitted, would amount to a fraud. I also -call your attention to a further condition that must affirma- tively appear before the commissioner is authorized to issue his certifi- cate under the provisions of Section 6373-16, viz.: "that the issuer is solvent." Under the facts presented in Mr. '■ 's letter, The Securities Company, to my mind, is insolvent. It has issued all of its stock and in return has no assets except the $34,000.00 of its own stock returned to it by Mr. , and a contract of exceed- ingly doubtful value, authorizing it to sell upon a commission basis the capital stock of another company. I therefore advise you that the facts stated in Mr. 's letter you should not issue^ a certificate under the provisions of Section 6373-16 authorizing the disposal of $34,000.00 of the capital stock of the Securities Company. OPINION OF THE ATTORNEY GENERAL, OCTOBER 2, 1915 (Vol. II.Atty. Gen. Rep. 1915, p. 1898) On September 28th, an opinion was requested based on the follow- ing facts : "The r- Mutual Liability and Casualty Company, in. one of its advertisements, uses this language: "'THREE REASONS WHY YOUR INVESTMENT IN THIS COMPANY IS SECURE: " '1. The sale of this stock is regulated by an act of the Legislature of Ohio, passed April 28, 1913, known as "Blue Sky Law." Sec. 6373-12, 6373-19, and 6373-20.' * * * "Is the statement above quoted such an advertisement as to bring it within the provisions of Section 6373-17, requiring, in con- nection with the sale of securities, that the advertisement shall also contain in bold type a copy of the recital that the commissioner in no wise recommends such securities? "The Life and Annuity Company has endorsed on its advertising circulars the following statement : " 'Operating under Ohio's rigid, model Blue Sky Law.' "Is the statement last above referred to such an advertise- ment as brings it within the requirement? of Section 6373-17? OHIO 691 , "Do the requirements of Section 6373-17 above referred to, relate only to advertisements which state the fact that 'such certifi- cate has been issued', or do the provisions of that section forbid,. in connection with the offer or sale of a security, advertisements in which such , language as : 'We are operating under the Ohio Blue Sky Law' — 'We have complied with the Ohio Blue Sky Law' — 'The sale of this security is regulated by the Ohio Blue Sky Law', or words to that effect, or any other language which leads a person to believe that the offerer of the security has complied with all the provisions of the Ohio Blue Sky Law, unless the ad- vertisement also contains the statement that the security is in no wise recommended by the commissioner?) Joseph H. Harper.'' Section 6373-17 of the General Code, to which you refer in your letter, is as follows : "Such certificate shall recite in bold type that the 'commis- sioner' in no wise recommends such securities or other property; and no person or company shall advertise, in connection with the sale of such securities, the fact that such certificate has been issued unless such advertisement also contains in bold type a copy of such recital." A penalty is provided in Section 6373-20 for a violation of the pro- visions of Section 6373-17, above quoted. It is a principle of law so well established that it requires no dis-' cussion or citation of authorities, that a statute prescribing that'the doing of a certain thing shall constitute an offense must be construed strictly. Therefore, if the sections complained of in your letter are not specifically prohibited by Section 6373-17 no conviction can be had and no penalty imposed. The gist of the offense defined in Section 6373-17, is that of advertising that a certificate has been issued by the commissioner, unless the advertisement also contains in bold type a recital that the " 'com- missioner' " in no wise recommends such securities or other properties." In neither of the advertisements to which you call my attention in your letter is there a statement that a certificate has been issued, nor is any reference made to a certificate. Since, therefore, the advertising that a certificate has been issued is one of the elements of the offense, I do not believe that either of the advertisements in question constitute a violation of the law. The advertisement of the Mutual Liability and Casualty Company recites that "the sale of this stock is regulated by an act of the Legislature of Ohio, passed April 28, 1913, known as the 'Blue Sky Law', Sections 6373-12, 6373-19 and 6373-20." Such stock may not require certification by reason of coming under one of the ex- 692 OHIO ceptions to Section 14 of the Blue Sky Law, yet, as a matter of fact, the stock and its sale to some extent at least is still regulated by the provisions of said law. The ■ Life and Annuity Company advertises that it "Operates under Ohio's rigid, model Blue Sky Law." Neither does this company advertise that it has secured a certificate, nor does it necessarily follow from the fact that it is operating under "Ohio's rigid, model Blue Sky Law" that its stock has been or need be certified. It may have been the legislative intent to prohibit advertisements such as ipresented in your letter; if so, however, the language used in the statute falls short of its intended purpose and should be amended. I am therefore of the opinion that in the two instances cited there has been no violation of the law which may be punished under the pro- visions of Sections 6373-17 and 6373-20 of the Ge.neral Code. OPINION OF THE ATTORNEY GENERAL GIVEN PROSECUT- ING ATTORNEY, OTTAWA COUNTY, OHIO, OCTOBER 16, 1915 (Vol. Ill, Atty. Gen. Rep. 1915, p. 2019) I have your letters of September 15th and 23rd, 1915, in which you call my attention to the provisions of the Blue Sky Law, and request my opinion as to whether or not a corporation organized under the laws of Ohio, owning property in Ohio, and which is engaged solely in manu- facturing, mining and quarrying, "may sell its securities without filing /application with the 'commissioner', and may such securities be sold by agents wh.o have not been licensed under this act." I assume, in answering your questions, that the mining referred to as a part of the business of the corporation is coal mining. Section 6373-14 of the General Code, (Section 14 of the Blue Sky Law) so far as applicable, is as follows : "For the purpose of organizing or promoting any company, or assisting in the flotation of the securities of any company after organization, no issuer or underwriter of such securities and no person or company for or on behalf of such issuer or underwriter shall, within this state, dispose or attempt to dispose of any such security until such commissioner shall issue his certificate as pro- vided in Section 6373-16 of the General Code, which sball not be done until, together with a filing fee of five dollars, there be filed with the commissioner the application of such issuer or underwriter for the certificate provided for in Section 6373-16, General Code, and, in addition to the other information hereinbefore required by paragraphs (a), (b), (c) and (d) of Section 6373-9 of the Gen- eral Code, the following: * * * OHIO 693 "This section shall not apply where * i' * the securities are those of a common carrier or of a company organized under the laws of this state and engaged principally in the business of manufacturing, transportation, coal-mining, or quarrying, and the whole or a part of the property upon which such securities are pre- dicated is located in this state. * * * " Section 6373-16, as amended, Vol. 106 O. L., 363, provides as follows : "Said commissioner shall have power to make such examina- tion of the issuer of the securities, or of the property named in the two next preceding sections, at any time, both before and after the issuance of the certificate hereinafter provided for, as he may deem advisable. * * * And if it shall appear that the law has been complied with and that the business of the applicant is not fraudulently conducted, and that the proposed disposal of such se- curities or other property is not on grossly unfair terms, and that the issuer or vendor is solvent, upon the payment of a fee of ten dollars, the commissioner shall issue his certificate to that effect, authorizing such disposal. But if it shall not affirmatively so ap- pear he shall so notify the applicant, in writing, and of his refusal to issue such certificate. * * * " The securities of an Ohio corporation engaged principally in the business of manufacturing, coal-mining or quarrying are specifically ex- empted from the requirements of said Section 6373-14, and there is no requirement that such securities be certified by the Commissioner of the Blue Sky Law, as provided in Section 6373-16 of the General Code be- fore the same can be disposed of. Two distinct methods or means of control have been adopted by the Ohio Blue Sky Law in seeking to regulate the sale of "securities": First, by requiring dealers in certain securities to be licensed; Second, by requiring the certification of certain of the securities to be sold. From the fact that the securities of a corporation are exempted from the neces- sity of certification, it does not, however, necessarily follow that the same may be disposed of in Ohio by an unlicensed dealer. Section 6373-1, which prescribes generally who shall be licensed, is as follows : "Except as otherwise provided in this act, no dealer shall, \yithin this state, dispose or offer to dispose of any stoqk, stock certificates, bonds, debentures, collateral trust certificates or other similar instruments (all hereinafter termed 'securities') evidencing title to or interest in property, issued or executed by any private or quasi-public corporation, co-partnership or association (except corporations not for profit,) or by any taxing subdivision of any 694 OHIO other state, territory, province or foreign government, without first being licensed so to do as hereinafter provided." Under the provisions of Section 6373-2 of the General Code certain securities are exempted and may be sold by an unlicensed dealer. The securities under consideration, however, do not fall within any of the exceptions set forth in said Section 6373-2. The same section defines the term "dealer" as follows: "The term 'dealer', as used in this act, shall be deemed to in- clude any person or company, except national banks, disposing, or offering to dispose, of any such securities, through agents or other- wise, and any company engaged in marketing or the flotation of its own securities either directly or through agents or underwriters or any stock-promotion scheme whatsoever, except * * * " (here follows a list of certain described persons and corporations selling securities who are excepted from the definition of the term "dealer", above quoted. The corporation under consideration cannot fall within any of these defined exceptions unless under the language of exception (f) " * * * where the disposal, in good faith and not for the pur- pose of avoiding the provisions of this act, is made for the sole account of the issuer, without any commission and at a total ex- pense of not more than two percentum of the proceeds realized therefrom plus five hundred dollars and where no part of the issue to be disposed of is issued, directly or indirectly, in payment for patents, services, good will, or for property not located in this state; provided that * * * " Unless, therefore, the corporation proposes to sell its stock upon the terms and conditions described in the language just quoted it cannot escape the definition of the word "dealer" as used in the act. I therefore advise you that a corporation organized in Ohio and engaged solely in the business of manufacturing or coal-mining and quarrying may dispose of its securities without the necessity of having the same certified under the provisions of Sections 6373-14 and '6373-16 of the General Code (Sections 14 and 16 of the Blue Sky Law), but that said corporation or any agent, in order to lawfully dispose of said securities in Ohio must secure a dealer's license in accordance with the conditions and requirements of the Blue Sky Law. OHIO 695 OPINION OF THE ATTORNEY GENERAL GIVEN THE SUPERINTENDENT OF BANKS, OCTOBER 21, 1915 Vol. Ill, Atty. Gen. Rep. 1915, p. 2074) I am in receipt of your request for opinion, under date of October 18, 1915, reading as follows : "Section 6373-6, Revised Statutes of Ohio, reads: " 'Section 6373-6. Such "comniissioneT" may at any time revoke any such license, or refuse to renew the same, upon ascertaining that the licensee: " 'a. Is of bad business repute ; '"b. Has violated any provision of this act, or " 'c. Has engaged, or is about to engage, under favor of such license, in illegitimate business or in fraudulent transactions. " 'No dealer whose license has been revoked shall be re- licensed within six months from the date of such revocation. " 'The ''commissioner" shall at once lay before the prose- cuting attorney of the proper county any evidence which shall come to his knowledge of criminality under this act.' "The section above quoted is one in a complete legislative en- actment known as the Ohio Blue Sky Law. "(1) Taking the law in its entirety, is the section above quoted mandatory upon the 'Commissioner'? "(2) Does said section compel the 'commissioner' to revoke a dealer's license when facts warranting such revocation are established to his satisfaction? "(3) Does said section lodge in the 'commissioner' a discretion empowering him to revoke or to refuse to revoke a dealer's license when facts warranting such revocation are estab- lished to his satisfaction? "(4) What, under the provisions of the law above mentioned, should be the controlling purpose of the 'commissioner'? "(5) Granting that facts warranting the revocation of a dealer's license have been established to the satisfaction of the 'com- missioner', and it is also established to his satisfaction that, if the dealer's license is revoked, the ' investors of the State will suffer a greater financial loss than they would suffer if a revocation was denied, has the 'commissioner' power under the law, and is it his first duty under the law, to assume, by agreement, such regulatory control of the offending dealer that abuses, in the future, will be impossible and the interests of prospective investors fully safeguarded? 696 • OHIO "(6) Granting that facts warranting the revocation of a dealer's license have been established to the satisfaction of the 'com- missioner' and it is also made to appear to his satisfaction that the investigation, resulting in the establishment of stKh facts, viras inaugurated by individuals who seek to profit financially by the depreciation in the prices of the securities marketed by the offending dealer but which are at present held by innocent investors throughout the state, and upon such investors and not upon the offending dealer will fall the burden of the financial loss, and to the individual in- stigators of the investigation will pass the financial profits, what, in the spirit of the whole law are the powers of the 'commissioner' and what is his duty on such a state of facts? "I respectfully request your opinion on each one of the above questions." For convenience in reference hereafter, I have taken the liberty of numbering your questions consecutively and shall refer to them herein- after by number. The nature of the questions you have propounded suggest a brief outline of the conditions sought to be corrected by the Blue Sky Law. The sole purpose of the Blue Sky Lcvu) is the protection of the prospective investor. The enactment of such a law in Ohio and other states grew out of pressing necessity. The vulturous tribe, whose mem- bers have come to be known as "Wallingfords," had so successfully preyed upon society that the checking of their activities became imperative. Men and women, wnho, by industry, thrift and economy, had been able to accumulate modest amounts of money from time to time, were being continually and continuously fleeced out of their savings through the glowing promises of absolutely safe returns on their investments. Through the cupidity of men of apparently good standing in various communities, these vultures were able not only to find who had saved a little money for a "rainy day" but to get these same informants to quietly and "confidentially" "recommend" their so-called securities in in- stitutions whose statements had been grossly padded and whose dummy directorates consisted of apparently respectable citizens. The average small investor -knows little or nothing about Dun or Bradstreet and, even if one had thought of getting such a report, the local "capper" who had furnished the "tip" would have advised against it. Persons having but a few hundred or a few thousand dollars to invest could not afford to go to the expense of having an independent audit and appraisal made, even if they had thought of such a thing; besides, they were always furnished with expensively printed prospectuses setting forth an alleged impartial audit and appraisal. OHIO 697 Thus the savings of the people were being coaxed from the banks and building and loan associations and exchanged for beautifully en- graved or lithographed certificates of stocks and bonds, which soon proved worthless. Many of these investors, in middle life or old age, found themselves destitute not only of worldly goods but of courage to continue the fight. It was such conditions as I have outlined that led the legislative bodies of the various states to take some action. Hence the State of Ohio stepped in and for the protection of its citizens said : (1) — That, excepting public service company securities authorized by some public service commission, securities purchased in good faith by an underwriter at not less than ninety per cent of the price afterwards to be charged the public, or the securities of a going manufacturing, coal-mining or quarrying concern in this state, the sale of all securities is prohibited, even by a licensed 'dealer, until a certificate has been ob- tained from the state; that before such certificate may issue full detailed , information concerning the institution must be furnished and it must affirmatively appear that the law "has been complied with, that the busi- ness is not fraudulently conducted, that the issuer or vendor is solvent, and that the disposal is not on grossly unfair terms. Inquisitorial powers are given the "commissioner'' to insure his possession of the necessary information, and the right is reserved the state to revoke the certificate. (2) — That, with certain exceptions, no person may dispose of securities evidencing title or interest in property without being first li- censed. (3) — That, before such license to a dealer in securities may issue : (a)— The applicant must furnish full information concerning not only his business, but himself and his agents; (b)— The state, however, is not bound to be satisfied with the claims of the applicant in this respect but the legislature went further and placed the positive duty upon the "commissioner" to confirm, by such investigation as may be necessary to establish, good repute in busi- ness of all concerned-; (c) —The notice of the application for a license must be published and no action taken by the "commissioner" until a definite time there- after has elapsed; (d) — If, after all this, tlie "commissioner" be satisfied of the good repute in business of the applicant and his agents, a license to sell securi- ties may issues (4) — That any person who, without disclosing that he is to profit thereby, advises or procures any person to purchase any security shall be liable in damages to the person so purchasing such security. Section 6373-6 of the General Code of Ohio places a mandatory duty upon the "commissioner" to revoke a dealer's license when facts warranting such revocation are established to his satisfaction. 698 OHIO To hold otherwise would be not only to repeal the Blue Sky Law but to place the stamp of approval on illegitimate business and fraudulent transactions and to say that the "commissioner" had the right to protect a person, firm or corporation, after the obtaining of a license, under the sameJ facts and circumstances that would have prevented the "commis- sioner" from issuing the license in the first place. The statute also provides the only condition upon which such li- censee may resume business, in the following language : "No dealer whose license has been revoked shall be relicensed within six months from the date of such revocation." The controlling purpose of the "commissioner" should be to protect the investors of the state by driving out of business every person, firm, or corporation that conducts the business of selling securities unfairly or fraudulently, to the end that when the citizens of this state deal with persons or concerns holding a license from your department to sell se- curities, they may rely upon the truth ,of the representations made as to » existing facts and the promises made as to what shall obtain in the future in concerns whose securities are being offered. In the first place, I do not know by what process of reasoning you can arrive at the conclusion that investors of the state who have pur- chased their securities from a concern against whom it has been clearly established that it has been conducting its business illegally and neces- sarily to the detriment of investors, are to suffer a greater financial loss by revocation of the dealer's license than they would suffer if a revoca- tion was denied. I know of no authority for you to enter into any agree- ment of any kind with an offending dealer. The general answer to this question is in the negative. Being at a loss to know how you have figured out the hypotheses contained in your sixth question, it is difficult to discuss said question. The first assumption you make in this question, as in all others,' is : "Granting that facts warranting the revocation of a dealer's license have been established to the satisfaction of the 'commissioner'," should be the end of the inquiry. When facts have been established to your satisfac- tion, you have a clear duty to perform and no consideration of any kind should swerve you. The motive of the person or persons who prompted the investiga- tion can become material only where his or their word, or the evidence offered by him or them, is to be weighed against the evidence offered by the licensee as to the truth or falsity of the charges. Where the truth of the charges is proven otherwise than by evidence of the complainant, the motive of the complainant is immaterial. You are concerned only with the truth or falsity of the charges ;. if false, you should say so ; if true, you should act promptly, to the end that no other innocent person may suffer. I am unable, without more facts than contained in your let- OHIO 699 ter, to see how investors are going to suffer by revocation of a license thus preventing a dealer from selling more securities, unless it be upon the theory that the losses will then be distributed over a greater number of persons. OPINION OF THE ATTORNEY GENERAL GIVEN COMMIS- SIONER OF SECURITIES, SEPTEMBER 7, 1917 (Vol. II, Atty. Gen. Rep. 1917, p. 1685) In your letter of August 21 you request my opinion upon the fol- lowing question : "Section 6373-4 provides that 'a licensfed dealer in such securi- ties' must pay an annual fee of fifty $50.00) dollars for such license, and five ($5.00) dollars for each agent named in the application for said dealer's license. "Kindly advise this department if the agent's fee of five ($5.00) dollars, as set forth in said section, should also be collected annually when said dealer's license is renewed?" Section 6373-4 G. C, referred to by you, provides in part as follows : "* * * If tJie 'commissioner' be satisfied of the good repute in business of such applicant and named agents, he shall, upon the payment of an annual fee of fifty dollars, and an additional fee of five dollars for each agent named in the application, register the applicant as a licensed dealer in such securities, and issue to him a licenscj containing the name of the applicant and all such agents, renewable annually upon payment of stich annual fee, unless revokea as herein provided. * * * " Section 6373-5 G. C. deserves consideration in this connection. It provides as follows : "Sec. 6373-5. Such license shall be taken out at the beginning of each calendar year, but it may be issued at any time for the re- mainder of such year, and in such case the annual fee shall be re- duced four dollars for each expired month but in no case shall it be less than ten dollars. Upon the payment of a fee of five dollars for each specified agent not named in such license the same may at any time be amended or supplemented to include such agent. Upon the written request of such applicant, accompanied by a fee of two dollars, such license shall be revoked as tbi any agent or agents of such applicant, and an amended license shall thereupon be issued 700 OHIO for such applicant and his remaining agents; and thereafter the applicant shall not be bound by the acts of the agent whose license has been revoked. * * * " The language of section 6373-4 G. C. does not appear to me as ambiguous. The applicant, if he names agents, must pay not one fee, but at least two fees. The principal fee is denominated the "annual fee". The fees on account of agents are called "'additional fees". When the section names the conditions of renewal of the license, only one of these fees is referred to. Because the "additional fee", is no part of the "annual fee", and because the former is not mentioned in defining the terms of renewal, I am forced to the conclusion that the agent's fee of five dollars' should not.be collected annually when the dealer's license is renewed. ^ I have quoted section 6373-5 G. G. because I think it support this view of the section. It will be observed that if the license is taken out after the beginning of the calendar year, there is a reduction, but the reduction applies again to the "annual fee". There is no similar reduc- tion or scaling down of the "additional fee'' Thus the separation be- tween the two is kept distinct. The provision in section 6373-5 G. C. for amendment of a license or its revocation as to a particular agent or agents sheds some light also upon the question. It is to be noted that but one original license is issued. Such license is renewable annually; but this does not mean that a new license is issued each year. On the contrary, the first license is perpetual, in the sense tbat it is good for one year and automatically renewed upon payment of the annual fee. Inasmuch, however, as no new license is issued each year, provision, would necessarily have to be made for changes in the personnel of agency forces. This is done by the second and third sentences of section 6373-5 G. C. Because, then, the statute is not ambiguous, there must be given the meaning which it clearly expresses ; and because also, that meaning is consistent with the general framework as evidenced by the other provisions referred to, I am of the opinion that the agent's fee of five dollars should not be collected annually, when the dealer's license is renewed. OPINION OF ATTORNEY GENERAL, MAY 16, 1918 (Vol. I, Atty. Gen. Rep., 1918, p. 696) On April 25, 1918, the Commissioner of Securities addressed the following communication to this office : "Following you will find an inquiry from the Prosecuting At- torney pf Miami County addressed to this department OHIO 701 " 'I have been requested to bring to the attention of the Grand Jury on April 29th, the question of indicting a man who filed with your Department a statement of the condition of his Com- pany, which these men claim to be fake, and the question that arose in my mind was whether or not the offense was committed in the county where the affidavit was made or whether it was necessary for the same to be filed before the offense was completed, in other words, whether the- venue would be in Miami County where the affidavit was made or in Franklin County where it was filed. " 'Are you able to state whether or not the question has ever been raised and determined? I do not fi'nd any construction of the section covering that point.' "Kindly advise us in the premises so that we will be aible to reply to Mr. Kerr's letter." The section of the blue sky law fixing penalties for its violation is 6373-20, which is as follows : "Whoever knowingly makes any false statement of fact in any statement or matter hi information required by this act to be filed with the 'commissioner', or in any advertisement, prospectus, letter, circular or other document, containing an offer to dispose or solicitation to purchase, or commendatory matter concerning, such securities or real estate, with intent to aid in the disposal of the same, or whoever knowingly violates any of the provisions of sec'tions 12, 14 or 15 of this act, or for the purpose of aiding in the disposal of any security or real estate, knowingly makes any false statement or representation concerning any license or certificate issued under the provisions hereof, shall be fined not less than one hundred dollars nor more than five thousand dollars, or imprisoned in the penitentiary not more than one year, or both ; and whoever violates any of the other provisions of this act shall be fined not less than fifty dollars nor more than one thousand dollars, or im- prisoned in the county jail or workhouse not more than sixty days, or both." The penalties above described are provided for a number of dif- ferent acts, most of which, like any ordinary offense against the laws, might be committed in any county in the state. It seems different, how- ever, with the particular one about which you inquire, which is a "false statement of fact in any statement or matter of information required by this act to be filed -with the commissioner." This refers to the dif- ferent statements required to be filed either for the purpose of securing a license as a dealer or, as it is commonly called, re-;istering a particular security. This statement, by the requirement of the act, is to be filed with the commissioner. It has no other destination, and there is no 702 OHIO other purpose in making it, excepting as it may be used by or through the office of the commissioner of securities. Until it is so filed, it is only, so to speak, in a formative or incomplete stage; it only acquires efficacy, only becomes a public document when it reaches the destina- tion provided for it by law. This is made apparent by an observation of the apparent purpose of the law itself, or if not that, the purpose of the machinery and procedure for enforcing the law. This law is enforced by and through the department. Its benefits are secured by requiring compliance with its provisions by and through the department. The object of these statements is to secure license or permission to transact business. This license or permission can only be secured from the commissioner, and by the issue of this license and its revocation and supervision afforded thereby over this character of busness by the depart- ment, is the security which the act endeavors to give the public against deceit and fraud. The statement is only for the purpose of securing the authority to transact the business ; the statement itself is in no manner to be used in the transaction of business or as an inducement to anyone to purchase securities. It therefore only comes to maturity, is only effective, when so filed. ' Although the language is "a statement of facts, etc., required by this act to be filed," yet, that is only a means used to point out what statement it is to which the penalty applies, and that statement is found to be the one described above, which is not, within the meaning of the statute, a statement until it is so filed. It then becomes a statement, which may be the basis of action by the department; before that it is rtot. Therefore, it follows that in this respect the offense can only be committed in the county in which said statement is to be so filed, which is Franklin County. OPINION OF ATTORNEY GENERAL, JULY 23, 1918 (Vol. I, Atty. Gen. Rep. 1918, p. 1009) On April 18, 1918, the Commissioner of Securities addressed the following request to this department: "We are desirous of getting a ruling from you as to the con- struction on Section 6.373-14 'e' with particular reference to 'nor of a real estate or building company all of whose property, upon which such securities are predicated, is located in this State.' "We have an application on our blank form No. 4 wherein ap- plication is made that the securities of The Three in One Apart- ment Company be exempt because of the fact that its securities are those of a real estate or building Company and the property upon which such securities are predicated is located in Ohio. We are in- closing said application, together with other data relative thereto. OHIO YOS We particularly wish to know whether this corporation is considered a real estate or building company." The above request is accompanied by the formal statement under section 6373-9 on the regular printed blanks; also a contract between the and and another contract between said and the From these attached documents, upon which you base your inquiry, the company does not appear to be a real estate or building company, but its essential objects and purposes are clearly shown to be to exploit a patent and dispose of goods produced under and by virtue of said patent. As this proposed company is a corporation, however, I have ex- amined its articles of incorporation, and find that from the purpose for which it is incorporated as shown thereby, it is a real estate and building company. The purpose for which it is incorporated is stated in the articles as follows : "Said corporation is formed for the purpose of constructing and maintaining buildings to be used for hotels, apartment houses, residences, dwelling houses, store rooms, offices, warehouses and factories, and acquire by purchase or lease, rent and sell all such real estate and personal property as may be necessary for such purpose, and the doing of all things necessary or incident thereto. All of the company's funds invested in real estate and buildings must be invested within the state of Ohio.'' The statement shows that there is to be either $30,000 or $45,000 of stock (there is a contradiction) of which $15,000 is preferred stock. It is not shown that the company has any assets, but is stated that 126 of the shares of preferred of $10.00 each have been subscribed for, for cash ; that the common stock was issued for rights to use "Merrill" furniture in Cuyahoga county, one-half of same "trusteed" back to company. The commission paid for sale of stock will not exceed 15%. The contract shows that there is some kind of a patent furniture placed on revolving panels ; that the owner of these patents is located in Chicago, but that the through some right it has acquired, is contracting with to use the patent in Cuyahoga county, in order to do which agrees to furnish a corporation, which turns out to be this •, • ■ ■ ; that its capital stock shall not exceed $30,000; that 15% of the stock shall be turned over to the who shall have a right to inspect its books and name a director. The contract between and the recites that owns the above contract with the : ; that the of Chicago does not sell the 704 OHIO rill furniture outright, but always on a royalty 'basis in some manner so that it can secure a part of the excess profit earned by the furniture; that the new company believes it for its own best interest to own the contract, and that it is worth to it the sum of $15,OC0. This last contract then proceeds to transfer the former contract, and the company agrees to issue 3,000 shares of common stock as fully paid, in full of subscription to common stock. Then agrees to turn back 1500 of these shares to be given as bonuses to purchasers of preferred stock, and to give 450 shares of the common stock to the , which is to have a right to inspect the company's books and have a director. Here, as has been said, is no trace of a real estate or building com- pany or anything that looks like one, although the corporation actually formed is a building and real estate company as shown by the purpose of its incorporation set out in the articles. It is not rfendered necessary, however, to determine the question of whether your department may look back o-f the articles of incorporation to determine whether it be such real estate and building company or whether you are concluded as to its character by the record of its charter. The company places before you not what it is, but what it does, not its charter showing -its nature and identity, but its contracts and transac- tions, and the contract and the transactions of other persons before its existence, and under the terms of which, and by reason of which, it came into existence, and from them claiftis exemption from the requirement of the license as provided in section 6373-14. The only statement in this application which bears any relation to the nature of the company is paragraph No. 4, which is as follows: "Are the securities those of a real estate or building Company and is all of the property upon which such securities are predicated, located in Ohio? Yes." This may be taken as a statement that the purpose of the corpo- ration makes it a re*l estate or building company, but not the latter part of the inquiry as to whether the property upon which its securities are predicated is located in Ohio. The answer to that is "yes", but the other statements of the application show that this is only true pros- pectively; that is, if the company ever gets any real estate it has' de- clared in advance that it will only have it in Ohio. How can it be said that these securities which it is proposed to sell are real estate located in Ohio, or is property located in Ohio when the company has no prop- erty at all located any place, except the mere intangible right to use a patent, and to require subscribers to stock to pay $1250 for shares sub- scribed for. This intangible property having in a sense only an imaginary ex- istence, existing by the operation of law upon the acts of individuals, is OHIO 705 by the same law located at tlie domicile of its owner, which of course, is in Ohio, and as shown by the articles of incorporation, it is a build- ing and real estate company, which seems literally to fulfill the require- ment. It fails, however, because the application shows that the securi- ties, natnely, the remaining 1375 shares of preferred stock still unsold, are not predicated upon this property, or, at least, only partially so. They are predicated upon business to be done in the sale and installation of furniture, -which business is to be done by means of the very proceeds of the sale of the securities itself. The blue sky law provides for two licenses, one for a "dealer" which is personal, and the intended effect of which is to permit the business coming under the purview of the statute, to be done' only by honest and proper persons ; the _,other, a license applying to the property to be disposed of — the security itself — which is the one here in;iuired about. It seemed to be in the legislative contemplation that while the licensing of dealers generally would afford sufficient protection to the public from the evils the statute was intended to prevent, that such mere supervision of the persons doing such business would not be sufficient when it came to the flotation of the securities of a new company. And, therefore, in addition to the other powers it confers upon the department, full authority is given to investigate the nature of the new ccmpijiy, its resources and purposes and the manner in which it is proposed to transact its business. From this additional regulation it makes certain exceptions, one of which is that quoted above, as to the leal estate and building company whose property upon whidi the securities are pred'catej is located in this state. It is suggested that to come under this exception, it is necessary that the. securities should be predicated at least upon prop- erty, without, for the present, deciding that it would necessarily be real property. If the securities be not predicated upon property at- all but upon prospects, however bright, or upon hopes and future intentions, it is not within the exception, but remains under the general requirement. The question you ask is in the following words: "We particularly wish to know whether this corporation is considered a real estate or a building company." Answering this question literally, it does have that character, but it does not follow from its being such real estate or build- ing company that it is exempt from the requirement of license. Such exemption must be based upon the additional facts above required ; that is, the securities must be predicated upon property, and the property upon which they are predicated must be located in this state, which under the circumstances set out in this application is not true in the present case. 45 706 OHIO OPINION OF ATTORNEY GENERAL, AUG. 19, 1919 No. 575 An unincorporated association of persons organized to carry on business in such manner as is calculated to impress the general publ.c with the belief that it is a corporation, and whose intended acts are such as appertain to or are to be done after the manner of corporations, can- not transact business in this, state. To Commissioner of Securities: Your letter of recent date with which you enclosed a copy of the trust agreement under which The Investors B.esearch Syi-dicate has been organized and proposes to operate, and requesting an op nlon as to whether or not individuals can ^organize in such manner and conduct business in this state, was duly received. The syndicate mentioned is a voluntary unincorporated association of individuals formed for the purpose of acquiring property to be held by a trustee who, pursuant to the terms and in the manner authorized by the trust agreement, is to engage the property and its income and proceeds in conducting a multitudinous and almost unlimited line of busi- ness. The purpose clause of the trust agreement rea;ds as follows : "The Trustees hereby declare that they will hold such property to be transferred to them, as well as other property which they may acquire as Trustees, together with the proceeds thereof, in trust, to engage such property and funds to do a commercial engineering and mercantile business; to manufacture, prepare for market, transport, import, export, purchase and otherwise acquire and own sell or trade in and with goods and merchandise of every nature anl . description ; to acquire, hold, own, improve, sell or otherwise deal in rights, privileges, franchises, real estate or personal property, devices and methods suitable or convenient for the purposes men- tioned; to purchase, construct or improve mills, factories, store houses, offices, buildings, roads including railroads and tramways, boats, docks, or any means or methods for transportation on land, on water or in the air; to engage, appoint or discharge agents; to acquire, own, handle or control letters patent and inventions; and in general to do and perform such acts and things and transact such business not inconsistent with law, as they may deem to ad- vantage of their trust." The trust agreement is somewhat lengthy and for that reason will not be incorporated into this opinion. It has been carefully examined and analyzed and the controlling features, so far as necessary to a proper determination of your inquiry, are hereinafter referred to and succinctly OHIO 707 stated. Suffice it to say that from practically every paragraph and sentence it clearly appears that the acts in which the association or synd'cate in- tends to engage, are such as appertain to corporations or are to be done after the manner of corporations. It should be borne in mind at the outset that Ohio determines its own public policy and has ample power to control the activities of its own citizens and those of other states coming within its borders, sub- ject only to constitutional limititations. A claim from either group of citizens that they can without restraint or limitation, engage in acts such as appertain to corporations, or conduct their affairs after the manner of corporations, finds no support in the law of this state, no matter what name may be assumed or how ingenious the plan under which they claim or propose to act. Persons who assume such authority and act in. such a manner without being legally incorporated, bring themselves within the terms of section 12303 G. C, which provides that a" proceeding in quo warranto may be brought against any association of persons who act as a corporation within this state without being legally incorporated, and subject themselves to a judgment of ouster. This was declared to be the law of Ohio a quarter of a century ago in State v. Ackerman, 61 O. S., 163. In that case the court held : "To come within the purview of that provis'on of section 6760, of the Revised Statutes, which authorizes an action in Quo War- ranto to be brought 'against an association of persons who act as a corporation within this state without being legally incorporated,' it is not necessary that the association, or persons composing it, avow a purpose to act as a corporation, or assume to do so ; it is sufficient if the acts are such as appertain to corporations, or are done after the manner of corporations." The claim was made in that case, as it 'has been in this, that the association was not exercising a franchise or acting as a corporation, or even assuming or avowing to do so, but that its members were pur- suing as individuals a business or occupation, in which any person may of natural and common right engage, without abridgment or interference from any source ; hence the conclusion that such an association or its members are not subject to the conditions and regulations imposed by laws applicable to corporations. But such contention and conclusion were denied, the court holding as above indicated, that an association of persons need not avow a. purpose to act as a corporation, or even to assume to do so, but that it is sufficient to warrant a judgment of ouster if the acts complained of are such as appertain to corporations, or are done after the manner of corporations. No useful purpose will be served by enumerating in this opinion the numerous acts committed or performed by the association involved in the case of State v. Ackerman, supra, but suffice it to say that some 708 OHIO of the acts and transactions complained of, and which supported the judgment of ouster in that case, were practically the same in effect if not in form as those contemplated and provided for in the trust agree- ment now under investigation, and it is my opinion that the doctrine of that case applies with equal force to The Investors Research Syndicate. That the association now under investigation intends, and is au- thorized hy the agreement, to conduct its business after the manner of corporations, etc., and that its characteristics and mode of conducting its business are calculated to impress one who does not make a critical examination with the belief that it is a corporation, is clearly shown by the express terms of the trust agreement itself, and particularly in the following respects : In addition to the adoption and use of a fictitious name, the syndicate 'is to have a capital stock divided into common and pre- ferred shares, to be represented by negotiable certificates which will express the respective proportionate interest of the holders. Lost or destroyed certificates are to be replaced by the issue of new ones. Provision is made for increasing the capital slock by the issue and disposal of non-voting redeemable preferred shares of the par value of $100 each, the proceeds of such issue to be used to provide funds to accomplish the purposes of the syndicate. The holders of the preferred shares are to have such preference over the common shares as may be expressed in the certificates, etc. The voting power of the common shares is also provided fo", the stipulation being that each shareholder shall be entitled to one vote for each share held, that each shareholder may vote by prox\ , etc. Annual meetings of the shareholders for the election of a board of trustees, and the, transaction of other business, and a'so for the calling and holding of special meetings at any time, are also provided for. . The election of a board of trustees by the shareholders, clothed with power and authority to manage and control the syndi- cate's property and business for the benefit of the shareholders, the r tenure of office, etc., are also provided for ; and in addition to the general grant of authority, it is specifically provided that the trustees may adopt and use a common seal, employ counsel, borrow money under certain restrictions, and make, amend and repeal by- laws. The filling of vacancies on the board of trustees is al.o cared for. The board of trustees is also required to hold at least statea monthly meetings, and provision is also made for the holding cit special meetings. OHIO 709 Officers are to be elected by the trustees who shall have the authority and duties "usually incident to like officers in corpora- tions", etc. The shareholders do not have title to the synd!ca'.e property or the right to call for a division of assets among themselves. The shareholders are not to be personally liable for the syndi- cate's debts, and the same immunity is also granted the trustees, and it is expressly provided that the trustees have no power to bind the shareholders personally, and that creditors must look only to the syndicate property. The death of a shareholder does not dis'o've the .syndicate, nor entitle his personal representative to an accounting, but such representative or his assigns succeeds to the ri; ht of the decedent. Provision is also made for the declaration and payment of dividends out of net" earnings. After the manner of some statutes, such as tI:ose governing real estate companies, the life of the syndicate is limited to twenty years, but with the provision, however, that its exis'ence may be pro- longed by the vote of two-thirds of its shares. Upon the termination of the syndicate's ex'stence the last board of trustees is to continue in control and authority of the property and business for the purpose of winding up its affairs. Based upon the so-called trust agreement itself, the conclusion can- not be escaped that the Investors Research Syndicate has the appearance of a corporation, that the mode of conducting its business and affairs i> such as is calculated to impress the general public with the belief that it is a corporation, and that its acts and mode of organization and control are such as appertain to corporations, or are done after the manner of corporations. Such being the case, the syndicate comes squarely within the doctrine of State v. Ackerman, supra, and, therefore, cannot transac: biisiness under the agreement in this state. Persons interested in the Investors Research Syndicate specially rely upon the case of Eliot v. Freeman, 220 U. S. 178, as authorizing its organization and manner of operation, but that case when properly con- sidered does not support their contention. The pertinent question in that case was whether certain real estate and department store trusts created and operating tinder trust agree- ments, and possessing some of the characteristics of the Investors Re- search Syndicate, were corporations or joint stock associations organized under the laws of Massachusetts, within the meaning of the Federal Corporation Tax Act, which applies ohly to corporations and joint stock associations "organized under the laws of the United States, or of any state or territory of the United States", etc. In the opinion, at page 186, the court said : 710 OHIO "The description of the corporation or joint stock association as one organized under the laws of a state at once suggests that they are such as are the creation of statutory law, from which they derive their powers and are qualified to carry on their operations. A trust of the character of those here involved can hardly be said to he organized within the ordinary meaning of the term; it cer- tainly is not organized under statutory laws as corporations are." The Federal Supreme Court therefore answered the question in the negative, and held that the trusts involved were not creatures of statutory law, and hence could not be corporations or joint stock associations or- ganized under and deriving their powers from such laws. That is one of the principal shortcomings of the Investors Research Syndicate. Not being a creature of statutory law, but owing its origin and existence en- tirely to contract, its members nevertheless are- engaged in and carrying out acts such as appertain to corporations, or such as are done after the manner of corporations. ■ To Oom/missioner of Securities: Supplementing my former opinion No. 575, in which the conclusion was reached that an unincorporated association of persons organized to carry on business in sudh manner as is calculated to impress the general public with the belief that it is a corporation, and whose acts are such as appertain to or are to be done after the manner of corporations, can- not transact business in this state, and in response to your verbal in- quiry, I beg to advise you that that opinion applies to all such associa- tions whether organized in this or other states, and that one of the effects of the opinion is to deny the right of the officers and agents- of such asso- ciations, and others acting in their behalf, to be licensed as dealers in their securities in this state. In other words, no officer or agent of such an association, nor any other person acting for or in its behalf, should be licensed by your department to deal in its securities in this state. OPINION OF ATTORNEY GENERAL, SEPT. 9, 1919 No. 611 1. A corporation incorporated or reorganized under the Ohio non-par value stock act is not required to, but may if it so desires, provide for the creation and issue of preferred stock. 2. In computing the fee to be paid to the Secretary of State by a corporation reorganized under the non-par \a!ue stock law, credit cannot be allowed on account of fees paid to the Secretary of State prior to its redrganization. •3. Every corporation reorganized i-nder the non-par value stock act must pay to the Secretary of State a fee of ten cents on OHld 7ll each share of common stock authorized to be Issued without any nominal or par value, whether such shares be new or additional shares, or shares changed from par value to non-par value shares under the reorganization. 4. When the amount of capital with which a foreign corpo- ration having non-par value shares will carry on business is not stated in its articles of incorporation, or otherwise fixed and certi- fied to the secretary of state and tax commission, so as to bring the company within section 11 of the non-par value stock act, proper rules to be followed in placing a value upon tlie authorized non-par value shares of the corporation when seeking admission to do busi- ness in this state under section 178 et seq. G. C, and also in com- puting the amount of the annual franchise tax under section 5501 et seq. G. C, would be to adopt t)he real consideration for which such shares have been issued by the company from time to time, in the case of issued shares, and the real consideration for which such shares are being offered by the company, with respect to the unissued shares. But in the event unissued shares are not being offered at the time of the application, or at the time of filing the annual report, then the value to be placed upon the unissued shares should be the real consideration for which the kst non-par value shares were issued. Such information should be certified to the Secretary of State and to the Tax Commission. To Secretary of State: Your letter of recent date requesting an opinion on seventeen ques- tions arising under the new non-par value stock law (Amended Ser.ate Bill No. 47) was duly received. Pursuant to your verbaL request, im- mediate attention has been given to the four following questions, and the others have been taken under advisement: (1) Must a corporation that desires to issue common stock with- out par value issue preferred stock also? A corporation incorporated or reorganized under the recent non- par value stock law is not required to, but it may if it so desires, pro- vide for the creation and issue of preferred stock. The act in this respect is not mandatory, but permissive only. See section 1 of the act prescribing the contents of articles of in- corporation, particularly paragraph (a), which provides that the num- ber of shares to be issued must be set out, "and if any of such shares be preferred stock", the terms and provisions thereof; and paragraph (b), which provides that the amount of captial stock wich which the com- pany will carry on business must not be less than the amount of the. "preferred capital, if any". 712 OHIO See also section 4 of the act, which provides that the capital stock may bfe increased by preferred stock "if none theretofore was author- izfed", in the manner and in accordance with the provisions relating to the amendment of articles of incorporation under the general law. The general law (sections 8698 and 8719 G. C), it will be remembered, pro- vides for the creation and issue of preferred stock after the incorpora- tion of the company. ■ See also the provisions of Section 5 relating to the classification, if any, of the company's capital stock, and if classified, the terms and provisions of the pref-erred stock, etc. (2) When a reorganized corporation files its certificate with the Seciretary of State, should it not be allowed a credit for in- corporation fee previously paid upon its authorized capital stock? This question must be answered in the negative. The act clearly and specifically provides what fee shall be paid upon reorganization, and nowhere is there any provision authorizing a credit on account of fees previously paid to the Secretary of State. The requirement of the act (section 10) is that every reorganized company "shall pay to the secre- tary of state the same fees provided in section 1 of this act as therein Computed", and the only exception to the rule is expressed in the sec- tion itself, viz. : that the fee shall not be less than $25.00. It follows, therefore, that every corporation reorganied pursuant to the act, is required to pay to the secretary of state "a fee of ten cents on each share of common slock authorized in the articles to be issued without any nominal or par value, and in addition thereto a fee of one-tenth of one per cent, of the par value of preferred stock authorized in the articles," as provided in section V of the act. In other words, a reorgan- ized company is treated exactly as if it was a new incorporation, so far as the fees of the secretary of state are concerned excepting only as to the minimum fee. It has been suggested that section 10 only applies when the certifi- cate of reorganization shows that a company has been reorganized with an increased authorized capital stock, but this contention cannot be adopted because that section, and also section 1 in terms clearly provide for two separate and distinct fees, viz. : (a) a reorganization fee to be paid when the certificate of reorganization is filed, and (b) an increase.l capital stock fee to be paid in event the reorgan-zed company increase., its authorized capital stock. See also the proviso in section 10 fixing a minimum fee to be paid upon the- filing of the certificate of reorganization! Section 9, referred to in your letter, does not affect the question of fees to be paid to the Secretary of State by corporations tak;n_j ad- vantage of the statutory authority to reorganize ; its only efl^ect is to OHIO 713 declare that reorganization shall not work a dissolution or in any way affect the corporate existence of She company, etc. (3) Kindly state whether or not a corporation which reorganizes under the above act is obliged to pay a fee of ten cents per ■share for changing a share of par stock to a share of no,n- par stock. The fees to be paid to the Secretary of State upon reorganization are those fixed by section 1 of the act. Section 10 expressly so provides. The Secretary of State must be governed by, the certificate pf reorgani?a- tion in computing the fees to be charged and collec'ied, and the fact that par value shares have been changed or transformed under authority of the act .to non-par value shares does not exempt isuoh shares from the computation. The mandate of the statute is that ten cent^ must be charged and collected on each share to be issued without par valtie. In other words, there is no distinction betw.een a so-calle,d "transformed" sh^re and a newly created or additional share, so far as the fee is con- cerned. (4) When the amount of capital with which a foreign corporation having non-par value shares will carry on business is not stated in its articles of incorporation, or otherwise fixed, so as to bring the company within section 11 of the Ohio non-par value stock act, what rule should be adopted in determining the fee to be paid to the secretary of state under section 178 et seq. G. C. governing the admission of foreign corporations to do business in this state, and the amoimt of the annual franchise tax under section 5S01 et seq. G. C. ? Section 11 of the act prescribes the rule to be foUovved with respect to such foreign corporations, and such only, as state in their articles or otherwise fix the amount of capital with which they will carry on busi- ness; as follows : "The amount of capital with which a foreign corporation hav- ing shares of capital stock without par value will carry on busi- ness', as stated in its articles of incorporation, or otherwise fixed or as thereafter lawfully changed, shall be deemed to be the author- ized capital- stock of such foreign corporation for the purposes of sections 180, 183, 184, 185, 6501, 5502 and 5503 of the General Code." In other words, the Secretary of State and the Tax Commission cannot adopt the foregoing rule, unless the amount of capital with which the con\pany will carry on business is stated in its articles of incorpora- tion or is otherwise fixed. 714 OHIO (a) It will be observed that the foregoing section 11 does not pro- vide that there shall be a foreign statute requiring the amount of capital with which the company will carry on business to be stated in the articles, or providing how the amount shall be otherwise fixed. In my opinion when the amount is not stated in the articles of in- corporation, it is permissible for the board of directors of the foreign' corporation to fix the amount, and thereby bring the company within section 11 of the act, which amount, if so fixed, should be certified to the Secretary of State at the time the company makes application for admission to do business in this state, and to the Tax Commission when the company files its annual reports with the Commission. (b) In the event,- however, that the amount is not stated in the articles, or otherwise fixed as provided in paragraph (a) supra, then recourse must be had to section 178 et seq. G. C. as to the fee to be paid by a foreign company seeking admission to do business in this state, and to section 5501 et seq. G. C. with respect to the annual franchise tax, — those being the governing statutes. Examination of section 178 let seq. G. C. will disclose that the amount of the company's "authorized capital stock" is an indispensable factor in determining the amount of the' fee, because under one section (180 G. C.) the fee is an arbitrary one based solely on the authorized capital stock, and under the other sections of the group (184 and 185 G. C.) the fee is based upon the proportion of the company's authorized capital stock represented by property and business in Ohio. The company's authorized capital stock is also an indispensa.ble factor in determining the amount of the annual franchise tax, as will appear from the provisions of section 5501 G. C. which provides that the Tax Commission shall determine and certify to the State Auditor the pro- portion of the company's authorized capital stock represented by its property and business in this state, and from section 5503 G. C. which provides that the State Auditor shall charge, and that the company shall pay to the State Treasurer a certain fee upon the proportion of the company's authorized capital stock represented by property and business in this state. In determining the amount of the authorized non-par value capital stock of a foreign corporation which does not come within section 11 of the act and paragraph (a) of this opinion, I suggest that the follow- ing rules be adopted : In case of issued and outstanding non-par value shares, adopt the real consideration for which such shares were issued from time to time. With respect to unissued non-par value shares, adopt the real consideration for which such shares are being off^ered by the com- pany ; but in the event unissued shares are not being offered by OHIO 715 the company, then adopt' the real consideration for which the last issued non-par value shares were issued by tlie company. This information should be certified to the Secretary of State at the time the company makes application to do business in this state, and to the Tax Commission at the time it files its annual franchise tax reports. The rules just mentioned should Le applied to Delaware corpora- tions, and also to other foreign corporations organized under the laws of other states, which, do not come or bring tliemselves within section 11 of the act and paragraph (a) of this opinion. The Delaware law has specifically placed a valuation of $100' per share on non-par value shares as far as Delaware fees only are concerned, but of course that provision has no application to fees and taxes to be paid under the Ohio law. The case of North American Petroleum Company v. Hopkins, 181 Bac. 625, has been cited for . consideration in this connection, but that case involved the method for determining the value of the "lawfully issued capital" of the company, and also its "capital stock", as those terms are used in the Kansas law, and not the amount of the company's "au- thorized" capital stock, which is the term used in the Ohio law. 716 OKLAHOMA OKLAHOMA STATUTES AN ACT To prevent unfairness, imposition or fraud in the sale or disposition of certain "securities" herein defined by requiring an inspec- tion thereof, pro.viding such inspection, supervision and regula- tion of the business of any person, association, partnership or corporation engaged or intending to engage, whether as prin- cipal, broker or agent, in the sale of any such securities in the state of Oklahoma, as may be necessary to prevent unfairness, imposition or fraud in the sale or disposition of said securities and prescribing penalties for the violation thereof. (Senate Bill No. 135.) Be It Enacted by the People of the State of Oklahoma: . Section 1. The term "Securities'* as used in this Act shall be taken to mean stock certificates, shares, bonds, debentures, certificates of participation, membership contracts, contracts or bonds for the sale and conveyance of land on deferred payments or installment plan, or other instrument in the nature thereof by whatsoever name known or called and including the capital stock of any and all corporations offering the same for sale. The term "speculative securities'' as used in this Act shall be taken to mean and include, (1) All securities to promote or induce the sale of which, profit, gain or advantage unusual in the ordinary course of legitimate business is in any way advertised or promised; (2) All securities for promoting the sale of which a commission of more than ten per cent is offered or paid; (3) AH securities into the specified par value of which the element of chance or hazard of speculative profit or possible loss equal or predominate over the element of reasonable cer- tainty, safety, and investment; (4) All securities the value of which materially depends on proposed or promised future promotion or develop- ment rather than on present tangible assets and conditions ; (5) The securities of any enterprise, association, partnership or corporation, which has included or proposes to include in its assets as a material part thereof, patents, formula, good-will, promotion, or intangible assets, or which has issued or proposes to issue a material part of its securities in payment for formula, patents, good-will, promotion or intangible assets; (6) Se- curities made or issued in furtherance of promotion of any enterprise or scheme for the sale of unimproved or undeveloped land on any deferred payments or installment plan, when such lands are not situated in the State of Oklahoma and the value of such securities materially depends on the future performance of any stipulation by the promoters of such OKLAHOMA . 717 enterprise to furnish irrigation or transportation facilities, or other value enhancing utility or improvement. The term "speculative enterprise" as used in this Act shall be taken to mean any business undertaking, project, venture or activity for the promotion or furtherance of which "speculative securities," as herein defined, are made, issued, sold, or offered for sale. For the purpose of carrying out the provisions of this Act, there is hereby created a Commission, to be known as the State Issues Commission, composed of the Bank Commissioner, who shall be chairman thereof, the Secretary of State and State auditor. The said Commission shall have authority to appoint, with the approval of the Governor, a secretary, who shall receive a salary of $2,500.00 per annum, payable monthly. Section 2. It shall be unlawful for any person, co-partnership, association, or corporation, hereinafter called the promoter, either as principal, or through brokers or agents, to sell or offer for sale or by means of any advertisements, circulars, or prospectus, or by any other form of public or private offering, to attempt to promote the sale of any speculative securities in this State, including capital stock of such promoter, unless there first shall have been filed with and approved by the said commission, (1) a copy of the securities so to be promoted; (2) a statement in substantial detail of the assets and liabilities of the person or company making and issuing such securities- and of any person or com- pany guaranteeing the same, including specifically the total amount of such securities and of any securities prior thereto in interest or lien, authorized or issued by any such person or company ; (3) if such se- curities' are secured by mortgage or other lien, a copy of such mortgage or of the instrument creating such lien, and a competent appraisal br valuation of the property covered thereby, with a specific statement of all prior liens thereon if any; (4) a full statement of facts showing the gross and net earnings, actual or estimated, of any person or company making and issuing or guaranteeing such securities, or of any property covered by any such mortgage or lien; (5) all knowledge or information in the possession of such promoter relative to the character or value of such securities, or of the property or earning power of the person or com- pany making and issuing or guaranteeing the same ; (6) A copy of any general or public prospectus or advertising matter which is to be used in connection with such promotion, and no such prospectus or advertis- ing matter shall be used unless the same has been filed hereunder; (7) The names, addresses and selling territory in this State of any agents by or through whom any such securities are to be sold, and no such agents shall be employed unless such statement with respect to them has been filed hereunder, and there shall have been paid to the said Com- mission a registration fee of Five Dollars ($5.00) for each such agent. The payment of such fee shall be payment in full of all fees for regis- tration of such agent until and including the first day of March next following; (8) the name and address of such promoter, including the 718 ' OKLAHOMA names and addresses of all partners, if the promoter be a partnership, and the names and addresses of the directors or trustees, and of any person owning ten per centum, or more, of the capital stock, if the pro- moter be a corporation or association; (9) a statement showing in detail the plan on which the business or enterprise is to be conducted; (10) the articles of co-partnership or association or corporation and all other papers pertaining to its organization, if the securities be insured or guar- anteed by a co-partnership or unincorporated association ; (11) a copy of its charter and by-laws if the securities be issued or guaranteed by a corporation; (12) a filing fee of Twenty-five Dollars ($25.00). Section 3. If the said commission shall decide that the sale of stock or bonds will be fairly and honestly conducted, both to the corpora- tion and to the public, such permit shall be granted, provided that the commissions, promotion and other incidental expenses, exclusive of the exempted expenses mentioned in Section 1 of this Act, shall not be more than fifteen per cent (15%) of the price at which such stock or bonds is to be sold as shown by the application or amended application. ■ Pro- vided, that where any proposed corporation has already sold its stock or bonds or a part thereof, or any part thereof has been subscribed at the time this Act shall take effect, this Act shall not affect stock or bonds previously sold or subscribed nor any contracts made in reference to same; but if any of the stock or bonds of said proposed corporation re- mains unsold or unsubscribed, said corporation shall, nevertheless, be en- titled to a permit upon complying with the other conditions of this Act, including the future sale or subscription of any of its stock or bonds. The commission or promotion fee shall be paid to the agent or promoter as the stock or bonds are sold by him and paid for by the purchaser. The stock or bonds shall be considered as paid for when paid for in cash or property or labor of par value thereof. No permit shall be granted unless there shall appear upon the subscription lists and con- tracts of such corporation or proposed corporation, in bold type, the amount of the commissions, promotion fees and other estimated expenses incident to the sale of such stock or bonds and the interest which the officer, agent, employee or promoter selling or contracting to sell such stock or bonds has in such sale ; nor shall such permit be granted until the applicants therefor have entered into a bond for not less than One Thousand Dollars ($1,000.00) nor more than One Hundred Thousand Dollars ($100,000.00), the same to be fixed by the said Commission at not less than ten per cent (10%) of the stock or bonds proposed to be issued. The said bond shall be payable to the said Commission, con- ditioned that the facts set forth in the application for such permit, and the proof and statements offered to the said Commission, upon which the application is based, are true, and that they will comply with the pro- visions of this Act in the sale of the stock or bonds of such corpora- tion or proposed corporation. Said bond may be made with individual OKLAHOMA 719 sureties or a surety company authorized to do business in the State of Oklahoma and the bond shall be approved by the said Commission. Section 4. Any person who shall be induced to purchase any stock or bonds of any corporation or proposed corporation by the officers, agents, employees, promoters or trustees, by reason of any misrepresenta- tion of any material fact concerning such stock or bonds, such person or persons shall have the right to bring suit upon the bond above pro- vided for, and such bond shall be subject to, and Security for such person so purchasing the stock or bonds provided that such person shall not be entitled to recover more than the money paid, or the actual value of the property given, or the labor performed, in exchange for such se- curities with legal interest from the date of the payment or the per- formance of the services, or the transfer of the property. One or more recoveries upon such bond shall not vitiate the same, but it shall remain in full force and effect, but no recoveries upon such bond shall ever exceed the full amount of same, and upon suits being filed in excess of the amount of same, the said Commission may require a new bond, and if the same is not given within thirty days they may cancel the permit herein provided for. Whenever any permit has been issued, the corpora- tion or person receiving the same shall file a list of the names of their or its authorized officers, agents and employees, and the post office addresses of each ; and, in case of change of any of its officers, agents or employees, it shall file a list of such changes with the said Commis- sion. Section 5. Every foreign corporation before selling or offering for sale any speculative securities, in this State, shall also file its written consent, irrevocable, that actions may be commenced against it in the proper courts of any county in this State in which cause of action may arise or the plaintiff may reside, by the service of process on the Secre- tary of State, and stipulating and agreeing that such service of process on the Secretary of State shall be taken and held in all courts, to be as valid and binding as if due service had been made upon the company itself, according to the laws of this or any other state, and such instru- ment shall be authenticated by the seal of said foreign corporation, and shall be accompanied by a duly certified copy of the order or resolution of the board of directors, trustees, or managers of the corporation au- thorizing the said secretary and president to execute the same. Section 6. It shall be the duty of the said Commission, as soon as is practical, to examine the statement and documents so filed and if said Commission shall deem it advisable, they shall make, or have made, a detailed inspection, examination, audit and investigation of the affairs of the makers or guarantors of such securities which said inspection, examination, audit and investigation shall be at the promoter's expense. As a part of the aforesaid inspection, examination, audit and investiga- tion, the said Commission may cause an appraisal to be made of the property of the maker or guarantor, including the value of patents, 720 OKLAHOMA formula, good-will, promotion, and intangible assets and shall furnish a full and complete statement or report of his inspection and investigation aforesaid to the said Commission. The said Commission shall, within ten days thereafter, give the promoter a hearing if he so desires. If the said Commission finds no legal objections to the enterprise, or securities, it shall note in a book to be kept by the said Commission for that purpose that said person, co-partnership, association or corporation has com- plied with Section 2 of this act. But, if from the statements, papers and documents on file, and the investigations and reports of the said Com- mission, or from other evidence submitted, it shall appear, the said Com- mission shall find, (1) that the makers or guarantors of said securities are insolvent, in failing circumstances, or are untrustworthy; (2) or that the promoters' plan of business is unfair, inequitable, dishonest or fraudulent; (3) or that the promoters' plan of business does not ade- quately secure investors against the unlawful dissipation or mis-applica- tion of the funds of the enterprise or business ; (4) or that the promoters' literature or advertising is misleading and calculated to deceive purchasers or investors ; (5) or that the securities ofifered, or to be offered, or issued, or to be issued, in payment for property, patents, formula, good-will, or promotion and intangible assets are in excess of the reasonable value thereof ; (6) or that the enterprise or business of the promoter is un- lawful or against public policy ; (7) or is a mere scheme of a promoter or promoters to get rich quick at the expense of the purchasers of the aforesaid securities; the said Commission shall reduce its said findings to writing and attest the same by the signature of t.he chairman and secretary thereof. Notice of such finding, or findings, shall immediately be given to the applicant by registered mail. And it shall thereafter be unlawful for the promoter or any broker or agent of said promoter to sell, offer for sale, or by means of any advertisement, circular or prospectus, or by any other form of public offering to attempt to pro- mote the sale of any such speculative security, or securities, in this State. Section 7. The said Commission shall at any time have the au- thority and jui^isdiction to investigate the affairs of any speculative enter- prise, the securities of which are being sold or offered for sale in this State, and after giving the promoters a hearing, may, if the evidence warrants, make any of the adverse findings enumerated in Section 6 of this act, and it shall thereafter be unlawful for any person, co-partner- ship, association or corporation to sell, offer for sale, or by means of any advertisement, circular, or prospectus or by any form of public offering to attempt to promote the sale of the securities of such speculative enterprise in this State. Section 8. Any person, co-partnership, association or corporation being dissatisfied with any finding, or findings, of the said Commission made in accordance with the provisions of this act, may, within thirty days from the making thereof, commence an action in any court of competent jurisdiction against said Commission as defendant, to vacate OKLAHOMA 721 and set aside said finding, or findings, on the ground that the said find- ings are unjust or unreasonable. The rules of pleading and procedure in such action shall be the same as are provided by law for the trial of equitable actions in the district courts of this State and on the hearing, the judge of said court may set aside, modify or confirm said findings as the evidence and the rules of equity may require. Appeals may be taken from the decision of the district court to the Supreme Court by either party in the same manner as is provided by law in other civil actions. Pending any such action, the said findings of said Commission sliall be prima facie evidence that they are just and reasonable and that the facts found are true, and pending any such action the said finding of the said Commission 'shall remain in full force and efifect. If no action be brought to set aside said findings within thirty days, the same shall become final and binding. Section 9. No amendment of the charter, articles of incorpora- tion, constitution or by-laws of any such corporation or the articles of association or by-laws of any unincorporated association sul>ject to this act, shall become operative until a copy of the same has been filed with the said Commission, as provided in regard to the original filings of charters, articles of incorporation, or association, constitution and by- laws, and it shall be unlawful for any such person, co-partnership, asso- ciation or corporation to transact business on any other plan than that set forth in the statement required to be filed by Section 2 of this act, or to make, issue, sell or offer for sale any ''security" or "securities" re- quired to be "filed by Section 2 of this act, until a written statement showing in full detail the proposed new plan of transacting business and a copy of the proposed new "security" or "securities" shall have been filed with the said Commission, in like manner as provided in regard to the original plan of business and proposed "security" or "securities." Section 10. The provisions of this act shall not apply to, (a) se- curities of the United States, or any foreign government; or of any state or territory; or of any county, city, township, school district or other public taxing sub-cHvision of any state or territory of the United States or any foreign government ; (b), securities of public or quasi-public corporations, the issues of which are now regulated by the public service commission or board of similar authority of any state or territory of the United States, or securities senior thereto ; (c) securities of state or national banks or trust companies, mortgage companies dealing ex- clusively in bona fide mortgages on farm and city real estate, or build- ing and loan associations authorized by the State Banking Board to do business in this State; (d) securities of any domestic corporation or- ganized without capital stock, for religious, charitable or reformatory purposes. The provisions of this bill shall not apply to the sale of stocks or bonds where the same are sold for cash and no commission or fee is paid, directly or indirectly, for the sale of the same and no expense for such sale is charged either to the company of issue or the purchaser of such securities. 722 OKLAHOMA Section 11. The general accounts of every person, co-partnership, association or corporation, issuing or guaranteeing any securities sub- ject to the provisions of this act, shall be kept in a business-like and intelligent^ manner and in sufficient detail so that the said Commission or their authorized representative can ascertain at any time the financial condition of such person, co-partnership, association or corporation, and the books of account and affairs of any such person, co-partnership, asso- ciation or corporation, shall be subject to examination by the said Com- mission or by their assistants, accountants or examiners, at any time said Commission shall deem it advisable, and in the same manner as is now provided for the examination of state banks ; and such person, co- partnership, association or corporation shall pay the actual traveling and hotel expenses of the assistant, accountant or examiner of the said Com- rSission when he is absent from the Capital of the State for the purpose of making such examination. And it is provided further, that every person, co-partnership, association, or corporation making or guaranteeing any securities subject to the provisions of this Act, shall file at the close of business December 31st, of each year, and at such other times as may be required by the said Commission a statement certified by the oath of some person having actual knowledge of the facts therein stated, set- ting forth, in such form as may be prescribed by said Commission the financial condition, amount of property and liabilities of such person, co- partnership, association or corporation and such other information as the said Commission may require. Each statement shall be accompanied by a filing fee of Two Dollars and Fifty Cents ($2.50). All fees herein provided for shall be collected by the said Commission and shall be turned into the State Treasury. It shall be unlawful for any person, partnership, association, or corporation subject to the provisions of this act, failing or refusing to comply with the provisions of this Section within ten days after compliance is required, to thereafter sell or offer for sale in this State any speculative stock which said persoft, partnership, association or corporation is selling or offering for sale in this State. Section 12. The said Commission shall ha.ve power upon reasonable notice either upon their own initiative or upon complaint of any responsi- ble person, to make or have made such special inspection or investigation as they may deem necessary in connection with the promotion, sale, dis- posal, or offering for sale or disposal in this State, of any certificates, shares, stocks, bonds, securities, contracts, or contracts or bonds for deeds, to determine whether the same constitute a violation of this act or any other statute of this State, by any individual, co-partnership, cor- poration, or association, promoting, offering, selling or pledging the same ; and the said Commission, their assistant or deputies, shall have the power to issue subpoenas and process compelling the attendance of any person and the production of any papers or books for the purposes of such in- vestigation and examination, and shall have power to administer an oath to any person whose testimony may be required on such examination or OKLAHOMA 723 investigation ; and any person who shall refuse to obey any such subpoena or make answer to any competent and material question propounded to him by the said Commission shall, upon conviction in any court of com- petent jurisdiction, be deemed guilty of a misdemeanor, and fined in any sum not exceeding Five Hundred Dollars ($500.00) or be punished by confinement in the County jail for not more than ninety days, or both such fine and imprisonment. Upon the conclusion of such investigation, the said Commission may make findings of any fact touching the matter or matters under investigation, and such findings shall be prima facie evidence of the truth of the matters therein found by the said Commis- sion in any action, either civil or criminal, instituted under any of the laws or statutes of this State against the person, persons, partnership, corporation or association. The notice herein provided for may be given by registered letter mailed to the last known address of person or per- sons or corporations to be investigated and the said Commission's certifi- cate shall be sufficient evidence of such notice and the mailing thereof. Section 13. Any person who shall knowingly make or file or cause to be made or filed with the said Commission any statement, document, circular, advertisement or prospectus, required to be filed by this act, which is false in any material respect or matter, shall be deemed guilty of a felony, and on conviction in any court of competent jurisdiction punished by a fine of not less than One Hundred Dollars ($100.00) or more than Five Thousand Dollars ($5,000.00) or by imprisonment in the State penitentiary for not less than one nor more than five years, or by both such fine and imprisonment. Section 14. Any person, partnership, association or corporation who shall commit in this State any act declared unlawful by Section two, six, nine or eleven of this act, shall be deemed guilty of a felony and on conviction in any court of competent jurisdiction .be punished by a fine of not less than One Hundred Dollars ($100.00) nor more than Five Thousand Dollars ($5,000.00), or by confinement in the Oklahoma State penitentiary for a term of not less than one nor more than seven years. Section 15. This act shall not apply to the owner of any speculative security who is not the maker or issuer thereof, who- shall acquire and sell the same for his own account in the usual and ordinary course of business and not for the direct or indirect promotion of any enterprise or scheme within the purview of this act, providing that such ownership is in good faith. Repeated or successive sales of any such speculative security or securities shall be prima facie evidence that the claim of ownership .is not bona fide, but is a mere shift or device to evade the provisions of this act. Section 16. Any person who shall knowingly or willingly ' sub- scribe to, or make, or cause to be made any false statements or false entry in any book of account of any person, co-partnership, associa'ion or corporation, subject to the provisions of this act, or exhibit any false 724 OKLAHOMA paper with the intention of deceiving any person authorized to examine into the affairs of such person, co-partnership, association, or corpora- tion or shall make or publish any false statement of the financial con- dition of any person, co-partnership, association or corporation subject to the provisions of this act, or shall knowingly make any false state- ments materially affecting the value of the stocks, bonds, or other securi- ties -offered for sale by any such person, co-partnership, association or corporation, shall be deemed guilty of a felony and upon conviction thereof shall be fined not less than One Hundred Dollars ($100.00) nor more than Five Thousand Dollars ($5,000.00), or shall be imprisoned not less than one year nor more than ten years in the State Penitentiar)'. Passed by the Senate, this 27th day of February, 1919. M. E. Trapp, President of the Senate. ■ Passed by the House of Representatives, this 17th day of March, 1919. Tom C. Waibrep, Speaker of the House of Representatives. Approved this 22nd day of March, 1919. J. B. A. Robertson, Governor of the State of Oklahoma. Correctly Enrolled, F. E. Tucker, Chairman Committee on Engt'ossing and Enrolling. OREGON 725 OREGON STATUTES Blue Sky Law (Including the amendments of Chapter 324 of the General Laws of Oregon for 1915, and the unamended sections of Chapter 341 of the General Laws jof Oregon for 1918) Title of Amended Act. AN ACT To amend Sections 1, 2, 13, 14, 15, 16, 17, 18, 20, 21, 24 and 28 of Chap- ter 341 of the General Laws of Oregon for 1913; to repeal Sec- tions 3, 4, 9, 10, 11, 12, 19, 22 and 23 of Chapter 341 of the Gen- eral Laws of Oregon for 1913; to protect the purchasers of stocks, bonds, notes, contracts or other securities; to prevent fraud and misrepresentation in the securing of subscriptions thereto, or in the issuance, transfer, sale, promotion, negotia- tion or distribution thereof; to define dealers in securities; to provide for the supervision over and regulation of such dealers and such securities by the Corporation Commissioner, and to provide penalties for the violation of this Act. [Chapter 324, G. L. 1915.] §1. Dealer Defined. The word "dealer" within the meaning of this act shall include every person, partnership, corporation, or association which is now en- gaged, or which shall hereafter engage, in the sellirjg to others at a profit or on commission, or in the buying for the purpose or in the contempla- tion of so selling, any stocks, bonds, notes, contracts or other securities of whatsoever kind or character; provided, that any purchase for invest- ment of any security or securities, or any sale of such security or securi- ties previously held by the vendor thereof as or for an investment, by any person or partnership, corporation, or association, or any sale, trans- fer, or negotiation of such security or securities by the bona fide owner thereof, or by any agent exclusively for such owner's account, such sale, transfer, or negotiation not being in the course of repeated or continuing transactions of a similar nature, shall not constitute the purchaser or vendor of such security or securities so purchased or sold, a dealer within the meaning of this act ; and, provided, further, that any partner- ship, domestic corporation, foreign corporation doing business within this state, or association which shall hereafter offer its own securities for sale to the public shall be considered a dealer within the meaning 726 iii;|'(.MN of this act. [Sec. 1, Chap. 341, G. L. 1913, as amended by Sec. 1, Chap. 324, G. L. 1915.] §2. Dealer Shall File Preliminary Statement. No dealer shall in this state offer for sale, or< promote by advertise- ment, circular or any other form of public or general offering, the sale of any corporate securities to be hereafter issued unless prior thereto there shall have been filed with the corporation commissioner : 1. A copy of the security so to be issued. 2. A copy of any prospectus or advertising matter which is pro- posed to be issued in connection with. the sale of such securities. 3. A statement in substantial detail of the assets and liabilities of the corporation proposing to issue such securities, or such a statement thereof as shall be prescribed by the corporation commissioner. 4. A full statement of facts duly verified by the executive officers of the corporation and three directors thereof showing the gross and net earnings for the preceding year of the corporation proposing to issue such securities, if the corporation has been in existence for that period ; provided, that the corporation commissioner may require that such state- ment cover a longer period than one year ; and, provided further, that the corporation commissioner may require such statement to be prepared by accountants or may make an examination of the corporation's affairs at its expense with his own accountants. 5. Names and addresses of the officers and directors of the corpora- tion proposing to issue such securities. 6. Purpose of issue. 7. Description of property and business, to be followed. Provided, however, that the provisions of this act shall not apply to (a) mortgages sold or purchased in their entirety, (b) corporate se- curities issued under the supervision of a state or national commission, (c) commercial paper' and acceptances eligible for rediscount at a federal reserve bank, (d) state and national bank and trust company stock, (e) securities listed on such stock exchanges and in such standard manuals as the commissioner may approve, (f) or to bonds or other evidences of indebtedness of the United States, or of any foreign government, or of any state or territory of the United States, or of any municipal or public corporation of such government, state or territory. [Sec. 2, Chap. 341, G. L. 1913, as amended by Sec. 2, Chap. 324, G. L. 1915.] § 5. Corporation Department of the State of Oregon, and Com- missioner. There is hereby established a department to be known as the "Cor- poration Department of the State of Oregon," which department shall be in charge of a chief officer who shall be known as the corporation com- missioner. The governor shall, immediately after this act goes into OREGON 727 effect, appoint such commissioner, who shall hold office until the first Monday in January, 1917, unless sooner removed by the governor for inefficiency or malfeasance in office; and thereafter, and at intervals of four years each, commencing on the first Monday in January, 1917, it shall be the duty of the governor to appoint some qualified man as such commissioner. [Sec. 5, Chap. 341, G. L. 1913.] §6. Salary of Commissioner and Appointment of Clerks, Etc. The corporation commissioner shall receive in full compensation for his services a salary of $3,000.00 per annum, payable from the cor- poration fund in the maimer herein provided. He shall appoint such clerks, stenographers and assistants as may be actually necessary from time to time to properly discharge the duties of his office and may pur- chase such stationery, blanks, records, furniture, office supplies and equip- ment and incur such travel and subsistence expenses as may be necessary and incident to the performance of his offilcial duties, to be gaid by the state treasurer from the fund known as the "corporation funj* herein created, upon the certified claims of the commissioner, after audit and approval by the secretary of state, in the same manner as other claims against the state are paid. [Sec. 6, Chap. 341, G. L. 1913.] §7. Bonds and Oaths of Office of Officers. Before entering upon the duties of the offices to which they have been appointed, the corporation commissioner and the other employes of the department shall subscribe to an oath that they will faithfully and impartially discharge the duties of their respective offices. The commissioner shall execute to the state of Oregon, a surety bond in such amount as the governor may require, but which shall not be less than $25,000.00. The cost of said bond shall be charged to the state and paid from the corporation fund. [Sec. 7, Chap. 341, G. L. 1913.] §8. Corporations, Etc., Now Supervised by Secretary or Treasurer Are Given Over to Commissioner. The secretary of state shall provide the corporation department with suitable office rooms, and all books, records, documents, instru- ments, blanks, and other equipment heretofore employed by the secretary of state and state treasurer in connection with the supervision of corpora- tions, joint stock companies and associations, shall be turned over to the corporation department. All duties required by law to be discharged by the secretary of state and state treasurer, in connection with the supervision of corporations, joint stock companies and associations, shall, from and after the taking effect of this act, be discharged by the said commissioner. All fees, charges, interest, fines and penalties provided by this act or heretofore paid to the secretary of state and state treasurer by foreign and domestic corporations, joint stock companies and associa- 728 OK- 1', ON tions, shall hereafter be paid into the corporation department, and together with the revenues from all other sources provided by this act, shall go into a fund to be known as the corporation fund, and this fund shall be liable for all the expenses of the corporation department, as herein provided. It shall be the duty of the commissioner quarterly to certify under oath to the state treasurer and secretary of state the total amount of receipts of the corporation department for each current quarter. Whenever the amount of money in the corporation fund shall exceed $15,000.00, all in excess of $10,000.00 shall be transferred by the state treasurer to the general fund of the state. All fees and payments of every description required by this act to be made to the corporation commissioner, shall be paid by him to the state treasurer on the first day of the calendar month following their receipt by the said commis- sioner. [Sec. 8, Chap. 341, G. L. 1913.] §9. Dealers Shall Secure Permits. Any person, partnership, corporation or association applying to the corporation commissioner for a permit to do business as a dealer shall file in the office of the commissioner, together with the filing fee of $5.00, evidence, to be confirmed by the said commissioner's investigation as may by him be deemed necessary, establishing the sound moral char- acter and the good business repute of the person, partnership, corpora- tion or association so applying and showing for what length of time such person, partnership, corporation or association has been engaged in the sale of securities. Also a statement of the assets and liabilities of such person, partnership, corporation or association, and such other informa- tion as the said commissioner may require. Such permit shall entitle such dealer to handle such stocks, bonds, notes, contracts or other se- curities in the state of Oregon as are not objected to by the corporation commissioner; providing, that such dealer shall file on the first day of each month a list of such stocks, bonds, notes, contracts or other securi- ties on hand for sale, and handled by it during the preceding month as come within the provisions of Section 2 of this act and are not within the exceptions in said Section 2 contained; and, providing further, that said corporation commissioner shall have authority to prohibit said dealer from handling any of such issues at any time he shall be satisfied that said dealer is guilty of fraud or misrepresentation in the sale of any such securities and if the dealer shall refuse to obey the order* made by the said commissioner his permit may be revoked by said commis- sioner. [Sec. 13, Chap. 841, G. L. 1913, as amended by Sec. 9, Chap. 324, G. L. 1915.] § 10. Aggrieved Person May Appeal. Any person aggrieved by any decision of the corporation commis- sioner under this act shall have his appropriate remedy, provided by ex- OREGON 729 isting law, in any court having jurisdiction for the correction of such decision, if the same be erroneous or unjust or without jurisdiction, [Sec. 14, Chap. 341,,G. L. 1913, as amended by Sec. 10, Chap. 324, G. L. 1915.] §11. Shall Notify Commissioner of Changes. No dealer operating within the scope of this act shall make any amendment to his or its charter, articles of incorporation, constitution or by-laws, or for increase or decrease of capital stock, or any other change materially affecting any statement or representation made in his or its statement filed under Section 2 hereof, unless he or it first prepare and file with the corporation commissioner a duly verified supplemental statement setting forth clearly and concisely all material facts in con- nection with the change, which said supplemental statement shall be subject in all respects to the provisions of Section 2 hereof in like man- ner as the original. [Sec. 15, Chap. 341, G. L. 1913, as amended by Sec. 11, Chap. 324, G. L. 1916.] § 12. Advertisements, Etc., Are Regulated. It shall be unlawful for any dealer or his agent to issue, circulate or deliver any advertisement, pamphlet, circular or other document in regard to such stocks, bonds, notes, contracts or other securities as shall come within the provisions of Section 2 of this act artd are not within the exceptions in said- Section 2 contained, in the state of Oregon until after such dealer shall have been licensed to sell such securities in the state of Oregon as provided in this act, and it shall be , unlawful for any such licensed dealer or his agents to issue, circulate or deliver any such advertisement, pamphlet, circular or other document, unless the same shall be signed and bear a serial number and a copy thereof first filed with the corporation department, nor shall it be lawful for such dealer or his agent tO' issue, circulate or deliver such advertisemeni, pamphlet, circular or other document after he has been notified of objec- tion thereto by said corporation commissioner. [Sec. 16, Chap. 341, G. L. 1913, as amended by Sec. 12, Chap. 324, G. L. 1915.] § 13. Dealer May Appoint Agents. Any dealer may appoint one or more agents, but no such agent shall do any business for said dealer in this state until he shall first register with the corporation commissioner as agent for such dealer and for each such registration there shall be paid to the commissioner the sum of two dollars. Such registration shall entitle such agent to represent said dealer as his agent until the first day of July following, when it shall be neces- sary to reregister such agent. Such permit, however, shall be subject to revocation at any time By the corporation commissioner for cause and subject to the provisions of Section 10 of this act. [Sec. 17, Chap. 341, G.'L. 1913, as amended by Sec. 13, Chap. 324, G. L. 1915.] 730 OREGON §14. Dealer Shall File Regular Statement. Every dealer shall file as of the close of business on June 30 of each year, and at such other times as required by the coia)oration com- missioner, a certified statement in such form as may be prescribed and furnished by the said commissioner, setting forth his financial condition and the amount of his assets and liabilities and furnishing such other information concerning his affairs as said commissioner may require. Every regular statement of June 30 shall be accompanied by a filing fee of two dollars. Any dealer failing to file his report as of the close ot business on June 30 of each year, within fifteen days of that date, or failing to give any other or special report herein required, within thirty days after receipt of request or requisition therefor, shall forfeit his rights to do business, in this state, and shall be subject to such further penalty as is hereinafter provided for violations of this act. [Sec. 18, Chap. 341, G. L. 1913, as amended by Sec. 14, Chap. 324, G. L. 1915.] § 16. Commissioner Given Poiver of Examination. The corporation commissioner shall have general supervision ana control over any and all dealers, residing or doing business in this state, engaged in securing subscriptions for or in the issuance, transfer, sale, promotion, negotiation or distribution of any of such securities as are specified in Section 2 of this act and are not within the exceptions in said Section 2 contained, and all such dealers shall be subject to ex- amination by the said commissioner, or his duly authorized deputies, at any time he may deem it advisable. The rights, ■ powers and privileges of the corporation commissioner in making such examinations shall be the same as are provided with reference to the examinations of state banks by the superintendent of banks. [Sec. 20, Chap. 341, G. L. 1913, a's amended by Secj W, Chap. 324, G. L. 1915.] § 17. Attorney General Shall Prosecute. Whenever it shall appear to the corporation commissioner that any dealer is insolvent or is conducting his or its business in such manner as to jeopardize the interests of creditors or investors, or shall fail, neglect or refuse to file any circulars, papers, statements, prospectuses, documents or other advertising matter or reports, or to pay any of the fees required or provided by this act, without satisfactory reasons therefor, the cor- poration commissioner may report the facts to the attorney general or to the district attorney having jurisdiction, who shall at once make an investigation of the case, and institute such proceedings in law or in equity in the name of the state in any circuit court having jurisdiction as may be appropriate to enforce the provisions of this act and to protect the interests of stockholders and bondholders and other creditors and investors. The jurisdiction of the circuit court shall extend to the en- forcement of any proper remedy now existing for the protection of any OREGON 731 creditor, stockholder, bondholder, or other person beneficially interested, and the suit, action or proceeding- may be brought in any county in which any one or more of the parties reside. [Sec. 21, Chap. 341, G. L. 1913, as amended by Sec. 17, Chap. 324, G. L. 1915.] §20. Penalty for Violating Act. Any dealer who shall violate any of the provisions of this act shall be deemed guilty of a crime and upon conviction thereof shall be fined for each offense not more than $5,000.00, or by imprisonment in the state penitentiary for not more than five years, or by both such fine and im- prisonment at the discretion of the court. [Sec. 24, Chap. 341, G. L. 1913, as amended by Sec. 20, Chap. 324, G. L. 1915.] §21. Fraudulent Overt Act Punished. Any dealer doing business within the state of Oregon, or any or all of the officers or agents thereof, alone or in conjunction with others, having devised or intending to devise any scheme or artifice to defraud any person or persons by securing subscriptions for, or by promoting or negotiating the issuance, transfer, distribution or sale of any stocks, bonds, notes, cc«tracts, or other securities, of any kind or character, who shall, for the purpose of executing or attempting to execute, such scheme or artifice, commit any overt act within the state, shall be guilty of a crime, and, upon conviction thereof, shall be punished by a fine of not more than $5,000.00, or by imprisonment in the penitentiary for not more than five years, or by both such fine and imprisonment, at the dis- 'cretion of the court. [Sec. 21, Chap. 324, G. L. 1915.] §22. Fraudulent Concealment Punished. If any dealer or any person with intent to induce the purchase of any of the securities mentioned in Section 1 of this act shall, accompanied by any writing or token, or note or memorandum thereof, knowingly or recklessly with intent to deceive or defraud, make any false statement, or knowingly or recklessly, with intent to deceive or defraud, conceal any fact materially affecting the value of any of such securities, he, or they, shall be guilty of a crime, and upon conviction thereof shall be punished by a fine of not more than $1,000.00, or by imprisonment in the county jail for. not more than twelve months, or by both such fine and imprison- ment, at the discretion of the court, and shall be liable in damages to any party who has been occasioned loss thereby. [Sec. 22, Chap. 324, G. L. 1915.] §23. Seal and Certificate of Records. The corporation commissioner shall adopt a seal with the words "Corporation Department, State of Oregon," and such design as the commissioner may prescribe engraved thereon, by which it shall 732 ok'i'CMN authenticate its proceedings. Copies of all records and papers in the office of the corporation department, certified by the commissioner and authenticated by the seal of the department,, shall be received in evidence in all cases equally and with like effect as the original. The corpora- tion commissioner shall collect a fee of twenty-five cents per folio of one hundred words or fraction thereof for making copies of any record, document or paper filed in his office, and for certifying and affixing the seal of the corporation department to any such record, document, or paper he shall collect, in addition, a fee of two dollars. [Sec. 28, Chap. 341, G. L. 1913, as amended by Sec. 23, Chap. 324, G. L. 1915.] §25. Fees Collecetd to Be Turned Over to State Treasurer to Be Kept as H Special Fund and Out of Which Salaries Are to Be Paid. All fees herein provided for shall be collected by the corporation commissioner and by him shall be turned into the state treasury; and all fees so turned into the state treasury shall be credited to a special fund to be known as the corporation fund, which is hereby created and set aside for the purpose of paying all salaries and expenses incident to the conduct of the corporation department and necessary for car- rying this act into full force and effect. [Sec. 25, Chap. 341, G. L. 1913.] § 26. Banking and Insurance Departments Not Affected by This Act. Nothing in this act shall be construed to repeal or modify the laws heretofore enacted giving the state banking department control of and supervision over corporations, individuals or copartnerships engaged as their principal business in banking, as defined in Chapter 171, Laws of 1911, and amendments thereto ; nor shall any part of this act be construed to restrict in any manner the authority of the department of insurance of the state of Ogeron, to supervise and control the formation and opera- tion of corporations, individuals, or copartnerships engaged in the transac- tion of an insurance business of any character, and which heretofore have been under the supervision of the said department of insurance of the state of Oregon. [Sec. 26, Chap. 341, G.' L. 1913.] §27. Commissioner Must Keep Records of All His Acts and Make Annual Reports to Governor. The corporation commissioner shall keep as records of his office books showing all acts, matters and things done by him under the pro- visions of this act. Annually, on or before the first day of November, the corporation commissioner shall trahsmit to the governor a report containing an accurate review of the work of the department for the fiscal year ending June 30, preceding the date of said report, and which shall include the number of corporations, companies and associations of record in the department, the number of those dissolved and chartered OREGON 733 during the year, the total amount of receipts and disbursements, and other material facts in connection therewith. The records of the cor- poration department shall be public records, and information shall be furnished to any one affected by the corporation laws, upon application iherefor, except that the corporation commissioner may, in his discre- tion, withhold information relating to the prviate affairs of solvent cor- porations when in his judgment the same shall not be required for the public welfare. [Sec. 27, Chap. 341, G. L. 1913.] Requirements of Foreign Corporations Every foreign corporation, and every foreign joint stock compainy or association, formed for the purpose of gain, and not heretofore law- fully transacting business in the State, shall, before transacting business in this State, file with the Secretary of State a written declaration of its desire and purpose to engage in business within this State, and must set forth a full name under which it proposes to transact business, the name of the state or county under whose laws it was organized, the location of its home offilce, the date of its formation or incorporation, the amount of its capital stock, the nature of the pursuit, business, or occupation in which it is authorized to engage, the location of its principal office within this State, the name of its attorney in fact, who shall be constituted and appointed in accordance with Section 6 of this act [Sec. 6726, L. O. L.], the names and addresses of its principal officers, and of its directors or trustees, and the name and residence of its gen- eral agent within the State of Oregon; and said declaration shall be ac- companied by a certified copy of the charter or articles of incorporation of such foreign corporation, joint stock; company, or association, certified to by the legal keeper of the original, together with a certificate of the Secretary of State of a state or territory of the United States, or of a United States ambassador, minister, consul _general, vice consul, or charge d'affaires in a foreign country undef whose jurisdiction such corporation, joint stock company, or association was formed, that such certifying officer has the requisite official knowledge as to whether such charter or articles of incorporation are of a genuine, valid, and subsist- ing character, and that such copy is duly certified by the officer having the legal custody of the original. Upon presentation of the declaration certificates aforesaid to the Secretary of State, the person or persons presenting the same shall therewith pay to said Secretary the sum of $50.00 for filing arid recording the same, together with the annual license fee due for the succeeding fraction of the fiscal year; and the Secretary of State shall thereupon, if he find the same satisfactory in substance and form, cause such declaration to be filed and recorded in the same man- ner as articles of incorporation of domestic corporations are recorded in his office, and the documentary evidence accompanying such declaration shall be filed and suitably entered in the office of the Secretary of State. 734 OREGON Upon a compliance with the foregoing requirements by any such foreign corporation, joint stock company, or association, the Secretary of State shall issue to it a certificate setting forth, in substance, that such cor- poration, joint stock company, or association, has filed a declaration, hereinbefore required, the date of such filing, and a recital of the other facts stated in such declaration, together with the fact that such corpora- tion, joint stock company, or association has furnished to the Secretary of State satisfactory evidence of the^ legal existence of such foreign corporation, joint stock company, or association, and of its authority under the law of its domicile to engage in the occupation, business, or pursuit stated in said declaration, and which shall be specified in such certificate. Such certificate shall be prima facie evidence of the legal existence of such foreign corporation, joint stock company, or associa- tion, and of its right to begin the transaction of the business specified within the State of Oregon, whether the same shall be questioned in any court of justice in this State, or before any commission, board, ofifiicer, magistrate, or inferior tribunal whatsoever ; provided, that where said certificate shall be produced in any court of justice, or before any commissioner, board, officer, magistrate, or inferior tribunal, the same shall not be admissible in evidence, or have the force or effect herein- before stated, unless it shall be accompanied by the receipt of the State Treasurer of the State of Oregon showing the payment in full of the last annual license fee which shall have become due and payable against such corporation, joint stock company, or association, prior to the offer- ing of such certificate in evidence, or a certificate of said officer that no such fee is due. Upon application to him for that purpose, the State Treasurer shall issue such certificate in accordance with the facts. Foreign fire, marine, fire and marine, life, accident, life and accident, plate glass, and steam-boiler insurance companies, or surety companies, which shall comply with all other laws of this State, exacting fees, license, or taxes, shall not be required to pay the fee of $50.00, hereinbefore mentioned. [Sec. 7, p. 47,- G. L. 1903.] Every foreign corporation, joint stock company, or association, now doing business in this State, or that may hereafter do business in this State, except fire, marine, fire and marine, life, life and accident, plate .glass, and steam-boiler insurance companies, and casualty and surety companies, shall, between July 1 and August 15 of each year, pay in advance to the Corporation Department of this State, an annual license fee of $100.00. [Sec. 1, Chap. 381, G. L. 1913.] Annotations A plea in abatement will lie to an action to test the constitutionality of act of Feb. 29, 1913 (Laws 1913, p. 668) commonly known as the "Blue Sky Laws" where such action was instituted by a foreign corporation not properly authorized to do business within the state. The National Mercantile Co. v. Waston et al — 215 Fed. 929. OREGON 735 The constitutionality of the Act of Feb. 28, 1913, Laws 1913, p. 668, commonly known as the "Blue Sky Laws" will not be determined on a suit Iby a taxpayer where no showing is made that the act increases the amount of taxes to be paid by the person attacking the act. McKinney V. Watson et al — 145 Pacific 266. Forms DECLARATION— Foreign Corporation. This declaration must be accompanied by a ceitified co^y of the charter, or articles of incorporation of such foreign corporation, joint stock company or associa- tion, certified to by the legal keeper of the original, together with a certificate of the Secretary of State of a State or Territory of the United States, or of the United States Ambassador, Minister, Consul General, Vice Consul or Charge d'Affaires in a foreign country, under whose jurisdiction such corporation, joint stock company or association was formed, that such certifying officer has the requisite official knowledge as to whether such charter or articles of incorporation are of a genuine, valid and subsisting character, and that such character is duly certified by the officer having the legal custody of the original. DECLARATION OF PURPOSE TO ENGAGE IN BUSINESS IN OREGON Know All Men By These Presents : That the a organized and existing under and pursuant to the laws of " having its principal office at Number , Street, in the of hereby makes the following declaration of its desire and purpose to en- gage in business within the State of Oregon, which declaration is ac- companied by a duly authenticated copy of its , , in compliance with the provisions of "An Act to provide for the licensing of Domestic Corporations and Foreign Corporations, Joint Stock Companies and Associations, etc.," approved February 16, 1903 : The full name under which it proposes to transact business is.... The name of the State or Country under whose laws it was or- ganized is -. The location of its home office is at Number Street, in the of The date of its formation or incorporation was the. day of 191... The amount of its capital stock is ($ ) Dollars. 736 OREGON The nature of the pursuit, business, or occupation in which it is authorized to engage The location of the principal office within the State 6i Oregon is at Number , , Street, in the. , of ' County of The name of its Attorney in Fact, constituted and appointed in ac- cordance with the provisions of Section 6 of "An Act to provide for the licensing of Domestic Corporations and Foreign Corporations, Joint Stock, Companies and Associations, etc.," approved February 16, 1903, is whose business address is at Number , Street, in the of in the County of OREGON •?37 The tianies and addresses of its principal ofiicers, and of its directors or trustees, are as follows: Names. . OfScial Position. Postoffice Address. The name and residence of its General Agent within the State of Oregon is , . . ., Number Street, of in the in the County of In Witness Whereof, said Corporation, in pursuance of a resolu- tion duly adopted by its Board of : has caused this declaration to be signed by its .' President and. . Secretary, (corporate seal) and its Corporate Seal to be affixed, the day of......' , 191.... ; (seal) (seal) President. (seal) Secretary. I , President, and J r Secretary of the .., being severally duly sworn, depo!:e and sa.v, and each for himself says, that I am President and 47 738 OREGON Secretary, respectively, of the , the corporation mentioned: 'm and which executed the foregoing declaration, and that said declaration is a full, true, and correct statement of the matters therein contained according to the best of my information, knowledge, and" belief. Subscribed and swprn to before me this .day of , m.. (notarial seal) >- ss. I, ; , Secretary of the . • ■ : ." , being first duly sworn, depose and say upon oath that is the Presi- dent of said corporation, and thart the signature afSxed to the above and . foregoing declaration is the genuine signature of said ; that the Corporate Seal hereinbefore attached and impressed herein is the Corporate Seal of said corporation, and was affixed thereto by me, and that the foregoing declaration was executed for the by its President and Secretary, pursuant to a resolu- tion of the Board of of said corporation duly adopted on the day of 191.., so help me God. Subscribed and sworn to before me this. day of , 191.. (notarial seal) File No DECLARATION Principal Office OREGON 739 POWER OF ATTORNEY. To be executed, acknowledged and recorded in the office of the Corporation Commissioner by a foreign corporation. Required under the provisions of "An Act to provide for the licensing of domestic corporations and foreign corporations, joint stock companies and associations, etc." approved February 16, 1903, before transacting business in the State of Oregon. * ♦ » Sec. 6, p. 44, Laws of 1003. Know All Men By These Presents : That \ is a corporation duly organized under and by virtue of the laws of - having its principal place of business in , in the State of That said ' has made, constituted and appointed, and does hereby make, constitute and appoint .■ , a citizen of the United States, and a citizen and resident of the State of Oregon, residi;ng at Oregon, arrd whose place of business is No , '. Street, its true and lawful Attorney in Fact and authorized Agent for it, and in its name, place and stead to make and accept service of all writs, processes and summonses in any action, suit 'or proceeding in any of the courts of the State of Oregon, or United States courts therein, and upon whom all lawful writs, processes and summonses may be served with the Same effect as though the company existed in the State of Oregon, requisite and necessary to give competent and complete juris- diction of the said to any of the said courts ; Giving and GRANTmc unto said full power and authority to do and perform every act and thing requisite and necessary to be done in and about the premises, as fully to all in- tents and purposes as the said might or could do if personally present, hereby ratifying and confirming all that the said shall lawfully do or cause to be done by authority thereof. 740 OREGON This Power of Attorney is irrevocable except by the substitution of another qualified person for the one hereby appointed Attorney in Fact. In Witness Whereof, said corporation, in pursuance of a resolu- tion duly adopted by its Board of , has caused this instrument to be executed in its name by its President (corporate seal) and Secretary, and its Corporate Seal to be hereto affixed the: day of 191.. President. (seal) (seal) (seal) Secretary. ) This Certifies, that on this day of 191. ., before the undersigned, a in and for personally appeared the within named , the President, and , the Secretary of the the corporation mentioned in and which executed the foregoing Power of Attorney, and acknowledged that they executed the same by the au- thority and "on behalf of said pursuant to a resolution of the Board of of said corporation, duly adopted on the day of 191..; and ..., the Secretary of said : further acknowledged that the Corporate Seal hereinbefore attached and impressed herein is the Corporate Seal of said Corporation and was affixed thereto by him. In Testimony Whereof, I have hereunto set my hand and seal this day of 191... (L. s.) NOTE: — 25-cent cancelled revenue stamp" shovild be affixed to power of attorney. OREGON 741 DEALER'S PRELIMINARY STATEMENT TO THE Corporation Department of the State of Oregon Made as of , 191.. Is this Statement made by a person, partnership, corporation, or association ? Give the legal name, in full : If a corporation or association, under the laws of what state or country organized, and when : The location of principal office : Chief Officer or Managing Agent (or attorney in fact, if a foreign corporation) within the State of Oregon with whom correspondence should be had regarding this report, and who should be addressed gen- erally in communications, etc., from the Corporation Department: Name, , Title Postoffice address, 1. Mention below and briefly describe, the securities which it is proposed to issue. Attach hereto, marked Exhibit 1, a sample copy of each kind : if the security be stock, attach sample forms of certificates; if bonds or other security, furnish sample form of such security and also copy of the trust deed or mortgage, or other instru- ment securing the obligation. The amount of said securities to be sold or issued, $ 2. State the plan to be adopted for advertising and disposing of said securities. Attach hereto, .marked Exhibit 2, copy of any prospectus or advertising matter which it is proposed to issue in connec- tion with the sale of such securities, such copy to be signed and bear a serial number. 742 OREGON 3. Attach hereto, marked Exhibit 3, a statement in substantial detail of the Assets and Liabilities of the corporation proposing to issue such securities, sufficiently explaining each item to comprehensively show the financial condition. If any of the assets are subject to indebtedness, pledged, or. otherwise incumbered, state the amount and nature of su^ indebted- ness and when payable. Also state whether any of the assets, or the corporation itselt, is in any way involved in or threatened with litigation. 4. If heretofore engaged in business, attach hereto, marked Exhibit 4, a statement of Profit and Loss Account, showing gross and net earnings of the past year. In listing expenses and disbursements, segregate and specify amounts paid for the more important purposes, such as operating expenses, salaries, commissions, promotion-' expense, advertising, in- terest on outstanding securities or indebtedness, dividends if any and the rate thereof, etc. Also specify source of earnings. OREGON 743 5. Give below a true statement in regard to the Officers and Directors of the Corporation proposing to issue such securities. Address. No. shares and bonds owned. .SB O S-- ^i o > ft < (L) w o Name. G O o U 4 o P3 ■si ■ 1 President. Vice-President. Secretary. , Treasurer. General Manager. Attorney. Trustees or Directors: ■ ' a 5 Q . . g ' (Attach All Exhibits Here) 6. State purpose of issue. If the said capital stock, bonds or other securities are to be issued in exchange or disposed of for any other consideration than actual cash to the corporation, state what the actual consideration is to be, specifying the amount and kind of securities exchanged for each item. 744 oKi'XlON Describe fully the real estate, plant, equipment, patents, con- tracts, services, or other consideration received in exchange for said stock or other securities, stating the value thereof, and mentioning condition of title and incumbrances or indebtedness if any ; also whether said property be in any way involved in litigation. (If more space needed, attach as Exhibit 6) 7. Description of property and business to be followed. If not already fully explained elsewhere herein, attach hereto, marked Exhibit 7, a statement of the line of business to be fol- lowed, and including the following information : a. Manner in which the securities are to be disposed of. b. Terms of sale, with copies of subscription or contract forms, if sold on contract or on time. c. Amount or percentage of commissions or promotion ex- pense allowed to the organizers, promoters, agents or others. d. How much, if any, of said securities will be used or issued for promotion and organization. e. How the proceeds are to be invested or used. 8. Attach hereto, marked Exhibit 8, copies of papers relating to the organization of the association or corporation. a. If a partnership or association, a copy of its articles of copartnership, constitution or by-laws^ etc. b. If a corporation organized under the laws of the State of Oregon, give a list of the subscribers to its stock, showing the amount subscribed and amount paid iby each, and whether paid in cash or otherwise ; also a copy of its by-laws. c. If organized under the laws of any other state, or govern- ment, incorporated or unincorporated, furnish certified copies of such amended and supplementary articles of incorporation or asso- ciation, certificates of increase or decrease of capital stock, as are not already on file in the Corporation Department. 9. Give two or more references, with addresses, who can testily as to. the sound moral character and the good business repute of applicant : OREGON 745 10. Give a statement of the amount and present distribution of capital stock, bonds, and other securities, as per the following table; COMMON STOCK PREFERRED STOCK (if any) Subscribed, and issued $ $ Subscribed, not yet issued $ $ Total subscribed $. $. $. $ Unsubscribed, if any $ Total Authorized Capital • $ Number of shares authorized Par value per share $. $ Bonds: Amount authorized, $ ; issued, $ Other Securities, called ; authorized, $ ; issued, $. State of Oregon, County of . . , We, the undersigned, being first duly sworn, each for himself de- poses and says : That the undersigned are the duly elected, qualified and acting officers and directors of the within-named company, as per their signatures below; that I am familiar with the conduct of its business and affairs, and that I have investigated and know its financial condi- tion; that I am fully qualified and competent to testify as to the trutli of the facts called for by this blank; that I have carefully examined all statements and answers in the within stateiftent and exhibits attached hereto, and that each and all of the representations made are true, and that no material fact in answer to the several questions has been omit'ed ; and I further say that there are no agreements, understandings or con- tracts, either verbal or written, express or implied, by -which anyone has received, or is to receive, directly or indirectly, any consideration in any. manner whatever for the sale of the company's securities, or for is prp- 746 OREGON motion, except as specified in this application and the exhibits attached hereto. : , President. , Secretary. , Director. , Director. , Director. Subscribed and sworn to before me at , Oregon, this day of , 191 . . . (notarial seal) : Notary Public for Oregon. My commission expires , 191 . . The foregoing verification must be made by two executive officers and at Jeast three directors. When completed with exhibits attached and duly verified, mail state- ment to H. J. Schulderman, Corporation Commissioner, Salem, ac- companied by the statutory filing fee of $5.00. This form is in accordance with and as required hy provisions of Chapter 324, General Laws of 1915. PENNSYLVANIA 747 PENNSYLVANIA STATUTES AN ACT Relating to domestic and foreign insurance companies and cor- porations holding and dealing in insurance stock and certifi- cates; regulating the sale of stock and evidences of indebted- ness of such companies and corporations, and of subscriptions and applications therefor; and prescribing penalties. (P. L. 804.) Section 1. Be it enacted, etc., That the term "stock," as used in this act, includes bonds and any other evidence of indebtedness or ol interest in the profits of any insurance corporation. The term "insurance corporation" includes corporations organized to transact the business of insurance, or, principally, to hold and deal in the stocks and securities of such corporations. Section 2. No person shall as principal or agent, directly or in- directly, for the purpose of promoting or organizing any insurance cor- poration, proposed to be or being organized within or without this State,, or of promoting the sale of stock of such corporation by it after organiza- tion, sell, or agree or attempt to sell, or secure subscriptions or applica- tions for, any stock in such insurance corporation, without cojpplying in all respects with this act. Section 3. The application or contract of subs'cription or of sale shall .be in writing, and shall contain a provision in the following language : (a) No sum shall be used for comrnission, promotion and organiza- tion expenses, on account of any' share of stdck in this corporation, in excess of, ten per centum of the amount actually paid upon separate sub- scriptions for such stock; and the remainder of such payments shall be deposited or invested as authorized by law governing such insurance cor- poration, and shall be held by the organizers! or trustees, as the case may be, and the directors and officers of such corporation after organization, as 'bailees for the subscriber, to be used only in the conduct of the busi- ness of insurance by such corporation after having been licensed therefor by proper authority. ' Section 4. Every such application or subscription 'contract shall contain a statement giving the names of the organizers or trustees, as the case may be, and their residence; the par value of the shares, and the prices at which shares have been, are, or are to be sold; the num- ber of shares at each price ; the total number, of shares ; and be filled in with the percentage which may be used for commission, promotion. 748 PENNSYLVANIA or organization expenses, which together shall not exceed ten per centum of the amount actually paid upon separate subscriptions for such stock. Section 5. Funds and securities held by such organizers, trustees, directors, or officers as bailees, shall be deposited with a bank or trust company of this State until the corporation has been licensed. Section 6. No person shall participate in, receive or accept, any part, or promise of any part, of any of the commission or reward of any organizer, promoter, or agent, for the sale of any such stock, unless the name of such person and the fact of his interest in such commissions or rewards shall appear upon such application or contract of subscription. The omission of such statement from any such contract shall, in addition to the penalty herein provided, make such person liable to the purchaser or his assignees for all sums paid by such purchasers, with interest at the legal rate from date of payment, upon the assignment or tender of assignment of the stock so purchased. Section 7. No person receiving any commission, or other profit or advantage, as organizer, promoter, or agent, selling, or agreeing or attempting to sell, any such stock, or at any time, in consideration of or in connection with any such sale or contract of subscription, shall, di- rectly or indirectly, make or offer to make any contract or agreement other than as plainly expressed therein; nor shall any such contract or sti'bscription contain any agreement for employment, or for any deposit, or for any special advantage, to the person purchasing or contracting for such stock. Section 8. No person shall issue, deliver, circulate, or publish in this State any advertisement in any newspaper or periodical published in this State, or any circular or prospectus, for the sale of stock of any insurance corporation, whether orgahized or proposed to be organized within or without this State, for the purpose of soliciting or securing applications or subscriptions to, or contract for the purchase of stock in, any such corporation, unless^ (a) A copy of such circular, prospectus, or other advertisement shall first have been filed in the office of: the Commissioner of Insurance. (b) The same shall contain the name and address of the person issuing, delivering, circulating, or publishing the same,, with a consecutive serial number for each separate form of such circular, prospectus, or other advertisement. Section 9. In the event of any violation of this act, the subscriber or purchaser affected thereby may, at his option, rescind the contract, and recover from the company or the agent all payments, with interest at the legal rate from titne of payment; or may elect to treat the con- tract as valid and enforceable in his favor, but such contract shall not in either case be valid or enforceable against such subscriber or purchaser. Section 10. Any person violating any provision of this act shall be guilty of a misdemeanor, and, upon conviction, shall be sentenced PENNSYLVANIA , 749 to pay a fine of not less than one hundred ($100) dollars nor more than one thousand ($1,000) dollars, or to undergo an imprisonment in the county jail for a period not exceeding six months, or both. Approved — The 11th day of July, A. D. 1917. NOTE: — "This law does not require any license to be issued, but requires copies of the application and all advertising literature to be filed with the Insur- ance Commissioner before any sale is inade.'% -, ■; \ Insurance Commission'er of Pennsylvania. 750 RHODE ISLAND RHODE ISLAND STATUTES AN ACT In amendment of and in addition to Chapter 213 of the General Laws, entitled "Provisions respecting corporations in General." (G. L. 1910, Ch. 5S7, amending and adding to G. L. 1909, Ch. 213.) Section 39. No stock, shares, or installment shares, in any invest- ment company or in any real estate, mining, or co-operative corporation, society, association, or organization, other than building and loan asso- ciations, or notes or bonds or bther securities thereof, shall be sold or , offered for 'sale in this state by any such company, corporation, society, organization or association, or by any agent or broker representing such company, corporation, society, organization or association, until such com- pany, corporation, society, organization, or association has filed in the office of^ the secretary of state a statement and certificate showing its financial condition, the location of its property or properties, with plans of the same, the amount of work done thereon, the amount of cash ex- pended for improvements thereon, and the condition of the plant and ma- chinery, if any, connected therewith. Such statement and certificate shall be subscribed and sworn ,to by the president, treasurer, and secre- tary of such company, corporation, society, organization, or association. A like statement and certificate shall be filed annually thereafter on or before the first day of July of each year. For the filing of such state- ment or certificate a fee of ten dollars shall be paid to the secretary of state, and such statements and certificates shall be recorded by the secre- tary of state in a book kept for that purpose and open for public in- spection. Section 40. Any company, corporation, society, organization, or association, or any agent or broker representing such company, corpora- tion, society, organization, or a'ssociation, selling or offering for sale any stock, shares, or installment shares, or any notes, bonds or other securities, in any such company, corporation, society, organization, or association which has failed to file a statement or certificate as herein provided, shall be fined not exceeding five hundred dollars for each offense. Section 41. The provisions of this act shall not apply to any cor- poration incorporated under the laws of this state where at least ninety per centum of the property of such corporation is located in this state. Section 42. On the request. of the governor or secretary of state, the bank commissioner shall privately examine the books and accounts of any such company, corporation, society, organization, or association, RHODE ISLAND 751 and if in his opinion such company, corporation, society, organization or association is insolvent, or its condition is such as to render a con- tinuance of the business hazardous to the public, said bank commissioner may petition the superior court for the cotmties of Providence and Bristol for the appointment of a receiver of the estate and effects in this state of such company, corporation, society, organization, or association, and for an injunction to restrain such company, corporation, society," or- ganization, or association, its oflfficers or agents, from doing business m this state, and from selling or offering for sale in this state its stock, shares, notes, bonds, or other securities, and if incorporated under the laws of this state, for a dissolution, and said court shall have juris- diction in equity of such petition. Such receiver sliall have the rights and powers given to receivers under the provisions of sections 28, 29, and 30 of this chapter, and all acts in amendment thereof or in addition thereto. The actual expenses of such examination of the books and accounts of such company, corporation, society, organization, or association shall be paid by such company, corporation, society, organization, or associa- tion, if found by the bank commissioner to be insolvent or the con- tinuance of its business to be hazardous to the public, or of failing to file any report as required by law. If any company, corporation, society, organization, or association refuses to allow an examination of its books and accounts by the bank commissioner, he shall apply to the superior court for the counties of Providence and Bristol alleging such fact, and said court, on proof thereof, shall enjoin such company, corporation, society, organization, or association from doing business within this state, and from selling or offering for sale in this state its stocks, shares, notes, bonds or other securities, and if such corporation is incorporated under the laws of this state, the court may order a dissolution of said corporation and may appoint a receiver, who shall have the rights and powers above referred to. This act shall take effect July first, 1916, and all acts and parts of acts inconsistent herewith are hereby repealed. — Approved April 22, 1910. 752 SOUTH CAROLINA SOUTH CAROLINA STATUTES AN ACT To prevent fraud in the sale and disposition Orf stocks, bonds or other securities sold, or offered for sale, within the state of South Carolina by any dealer, firm, company, association or corporation, foreign or domestic, by requiring an inspection of such stocks, bonds or other securities and an inspection of the business of such persons, firms, companies, associations or corporations, including dealers and agents, and such regulation and supervision of the business of said persons, firms, com- panies, associations or corporations, including djealers and agents, as may be necessary to prevent fraud in the sale within the state of any stocks, bonds or other securities, and to provide a penalty for the violation thereof. (L. 1915, Ch. 160.) Section 1. Domestic Investment Company — Foreign. — Be it enacted by the General Assembly of the State of South Carolina, Every person, corporation, copartnership, company or association (except those exempt under the provisions of this Act) organized, or which shall here- aftep be organized- in this State, whether incorporated or unincorporated, which shall either himself, themselves or itself, or by or through others, sell or negotiate, for the sale of any stocks, bonds or other securities is- sued by him, them or it within the State of South Carolina, shall be known for the purposes of this Act as a domestic investment company. Every such person, corporation, copartnership or association resident of or organized in any other State, Territory or government, shall be known for the purposes of this Act as a foreign investment company. Section 2. Act Does Not Apply to Certain Securities — Power of Insurance Commissioner. — The provisions of this Act shall not apply to (a) securities of the United States, or any foreign government; or of any State or Territory thereof, or of any county, city, township, district or other public taxing subdivision of any St9.te or Territory ot the United States, or any foreign government ; (b) unsecured com- mercial paper; (c) securities of public or quasi-public corporations, the issue of which securities are regulated by a public service commission or board of equal authority of the United States or of any State or Territory of the United States or securities senior thereto: (d) securi- ties of national banks or of State banks or trust companies under the supervision of the State Bank Examiner, or building and loan associa- tions of this State ; (e) securities of any domestic corporation organized without capital stock and not for pecuniary gain, or exclusively for edu- SOUTH CAROLINA 753 cational, benevolent, charitable or refprmatory purposes; (f) mortgages upon real and personal property situated within this State where the entire mortgage is sold and transferred with the note or notes secured by such mortgages-; (g) increase of stock sold and issued to stock- holders; also stock dividends; (h) securities which are listed in any standard manual of information approved by Insurance Commissioner: Provided, however. That said Insurance Commissioner shall have the power to call for additional and further information than that contained in such manuals with reference to any securities listed therein, and may, pending the filing of such informaition, suspend the sale of such securi- ties, and also suspend, either temporarily or permanently, the sale of any securities listed in such manuals after a hearing upon notice to the issuer of such securities if said Insurance Commissioner shall find that the sale of such securities would -work a fraud upon the purchaser thereof; (.i) sales or negotiations for sales of stocks, bonds, or other securities by any corporation, copartnership or association in the county in which it is organized. Section 3. Statement to Be Filed With Insurance Commis- sioner — Filing Fee. — Before selling, offering for sale, taking sub- scriptions for, or negotiating for the sale in any manner whatever m this State, any stocks, bonds or other securities of its own issue, every investment company, domestic or foreign, shall file in the office of the Insurance Commissioner a statement showing in full detail the plan upon which it proposes to transact business; a copy of all contracts, stocks, bonds or other instruments which it proposes to make with, or sell to, its contributors or customers, together with a copy of its prospectus, and of the proposed advertisement of its sale of stocks, bonds or other se- curities, which statement shall also show the name and location and main office of the investment company, the names and addresses of its officers, and an itemized account of its financial condition and the amount of its assets and liabilities, and such other information touching its condi- tions and affairs as the Commissioner may require. If such investment company shall be a copartnership or an unincorporated association, it shall also file with the Commissioner a copy of its articles of copartner- ship or association, and all other papers pertaining to its organization. If it be a corporation organized under the laws of South Carolina, it shall also file with the Commissioner a copy of its articles of incorpora- tion, constitution and by-laws, and all other papers pertaining to its or- ganization. If it shall be an investment company organized under the laws of any other State, Territory or government, incorporated or un- incorporated, it shall also file with the Commissioner a copy of the laws of the State, Territory or government under which it exists or is in- corporated, and also a copy of its charter and the certificate of the proper officer of such State showing that it is authorized to transact business there; and also copies of its constitution and by-laws, and all amendments of any of the above mentioned instruments which have been made, and 48 754 SOUTH CAROLINA all other papers pertaining to its organization. It shall also pay a filing fee of one-tenth of one per cent, upon the face value of the securities for the sale of which application is made: Provided, however, That such filing fee shall not be more than one hundred dollars, nor less than two dollars and fifty cents ($2.50). Sectlon 4. Verification and Certification of Papers Filed. — All of the above described papers shall be verified by the oath of a mem- ber of the copartnership or company, if it be a copartnership or com- pany, and by the oath of a duly authorized officer, if it be a corporation or an unincorporated association. AH such papers, however, as are recorded or are on file in any public office shall be further certified by the officer of whose records or archives they form a part, as being coi- rect copies of such records or archives. Section 5. Process Served on Insurance Commissioner — Consent Thereto. — Every foreign investment company before offer- ing for sale any of its stocks, bonds or other securities in this State, shall also file its irrevocable written consent that suits and actions maj' be commenced against it in the proper Court of any county in this State in which a cause of action may arise or in which the plaintiff may reside, by the service of any process or pleadings authorized by the laws of this State, on the Commissioner, said consent stipulating and agreeing that such service of such process or pleadings on such Coni'nissioner shall be taken and held in all Courts to be as valid and binding as if due service had been made upon the company itself, and said instrun-.ent containing such consent shall be authenticated by the seal of said foreif n investment company, and by the acknowledged signature of a member of the copartnership or company, if it be a copartnership or company, or by the acknowledged signature of the president and secretary of the incorporated or unincorporated association, if it be an incorporated or unincorporated association, and shall in such case be accompanied by a duly certified copy of the resolution -of the board of directors, trustees or managers of the corporation or association, authorizing the secretary and president to execute the same. In case any process or pleadings mentioned in this Act are served upon the Commissioner, it shall be by duplicate copies, one of which shall be filed in the office of the Com- missioner and another immediately forwarded by special delivery mail to the head office of the person or corporation ag'ainst which said process or pleadings are directed. Section 6. Powers of Commissioners. — The said Commis- sioner shall have power to demand from any investment company seek- ing to come under the provisions of this Act any further information other than such investment company is required to furnish under the provisions of this Act which shall be necessary to the end that the Com- missioner may be put in possession of all facts and information necessary to qualify him to properly pass upon all questions that may come before him. He may make or have made under his direction a detailed ex- SOUTH CAROLINA 755 amination of such investment company's property, business and affairs, Which examination shall be at the expense of such investment company. He may cause an appraisal to be made, at the expense of- said invest- ment company, of the property of said investment company, including the value of patents, good will, promotion and intangible assets, and il may fix the amount of stocks, bonds and securities that shall be issued by any incorporation, foreign or domestic, in payment for property, patents, good will, promotion and intangible assets at the value it shall find the same to be worth, and may require that such stocks and se- curities so issued for such property, patents, good will, promotion and intangible assets shall be deposited in escrow under such terms as said Commissioner may prescribe. And said Commissioner may withhold its license to sell stocks, bonds and securities if such corporation has issued stocks, bonds and securities in payment for property, patents, good will, promotion and intangible assets in excess of their values as found by said Commissioner, or if said stocks, bonds and securities are not de- posited in escrow according to the term fixed by such Commissioner until such stocks, bonds and securities issued in payment) for property, patents, good will, promotion and intangible assets in excess of the value so found by said Commissioner has been surrendered to stich corporation and cancelled by it, and until the said stock has been deposited in escrow under the terms prescribed by said Commissioner. Section 7. Commissioner to Investigate Plan of Business — Duty in Case of Fraud — Sale of Stocks — Certificate. — It shall be the duty of said Commissioner to examine the statements and docu- ments filed in his oflfilce by any investment company and the reports of any investigation conducted under the direction of said Commissioner and to hear such applicant, and he shall have power to examine under oath any person interested or connected with such investment company, and if such Commissioner finds that the proposed plan of business of said investment company, or that its proposed- contracts, stocks, bonds or other securities are fraudulent or are of such, a nature that the sale of such contracts, stocks, bonds or other securities would in the opinion of said Commissioner work a fraud upon the purchaser, then said Com- missioner shall disapprove the sale of such proposed contracts, stocks, bonds or other securities and shall notify such investment company by registered mail of his findings and disapproval, and it shall" be unlawful for such company to do any business in the way of selling, offering for sale, taking subscriptions for, or negotiating for the sale in any manner whatever of any such contracts, stocks, bonds and other securities in this State ; and said contracts, stocks, bonds and other securities shall not be sold in this State. If, however, said Commissioner shall not find that the proposed plan of business of said investment company or that its proposed contracts, stocks, bonds or other securities are fraudu'eni. or are of such a nature that the sale of such contracts, stocks, bonds or other securities would in the opinion of said Commissioner work a 756 SOUTH CAROLINA fraud upon the purchaser thereof, then he shall approve the sale of such stocks in the State of South Carolina and issue its certificate in substantially the following language : "This is to certify, That the has this date been given permission to sell $ of its within (Stocks, bonds or securities) the State of South Carolina. The Commissioner does not recommend the purchase of this security. Dated In witness whereof, I have hereunto affixed my seal. (Seal) Insurance Commissioner." The words "The Commissioner does not recommend the purchase of this security" shall be printed in type two sizes larger than any other part of said certificate, and in case said certificate or the fact that said Commissioner has approved said security is printed or published in any circular, pamphlet or newspaper, the words "The Commissioner does not recommend the purchase of this security" shall be printed in type two sizes larger than the type in which the statement of fact that such security has been approved by said Commissioner appears. Section 8. Who Deemed "Dealer." — Any person, firm, copart- nership, corporation or association, whether domestic or foreign, not the issuer, who shall in this State sell or oflfer for sale any of the stocks, bonds or other securities issued by any foreign or domestic investment company, except the securities specifically exempted in this Act, or who shall by advertisement or otherwise profess to be engaged in the busi- ness of selling or offering for sale such securities, shall be deemed to be a "dealer" in such securities within the meaning of this Act, and no dealer within the meaning of this Act shall sell or ofler for sale any such securities or profess the business of selling or oflfering for sale such securities unless and until he shall have filed a list of the same in the office of the Commissioner, as in this Act provided. The term "dealer" shall not include an owner, nor issuer, of such securities so owned by him when such sale is not made in the course of continued and successive transactions of a similar nature, nor one who in a trust capacity created by law lawfully sells any securities embraced within such ti-ust. Section 9. Registration of Dealer — Agent — Information to Be Furnished Commissioner — Service of Process — License. Any dealer desiring to sell or oflfer for sale within this State any stocks, bonds or other securities not exempted under the terms of this Act, shall first register with the Commissioner, and shall furnish said Commissioner, SOUTH CAROLINA 757 upon oath, in such form as the Commissioner shall prescribe, the follow- ing information, to-wit : The dealer's name, residence and businesis address, the general character of the securities to be dealt in, the place or places where the business is to be conducted within this State, and where the business in this State is not to be conducted by the dealer in person, then the names and addresses of all the persons in charge thereof. Said dealer shall pay to the Commissioner a, fee of one dollar and shall furnish said Commissioner -with such other information in addition to that above specified as said Commissioner shall deem necessary in order to thoroughly acquaint such Commissioner with the character of the business of said dealer. All authorized agents of any dealer shall be registered with the Commissioner, and the name of any agent shall be stricken from the register by the Commissioner upon the written request of the dealer, and additional agents may be registered by the Cortimis- sioner upon like request of the dealer : Provided, That no agent shall act as such until his name and address shall be registered with the Com- missioner. If the dealer shall be a non-resident of this State or a cor- poration other than a domestic corporation, he shall at the time he reg- isters with the Commissioner file with the Commissioner a written duly authenticated appointment of the Commissioner as his or its agent in South Carolina, upon whom process or pleadings may be served for and on behalf of the dealer, which appointment shall be irrevocable. Upon compliance by such dealer with the provisions of this Act, the' said Com- missioner shall issue to such dealer a license under the seal of said Com- missioner, and signed by the Commissioner, which said license shall be good until revoked by said Commissioner for good cause upon notice to such dealer and a hearing duly had. Section 10. Agrents' Fee — Appropriation. — In addition to the filing and examination fees herein provided for to be paid by investment companies and dealers, there shall be chargedr and collected by said Commissioner a fee of one dollar for the registration and authorization of each agent of any such investment company or dealer, and all the fees and charges collected by the Commissioner shall be turned into the State treasury and are hereby reappropriated to the Commissioner towards paying the expenses of enforcing this Act. Section 11. Accounts — Commissioner to Investigate — Per Diem, Etc. — License Revoked — Notice — Hearing. — General ac- counts of every investment company, domestic or foreign, shall be kept in a businesslike and intelligent manner and in sufficient detail that said Commissioner can ascertain at any time its financial condition, and the books of account shall at all times during business hours, except on Sun- days and legal holidays, be open tp stockholders and investors in said company and the said Commissioner or his du'y authorized representa- tives, a"nd all such . investment companies shall be subject to examination by said (Commissioner, or his clerks, accountants or examiners, at any tirne said Commissioner shall deem it advisable, and in the same man- 758 SOUTH CAROLINA ner as is now provided for the examination of State banks, and sucn investment company shall pay for such examinations of not to exceed $7.00 for each day or fraction thereof and the actual traveling and hotel expenses of the person or persons making such examination, and the failure or refusal of any investment company to pay such fees, upon demand of the Commissioner, shall work a forfeiture of the right ot such investment company to sell or offer for sale any of its contracts, stocks, bonds or other securities in this iStat?. In case of a preliminary examination of any investment company by said Commissioner for the purpose of the ascertainment by said Commissioner as to whether said company shall be permitted to come under the provisions of this Act, the fee of such examination shall be the same as in this section provided, and in case it shall be made to appear to the Commissioner from the > examination of said investment after said investment company has been authorized to. sell its stocks, bonds and other securities would work a fraud upon the purchaser, then said Commissioner may make an order revoking the license of said investment company to sell its stocks, bonds and securities, upon notice duly giveri and a hearing duly had, and ma>, pending such hearing, suspend the right of said investment company to sell its stocks, bonds and securities. Section 12. Unlawful to Offer Securities Without Certificate of Commissioner — Advertisement Regulated. — It shall be unlawful' for any investment company or dealer, or representative thereof, either directly or indirectly, to sell' or cause to be sold, offer for sale, take subscriptions for, or negotiate for the sale in any manner whatever in this State, any stocks, bonds or other securities (except as expressly exempted herein), unless and until said Commissioner has approved thereof and issued certificate in accordance with the provisions of this Act, nor shall it be lawful for any such investment company to transact business on any other plan than that set forth in the statements and papers required to be filed by virtue of the provision^ of this Act or the rules of the Commissioner. It shall be unlawful for any investment company or dealer, or its or his agents, to issue, circulate or deliver any advertisement, pamphlet,- circular, prospectus, or other document in regard to its stocks, bonds or other securities in the State of South Carolina differing in any way from the copy filed with said Commissioner as provided by this Act. It shall be unlawful for any newspaper pub- lished in the State of South Carolina to advertise the sale of any stocks, bonds or securities which have not been approved by said Commissioner or which are not exempt under the provisions of this Act. Section 13. Compliance With This Act Required. — No dealer within the meaning of this Act shall sell or offer for sale within the State any of the stocks, bonds or other securities- of any investment company unless such investment company shall have fully complied with all the provisions of this Act, nor until said dealer shall have registered with the Commissioner, under the terms of this Act : Provided, how- SOUTH CAROLINA 759 ever, That should any dealer desire to sell or offer for sale within this State the stocks, bonds or other securities of an investment compciny which has not itself complied with the provisions of this Act, said deale shall make application to the said Commissioner for license as herein- before provided for applications by investment companies and shall pay the same fee required to be paid by said investment company. Section 14. Information for Benefit of Public. — All informa- tion obtained by the Commissioner with reference to any securities and all records of the Commissioner relating thereto shall be open to ex- amination by the public, and it shall be the duty of the Commissioner to preserve such information, and so classify and arrange it as to facili- tate examination. The Commissioner may from time to time issue in pamphlet form, or by means of newspaper advertisements or otherwise, any and all information regarding any and all contracts, stocks, bonds or other securities sold or oflfered for sale within this State which he deems would be of public interest or advantage. Section IS. State Bank Examiner. — Nothing in this Act shall be construed to repeal or modify any laws giving the State Banking Department of this State control of and supervision over State banks and the business of banking in this State. Section 16. Misdemeanor to Make False Statement. — Any person who shall knowingly of willfully subscribe to or make or cause to be made any false statement or false entry in any book of any in- vestment company, or who shall exhibit any false paper with the inten- tion or for the purpose of deceiving any person authorized to examine into the affairs of said investment company, ^or shall make or publish . any false statement of the financial condition of said investment com- pany, or false statement relating to the contracts, stocks, bonds or other securities hy it issued and offered for sale, shall be deemed guilty of a misdemeanor and shall be punished as hereinafter provided. Section 17. Commissioner to Furnish Information — Fees — Expenses. — The Commissioner shall provide for the furnishing to those who may apply therefor, of any information regarding any invest- ment company or its affairs, which is on file in his office, said Commis- sioner to charge therefor approximately the cost of preparing such in- formation. AH fees collected under the provisions of this Act shall be paid into the State treasury, and a complete record of all fees received shall be kept in the ofiSce of the Commissioner, and all said fees so turned into the State treasury are hereby reappropriated to the Commis- sioner for the purpose of paying salaries and expenses necessary for carrying this Act into effect. The Commissioner shall perform the duties imposed upon him by the terms of this Act without other compensation than the salary paid him by the State, but he shall be entitled to receive his actual expenses incurred when absent from the seat of government on business under this Act. 760 SOUTH CAROLINA Section 18. Companies to File Statement of Condition.— Every investment company, domestic or foreign, shall file before the first day of April in each and every year a detailed statement in such form and containing such information as the Commissioner shall require, show- ing its condition at the close of business on the preceding December thirty-first, and shall at the same time pay a filing fee therefor of one dollar. Section 19. Misdemeanor to Violate Act. — Any person or persons who shall violate any of the provisions of this Act shall be deemed guilty of a misdemeanor, and upon conviction thereof shall be fined not more than one thousand dollars or shall be imprisoned in the county jail for not more than one year, or both such fine and imprison- ment, in the discretion of the Court. Section 20. Interpretation of This Act. — Should the Courts of this State declare any section or provision of this Act unconstitutional or unauthorized, or in conflict with any other section or provision of this Act, then such decision shall affect only the section or provision so declared to be unconstitutional or unauthorized and shall not affect any other section or part of this Act. Section 21. Act four hundred and ninety-one of the Statutes at Large of 1&12, and all Acts or parts of Acts in conflict herewith, are hereby repealed. Section 22. This Act shall go into effect upon the approval of the Governor. Approved the twenty-fifth day of March, A. D. 1915. Annotations OPINION OF ATTORNEY GENERAL RENDERED TO THE IN- SURANCE COMMISSIONER, MAY 13, 1918. "I am in receipt of your letter of the 11th inst., in which you ask to be advised with particular reference to Section 18 of an Act to pre- vent fraud in the sale and disposition of stocks, bonds and other securi- ties sold or offered for sale in this State and whether or not under this section you should require all companies who have sold stocks in this State to file an annual report, regardless of whether they are now transacting any business selling stocks in this State. "In reply will say that from reading of the said section I am of the opinion that every investment company, domestic or foreign, which was engaged in the sale of stocks, bonds and other securities covered by the Act previous to the 31st day of December, are required to file with you a statement on or before the first day of April of the following year showing its condition at the close of business the preceding year, whether or not they are nowr engaged in a like business." SOUTH CAROLINA 761 INSTRUCTIONS TO APPLICANTS Any company, except certain specified ones, selling, offering for sale, taking subscriptions for, or negotiating for sale in any manner whatever in this State any stocks, bonds, or other securities of its own issue shall file in the office of the Insurance Commissioner a statement showing in full detail the plan upon which it proposes to transact busi- ness, a copy of all contracts, stocks, bonds or other instruments which it proposes to make with, or sell to its contributors or customers together with a copy of its prospectus and of the proposed advertisement of its sale of stocks, bonds, or other securities, which statement shall also show the name and location of the main office of the company, names and addresses of officers, and an itemized account of its financial condition, the amount of its assets and liabilities and such other information touch- ing its condition and affairs as the Commissioner may require. It shall file a copy of its articles of incorporation, constitution and by-laws and a certificate with officer of the state showing its authority to transact business. The above described papers shall be verified by oath. It shall pay a filing fee of one-tenth of 1% upon the face value of the securities it will offer for sale. (Such fee shall not be more than $100.00 nor less than $2.50.) It shall appoint the Insurance Commissioner its attorney to accept service, if it be a foreign company. It shall register each agent for the sale of its stock and pay therefor $1.00. For fuller details of management, etc., reference is made to the law itself. See Acts of 1915. — Insurance Commissioner. Forms APPOINTMENT OF ATTORNEY TO ACCEPT SERVICE Know All Men Byi These Presents, That Company, a corporation doily organized under and by virtue of the laws of the State of , has made, constituted and appointed, and does hereby make, constitute and appoint Fitz Hugh McMaster, as Insurance Commissioner of the State of South Carolina, and his successors in office, its true and lawful attorney in fact and authorized agent for it and in its name, place and stead to re- ceive and accept service of ^11 process and summons in any action, suit or proceeding in any of the Courts of the State of South Carolina, or in the United States Courts therein, and upon whom process and sum- mons may be served, with the same force and effect as though the Com- pany existed in the State of South Carolina, requisite and necessary to give competent and complete jurisdiction of the said Company to any of the said Courts : 762 SOUTH CAROLINA Giving and Granting Unto the Said Fitz Hugh McMaster, as Insurance Commissioner aforesaid, and unto his Suecessors in office, full power and authority to do and perform every act and thing necessary and requisite to be done in and about the premises as fully to all intents and purposes as said ; Company might or could do if personally present, hereby revoking and confirming all that the said Fitz Hugh McMaster, and his successors in ofBce, shall lawfully do; or cause to be done by this power granted to him and to tl.em. This appointment shall be irrevocable and shall continue in full force rnd effect so long as such Company shall have outstanding policies in ttie State of South Carolina, and until all claims of every character held by citizens of said State or by the State against such Company sha'l have been settled. ' In Witness Whereof, said Corporation, in pursuance of a resolu- tion duly adopted by its Board of Directors, has caused this instrument to be executed in its name by its President and Secretary, and its cor- porate seal to be hereunto affixed at the City of State of , this day of 191. . Company. By President. Attest : '. Secretary. State of | County of j ^^" This certifies that on the day of. 191.., before the undersigned Notary Public in and for the said County and State, personally appeared the above mentioned , the president, and , the secretary of the Company, the Corporation mentioned in and which executed the foregoing power of a:ttorney, and severally acknowledged that they executed the same by the authority and in behalf of said Company, pursuant to a resolution of the Board of Directors of said Corporation duly adopted on the day of , 191. . ; and the secretary of said Company, further acknowledged that thfe corporate seal hereunto be- fore attached and impressed herein is the corporate seal of said Corpora- tion and was affixed thereto by him. In Testimony Whereof, I have hereunto set my hand and notarial seal this day of 191 .. . SOUTH CAROLINA 763 INSURANCE DEPARTMENT OF SOUTH CAROLINA To FITZ HUGH McMASTER, Insurance Commissioner of South Carolina: The following named persons have been appointed agents for of (Name of Company) « ' (Home Office) in the State of South Carolina for the y^ar beginning April 1st, 191 This day of 191 . . .'. [SEAL.] (Signature of* Executive Officer) NOTICE: — Type written lists of agents may be attached to this sheet. Name of Agent. Place of Residence. 1 1 State of ( Personally appeared who being duly sworn says that he is the (Who must be President or Chief Executive Officer.) of the that the said has not violated any of the laws of the State of South Carolina and that it accepts the terms and obligations imposed by the laws of this State as a part of the con- sideration for the issuance to it by the Insurance Commissioner of said State of a license to do business in said State. Sworn to before me this the.' day of 191-- (Seal.) 764 SOUTH CAROLINA ANNUAL STATEMENT For the Year Ending December 31 of the condition and affairs of the Organized under the laws of the State of made to the Insurance Commissioner of the State of South Carolina pursuant to the laws thereof. Incorporated Commenced Business Home Office (Street and Number) (City or Town and State) Officers President Secretary Vice-Presidents Treasurer Directors Assets Book value of real estate, unincumbered $. Book value of real estate, incumbered $. Mortgage loans on real estate, first liens $. Mortgage loans on real estate, not first liens $. Loans secured by pledge of bonds, stocks, etc $. Market value of bonds, excluding interest $. Market value of stocks $. SOUTH CAROLINA 765 Cash in Company's office $ Deposited in trust companies and banlcs on interest $ Peposited in trust companies and banks not on interest $ Bills receivable $ Due and accrued interest receivable $ Furniture and fixtures $ Machinery and building $ Other assets, viz : . . . . $. Total assets Liabilities Capital stock, common Capital stock, preferred i Surplus Undivided profits Rents, expenses, taxes, bills, accounts, etc., due and accrued Deposits Mortgage trust funds 1 Bonds Notes payable Due and accrued interest payable Other liabilities, viz Total liabilities State of County of : being duly sworn, deposes and says that he is the of the Company; that he executed the foregoing statement in the name and on behalf of said corporation, and caused its corporate seal to be thereto affixed ; that he was authorized to make said statement, and to execute the same, by authority of the corporation, and that the statements herein are true. Sworn to before me, and subscribed in my presence this. day of A. D. 191.. 766 SOUTH DAKOTA SOUTH DAKOTA STATUTES State Securities Commission Chapter 13. South Dakota Revised Code of 1919. Sections 10127 to 10149 Inclusive As Amenaed By House Bill 158. Approved March 5, 1919. Section 10127. Membership. The securities commission, here- tofore created, whose duty it shall he to administer and provide for the enforcement of the provisions of this chapter, shall continue to consist of the superintendent of banks, who shall be president thereof, the at- torney general, and the rural credit commissioner, all of whom shall be members of such commission during their terms of office and any two of whom shall constitute a quorum. Such commission shall have its office in the capitol, in a room to be furnished and equipped by the state, and all of its records shall be there kept. It shall hold regular monthly meet- ings on such dates as may be determined by the commission and may hold special meetings on the call of the president ; it shall keep a com- plete record of all its meetings, its accounts and the business it transacts, and may prepare all necessary blanks to be used in its proceedings and in the conduct of its business. Such commission shall have power to appoint a secretary at a salary of not to exceed twenty-four hundred •dollars per annum. The person so appointed shall proceed to qualify by subscribing the usual oath of office and by giving a bond to the state in the penal sum of five thousand dollars, with such surety as the com- mission shall approve, conditioned upon the faithful performance of the duties of the office, which bond shall be recorded and filed as the official bonds of other state officers. The secretary, when acting for the commission, shall have equal power and authority, subject to the approval of the commission, and he may be authorized to reject applications subject to review. He shall at- tend-to and perform any and all detail work relative to the commission. Such commission shall have power to employ such other and further as- sistance as may be necessary to carry out the provisions of this chapter. Such commission shall annually make a report to the governor at the time and in the manner provided in Sections 6922 and 7007, containing an accurate review of the work of the commission, a schedule of the per- mits granted, a schedule of the applications rejected, a statement of the receipts and disbursements of the commission and such other material information as relates to the work of the office. SOUTH DAKOTA 767 Section 10128. Investment Companies Defined. Every person, corporation, partnership, company or association except those exempt under the provisions of this chapter, organized or which shall hereafter be organized in this state, whether incorporated or unincorporated, who or which S'hall, either directly or through any person, engage in the business of selling or negotiating for the sale of any stocks, bonds, in- vestment contracts, service contracts, purchase contracts, membership certificates or other securities issued by him or it within this state, shall be known for the purposes of this chapter as a domestic investment com- pany. Every such person, corporation, partnership, company of assoc.a- tion, resident of or organized in any other state, territory or government, shall be known for the purposes of this chapter as a foreign investment company. Section 10129. When Chapter Not Applicable. The provisions of this chapter shall not apply to : 1. Securities of the United States, of any foreign government, of any state or territory of the United States, or of any county, city, town- ship, district or other public taxing subdivision of any state or teriritory of the United States, or any foreign country. 2. Unsecured commercial papers. 3. Securities of public or q,uasi public corporations, the issue of which securities is regulated by the board of railroad commissioners of this state, or by a .public service commission or board of equal authority of any state or territory of the United States or securities senior thereto. 4. Securities of state or national banks or of trust companies or building and loan associations of this state. 5. Securities of any domestic corporation organized without capital stock and not for pecuniary gain, or exclusively for educational, benevo- lent, charitable or reformatory purposes. - 6. Mortgages upon real and personal property situated within this state where the entire mortgage is sold and transferred with the note or notes secured by such mortgages. 7. Increase of stock sold and issued to stockholders, also stock dividends. 8. Securities which are listed in any standard manual of informa- tion approved by such commission; provided, that such commission shall have the power to call for additional and further information than that contained in such manuals with reference to any securities listed, therein, and may, pending the filing of such information, suspend the sale of such securities, and also suspend, either temporarily or permanently, the sale of any securities listed in such manuals after a hearing upon notice to the issuers of such securities, if such commission shall find that the sale of ,such securities would work a fraud upon the purchasers thereof. 9. Isolated or single transactions. All permits granted by the commission created by chapter 313 of the laws of 1013, that may be in force when this code takes effect, shall 768 SOUTH DAKOTA remain in force subject to revocation . by the commission provided for in this chapter. Section 10130. Company Must File Statement. Before selling, offering for sale, taking subscriptions for, or negotiating for the sale in any manner whatever in this state, of any stocks, bonds, investment con- tracts, or service contracts, purchase contracts, membership certificates whicht^ purport to create a liability on the part of the issuer, or other se- curities of its own issue, every, investment company, domestic or foreign, shall file in the office of the commission a statement showing in full de- tail the plan upon which it proposes to transact business ; a copy of a^U contracts ; stocks, bonds or other instruments which it proposes to make with or sell to its contributors or customers, together with a copy of its prospectus and of thp proposed advertisements of its sale of stocks,. bonds, investment contracts, or service contracts, purchase contracts, member- ship certificates or other securities, which statement shall show the name, .. location and main office of the investment company, the names and addresses of its officers and an itemized account of its financial condi- tion, the amount of its assets and liabilities, and such other information touching its conditions and affairs as the commission may require. If such investment company shall be a partnership or an unincorporated as- sociation, it shall also file with the commission a copy of its articles of partnership or association, and all other papers pertaining to its organiza- tion. If it be a corporation organized under the laws of this state, it shall also file with the commission a copy of its articles of incorpora- tion, constitution and by-laws, and all other papers pertaining to its or- ganization. If it shall be an investment company organized under tlie laws of any other state, territory or government, incorporated or unin- corporated, it shall also file with the commission a copy of the laws of this state, territory or government under which it exists or is incor- porated, and also a copy of its charter and the certificate of the proper , officer of such state, territory or government, showing that it is authorized to transact business therein ; and also copies of its constitution and by- laws, and all amendments to such instruments, if any have been made, and all other papers pe;-taining to its organization. Every such invest- ment company, foreign or domestic, shall at the time of filing the above named papers, pay a certificate fee of one-tenth of one per cent upon the face value of the securities for the sale of which application is made; provided, however, that such certificate fee shall not be more than one hundred dollars, nor less than ten dollars, and in addition thereto, each applicant shall pay a filing fee of five dollars to be retained and paid into the securities commission fund, the said certificate fee to be returned to applicant in the event of complete disapproval or rejection. Section 10131. Statement Verified. All of the above described papers shall be verified by the oath of a member of the partnership or company, if it be a partnership or company, and by the oath of a duly authorized officer, if it be a corporation or an unincorporated associa- SOUTH DAKOTA 769 tion. All such papers, however, as are recorded or are on file in any public office shall be further certified by the officer of whose records or archives they form a part, as being correct copies of such records or archives. Section 10132. Consent to Service of Process. Every foreign investment company, before offering for sale any of its stocks, bonds, in- vestment contracts or other securities in this state, shall also file its ir- revocable written consent that actions and proceedings may be commenced against it in the proper court of any county in this state in which a cause of action may arise or in which the plaintiff may reside, by the service of any process or pleading authorized by the laws of this state on the. superintendent of banks of this state, such consent stipulating and agree- ing that such service of such process or pleadings on such superintendent shall be taken and held in all courts to be as valid and binding as if due service had been made upon tjje company itself, and such instrument containing 'such consent shall be authenticated by the seal of such foreign investment company, or. by the acknowledged signature of a member of the partnership or company, if it be a partnership or company, or by the acknowledged signature of the president and secretary of the incor- porated or unincorporated association, if it be an incorporated or unin- corporated association, and shall in such case be accompanied by a duly certified copy of the resolution of the board of directors, trustees or managers of the corporation or association, authorizing the secretary and president to execute the same. In case any process or pleading. men- tioned in this chapter be served upon the superintendent of banks of this state, it shall be by duplicate copies, one of which shall be filed in the office of the securities commission and the other immediately forwarded by rei?istered mail to the head office of the person or corporation against which such process or pleading is directed. Section 10133. Hearing by Commission. Every apnlication shall be heard by the commission at the next regular meeting after such application is filed, such filing to precede such regular meeting by twenty-four hours, or at a special or adjourned meeting of the commis- sion, but if such application is heard at a special or adjourned meeting the secretary shall give the applicant at least two days' notice of such hearing. Such commission shall have power to adjourn any hearing upon any application from day to day or from time to time. Section 10134. Commission May Demand Further Information. The commission shall have power to demand from any investment com- pany seeking to come under, the provisions of this chapter any further information, other than such investment company is required to furnish under the provisions of this chapter, which shall be necessary to the end that the commission may be put in possession of all facts and informa- tion necessary to qualify it to properly pass upon all questions that may come before it. It may make or have made under its direction a de- tailed exanjination of such investment company's property, business and 49 770 SOUTH DAKOTA affairs, which examination shall be at the expense of such investment company. It may cause an appraisal to be made, at the expense of such investment company, of the property of such company, including the value of patents, good will, promotion and intangible assets, and it may fix the amount of stocks,, bonds, investment contracts and securities that shall be issued by any corporation, foreign or domestic, in payment for property, patents, good will, promotion, and intangible assets at the value it shall find the same to be worth and may require that such stocks and securities so issued for such property, patents, good will, promotion and intangible assets shall be deposited in escrow under such terms as said commission may prescribe. And said commission may withhold its li- cense to sell such stocks, bonds, investment contracts, and securities if such corporation has issued stocks, bonds, investment contracts and se- curities in payment for property, patents, good will, promotion and in- tangible assets in excess of their value as found by said commission or if said stocks, bonds, investment contracts and securities are not de- posited in escrow according to the terms fixed by such commission until such stocks, bonds, investment contracts and securities issued in payment of the value so found by said commission has been surrendered to such for property, patents, good will, promotion and intangible assets in excess of the value so found by said commission has been surrendered to such corporation and canceled by it, and until such stock has been deposited in escrow under the terms prescribed by said commission, provided that no investment company shall expend to exceed fifteen percent of its issued capital stock for commission and organization expense. Section 10135. Commission — Duties. It shall be the duty of such commission to examine the statements and documents filed in its office by any investment company and the reports of any investigation conducted under its direction and to hear such applicant and it shall have power to examine under oath any person interested or connected with such investment company, and if such commission finds that the proposed plan of business of sucK investment company, or that its pro- posed contracts, stocks, bonds, investment contracts or other securities are fraudulent or are of a nature that the sale of such contracts, stocks, bonds or other securities would, in the opinion of such commission work a fraud upon the purchaser, such commission shall disapprove the sale of such proposed contracts, stocks, bonds, or other securities and shall notify such investment company by registered mail of its findings and disapproval, and it shall be unlawful for such company to do any busi- ness in the way of selling, offering for sale, taking subscriptions for, or negotiating for the sale in any manner whatever of any such contracts, stocks, bonds and other securities, and such contracts, stocks, bonds and other securities shall not be sold in this state. If, however, such com- mission shall not find that the proposed plan of business of such invest- ment company or that its proposed contracts, stocks, bonds or other se- curities are fraudulent or are of such a nature that the sale of such SOUTH. DAKOTA 771 contracts, stocks, bonds, or other securities would in the opinion of such commission work a fraud upon the purchaser thereof, it shall ap- prove the sale of such stocks, bonds, contracts or other securities in this state and issue its certificate in substantially the following language : "This is to certify that has this date been given permission to sell $ of its within the State of South Dakota. "Dated "In witness whereof, I have hereunto affixed the corporate seal of the securities commission. ( Seal) Secretary." The commission shall have power to impose by order such terms, conditions, requirements, restrictions, or limitations upon granting said certificate as it may deem necessary to prevent fraud upon purchasers or subscribers and may require any investment company to specifically consent in writing to any such terms, conditions, restrictions, or limita- tions imposed for the purpose of preventing fraud as a condition pre- cedent to the issuance of such certificate to any applicant. The failure, omission, or neglect to obey, observe or comply with, any order contain- ing terms, conditions, requirements, restrictions, or limitations, or the violation thereof, shall be sufficient grounds for the suspension and can- cellation of the certificate then in effect. Whenever it shall be neces- sary in the opinion of the commission to prevent fraud upon the pur- chasers of securities covered by this chapter, it shall have power to re- quire the bonding of any or all officers or agents for the benefit of pur- chasers as a condition precedent to the issuance of a certificate. The < commission shall have power at any time upon notice duly given and hear- ing duly had to amend, alter, cancel or revoke any terms, conditions, re- quirements, restrictions, or limitations, contained in any order and may suspend the certificate ^of the investment company pending such hearing. Section 10136. Dealer Required to Comply With Law. Any person, partnership, corporation or association, whether domestic or foreign, not the issuer, who shall in this state sell or offer for sale any of the stocks, bonds, investment contracts or other securities issued by any foreign or domestic investment company, except the securities specifically exempted in this chapter, or who shall by advertisement or otherwise profess to engage in the business of selling or offering for sale such securities, shall be deemed a "dealer" in such securities within the meaning of this chapter, and no dealer within the meaning of this chapter shall sell or offer for sale any such securities or profess to en- gage in the business of selling or offering for sale such securities unless and until he shall hav^ filed a list of the same in (he office pf the se?uri- 772 SOUTH DAKOTA ties commission, as provided in this chapter. The term "dealer" shall not include an owner, or issuer, of such securities so owned by him, when such sale is not made in the course of continued and successive transactions of a similar nature; nor one who, in a trust capacity created by law, lawfully sells any securities embraced within such trust. Section 10137. Dealer to Register. Any dealer desiring to sell or offer for sale within this state any stocks, bonds, contracts or other securities, not exempted unde^ the terms of this chapter, shall first register with the securities commission and shall furnish such commis- sion, upon oath, in such form as the commission shall prescribe, the fol- lowing information : The dealer's name, residence and business address ; the general character' of the securities to be dealt in ; the place or places where the business is to be conducted within this state, and, where the business in this state is not to be conducted by the dealer in person, the names and addresses of all the persons in charge thereof. Such dealers shall pay to the commission a fee of fifty dollars and shall furnish the commission with such additional information as it shall deem necessary in order to thoroughly acquaint it with the character of the business, of such dealer. All authorized agents of any dealer or investment com- pany shall be registered with the commission and the name of any agent shall be stricken from the register by the commission upon the written request of the dealer or investment company, and additional agents may be registered by the commission upon like request of the dealer or in- vestment company; provided, that no agent shall act as such until he shall have filed with the commission a signed and acknowledged certificate of registration and acceptance of agency upon forms to be furnished by the commission ; provided, further, that the commission shall have au- thority to reject or cancel the registration and appointment of any person as agent, for such cause as may to the commission appear sufficient. If a dealer shall be a non-resident of the state or a corporation other than a domestic corporation, he shall at the time he registers with the com- mission file with the commission a written, duly authenticated, appoint- ment of the superintendent of banks of this state as his or its agent in this state upon whom process or pleadings may be served, such con- sent stipulating and agreeing that such service of such process or plead- ings on such' superintendent shall be taken and held in all courts to be as valid and binding as if due service had been made upon such dealer, and which appointment shall be irrevocable. Upon compliance by such dealer with the provisions of this chapter the commission shall issue to such dealer a license under the seal of the commission and signed by ,the secretary thereof, which license shall be good until revoked by the commissoin for goad cause upon notice to such dealer and a hearing duly had thereon. Section 10138. Agent's Fee. In addition to the filing and ex- amination fees provided for in tliis chapter to be paid by investment companies and dealers, there shall be charged and collected by the se- SOUTH DAKOTA 773 curities commission a fee of three dollars for the registration and au- thorization of each agent of any such investment company or dealer, whfch fee and registration shall entitle each agent to act as such until the first day of July following, unless such authority be sooner revoked by the commission or the dealer or investment company. Each of such agents shall make a new registration on the first day of July of each year for the renewal of his agency, and the commission shall charge and collect for each such renewal registration a fee of three dollars. All fees and charges collected by the commission shall be covered into the state treasury and credited to the securities commission fund, which is hereby appropriated to the use of the commission toward paying the expenses of enforcing this chapter. The expenses of the commission shall however, be limited 'to the money received by it in fees. All ex- pense actually and necessarily incurred by the commission for salaries and expenses in carrying out the provisions of this chapter shall be paid by the state treasurer upon warrants drawn upon the securities commis- sion fund by the state auditor, upon duly itemized and approved vouchers. Sectton 10139. Company to Keep Accounts — Examinations. General accounts of every investment company, domestic or foreign, shall be kept in a businesslike g-nd intelligent manner and in sufficient detail that the securities commission can ascertain at any tim^e its'financial condition, and the books of accounts shall at all times during business hours, except on Sundays and legal holidays, be open to stockholders, and investors in such company, and such commission, or its duly au- thorized representative, and all such investment companies shall be sub' ject to 'examination by such commission, any member thereof, or its authorized representative, at any time such commission shall deem it advisable, and in the manner provided for the examination of state banks, and such investment company shall pay a fee for each of such examina- tions of not to exceed ten dollars for each day or fraction thereof that any member of such commission or its authorized representative is ab- sent from the capital for the purpose of making such examination, and shall also pay the actual traveling and hotel expenses of the person or persons making such examination ; and the failure or refusal of any investment company to pay such fee, upon demand of such commission or its authorized representative, while making such examination, shall work a forfeiture of the right of such investment company to sell or offer for sale any of its contracts, stock, bonds, or other securities in this state. In case of a preliminary examination of any investment company by such commission for the purpose of ascertaining whether such com- pany shall be permitted to come under the provisions of this chapter, the fee of such examination shall be the same as provided in this sec- tion, and in case it shall be made to appear to the commission from any such examination, after such investment company has been authorized to sell its stock, bonds, contracts or other securities, that the further sale of stocks, bonds, contracts or other securities would work a fraud 774 SOUTH DAKOTA upon the purchaser, such commission may make an order revoking the license of such investment company to sell its stocks, bonds, contracts, certificates or securities upon notice duly given and a hearing duly had, and may, pending such hearing, suspend the right of such investment company to sell its stocks, bonds, contracts, certificates, or securities. Section 10140. Unlawful to Sell Without Certificate. It shall be unlawful for any investment company or dealer, or representative thereof, either directly or indirectly, to sell or cause to be sold, offer for sale, take subscriptions for, or negotiate for the sale in any manner in this state, of any stocks, bonds, investment contracts, service con- tracts, purchase contracts, membership certificates or other securities, ex- cept as expressly exempted in this chapter, unless and until such com- mission has approved thereof and issued its certificate in accordance with the provisions of this chapter, rior shall it be lawful for any such in- vestment company to transact business on any other plan than that sei forth in the statements and papers required to be filed by virtue of the provisions of this chapter or the rules of the commission. It shall be unlawful for any investment company or dealer, or its or his agents, to issue, circulate or deliver any advertisement, pamphlet, circular, prospectus or other document in regard to its stocks, bonds, contracts, certificates or othe.r securities in this state differing in any way from the copy filed with the commission as provided by this chapter, nor until the same lias been approved by the commission. Section 10141. Dealer Not To Sell Without Complying With Law. No dealer within the meaning of this chapter shall sell or offer for sale within this state any of the stocks, (bonds, contracts, certifi- cates or other securities of any investment company unless such company shall have fully complied with all the provisions of this chapter, nor until such dealer shall have registered with the commission under the terms of this chapter ; provided, that should any dealer desire to sell or offer for sale within this state the stocks, bonds, contracts, certificates or other securities of an investment company, which has not itself complied with the provisions of this chapter, such dealer shall make application to the commission for license as provided for investment companies and shall pay the same fee required to be paid by such investment company. Section 10142. Records Public. The records of the securities commission shall be public records and it shall be the duty of the com- mission to preserve such information and to so classify and arrange the same as to facilitate examination by any person affected by matters therein contained, except that the commission may, in its discretion, withhold information relating to the private affairs of persons or cor- porations when in its judgment the same shall not be required for the public welfare, or any information relative to any matter that may be at issue in any court, unless upon an order of court. The commission may from time to time issue in pamphlet form, or by means of news- paper advertisements or otherwise, any and all information regarding SOUTH DAKOTA 775 any and all contracts, certificates, stocks, bonds or other securities sold or offered for sale within this state which it deems to be of public in- terest or advantage. Section 10143. Chapter Not to Affect Bankingr or Insurance Law. Nothing in this chapter shall be so construed as to affect any law giving the department of banking and finance of this state con- trol of and supervision over state banks and the business of banking in this state, nor shall any part of this chapter be so construed as to affect any law giving the commissioner of insurance of this state con- trol of and supervision over the business of insurance in this state, and those engaged therein. Section 10144. Seal. The securities commission shall adopt a seal with the words, "securities commission," and such design as the commission may prescribe, engraved thereon, by which it shall authenticate its documents. Copies of all records and papers in the office of the com- mission, certified by the secretary thereof and authenticated by its seal, shall be received in evidence in all courts equally and with like effect as the originals. Section 1014S. False Statement or Entry. Any person who shall knowingly or wilfully subscribe to, or make or cause to be made, any false statement or false entry in any book of any investment com- pany, or who shall exhibit any false paper with the intention or for the purpose of deceiving any person authorized to examine into the affairs of any investment company, or shall make or publish any false statement of the financial condition of any investment company or false state- ment relating to the contracts, certificates, stocks, bonds, or other securi- ties issued by it and offered for sale, shall be deemed guilty of a mis- demeanor. Section 10146. Information Furnished. The securities com- mission shall provide for furnishing, to those who may apply therefor, any information regarding any investment company or its affairs, which is on file in the office of the commission, except such as is withheld by the commission under section 10142, such commission to charge there- for approximately the cost of preparing such information. Each mem- ber of the securities commission shall perform the duties imposed upon him by this chapter, without other compensation than the salary paid him by the state, but he shall be entitled to receive his actual and neces- sary expenses incurred when absent from the seat of government on business of the commission. Section 10147. Annual Statements. Every investment com- pany, domestic or foreign, shall file during the month of January in each year a detailed statement, in such form and containing such information as the commission shall require, showing its condition at the close of business on the thirty-first day of the preceding December, and shall at the same time pay a filing fee therefor of five dollars ; provided, that in cases where nature of the business of a corporation 776 SOUTH DAKOTA makes it advisable, in the opinion of the commission, that the annual statement be made as of a different date, the commission may designate sudh other date whereof an annual statement shall be made. Failure of any investment company to file its annual statement within one month after the date specified, or fa:ilure to file any special report that may be required by the commission within thirty days, shall forfeit its per- mit to sell securities in the state unless an extension of time be granted by the commission. Section 10148. Review by Supreme Court. The supreme court upon petition of any person aggrieved may review, under such rules as it may prescribe, any final order or determination of the commission, but the proceeding for such review shall not, unless specially ordered by the court operate as a stay of proceeding. Section 10149. Violation — Penalty. Any person, firm or cor- poration who shall violate any of the provisions of this chapter shall be deemed guilty of a misdemeanor and upon conviction thereof shall be punished by a fine of not to exceed one thousand dollars or by imprison- ment in the county jail not exceeding one year, or by both such fine and imprisonment. It shall be unlawful for any person, firm or corporation to violate or fail to comply with any order, restriction, limitation, or requirement made or imposed by the Commission, and any person, firm or corporation who shall fail or neglect to comply with any order, limita- tion, restriction or requirement or who shall violate any of the same shall be deemed guilty of a misdemeanor and upon conviction shall be pun- ished as in this section provided. Annotations The South Dakota Securities law has been construed by the Supreme Court of the United States and upheld in all respects. The Supreme Court considered and wrote opinions in the following cases : Caldwell vs. Sioux Falls Stock Yards Company, 242 U. S. Reports 559 ; Hall vs. Geiger-Jones Company 242, U. S. Reports 539; and Merrick vs. Halsey & Company 242, U. S. Reports 569. These cases were considered in a group by the Supreme Court and are commonly known as the "Blue Sky Cases." The statutes of Ohij, Michigan, and South Dakota were considered against numerous objec- tions and sustained, the Court finding that the states are attempting to exercise a proper police power; t^at no constitutional provision is vio- lated, and that the prevention of fraud in the manner set forth in the statutes is a proper subject for state legislation. During the year just ended two cases went to the Supreme Court upon certiorari proceedings under the provisions of Section 22. In the case of Investors Syndicate vs. Hirning et al., 167 Northwestern Reporter 1055, the Supreme Court vacated an order of the Commission revoking a permit. The Investors Syndicate refused to comply with an order SOUTH DAKOTA 777 of the Commission requiring it to deposit securities to be lield for the benelit of investors. Following such refusal, the Commission made an order revoking the company's permit. The Supreme Court held that t.:c Commission was without jurisdiction to make the requirement above stated. The National Co-operative Farm Loan Company made application to sell its stock in the state. The Commission denied the application and the case was considered by the Supreme Court upon certiorari proceed- ings. The principal objection to the application was the name of the corporation, the Commission holding that the use of the word? "National" tind "Co-operative" constituted misrepresentations. The Supreme Court sustained the ruling of the Commission. See National Co-operative Farm Loan Company vs. John Hirning et al. 167 Northwestern Reporter, 141. Administration July W, 1918. His Excellency, Peter Norbeck, Governor, Executive Chamber, Pierre, South Dakota. Sir: — Pursuant to the provisions of Chapter 275, Laws of 1915, we have the honor to submit for your consideration the annual report of the State Securities Commission for the year ending June 30, 1918. This report briefly records the official doings of the State Securities Commission, together with the schedules and other statutory requirements. The members of the Commission have appreciated the emergency situation due to the war and they have endeavored to scrutinize very carefully applications for authority to sell highly speculative securities. During the latter part of the year but few oil companies were admitted into the state. Oil stocks previously authorized have been carefully ex- amined and checked up as far as possible. The result has been the re- tirement of several companies. At the present time but very little oil stock is being sold in the state and the present pcrlicy of the Commis- sion will be continued in respect to such securities. Your attention is directed to the showing with reference to the profits and gains of companies reporting for the year 1917, particularly with reference to domestic co-operative companies. The dealings of the Commission with the co-operative companies have been very satisfactory and every encouragement has been given for the investment of money in these home institutions. The Commission has been able to render some assistance by way of advice and supervision and it is hoped that the work with reference to co-operative compaifles may become more efficient in the future. It is the opinion of the Commission that the Department should be placed upon an appropriation basis and that all the fees earned should revert to the general fund. Under the present plan of maintaining the office out of iees, there may be a tendency to overlook the public interest 778 SOUTH DAKOTA with a view of maintaining the office. The members of the Commission have guarded against such a situation, but they consider that the De- partment should be maintained by specific appropriations, thus eliminating anyj possibility of official action for the sake of fees. It is further suggesed that the law be amended, giving some member or officer of the Commission more complete executive authority. The members of the Commission have important duties in connection with other Departments and it is very often impossible for them to meet and consider ordinary and incidental questions. It would seem proper to center some of the authority so that the business of the office may be conducted expeditiously. Such executive should have authority to reject applications without calling the Commission, subject to a full hearing should the same be properly demanded by those aggrieved. This is sug- gested only in the interest of efficiency and not for the sake of greater power. It would be simply a centralization of the authority already vested in the Commission. The Commission is also of the opinion that the basis for fees should be changed and that a schedule should be founded upon the amount of stock authorized to be sold rather than upon the gross assets. Under the present schedule a prospective million dollar corporation may pay a ten dollar filing fee, whereas a going concern with one hundred thousand dollars capital may be required to pay a hundred dollar filing fee. The applications are made for the sale of securities and the true standard for fees should be the amount of securities rather than the amount of assets. It is further suggested that provisions should be added to the law specifically authorizing the Commission to require the deposit of pro- motion stock in escrow and to require the bonding of agents. Such provisions would enable the Commission to protect the public in many instances and will not in anywise interfere with legitimate business. We also recommend that the Commission be granted power to supervise newspaper advertising in so far as related to the sale of securi- ties. Some of the most vicious schemes cannot now be prosecuted be- cause no agent or representative comes into the state. The subscriber is asked to send his money by mail and a very large sum is lost annually by investments induced by glowing advertising. This proposition is recommended by the Associated Advertising Clubs of America, and was endorsed by the National Association of Securities Commissions. In fairness it should be stated that our best newspapers refuse this class of advertising and the law would only affect those who are inclined to disregard the public interest. Annual Report of State Securities Commission for year ending June 30, 1918. SOUTH DAKOTA 779 State Securities Commission, Capitol Building, Pierre, South Dakota. Gentlemen : — A careful examination has been made of all annual statements filed with this Commission pursuant to the provisions of the Blue Sky law. I herewith submit a list of companies whose statements should, in my opinion, be approved. In some instances these statements are not com- plete, but owing to circumstances surrounding each of such cases it seems that no good purpose could be served by requiring additional showings. There is also submitted herewith a list of companies that have failed to make the statement required by law, and subject to the approval of the Commission, we have marked each name on said list as canceled and the outstanding permit forfeited. While making the above mentioned examinations we have made occasion to compile some of the figures and draw some conclusions from the records of the office. Such figures and conclusions may be briefly stated as follows : 1st — There were one hundred six (106) companies which made and filed annual statements covering the year 1917. They reported, a total outstanding capital of $49,989,435.00. The total gain reported for the one hundred six companies was $906,512.00 or an average of one and eight tenths on the entire capital outstanding. 2nd — We found that there were thirty-eight (38) reporting domestic co-operative companies engaged in the operation of stores, elevators, and creameries. These companies had a total outstanding capital of $281,- 810.00 and the total gain of all such companies was the sum of $110,310 or an average of thirty-nine per cent on the outstanding capital. 3rd — ^ There were twelve (12) miscellaneous companies with a total capital issue of $21,059,256.00 which showed gains. The total of these gains for the twelve companies was $795,202.00 or an average of three and one-half per cent on the outstanding capital. Under this head it should be mentioned that we include the report of one of the largest light and power companies in America. This company has an outstanding capital of $19,982,100.00, and paid a dividend of $691,963.00. Thus it will be understood that the other eleven companies were comparatively small and the gains nominal. 4th — There are sixteen (16) oil and mining companies upon our records showing a total outstanding capital of $7,535,618.00. Not one of these companies shows a gain and no facts are submitted which indi- cate any great progress in the way of exploration. 5th — It appears that there are forty (40) miscellaneous companies with a capital issue totaling $21,112,751.00, which report no gains and in many instances losses are shown. In fact there are ten among the forty companies with an outstanding capital of $7,677,130.00, which show a total loss of $226,484.00. This item should be deducted from the gains 780 SOUTH DAKOTA shown in paragraph one, thus materially reducing the total average gains for all companies. From the foregoing figures several conclusions may be drawn. It is amply shown that the small co-operative companies of the state are being conducted on a profitable basis. This is especially true of the elevator companies. The reports show that each elevator is using from $20,0C0 to $50,000 of borrowed money obtained from banks and commission com- panies. Notwithstanding the payment of considerable sums for interest, the business is highly profitable. This leads to the suggestion that much more capital could be employed in these elevator companies, thus reduc- ing the necessity for so much borrowed money and saving large sums now being paid for intere^. The Commission has a right to feel a pride in the success of the co-operative companies. It means that South Dakota people have the ability to co-operate and make the best use of their com- bined capital and credit. The facts also prove that the farmer should realize that he can find a! far safer and more remunerative investment at his own door and one that is very much better than the average stock proposition offered by other ■corporations. The process of promoting and putting over the average industrial or financial corporation is long and difficult; the expense of organization is great; the results are slow and the investors must have great patience while awaiting returns in the way of dividends. The oil and mining companies constitute one of the serious problems before the Commission. The total sum of money thrown away upon these enterprises annually is a tremendous drain upon our financial resources. Our records show, however, that this class of companies have been re- duced more than fifty per cent in the past few months and from the same records it would appear that only in special cases should any new ones be admitted. On the whole the reports show that the sale of stocks in the different enterprises results in much waste of money and in idle capital. Of course under the law it is a question of honesty and if no actual or inherent fraud appears the Commission cannot successfully prevent sales. It would seem, however, that a more intelligent public opinion would aid materially in curing the situation and it is therefore suggested that the foregoing figures be published for the benefit of the people of the state. Respectfully suhmitted, L. W. Henderson, Secretary, State Securities Commission. April 29th, 1918. SOUTH DAKOTA 781 Rules and Requirements of State Securities Commission 1 Every applicant company shall at the lime of the delivery of an ap- plication, deposit with the Commission the amount of the fee required by statute, the sum so deposited to be held pending the examination and final) action by the Commission. 2 No permit will be granted unless at least one duly executed appoint- ment and acceptance of an agent be on file accompanied by the fee re- quired. 3 Every application for permit shall contain or be accompanied by a full and complete list of all stockholders showing the amount of stock held by each and the actual consideration paid for the same. 4 Full and complete descriptions of all property, both real and per- sonal, must be filed wijii each application,) and in cases deemed necessary or advisable the Commission will require proof of title. 5 The application must be accompanied by a full and complete state- ment of the company's receipts and disbursements; also an itemized list of its assets and liabilities. 6 The applicant must file a certified copy of the stock certificate, bond or other security to be offered for sale. 7 Two copies of; each piece of advertising matter must be filed and approved by the Commission prior to the granting of a permit. After a Permit has been granted and issued, the holder of the same shall file with the Commission two copies of every proposed newspaper advertise- ment, pamphlet, prospectus, circular or other written or printed matter for the approval of the Commission, and no such newspaper advertisement, pamphlet, prospectus, circular or other written or printed matter shall be published, issued, circulated or delivered until the same has been filed and approved as herein required. No holder of any Permit, or its agent, shall publish, print, write, circulate, issue or deliver any advertisement, pamph- let, prospectus, circular or other written or printed matter which shall con- tain any statement whatsoever relative to the granting of a Permit or License by the Securities Commission, nor any statement with reference 782 SOUTH DAKOTA to the examination or approval of any property or securities by the Com- mission, or any member or examiner thereof. The failure to comply with this requirement by the holder of a Per- mit or its agent will be considered sufificient grounds for the cancellation of the Permit and agents' licenses. 8 Every applicant corporation must file a certified, copy of its Articles of Incorporation and by-laws. A foreign corporation must file a certified copy of the law under which it is organized, together with a certified copy of its Charter or Certificate of Authority. 9 Certified copies of subscription blanks, contracts with purchasers, con- tracts with stock salesman and commission agreements must be filed. 10 Every application should be accompanied by a certified copy of a resolution authorizing the officers of the corporation to execute all neces- sary and proper documents in connection with the application, and in all cases of foreign corporation there must be a duly executed appointment of the Public Examiner as Attorney to accept service of process, which ap- pointment shall be irrevocable. 11 The names of all officers and directors must be set forth in every ap- plication. At least four references as to character, reputation, and finan- cial worth must be given for each director, and eight as to the company. 12 No application will be considered by the Commission until the same is complete and conforms to these requirements. 13 The Commission will require proof of the actual value of property or property rights, conveyed to an applicant company in exchange for stock or other securities. In cases where it is proposed to issue promo- tion stock, or where promotion stock has been issued to promoters in exchange for property, or property rights of a highly speculative char- acter, the Commission will determine the amount of such promotion stock which may be issued or held, and may suggest that such promotion stock or securities be deposited in escrow, pending the development of the enterprise, if such action is deemed necessary to protect purchasers against fraud and unfair dealing. SOUTH DAKOTA 783 14 Applicant companies organized for tht purpose of buying and taking over stocks or merchandise will be required to show the method of ap- praisement and file satisfactory proof that any such stock of merchandise has not or will not be transferred at an excessive price or value. 15 All applicant companies that are not going concerns must file a cer- tified copy of their organization minutes ; also a copy of the minutes of the first directors' meeting. 16 Copies of all papers and documents filed must be certified. All in- struments and papers filed or recorded in any public ofiice are public records and copies thereof must be certified by the officer who is cus- todian of such records or files. Other certified copies may be made by the proper officer of the applicant with the seal affixed. 17 Domestic corporations in the process of organization and that have not fully complied with the requirements of the general corporation laws, may be granted, upon sufficient showing, a conditional Permit upon such terms and conditions as the Commission may impose in each particular case. 18 . The Commission may require a special report to be made at any time when it shall determine that such report is in the interest of pur- chasers or the public, and the failure to, supply any such special report so required within thirty days shall be grounds for the forfeiture of a permit previously granted. 19 The failure on the part of the holder of a Permit to submit and file its annual statement during the month of January of each year shall auto- matically forfeit such permit, and the Secretary will note such failure upon the records of the Commission without specific action, provided that in its" discretion the Commission may upon proper application extend the time for the filing of any such annual statement. 20 The Commission may in its discretion require the deposit of a suffi- cient sum of money to defray the expense of making an examination of an applicant's or permit holder's property, business and affairs, in addition to the filing and license fees required by law. The failure to comply with any requirements with reference to such deposits will be grounds for Rejection or cancellation of a Permit. 784 SOUTH DAKOTA 21 All deposits and fees shall be paid to the Commission in the form of Bank Drafts, Express Orders, P. O. Money Orders or Certified Checks, and personal checks may be refused. 22 Regular meetings of the Commission will be held at the Office of the Secretary in the Capitol Building on the second Tuesday of each month. All applications which are complete and in proper form, and which have been on file more than twenty-four hours will be considered without notice at regular meetings. The Secretary will give at least two days' notice of hearing upon all applications to be considered at a special or adjourned meeting, unless the applicant shall file a specific waiver of such notice and hearing. Applicants desiring to be heard by the Commission should make re- quest for same with the application. When request for hearing is made and filed the Commission will set a day certain for such hearing. 23 Agents' licenses will be: issued by the Secretary upon the filing of duly executed appointments and acceptances and upon satisfactory proof of good character. Instructions to Applicants SCHEDULE OF ITEMS REQUIRED BY South Dakota Securities Commission 5-A — List of Stockholders, amount held by each and consideration given for same. 6-B — Full description of real estate or personal property owned by the corporation. Submit Proof of Title. 8-C — Trial Balance. 10-D — Receipts and disbursements. 13-1 — Itemized list of assets and liabilities. 13-2 — Copy of stock certificate, bond or other security to be offered. 13-8 — Advertising matter, two copies of each piece. 14-4 — (a) Copy of Articles of Incorporation ~l . (b) Copy of by-laws J 15-5 — Compliance by foreign corporation via Secretary of State. 16-A — Subscription blank. Contracts with stock purchaser. 16-B — Contracts with stock salesman. What commission? (Certified.) S3-A — Foreign corporation file certified copy of law under which In- corporated. SOUTH DAKOTA 785 S3-B — Foreign corporation file certified copy of Charter or Certificate of Authority. C-10 — Appointment of attorney for service. C-11 — Certified copy of resolution authorizing same. S-7 — ■ Appointment and registration of at least one agent. Note: Be sure to forward the above with your application in so far as they apply to your corporation. Also write letter giving full de- tails of the proposition in order that the Commission may have full in- formation. Send filing fee with application, one-tenth of 1%. gross assets. (Send bank draft or certified <:^eck.) Fee for each agent's license, $3.00. No application will be presented to the Commission for considera- tion until all items required have been filed, and the Secretary has had sufficient time to make a full investigation, and inquiry from references furnished. Minutes of organization meetings of stockholders and directors, (certified.) Forms / Form No. C-3. Sheet 1. Before the South. Dakota State Securities Commission In the matter of the application of . Name ^No. Address for authority to sell its land in South Dakota under the provisions of Chapter 319, Session Laws of 1913. The Company of represents to the South Dakota State Securities Commission: 1st. That its principal business office is located at. and that it has branch offices at. ....... . 2d. That it was incorporated on the day of 19. . ., under the laws of the state of , with an authorized capital of $ , divided into shares of common and shares of preferred, with a par value of $ each; and that it has an authorized bond issue of $ -50 786 SOUTH DAKOTA 3d. That the following is a full and correct statement of its capital stock and securities on this date: Authorized ^ Capital (Common Stock $ I Preferred Stock, $ Issued and Outstanding {Common Stock, $. Preferred Stock, $. Bonds authorized $. Bonds issued $. Other securities called... Authorized, $. Other securities called , Issued, $. 4th. That the following is a true and complete statement showing the consideration received from the stock issued and outstanding to date : COMMON STOCK No. Shares. •Actual Value. Remarks. Actual Cash ,, 1 • i 1 Organizing 1 1 Commissions * This column should specify the actual amount of cash or notes received, or the actual value of real estate, etc., received in exchange for stock issued, and should correspond with value at which these different items were given in to the company and carried oq the books, Form No. C-1. SOUTH DAKOTA PREFERRED STOCK 1Sl Sheet 2. No. Shares. Actual Value. Remarks. Actual Cash. Notes Real Estate.. Plant Equipment .. Patents .... Organizing . Promotion . Commissious Salaries .... Dividends . Totals .... Actual Cash Notes Real Estate. Plant Equipment . Patents — Organizing Promotion . Commissions Salaries .... Dividends . . Totals .,., BONDS Remarks. No. Shares. Actual Value. 788 SOUTH DAKOTA 5th. Attached hereto, marked Exhibit A, is a statement giving, a true and complete list of the holders of the securities of this company, indicating the consideration which was given for same. 6th. Attached hereto, marked Exhibit B, is a statement describing fully the real estate, plant, equipment, patents, etc., received in exchange for stock. 7th. That the following is a complete and correct statement of its assets and liabilities : ASSETS Amount. Write Nothing in this Column. Real Estate - ... Accounts Receivable ■ Cash in Banks Other assets as follows: Form No. C-1. LIABILITIES Sheet 3. Amount. Write Nothing in this Column. Common Stock Outsanding.. Pref d Stock Outstanding. . Mortgages Accounts Payable Sinking Fund or Reserve __, Total SOUTH DAKOTA 789 8th. That attached hereto, marked Exhibit C, is a true and correct trial balance sheet of its books on the date of the above statement. 9th. That the following is a true statement of its profit and loss account for the months prior to this date : C6 or 18) Loss Profit. Undivided Profit 19 , Gross earnings. (Specify Dividends, Common Stock.... Dividends, Preferred Stock per ce. ..tn Interest borrowed money Total Total lOth. That attached hereto, marked Exhibit D, is a true and com- plete statement of its receipts and disbursements for the past months, as shown by its books. (6 or 12) 11th. That the following is the general plan upon which the com- pany is doing and intends to do business, and the purposes for which said securities are to be sold : 12th. That it has adopted the following plan for the sale of its stock : 13th. Additional requirements as follows : 1. An itemized statement of its actual financial condition, and the amount of its assets and liabilities. 2. A copy- of all contracts, stocks and bonds or other securi- ties which, it proposes to make, sell or negotiate to sell to its contributors. 3. Sample copies of literature or advertising matter used or to be used by such investment company in the sale of its securities. ^90 SOIJTH DAKOTA 4. A copy of its constitution and by-laws or articles of c6- partnersliip or association. 5. If it be an incorporated investment company it shall also file a copy of its charter, and if said company be not organized under the laws of the State of South Dakota it shall be required to comply with the laws relating to the admission of foreign corpora- tions to do business in the State of South Dakota, Form No. C-1. Sheet ♦. 14th. -That the following is a true statement in regard to its officers and directors : Address. No. Shares and , Bonds Owned. y < u u >> -11 w o Name. i" 1 i o H President. Vice President. Secretary. Treasurer. General Manager. Trustees and Directors. 1. 2. 3. 4. 6. 6. 7. 8. 9. 10. 1 SOUTH DAKOTA 791 15th. That its securities will be sold for the following-named prices and on the following terms, and will not be sold at any other price or on any other terms without the consent of the State Securities Commi.;- sion : . : 16th. That attached hereto, marked Exhibit J, is a true and com- plete copy of each contract made, or which will be made, with any per- son, officer, agent or other representative of this 'company for the sale of its stock; and that there are no agreements, understandings or con- tracts, either verbal, written or implied, by which any one has received, or is to receive, any cash, stock, securities or other compensation for the sale of its securities, for its promotion, or for any other causes except as specified in this application and its several ejchibits attached, and that all of the stock securities of this companry will be sold or disposed of for cash or its equivalent, as provided in the contracts or agreements attached, except as herein excepted. Remarks : NOTE— Please give at least four references as to the character, responsibility and financial standing of each director. Also eight references as to the company itself. Wherefore, your petitioner, in view of the showing herein made, does respectfully pray that authority be granted it to sell its securities as follows : $ Common Stock, $. Preferred Stock, $ Bonds, and $ other securities, in accordance with the pro- visions of the above-mentioned law. In Testimony Whereof, We have hereunto set our hands, and affixed the official seal of this company, this the day of 191.. [Seal] (Company.) By President. Attest : Secretary. 792 SOUTH DAKOTA State of ; County of , ss. President, and Secretary, of the Company of > of lawful age, being first duly sworn, depose and say that they have each read the foregoing application arid know the contents thereof, and that the statements and allegations therein contained and attached are true. President. Secretary. Subscribed and sworn to before me this the day of 191.. Notary Public. (My commission expires ) Form C. 11. COPY OF RESOLUTION Be It Remembered, That at a meeting of the Board of Directors of the Company, duly called and held on the day of A. D., 19..., a quorum being present, the following resolution was adopted: "Whereas it is the desire of this corporation to comply with Chap- ter 275 of the Session Laws of the State of South Dakota, for the year 1915, therefore be it Resolved, Thai the President and Secretary be hereby authorized and directed to execute any and all papers under the corporate seal, and to perform such other acts as are required for a full compliance with Chapter 275 of the Session Laws of 1915 of the State of South Dakota." State of 1 County of J ^ ' I Secretary of the Company, do hereby certify that the above is a full, .true and correct copy of a Resolution adopted by the Board of Directors of said Company, at a meeting held on the day of ,...19. .., as the same appears upon the records of the Company now in my possession and custody as Secretary of the said Company. In Witness Whereof, I have hereunto set my hand and affixed the seal of said Company on this (Seal) day of 19... secretary. SOUTH DAKOTA 793 APPLICATION FOR AGENT'S LICENSE TO SELL STOCKS, BONDS OR SECURITIES To the State Securities Cojiimission of South Dakota: I, ,of do hereby make application for an agent's license to sell stocks, bonds, or other securities for. Company of Answer the Following Questions In Detail : 1. Have you heretofore sold stocks, bonds, or other securities?. If so, for what companies and where? 2. If yes, have you severed your connection with your last company?.,. I f so for what reason ? 3. Were all transactions satisfactorily adjusted when you .left their employ ? 4; Are you at this time indebted to any investment company or any dealer in securities ? 5. Has any company or employer ever resortfti to your bond for satis- faction ? 6 Have you ever been licensed by this Commission?. If so give name of company and date 7. Has your appointment by any company ever been revoked for cause? If so give name of company and date 8. Has your license ever been revoked by any State Securities Com- mission ? If so give name of Commission and date 9. Are you familiar with the law relating to the sale of Securities in South Dakota ? 10. Do you agree to comply with such law in all respects? , 1 1 . Answer the following : Age ? ; Residence ? Married or single? ; State occupation for five years previous to the date hereof 794 SOtlTH DAKOTA 12. Give names and addresses of two reputable citizens of South Dakota who can recommend you ■ and State of . . County of ' |- ss. I do solemnly swear that the answers given to the foregoing ques- tions are true to the best of my knowledge, information, and belief. Subscribed and sworn to before me this day of 19.... Notary Public STATE OF SOUTH DAKOTA OFFICE OF SECURITIES COMMISSION Appointment and Acceptance of Agent for Corporation This Is To Certify' That the Company of does hereby appoint of , to act as its agent within the State of South Dakota for the sale of the of said company as authorized by Permit No granted by the State Securities Commission on the day of 191 . . under the provisions of Chapter 275, Laws of 1915, South Dakota. Dated at this day of 191.. (Seal) By Secretary. I, the undersigned do hereby accept the above appointment and hereunto subscribe my name for registration with the State Securities Commission of South Dakota, as required by Section 11, Chapter 275, Session Laws of 1915. Agent. SOUTH DAKOTA 795 State of South ' Dakota, County of On this day of 191.., be- fore me a Notary Public within and for said County and State, personally appeared Secretary of the Company of and of , known to me to be the persons who subscribed to the foregoing instruments and acknowledged to me that they executed the same for the purposes therein set forth. Notary Public. Form No. C-10.— Appointment of Attorney. KNOW ALL MEN BY THESE PRESENTS": That The Cotnpany, a corporation organized under the laws of the State of , with principal business office located at State of does hereby nominate and appoint, irrevocably, for themselves and their successors, the following designated persons, to-wit: The Public Examiner of the State of South Dakota, Or any deputy or any employee of that office in the State Capitol at Pierre, South Dakota, as the true and lawful agents of said Company in the State of South Dakota, and does hereby irrevocably consent that actions may be com- menced against it, in the proper court of any county in this state in which a cause of action may arise or in which the plaintiff may reside, by service of process on the above designated persons. And the said Company stipulates and agrees that such service of process shall be taken and held, in all courts, to be as valid and binding as if due service had been made upon the Company itself, according to the laws of said State or any other State or Territory, and the said Company waives all claim or right or error by reason of such acknowl- edgment of service. Witness the seal of the Company, and the official signatures of the President and Secretary thereof, at in the State of this day of A. D. 19... • President. [Seal] ' ' ' ' Secretary. 796 TENNESSEE TENNESSEE STATUTES A BILL To be entitled An Act to provide for the regulation and supervision of investment companies, and providing penalties for the viola- tion thereof. (Chap. 31, First Extraordinary Session, 1913.) Section 1. Be it enacted by the General Assembly of the State of Tennessee, That every corporation, every copartnership or company, and every association (other than State and national banks, trust companies, real estate mortgage companies dealing exclusively in real estate mortgage notes, building and loan associations, and corporations not organized for profit), organized or which shall be organized in this State, whether incorporated or unincorporated, . which shall sell or negotiate for the sale of any stocks, bonds, or other securities of any kind or character or any lands or town lots in any quantity situated outside of this State, other than bonds of the United States, the State of Tennessee, or of some municipality of the State of Tennessee, and notes secured by mort- gages on real estate located in the State of Tennessee, to any person or persons in the State of Tennessee, other than those specifically exempted herein, shall be known for the purpose of this Act as a domestic invest- ment company. Every such investment company organized in any other State, Territory, or government shall be known for the purpose of this Act as a foreign investment company. Section 2. Be it further enacted, That before offering or at- tempting to sell any stocks, bonds, or other securities of any kind or character or any lands or town lots, other than those specifically ex- empted in Section 1 of this Act, to any person or persons, or transact- ing any business whatever in this State, excepting that of preparing the documents hereinafter required, every such investment company, domestic or foreign, shall file in the office of the Secretary of State of this State, together with a filing fee of $25, the following documents — to-wit: A statement showing in full detail the plan upon which it proposes to transact business. A copy of all contracts, bonds, or other instruments which it pro- poses to make with or sell to its contributors. A statement which shall show the name and location of the invest- ment company, and an itemized account of its actual financial condition and the amount of its property and liabilities, and such other information touching its affairs as said Secretary of State may require. If such investment company shall be a copartnership or an unin- corporated association, it shall also file with the Secretary of State a copy of its articles of copartnership or association and all other papers TENNESSEE 797 pertaining to its organization ; and if it be a corporation organized under the laws of Tennessee, it sliall also file with the Secretary of State a copy of its articles of incorporation, constitution, and by-laws, and all other papers pertaining to its organization. If it shall be an investment company organized under the laws of any other state. Territory, or gov- ernment, incorporated or unincorporated, it shall also file with the said Secretary of State a copy of the laws of such State, Territory, or gov- ernment under which it exists or is incorporated ; and also a copy of its charter, articles of incorporation, constitution, and by-laws and all amend- ments thereof which have been made, and all other papers pertaining to its organization. Section 3. Be it further enacted, That all of the above-described papers shall be verified by the oath of a member of a copartnership or company if it be a co-partnership or company, or by the oath of a duly authorized officer if it be an incorporated or unincorporated association. All such papers, however, as are recorded or are on file in any public office shall be further certified to by the officer of whose records or archives they form a part as being correct copies of such records or archives. Section 4. Be it further enacted, That every foreign investment company shall also file its written consent, irrevocable, that actions may be commenced against it in the proper court of any county in this State in which a cause of action may arise or in which the plaintiff may reside, by the service of process on the Secretary of State, and stipulating and agreeing that such service or process on the Secretary of Stale shall be taken and held, in all courts, to be as valid and binding as if due service had been made upon the company itself, .according to the laws of this or any other State; and such instrument shall be authenticated by the seal of such foreign investment company and by the signature of a member of the copartnership or company if it be a copartnership or company, or by the signatures of the President and Secretary of the incorporated or unincorporated association if it be an incorporated or un- incorporated association ; and shall be accompanied by a duly certified copy of the order or resolution of the Board of Directors, trustees, or managers of the corporation authorizing Secretary and President to exe- cute the same. Section 6. Be it further enacted, That it shall be the duty of the Secretary of State to examine the statements and documents so filed ; and if said Secnetary of State shall deem it advisable, he shall make or have made a detailed examination of such investment company's affairs, which examination shall be at the expense of such investment com- pany as hereinafter provided ; and if he finds that such investment com- pany is solvent, that its articles of incorporation or association, its con- stitution and by-laws, its proposed plan of business and proposed con- tract contain and provide for a fair, just, and equitable plan for the transaction of business, and in his judgment promises a fair return on 798 TENNESSEE the stocks, bonds, and other securities by it offered for sale, the Secre- tary of State shall issue to such investment company a statement recit- ing that such investment company has complied with the provisions of this Act, that detailed information in regard to this company and its securities is on file in the Secretary of State's office for public inspection apd information, that such investment company is permitted to do busi- ness in this State; and such statement shall also recite in bold type the Secretary of State in no wise recommends the securities to be of- fered for sale by such security company. But if said Secretary of State finds that such articles of incorporation or association, charter, constitu- tion, and by-laws, plan of business, or proposed contract contain any provision that is unfair, unjust, inequitable, or oppressive to any class of contributors, or if he decides from his examination of its affairs that said investment company is not solwent and does not intend to do a fair and honest business, and in his judgment does not promise a fair return on the stocks, bonds, or other securities by it offered for sale, then he shall notify such investment company in writing of his findings; and it shall be unlawful for such company to do any further business in this State until it shall so change its constitution and by- laws, articles of incorporation or association, its proposed plan of busi- ness and proposed contract, and its general financial condition in such manner as to satisfy the Secretary of State that it is solvent an-d its articles of incorporation or association, its constituion and by-laws, its proposed plan of business and proposed contract provide for a fair, just, and equitable plan for transaction of business, and does, in his judgment, promise a fair return on the stocks, bonds, and other securities by it offered for sale ; provided, that all' expenses paid or incurred and all fees or charges received or collected for any examination made under the provisions of this section of this Act shall be reported in detail by the Secretary of State and a full^ report and record thereof made in detail. Section 6. Be it further enacted, That it shall not be lawful for any investment company, either as principal or agent, to transact any business in form or character similar to that set forth in Section 1 of this Act, except as is provided in Section 2 of this Act, until it shall have filed the papers and documents above provided for. No amend- ment of the charter, articles of incorporation, constitution, and by-laws of any such investment company shall become operative until a copy of the same has been filed with the Secretary of State as provided in regard to the original filing of charter, articles of incorporation, con- stitution, and by-laws; nor shall it be lawful for any such investment company to transact business on any other plan than that set forth in the statement required to be filed by Section 2 of this Act, or to make any contracts other than that shown in the copy of the proposed con- tract required to be filed by Section 2 of this Act, until a written state- ment showing in full detail the proposed new pl,-in of transacting busi- ness and a copy of the proposed new contract shall have been filed with TENNESSEE 1*99 the Secretary of State in like manner as provided in regard to the original plan of business and proposed contract, and thei consent of the Secretary of State obtained as to making such proposed new plan of transacting business and proposed new contract. Section 7. Be it further enacted. That any investment company may appoint one or more agents, but no such agent shall do any busi- ness for said investment company in this State until he shall first register with the Secretary of State as agent for such investment company, and for each of such registrations there shall be paid to the Secretary of State the sum of $10. Such registration shall entitle such agent to repre- sent such investment company as its agent until the first day of March following, unless said authority is sooner revoked by the Secretary of State; and such authority shall be subject to revocation at any time by the Secretary of State for cause appearing to him sufficient. Section 8. Be it jwrther enacted, That every investment com- pany, domestic or foreign, shall file, at the close of business on Decem- ber 31 and June 30 of each year, and at such other times as required by the Secretary of State, a statement, verified by the oath of its President and Secretary, or, in their absence, by two of its principal officers, set- ting forth in such form as may be prescribed by the said Secretary of State its financial, condition and the amount of its assets and liabilities, and furnishing such other information concerning its affairs as said Secretary of State may require. Each regular statement of December 31 and June 30 shall be accompanied by a filing fee of five dollars ($5). Any investment company failing to file its report at the close of busi- ness December 31 or June 30 of each year, within ten days of that date, or failing to file any other' or special report herein required within thirty days of receipt of request or requisition therefor, shall forfeit its right to do buisness in this State. Section 9. Be it further enacted, That the general accounts of every investment company, domestic or foreign, doing business in this State, shall be kept by douhle entry; and such company, its copartners or managing officers, shall at least once in each month make a trial balance of such accounts, which shall be recorded in a book provided for that purpose. Such trial balances and all other books and accounts of such company shall at all times during business hours, except on Sun- days and legal holidays, be open to the inspection of stockholders and investors in said company, or investors in the stocks, bonds, or other securities by it offered for sale, and to the Secretary of State or his deputies. Section 10. Be it further enacted. That the Secretary of State ihall have general supervision and control, as provided by this Act, over any and all investment companies,, domestic or foreign, doing business in this State; and all such investment companies shall be subject to ex- amination by the Secretary of State or his duly authorized deputies at 800 TENNESSEE any time the Secretary of State may deem it advisable, and in the same manner as now provided for the examination of insurance companies. The rights, powers, and privileges of the Secretary of State in connection with such examinations shall be the same as is ,now provided • with reference to examination of insurance companies; and such investment company shall pay a fee for each of such examinations not to exceed ten dollars ($10) for each day or fraction thereof, plus the actual travel- ing and hotel expenses of said Secretary of State or deputy, that he is absent- from the Capitol building for the purpose of making such ex- amination ; and the failure or refusal of any investment company to pay such fees upon the demand of the Secretary of State or deputy while making such examination shall work a forfeiture of its rights to do busi- ness in this State. Section U. Be it further enacted. That whenever it shall appear to the Secretary of State that the assets of any investment company doing . business in this State are impaired to the extent that such assets do not equal its liabilities, or that it is conducting its business in an unsafe, inequitable, or unauthorized manner, or is jeopardizing the interests of its stockliolders or investors in stocks, bonds, or other securities by it offered for sale ; or whenever any investment company shall fail or refuse to file any papers, statements, or documents required by this Act, without giving satisfactory reason therefor, said SecretaVy of State shall at once communicate such facts to the Attorney-General, who shall there- upon apply to the Chancery Court in the district where such company is located or is do,ing business or to a Judge of said court for the appoint- ment of a receiver to 'take charge of and wind up the business of such investment company ; and if such fact or facts be made to appear, it shall be sufficient evidence to authorize the appointment of a receiver and the making of such orders and decrees in such cases as equity may re- quire. Section 12. Be it further enacted, That any person who shall knowingly or willfully subscribe to or make, or cause to be made, any false statement or false entry in any book of such investment company, or exhibit any false paper with the intention of deceiving any person authorized to examine into the affairs of such investment company, or shall make or publish any false statement of the financial condition of such investment company or the stocks, bonds, or other securities by it offered for sale, shall be deemed guilty of a felony, and, upon convic- tion thereof, shall be fined not less than two hundred dollars nor more than ten thousand dollars, and shall be imprisoned for not less than one year nor more than ten years in the State penitentiary. Section 13. Be it furtlicr enacted. That any person or persons, agent or agents, who shall sell or attempt to sell the stock, bonds, or other securities of any investment company, domestic or foreign, or the stocks, bonds, or other securities by it offered for sale, who have not TENNESSEE 801 complied with the provisions of this Act; or any investment company, domestic or foreign, which shall do any business, or offer or attempt to do any business, except as provided in Section 2 of this Act, which shall not have complied with the provisions of this Act; or any agent or agents who shall do or attempt to do any business for any invest- ment company, domestic or foreign, in this State, which agent is not at the time duly registered and has not fully complied with the provisions of this Act, shall be deemed guilty of a misdemeanor, and, upon con- viction thereof, shall be fined for each offense not less than one hundred dollars nor more than five thousand dollars or by imprisonment in the county jail for not more than ninety days, or both such fine and im- prisonment, at the discretion of the court. Section 14. Be it further enacted, That all fees herein provided for shall be collected by the Secretary of State and by him shall be turned into the State treasury, and all fees so turned into the State treas- ury are hereby reappropriated to the Secretary of State for the purpose of paying all salaries and expenses necessary for carrying this Act into effect; and the Secretary of State is hereby authorized to appoint such clerks and deputies as are actually and absolutely necessary to carry this Act into full force and effect, none of whom shall be related by blood or marriage to such Secretary of State or any of his' deputies. All moneys actually and necessarily paid out by the Secretary of State to any clerk or deputy appointed under this Act for traveling or incidental expenses shall be paid by the State Treasurer out of such fees upon the Secretary of State's warrants, to be issued upon sworn vouchers con- taining an itemized account of such salaries or expenses. Section 15. Be it further enacted. That should the courts declare any section of this Act unconstitutional or unauthorized by law or in conflict with any other section or provision of this Act, then such de- cision shall affect only the section or provision so declared to be uncon- stitutional, and shall not affect any other section or part of this Act. Section 16. Be it further enacted. That all Acts and parts of Acts in conflict with this Act are hereby repealed. Section 17. . Be it further enacted. That this Act take effect from and after it's passage, the public welfare requiring it. Passed September 27, 1913. Approved September 27, 1913. 51 802 TENNESSEE Forms APPLICATION FOR QUALIFICATION OF INVESTMENT COMPANY Hon. Ike B. Stevens, Secretary of State, Nashville, Tenn. Dear Sir : The undersigned a (corporation or firm), hereby make application for authority to transact its business in the State of Tennessee as required by Chapter 31 of the Public Acts of the extra session of 1&13, a bill entitled "An Act to pro- vide for the regulation and supervision of investment companies." I herewith present to you with this application the following: 1. A statement showing in full detail the plan upon which we propose to transact business. 2. A copy of all contracts, bonds, or other instruments* which we propose to make with, or sell to, our contributors. 3. A statement showing the name and location of our company 4. .An itemized account of our actual financial condition showing the amount of property, liabilities, etc. (If real estate is owned, a copy of the deed and abstract of property should be filed.) 5. A copy of our constitution, by-laws, and all papers pertaining to our organization, and,, if a co-partnership or association, a copy of articles of said co-partnership or association. 6. A sworn statement of amount of commission, salary or ex- penses to be paid each agent. 7. If chartered under the laws of any other state, territory or government, a copy of the laws of such state, territory, or government relatin'g to corporations, and also a copy of its charter, articles of in- corporation, constitution and by laws, and all amendments thereof, and all other papers pertaining to its organization. If such papers are already on file in the office of Secretary of State of Tennessee, they need not be sent with this application. 8. A certified check of $25.00, amount of filing fee. 9. Written consent, irrevocable, that service may be had on the Secretary of State in all actions against the company as provided in Sec- tion 4 of the Act, to which special attention is directed. All of the above described papers must be verified by the oath of a member of a co-partnership or company, or, if a corporation, by the oath of a duly authorized officer of said corporation, and all such papers which are of record in any public office shall be certified by the officer of whose records they form a part as being correct copies. TENNESSEE 803 Respectfully submitted, this the day of ..., 191.. State of ■) County of j Personally appeared before me, , a Notary Public in and for said State and County, the above signed who stated that he is of the , and that the foregoing information and statement and all papers sub- mitted in connection therewith are true and correct. Subscribed and sworn to before me, this the day of , 191.. Notary Public. Know All Men By These Presents : That the , a corporation created and organized under the laws of the State of and duly domesticated in Tennessee and desiring to transact in Tennessee, pursuant tOj the laws thereof, the busi- ness of does by these presents file this its written consent irrevocable, that actions may be commenced against it in the proper court of any county in this State in which the cause of action may arise, or in which the plaintiff may reside, by the service of process on the Secretary of State; and to this end the does by these presents stipulate and agree that service of process on the Secretary of State of the State of Tennessee shall be taken and held, in all courts, to be as valid and binding as if due service had been made upon the company itself according to the laws of Tennessee or of any other state in which this Company may be authorized to do business, and to this end the said • does au- thorize the Secretary of State of the State of Tennessee to acknowledge service of all legal process, whether meuse [mesne] or final, for and in behalf of it, the said above named corporation, in said State of Ten- nessee, in any judicial proceeding which may, within the said State of Tennessee, be instituted! against it, the said Company, or to which it may be a party, and the said does hereby consent to and with the said .State of Tennessee, for the benefit of all persons concerned, that service of such, process upon said 804 TENNESSEE Secretary of State shall be taken and held to be as- valid as if served upon it, the said Company above named, according to the laws of Ten- nessee, or of any otbe'r State, and the said does hereby further consent that this agreement and stipulation shall be irrevocable and the said Secretary of State shall be considered a,nd held as continuing to be attorney for it, the said Company, for the pur- poses of process aforesaid, in any action against it, the said above named Company, which may arise. In Witness Whereof, the said President, and said Secretary, in ac- cordance with a resolution of its Board of Directors, duly adopted by said Board, on the day of (a certified copy of which is hereunto attached), has to these presents affixed its corporate seal, and had its corporate name subscribed hereto by its Presi- dent, attested by its Secretary, in the city of.' , in the State of ,. on this the day of , A. D By President. [Seal.] Attest: Secretary. I, Secretary of the of do hereby certify that the following is a full, true and correct copy from the corporate records of said company of a resolution duly adopted by the Board of Directors thereof, at a meeting of said Board, a quorum thereof being present and acting on the day of to-wit: Whereas, Under and by virtue of Chapter 31, of the public Acts of Tennessee, passed September 27, 1913, and approved the same day, this company is required to file its written consent, irrevocable, that actions may be commenced against it in the proper court of any county in the State of Tennessee, in which a cause of action against this com- pany may arise, or in which the plaintiff may reside, by the service of process on the Secretary of State of the State of Tennessee, and stipulat- ing and agreeing that such service of process on the Secretary of State shall be taken and held, in all courts to be as valid and binding as if due service had been made. upon the company itself according to the laws of Tennessee, or any other State, and requiring that said written TENNESSEE 805 consent shall be authenticated by the seal of this corporation and by the signature of the President and Secretary hereof, and shall also be accompanied by a duly certified copy of the order or resolution of the Board of Directors authorizing the President and Secretary to execute the same. Therefore be it Resolved, That the President and Secretary of this corporation be authorized for and on behalf of this company to enter into a written agreement with the State of Tennessee as required by Section 4 of said Chapter 31 of said Acts of Tennessee, passed September 27, 1913, and approved on the same day, and fully bind the company thereby, in as full and ample a manner as is by said act provided, and that said agree- ment when so entered into shall be in every respect binding on this , and that said officers be instructed and authorized to authenticate said agreement by 'affixing the corporate seal of this company to said written agreement aforesaid and that a duly certified copy of this resolution accompany said written agreement. Given and certified, at the principal office of said Company, in the city of State of and the common seal thereof hereto affixed by the undersigned, having custody of the same as Secretary of said Company, this day of l&l.. Secretary. 806 TEXAS TEXAS STATUTES "Blue Sky" Laws Regulating the Sale of Stock of Corporation. AN ACT To regulate and supervise the, sale and purchase, in this State, of stock of. private, foreign and domestic corporations organized for profit, which propose to increase their capital stock; and to regulate and supervise the sale and purchase, in this State, of stocks of private, foreign and domestic corporations being organized and hereafter organized or proposed to be organized, for profit; and to regulate and supervise the offering or con- tracting for sale and purchase of such stock of such corpora- tion or proposed corporation, and to fix commission and pro- motion fees allo'wed to be charged; and providing for service of process, examination fees, and exempting certain corpora- tions from the effect of this Act; providing penalty for the violation of the provisions of this act, and declaring an emer- gency. What Companies Are Subject to the Provisions of this Act. 515. Every private corporation, foreign or domestic, organized for profit, whioli is now attempting or shall hereafter attempt to increase its capital stock, and every proposed corporation attempted to be or- ganized which shall, directly or indirectly, through itself, its agents or employes, or through any person or association of persons,^ holding com- panies, sales companies or otherwise, or through any other agents, sell or contract to sell any stock of such corporation or proposed corpora- tion, upon which sale or proposed sale or contracts of sale any part of the proceeds derived or to be. derived therefrom are used or to be used, directly or indirectly for the payment of any commission, promotion, organization fee or other expenses incident, directly or indirectly, to the sale of its shares of stock, except attorney's fees, charter fees, franchise tax, permit fees and stationery and supplies, shall be subject to the provisions of this act. (Acts 33d Leg., 1st Called Session, Chap. 32, Sec. 1.) Applies to Mining, Oil or Gas and Townsite Corporations. 516. This act shall also apply to any mining, oil or gas corpora- tion increasing its stock or proposed mining, oil or gas corporation at- tempting to sell stock in which any land or mineral or thing of value is to be procured from, in or under such land that has been or is to b^ TEXAS 807 placed as an asset with or in the corporation or proposed corporation, whether any promotion fee is charged or not, and to any townsite cor- poration or proposed townsite corporation. (Acts 33d Leg., 1st Called Session, Chap. 32, Sec. 2.) Filing of Statements with Secretary of State or Commissioner Before offering for Sale — Filing Fees. 517. Before offering for sale or contracting to sell, directly or in- directly, any stock of such proposed corporation, or such increased stock of any existing corporation, or before selling any stock in any townsite corporation as provided in Section 2, such corporation,- or those promot- ing or having charge of the sale of stock of any proposed corporation, shall file, under oath, in the office of the Secretary of State, where, under the law, a charter would be filed in his department,' or in the office of the Commissioner of Insurance and Banking, where, under the law, a charter would be filed in his department, together with a filing fee of twenty dollars, the following documents : A statement showing in full detail the plan upon which the corporation proposes to increase its capital stock or upon which the promoters or those having charge of the sale of stock of any proposed corporation proposes to sell its stock and organize the corporation, together with a copy of all the forms of con- tracts, stock (or deeds, if the same shall come under Section 2 hereof) to be used by the corporation or promoters, or those having charge of the sale of stocks of any proposed corporation in connection with such stock sales. The statement shall further show the name, location and domicile of such corporation, and the names of its officers or proposed officers, if any, or promoters, and the addresses of all the parties; the amount of capital stock of any corporation already organized, the pro- posed increase, or the proposed capital stock of the corporation to be organized, and the price at which the stock is proposed to be sold; and the price at which the stock is proposed to be sold shall not be ohaiiged without filing with the Secretary or Commissioner, as the case may be, a statement of such change, which shall be subject to his approval. Any such corporation or promoters of such proposed corporation shall furnish the Secretary or Commissioner such other information as may be neces- sary or proper concerning the sale of its stock. (Acts 38d Leg., 1st Called Session, Chap. 32, Sec. 3.) Filing of Copy of Charter and Other Evidence, When — Statement of Estimated fees and Expenses. 518. If it shall be a corporation organized under the laws of any other jurisdiction, it shall file with the Secretary or Commissioner a copy of its charter, and such other evidence of its authority as the Sec- retary or Commissioner may require. 808 TEXAS Said statement shall also show the commission, promotion fee and other estimated incidental expenses proposed to be charged for the or- ganization of such proposed corporation, or the increase in the capital stock of any corporation already organized, and how the commissions or fees are to be paid. (Acts 33d Leg., 1st Called Session, Chap. 32, Sec. 8.) Mining, Oil, Gas and Townsite Companies — Must give Estimate of Actual Value of Property — Employment of experts. 519. If the corporation or proposed corporation comes under Sec- tion 2 hereof, the officers of the corporation, or the promoters of the proposed corporation, shall state the facts upon which they base their estimate of the actual value of the property which is to become an asset of the corporation, and the Secretary or Commissioner shall require such proof as he may deem proper to establish the actual value of the property. The Secretary or Commissioner shall have the right to employ such experts as he may deem necessary, and the experts shall be employed at the expense of the corporation or promoters of a proposed corpora- tion. (Acts 38d Leg., 1st Called Session, Chap. 32, Sec. 3.) Filing of Statements Relating to Townsite Corporations — Issue of Permit. 520. No corporation proposed to be organized for the purpose of buying or selling townsites and town lots shall hereafter be granted a charter by the Secretary of State, or if a foreign corporation shall not be granted a permit to do business in the State of Texas unless the incorporators of said proposed corporation or officer of such foreign corporation shall file with the Secretary of State each and every docu- ment, contract and all papers referred to in Section 3 of this act, as well as a general statement of the plan of its proposed townsite, and a general statement of its methods of advertising same, together with a sample copy of its advertising literature, and no charter shall be granted any corporation unless the compliance w'ith the provisions of this act and in the judgment of the Secretary of State, such business of any proposed townsite corporation will be honestly and fairly conducted both to the corporation and to the public. And each and every cor- poration in this State now existing or hereafter organized desiring to engage in the sale of townsite lots or sites shall, prior to such sale file with the Secretary of State a general plan of said proposed lots to be sold, as well as a copy of any and all proposed contracts to be made with the public in the sale thereof, and a general statement of the lit- erature proposed to be issued, and all matters referred to in Section 3 hereof, and if in the judgment of the Secretary of State said sale will be conducted both honestly and fairly to the corporation and to the TEXAS 809 public, a permit to conduct said sale shall be granted. This provision shall not be construed to authorize the creation of any corporation for any purpose not now authorized by the laws of this State. (Acts 33d Leg., 1st Called Session, Chap. 32, Sec. 3.) Secretary or Commissioner Shall Grant or Refuse the Permit. 521. The Secretary or Commissioner, upon the receipt of the infor- mation as provided for in Section 3, shall grant or refuse such permit. If the Secretary or Commissioner shall decide that the sale of stock will be fairly and honestly conducted, both to the corporation and to the public, such permit shall be granted, provided that the commissions, promotion and other incidental expenses, exclusive of the exempted ex- penses mentioned in Section 1 of this act, shall not be more than fifteen (15) per cent of the price at which such stock is to be sold as shown by the application or amended application. (Acts 33d Leg., 1st Called Session, Chap. 32, Sec. 4.) This Act Shall Not Affect Stock Previously Sold or Subscribed; Unsold or Unsubscribed Part of It Falls Under Condition of This Act. 522. Provided, that where any proposed corporation has already sold its stock, or a part thereof, or any part thereof has been subscribed at the time this act shall take effect, this act shall not affect stock previously sold or subscribed nor any contracts made in reference to same; but, if any of the stock of said proposed corporation remains unsold or un- subscribed, said corporation shall, nevertheless, be entitled to a permit upon complying with the other conditions of this act, including the future sale or subscription of any of its stock. (Acts 33d Leg., 1st Called Session, Chap. 32, Sec. 4.) Commissions or Promotion Fee Paid to Agent or Promoter, When — Kind of Payments of Stock. 523. The commission; or promotion fee shall be paid to the agent or promoter as the stock is sold by him and paid by the purchaser. The stock shall be considered as paid for when paid for in cash, property or labor. (Acts 33d Leg., 1st Called Session, Chap. 32, Sec. 4.) Issue of Permit Depends on Compliance With Certain Requirements, Amongst Tbem the Filing of a Bond Approved by Secretary or Commissioner. 524. No permit shall be granted unless there shall appear upon the subscription lists and contracts of such corporation or proposed cor- poration, in bold type, the amount of the commissions, promotion fees and other estimated, expenses incident to the sale of such stock, and the interest which the officer, agent, employe or promoter selling or 810 TEXAS contracting to sell such stock has in such sale; nor shall such permit be granted until the applicants therefor have entered into a bond for not less than one thousand dollars ($1000) nor more than one hundred thousand dollars ($100,000), the same to be fixed by the Secretary or Commissioner at not more than ben percent of the stock proposed to be issued. The said bond shall be payable to the Secretary or Commis- sioner as the case may be, and his successor in office, conditioned that the facts set forth in the application for such permit, and the proof and statement offered to such Secretary or Commissioner, upon which the application is based, are true, and that they will comply with the provision of this act in the sale of the stock of such corporation or proposed corporation. Said bond may be made with individual sureties or a surety company authorized to do business in the State of Texas, and the bond shall be approved by the Secretary or Commissioner. (Acts 33d Leg., 1st Called Session, Chap. 32, Sec. 4) Appeal to the District Court of Travis County When Permit Refused. 525. If a permit shall be refused by the Secretary or Commissioner the parties applying therefor may bring suit in the district court of Travis county, Texas, to require said Secretary or Commissioner to issue such permit. (Acts 33d Leg., 1st Called Session, Chap. 32, Sec. 5.) Suit Upon the Bond — Amount Recoverable — Requisition of a. New Bond — Cancellation of Permit. 526. Any person who shall be induced to purchase any stock of any corporation or proposed corporation by the officers, agents, em- ployees, promoters or trustees, by reason of any misrepresentation of any material fact concerning such stock, such person or persons shall .have the right to bring suit upon the bond above provided for, and such bond shall be subject to, and security for, such person so purchasing the stock; provided, that such person shall not be entitled to recover more than the money paid, or the actual value of the property given, or the labor performed, in exchange for such stock, with legal interest from the date ofi the payment or the performance of the services, or the transfer of the property. One or more recoveries upon such bond shall not vitiate the same, but it shall remain in full force and effect, but no recoveries upon such bond shall ever exceed the full amount of same, and upon suits beings filed in excess of the amount of same, the Secretary or Commissioner may require a new bond, and, if the same is not given within thirty days, he may cancel the permit herein provided for. (Acts 33d Leg., 1st Called Session, Chap. 32, Sec. 6.) TEXAS 811 List of Authorized Officers, Agents and Employes eind Its Changes Filed With Secretary or Commissioner. 527. Whenever any permit has been issued, the corporation or per- sons receiving the same shall file a list of the names of their or its authorized officers, agents or employes, and the postoffice address of each, and, in case of the change of any of its officers, agents or em- ployes, it shall file a list of such changes with the Secretary or Com- missioner. (Acts 33d Leg., 1st Called Session, Chap. 32, Sec. 6.) All Collected Money for the Sale of Stock Shall Be Deposited With Bank. 528. All money or other things of value collected by such corpora- tion or the promoters of a proposed corporation, for the sale of its stock, or contract for the sale of its stock, shall be deposited by said corporation to its credit, or by the promoters of a proposed corporation, to the credit of its proposed officers or trustees, with the exception of the amount allowed for commissions, promotion fees and other inci- dental expenses, with a bank, bank and trust company or trust com- pany incorporated under the laws of this State, or of the United States. (Acts 33d Leg., 1st Called Session, Chap. 32, Sec. 7.) All Corporations or Proposed Corporations Must Keep u Set of Books Open for Inspection by the Authorities. 529. All such corporations, and the organizers or trustees of pro- posed corporations, shall keep a set of books, which shall show the amount of money, or other things of value received by such corporation or proposed corporation from the sale of its stock, or from contracts of sale of its stock, and such books shall show the number and amounts or stock sold or contracted to be sold, by whom sold, and to whom sold, or contracted to be sold, and the postoffice address of each. Said books shall at all times be open for inspection by the Secretary or Commis- sioner, or his duly authorized agent. (Acts 33d Leg., 1st Called Ses- sion, Chap. 32, Sec. 8.) Cause for Cancellation of Permit — Right to Bring Suit in the Dis- trict Court of Travis County. 530. Whenever the Secretary or Commissioner shall have informa- tion that any corporation, or the promoters of the proposed corporation, its officers, agents or employes, are not comi)lying with the terms of this act in the sale of its stock, they shall notify such corporation, or its officers, agents or employes or the promoters of the proposed corpora- tion to appear, within twenty days, and show cause why such permit should not be canceled, and after the hearing such Secretary or Com- missioner shall have the right to cancel such permit if the proof shall show that suoh corporation or proposed corporation, or its officers, 812 TEXAS agents or employes are not complying with the terms of this act, but the parties or corporation holding such permit shall have the right to bring suit, in the district court of Travis county, Texas, against the Secretary or Commissioner to reinstate such permit to sell stock. (Acts 33d Leg., 1st Called Session, Chap. 32, Sec. 9.) Foreign Corporations Must Show 50 Per Cent Paid-in Capital — Does Not Apply to Loan and Insurance Corporations. 531. No permit to sell stock shall ever be issued to any foreign cor- poration which has not at the time of making application for permit at least fifty per cent of its capital stock subscribed and paid in, provid- ing that this shall not apply to any foreign corporation engaged exclu- sively in the business of lending money in this State, nor to any in- surance company that is required by law to obtain a permit from the Commissioner of Insurance and Banking. (Acts 33d Leg., 1st Called Session, Chap. 32, Sec. 10.) Foreign Corporations Shall File Power of Attorney Like That Pro- vided in Article 4773, R. S. — Duty of Secretary or Commis- sioner in Accepting Service. 532. Each foreign corporation or the promoters of any proposed foreign corporation desiring to sell or contract to sell its stock in this State shall first file with the Secretary or Commissioner a like power of attorney to that provided for life insurance corporations in Article 4773, Revised Civil Statutes of the State of Texas of 1911, and service may be had upon the corporation and the Secretary or Commissioner, as the case may be, as therein provided for, and the Secretary or Com- missioner, as the case may be, upon receipt of such process as is therein provided for, shall proceed as is provided for him to do in Article 4774, Revised Civil Statutes of the State of Texas of 1911, and the Secretary or Commissioner's acts and conduct in regard to such power of at- torney, and such process shall be the same as is provided for in said Articles 4774 and 4773, and the effect, force and result of such acts shall be the same as therein provided for. (Acts 33d Leg., 1st Called Session, Chap. 32, Sec. 11.) Violation of This Law — Misdemeanor — Imprisonment. 533. It shall hereafter be unlawful for any officer, agent or em- ploye, or trustee, or holding company, or sales' agents, or person, or asso- ciation of persons in this State to sell, or oflfer to sell, or contract to sell, directly or indirectly, for such concern, any stock of any corpora- tion or proposed corporation, subject to this act, which has been, pro- posed to be, is now being, or may hereafter be organized for profit, without first complying with the provisions of this act, and any person so offending shall be guilty of a misdemeanor, and upon conviction shall TEXAS 813 be fined not less than twenty-five dollars nor more than two thousand dollars, and in addition thereto may be imprisoned in the county jail for any period not more than one year,i or by both such fine and im- prisonment. (Acts 33d Leg., 1st Called Session, Chap. 32, Sec. 12.) Subscribers Must Be Refunded at the Expiration ol Two Years — Extension of Time May Be Granted. 584. At the expiration of two years from the granting of a permit under this act if the proposed corporation has failed to organize, then all subscribers must be refunded the amount paid to the promoter or trustee; provided, however, that the Secretary or Commissioner may grant an extension of time for the sale of securities. (Acts 33d Leg., 1st Called Session,' Chap. 32, Sec. 12a.) Cumulative Power of This Act. 535. This act shall be construed to be cumulative of any other law or laws of this State. (Acts 33d Leg., 1st Called Session, Chap. 32, Sec. 13.) Exemptions of This Act for Certain Corporations. 536. The terms of this act shall not apply to any national bank, nor to any corporation having a charter granted under any act of the Congress of the United States, nor to any State bank, bank and trust company or trust company organized under the laws of this State, nor to any corporation organized under the Federal Reclamation Act, ap- proved June 17, 1902, or the regulations established by the Secretary of the Department of the Interior in pursuance thereof. Nor shall the terms of this act apply to any corporation or the promoters of any cor- poration organized under the laws of Texas which does not sell or con- tract to sell its stock to more than twenty-five bona fide purchasers : provided, it does not act as the agent or trustee, holding company or sales company in the promotion of any concern which is included under the terms of this act. Nor shall this act apply to any railroad or rail- way company or interurban railroad or railway company, or street rail- road or railway company. Nor shall this act apply to the sale of stock of a corporation by a bona fide owner of same, who had in good faith bought the same, and who in the purchase and sale of same was and is not acting directly or indirectly as promoter or agent of such cor- poration. Nor shall this act apply to a bona fide stock or stock broker in the sale of stock, which stock had been by such corporation sold and issued to a bona fide purchaser prior to the offering of same for sale by such broker; provided, that such purchaser or broker was not acting, directly or indirectly, as promoter of such corpoation. (Acts 33d Leg., 1st Called Session, Ohap. 32, Sec. 14.) 814 TEXAS Quarterly Deposit of Collected Money — Examinations Made at the Expense of Corporations. 537. All moneys collected under the terms of this act by the Sec- retary or Commissioner shall be quarterly deposited by him with the State Treasurer and credited to the general fund. Whenever the Sec- retary or Commissioner shall deem it necessary to examine the books of any corporation or proposed corporation, subject to the provisions of this act, or investigate its financial condition, he shall do so at the ex- pense of the corporation or proposed corporation under investigation, and the corporation or the agents of the corporation or proposed corpora- tion being investigated shall pay to the Secretary or Commissioner, or his agent, making the investigation his actual expenses and seven dol- lars and fifty cents per day for such investigation, which said expenses shall be paid at the termination of such investigation by the concern investigated. (Acts 33d Leg., 1st Called Session, Chap. 32, Sec. 15.) Definitions. 538. Whenever the word "Secretary" is used in this act it shall be considered to mean Secretary of the State of Texas, and whenever "Commissioner" is used in this act it shall be considered to mean Com- missioner of Insurance and Banking of the State of Texas. (Acts 33d Leg., 1st Called Session, Chap. 32, Sec. 16.) Bond Investment Companies Provisions of the Revised Civil Statutes 1911, Chap 25 Article 1309. Deposit With State Treasurer. — Every corpora- tion, company or individual, doing business in this State as a bond in- vestment company, or company to place or sell bonds, certificates or debentures on the partial payment or installment plan, shall, and the same is hereby required to, deposit with the State Treasurer, in cash or securities approved by the State Treasurer, the sum of five thousand dollars; and, in addition thereto, they shall be required to deposit semi- annually with the State Treasurer, in cash or securities to be approved by said officer, ten per cent of all the net premiums received, until the sum deposited shall amount to the sum of one hundred thousand doUait. (Acts 1897, p. 119.) Article 1310. Forfeiture of Charter in Default of Deposit; Attorney General to Sue for; and Receivership; Duties of Re- ceiver, Etc. — If any such company, being a domestic corporation, shall fail, for sixty days after the passage of this act, or for sixty days after the organization of suoh company, to make with the State Treas- urer the deposit required by this act, it shall be considered to have for- feited its charter ; and the Attorney General shall immediately upon re- ceiving information thereof, bring suit in the name of the State, in the district court of Travis county, to have such charter or certificate of TEXAS 815 incorporation declared forfeited and of no effect, and said court shall declare such charter forfeited, and appoint a receiver for suah company, whose duty it shall be, under the order of the court, to distribute to the shareholders the assets of the company. The court shall, out of the assets of the company, make. such allowance for compensation for the receiver as shall be equitable and just. (Id., Sec. 2.) Article 1311. In Case of Failure of Corporation, Receiver Appointed How; Duties; Deposit Used; Treasurer to Pay Out How — In case of the failure of any company covered by this chapter, the district court of the county or city in which the principal office is located, upon the application of one or more shareholders, shall appoint a receiver for such company, wihose duty it shall be to wind up its affairs, liquidate its debts, and distribute its assets, using therefor, upon the order of the court, the deposit previously made, to secure the shareholders, with the State Treasurer; and the State Treasurer is hereby authorized to pay out such deposit in accordance with requisitions made upon the State Comptroller by said receiver, and approved by the court, upon the warrant of the State Comptroller. (Id., Sec. 4.) Article 1312. Interchange of Cash and Securities in Deposit; Approval of Attorney General. — At any time, when requested so to do by any company, such as is mentioned in this chapter, the State Treasurer is hereby authorized to permit such company to interchange cash for the securities, or securities for the cash, deposited by such com- pany with the State Treasurer, under the provisions of this chapter, such securities always to be approved by the State Treasurer on the written advice of the Attorney General. (Acts 1901, p. 282.) Article 1313. Return of Deposit in What Case. — Should any such company, such as is mentioned in this act, cease to do business in this State, and shall satisfy the Comptroller and the Attorney General that it has no liabilities in this State, the Comptroller shall issue his warrant to the State Treasurer; and the State Treasurer is authorized, and it is made his duty, upon such warrant of the Comptroller, to re- turn to such company the cash or securities deposited by it under the provisions of this chapter. (Id., Sec. 6.) Instruction to Applicants Under our Blue Sky Law licenses are issued by the Secretary of State for the purpose of selling stock in corporations, except insurance companies and State banks. The Commissioner of Insurance and Bank- ing has supervision of the sale of stock in insurance companies and State hanks but he has no supervision over the sale 'of such stock of any other kind of a corporation. Before we could furnish you with blanks for making application for licenses to sell stock in an insurance company or a State bank in Texas it would be necessary for us to know first whether the corporation is already in existence or whether it is 816 TEXAS a proposed corporation intendiag to be organized and whether only a portion of the stock is to be sold in Texas or whether it is all to be sold under the license in Texas. If, however, it is desired to sell stock in some other kind of a corporation, then the application for these blanks should be made to Honorable George F. Howard, Secretary of State, Austin, Texas, and in my opinion it would probably be necessary for the applicant to give him the information as to whether the corporation whose stock is pro- posed to be sold in this State is one which is already in existence or one which is proposed to be organized. Charles O. Austin, Commissioner. Forms (Blue Sky Form A) APPLICATION FOR PERMIT TO SELL STOCK BEFORE INCORPORATION (Domestic) To the Secretary of State: Now comes the undersigned and applies for a permit to promote, offer for sale and sell stock in a corporation to be organized and chartered under the laws of Texas. In accordance with Chapter 32, General Laws, passed by the First Called Session of the Thirty-third Legislature,. make the statement and representations following: 1. The name of this proposed corporation is : 2. The purpose for which this corporation is to be formed is : . . . . 3 Its location and domicile is ' . . . 4. The amount of its capital stock is ; divided into shares of the par value of $ each. 5. The price at which its stock is to be sold is per share, which is not less than the par value thereof. 6. The names and addresses of the promoters of this proposed corporation are as follows, to-wit: 7. Commission to be paid on sale of stock is 8. Which commission is to be paid in the following manner.. 9. Promotion fee to be paid for promoting the corporation is. TEXAS 817 10. Which is to be paid in the following manner 11. Other incidental expenses to be paid are itemized as follows.. 12. Attorney's fees to be paid to , attorneys for the proposed corporation, are as follows 13. Charter fees 14. Franchise tax 15. Stationery and supplies 16. Permit fees 17. The promoters and those having in charge the organization and sale of the stock of said proposed corporation propose to sell its stock and organize the corporation in the following manner, towit : *18. The following are the facts upon which base estimate of the actual value of the property which is to become an asset of the corporation, towit : 19. Attached to this application, and marked as Exhibits are copies of all the forms of contracts, subscription lists, deeds, stock certificates, and all other forms of obligations to be used in the promo- tion and organization of this corporation. 20. The names and addresses of the directors of this proposed corporation for the first year are as follows, towit: 21. The names and addresses of the officers of this proposed cor- poration for the first year are as follows, towit: 22. The names of the trustees for the stockholders of tbis proposed corporation in whose name all money or other things of value collected by the promoters shall be deposited in the depository selected in accord- ance with law are as follows, towit: 23. The name and place of business of the bank, bank and trust company, or trust company selected as a depository for the money or other things of value collected by the promoters of this corporation is 24. Other information requested by the Secretary of State is as fol- lows, towit: , 25. Remarks : 26. Wherefore, the applicant asks that this applicatipn be received, filed and granted ; that the amount of the bond required by law be fixed. ♦ Only mining, oil, gas and townsite corporations are required to make this (No. 18) statement. 52 818 TEXAS and that upon the filing and approval of the same that the permit asked for be issued. Applicant. State of Texas, County of __ Before me, the undersigned authority, on this day personally ap- peared known to me to be the person whose name is subscribed to the foregoing application, and who, being by me duly sworn, upon oath deposes and says that all the statements made in said apHcation are true. Applicant. Subscribed and sworn to before me on this the day of A. D. 19... Notary Public in and for County, Texas. (Blue Sky Form B) APPLICATION BY AN EXISTING DOMESTIC CORPORATION FOR A PERMIT TO SELL ITS PROPOSED INCREASED CAPITAL STOCK To the Seicretary of State: Now comes the undersigned and applies for a permit to offer for sale and sell its proposed increased capital stock. Applicant was or- ganized and chartered under the laws of Texas. In accordance with Chapter 32, General Laws, passed by the First Called Session of the Thirty-third Legislature, it makes the statement and representations fol- lowing : 1. The name of applicant is 2. The purpose for which it was formed is 3. Its location and domicile is ; . . 4. The amount of proposed increase in the capital stock of applicant is $ , divided into shares of the par value of $ each. 5. The price at which its proposed increased capital stock is to be sold is per share, which is not less than par value thereof. 6. The names and addresses of the promoters of this increase in the capital stock of said corporation are as follows, towit: 7. Commission to be paid on sale of stock is 8. Which commission is to be paid in the following manner. TEXAS 819 9. Promotion fee to be paid for promoting the increase of said capital stock is 10. Which is to be paid in the following manner 11. Other incidental expenses to be paid are itemized as follows 12. Attorney's fees to be paid to attorneys for the corporation, in the increase of its capital stock, are as follows : 13. Amended charter fees 14. Franchise tax 15. Stationery and supplies 16. Permit fees " ; 17. The promoters and those having in charge the sale of the in- creased capital stock of said corporation propose to sell said stock and bring about the increase in the capital stock of said corporation in the following manner, towit: *18. The following are the facts upon which is based the estimate of the actual value of the property which is to become an asset of the corporation in the increase of its capital stock, towit: 19. Attached to this application, and marked as Exhibits are copies of the charter and aU amendments thereof of this corporation and all forms of contracts, subscription lists, deeds, stock certificates, and all other forms of obligations to be used in the promotion and sale of the increased capital stock of this corporation. 20. The i.jjnes and addresses of the directors of this corporation are as follows, towit: 21. The names and addresses of the officers of this corporation are as follows, towit: . 22. Th« name and place of business of the bank, bank and trust company, or trust company selected as a depository for the money or other things of value collected in the sale of such increased capital stock in this corporation is 23. This proposed increase in the capital stock of applicant has been authorzied by a two-thirds vote of its stock, and this application for an increase of the same in the manner and form in which it is here made and the execution of the bond thereunder has been authorized • Only in the promotion and sale of sotcl: in mining, oil, gas and townsite corporations is • it necessary to make this (No. 18) statement. 820 TEXAS by its board of directors. Certified copies of the resolutions of appli- cants, stockholders and board of directors confirming the above state- ment is herewith attached, marked Exhibit , and made a part hereof. 24. Other information requested by the Secretary of State is as follows, towit: 25. Remarks : 26. Wherefore, the applicant asks that this application be received, filed and granted ; that the amount of the bond required by law be fixed, and that upon the filing and approval of the same that the permit asked for be issued. Applicant. By Its President. Attest : Secretary. (Seal) The State of Texas, County of Before me, the undersigned authority, on this day personally ap- peared , known to me to be the person whose name is subscribed to the foregoing application, and who, being by me duly sworn, upon oath deposes and says that he is the secretary of the applicant, and is authorized to make this application and that all the statements made in said application are true. Secretary of Applicant. Subscribed and sworn to before me on this the day of A. D. 19... Notary Public in and for County, Texas. EXISTING CORPORATION'S BOND TO SELL ITS PROPOSED INCREASED CAPITAL STOCK (Domestic) Whereas, the undersigned, , has applied to the Secretary of State of the State of Texas for a permit to sell its proposed increased capital stock, a copy of which said application, together with all exhibits attached thereto, is herewith attached and made a part of this bond; and Whereas, in order to obtain said permit it is made and provided by the laws of Texas that a bond shall be entered into in accordance TEXAS 821 with the terms and provisions of Chapter 32 of the General Laws passed by the First Called Session of the Thirty-third Legislature; Now, therefore, we, the said applicant, as principal, and the other subscribers hereto, as sureties, do acknowledge ourselves indebted to and held and firmly bound and obligated to pay to the Hon Secretary of State of the State of Texas, and his successors in office, the sum of dollars, at Austin, in Travis County, Texas, for the payment of which well and' truly to be made we do jointly and severally bind ourselves, our legal representatives, successors and as- signs, firmly by these presents. The condition of this obligation is such, however, that in the event the facts set forth in said application for a permit, and the proof and statements offered to the said Secretary of State upon which said ap- plication is based are true, and that the undersigned applicant do com- ply with all of the provisions of Chapter 32 of the General Laws passed at the First Called Session of the Thirty-third Legislature in the sale of said proposed increased capital stock of applicant in so far as said Act is applicable, then this obligation shall be null and void ; otherwise it is to remain in full force and effect. It is provided further, that should any person be induced to purchase any of the increased capital stock of said corporation by the applicant or anyone acting for it by reason of any misrepresentation of any material fact concerning such stock, then such person or persons shall have the right to bring suit upon this bond, and this bond shall be subject to and security for such person so purchasing the stock; provided, however, that such person shall not be entitled to recover more than the money paid or the actual value of the property given or the labor performed in exchange for such stock, with legal interest from the date of the payment of the performance of the services or the transfer of the property. It is further provided that one or more recoveries upon this bond shall not vitiate the same, but that the same shall remain in full force and effect; provided, however, that no recovery or no number of recoveries upon this bond shall ever exceed the full amount of the same. In testimony whereof witness our hands this the day of , A. D. 19... By. Its President. Attest : Secretary. (Seal) Approved and filed this the day of. A. D. 19... 822 TEXAS (Blue Sky Form C) APPLICATION BY AN EXISTING DOMESTIC CORPORATION FOR A PERMIT TO SELL ITS INCREASED CAPITAL- STOCK To the Secretary of State: Now comes the undersigned and applies for a permit to offer for sale and sell its increased capital stock. Applicant was organized and chartered under the laws of Texas. In accordance with Chapter 32, General Laws, passed by the First Called Session of the Thirty-third Legislature, make the statement and representa- tions following: 1. The name of applicant is 2. The purpose for which it was formed is , 3. Its location and domicile is 4. The amount of its capital stock is , divided into shares of the par value of each. 5. The amount of increase in the capital stock of the applicant is $ divided into shares of the par value of $ ..each. 6. The price at which its increased capital stock is per share, which is not less than par value thereof. 7. The names and addresses of the promoters of this. increase in the capital stock of said corporation are as follows, towit: 8. Commission to be paid on sale of stock is 9. Which commission is to be paid in the following manner. 10. Promotion fee to be paid for promoting the increase of said capital stock is 11. Which is to be paid in the following manner 12. Other incidental expenses to be paid are itemized as follows : 13. Attorney's fees to be paid to ". attorneys for the corporation in the increase of its capital stock, are as follows 14. Amended charter fees . . . 15. Franchise tax 16. Stationery and supplies. 17. Permit fees TEXAS 823 18. The promoters and those having in charge the sale of the in- creased capital stock of said corporation propose to sell said stock in the following manner, towit : *19. The following are the facts upon which base estimate of the actual value of the property which is to become an asset of the corporation in the increase of its capital stock, towit : 20. Attached to this application, and marked as Exhibits ■ are copies of the charter and all amendments thereof of this corpora- tion and all forms of contracts, subscription lists, deeds, stock certifi- cates, and all other forms of obligations to be used in the promotion and sale of the increased capital stock of this corporation. 21. The names and addresses of the directors of this corporation are as follows, towit : 22. The names and addresses of the officers of this corporation are as follows, towit: 23. The name and place of business of the bank, bank and trust company, or trust company selected as a depository for the money or other things of value collected in the sale of such increased capital stock in this corporation is 24. Applicant shows that its secretary and president have been authorized by its board of directors to make this application, and execute the bond required by law in the manner and form herein tendered, as shown by a certified copy of the proceedings of its board of directors relative thereto, which is hereto attached, marked Exhibit.... and made a part hereof. 25. Other information requested by the Secretary of State is as follows, towit : 26. Remarks 27. Wherefore, the applicant asks that this application be received, filed and granted ; that the amount of the bond required by law be fixed, and that upon the filing and approval of the same that the permit asked for be issued. Applicant. By Its President. Attest : Secretary. (Seal) * Only in the promotion and sale of stock in mining, oil, gas and townsite corporations is it necessary to make this (No. 19) statement. 824 TEXAS The State of Texas, County of Before me, the undersigned authority, on this day personally ap- peared ^ known to me to be the person whose name is subscribed to the foregoing application, and who, being by me duly sworn, upon oath deposes and says that he is the secretary of the applicant, and is authorized to make this application and that all the statements made in siad application are true. Secretary of Applicant. Subscribed and sworn to before me on this the day of A. D. 19... Notary Public in and for, County, Texas. EXISTING CORPORATION'S BOND TO SELL ITS INCREASED CAPITAL STOCK (Domestic) WhereaSj the undersigned , has ap- plied to the Secretary of State of the State of Texas for a permit to sell its increased capital stock, a copy of which said application, together with all exhibits attached thereto, is herewith attached and made a part of this bond; and Whereas, in order to obtain said permit it is made and provided by the laws of Texas that a bond shall be entered into in accordance with the terms and provisions of Chapter 32 of the General Laws passed by the First Called Session of the Thirty-third Legislature; Now, therefore, we, the said applicant, as principal, and the other subscribers hereto, as sureties, do acknowledge ourselves indebted to and held and firmly bound and obligated to pay to the Hon , Secretary of State of the State of Texas, and his successors in office, the sum of dollars, at Austin, in Travis County, Texas, for the payment of which well and truly to be made we do jointly and severally bind ourselves, our legal representatives, suc- cessors and assigns, firmly by these presents. The condition of this obligation is such, however, that in the event the facts set forth in said application for a permit, and the proof and statements offered to the said Secretary of State upon which said ap- plication is based are true, and that the undersigned application do comply with all of the provisions of Chapter 32 of the General Laws passed at the First Called Session of the Thirty-third Legislature in the sale of said increased capital stock of applicant in so far as said Act is applicable, then this obligation shall be null and void; otherwise it TEXAS 825 is to remain in full force and effect. It is provided further, that should any person be induced to purchase any of the increased capital stock of said corporation by the applicant or anyone acting for it by reason of any misrepresentation of any material fact concerning such stock, then such person- or persons shall have the right to bring suit upon this bond, and this bond shall be subject to and security for such person so pur- chasing the stock; provided, however, that such person shall not be en- titled to recover more than the money paid or the actual value of the property given or the labor performed in exchange for such stock, with legal interest from the date of the payment or the performance of the services or the transfer of the property. It is further provided that one or more recoveries upon this bond shall not vitiate the same, but that the same Sihall remain in full force and effect; provided, however, that no recovery or no number of recoveries upon this bond shall ever exceed the full amount of the same. In testimony whereof witness our hands this the day of.... , A. D. 19... By..! '.'. Its President. Attest : Secretary. (Seal) Approved and filed this the day of. , A. D. 19... Secretary of State. (Blue Sky Form D) APPLICATION FOR PERMIT TO SELL STOCK BEFORE INCORPORATION (Foreign) To the Secretary of State: Now comes the undersigned and applies for a permit to promote, offer for sale and sell stock in a corporation t& be organized and chartered under the laws of the State of In accordance with Chapter 32, General Laws, passed by the First Called Session of the Thirty-third Legislature make the state- ment and representations following: 1. The name of this proposed corporation is. 2. It is to be chartered under the laws of the State of 3. The purpose for which it is to be formed is one authorized by the laws of the State of and is 826 TEXAS 4. Its location and domicile is 5. The amount of its capital stock is *6. Tihe amount of the capital stock of said corporation which has heretofore been subscribed and paid in is which amount is at least 50 per cent of the capital stock of said pro- posed corporation. Said amount of capital stock was so subscribed aijd paid in accordance with the laws of the State of i under which it is to be incorporated. It was subscribed and paid as follows, towit : 7. The price at which its stock is to be sold is per share, which is in accordance with the laws of the State of 8. The names and addresses of the promoters of this proposed cor- poration are as follows, towit: 9. Commission to be paid on sale of stocks is 10. Which commission is to be paid in the following manner...... 11. Promotion fee to be paid for promoting the corporation is 12. Which is to be paid in the following manner 13. Other incidental expenses to be paid are itemized as follows 14. Attorney's fees to be paid to attorneys for the proposed corporation, are as follows. 15. Charter fees .. 16. Franchise tax 17. Stationery and supplies. 18. Permit fees 19. The promoters and those having in charge the organization and sale of the stock of said proposed corporation propose to sell the balance of the stock and organize the corporation in the following manner, towit: *20. The following are the facts upon which base estimate of the actual value of the property which is to become an asset of the corporation, towit : * This section (No. 6) has no application to corporations engaged or to be engaged exclusively in the business of lending money in Texas nor to any in- surance company required by law to obtain a permit from the Commissioner of Insurance .and Banking. TEXAS 827 21. Attached to this application, and marked as Exhibits are copies of all the forms of contracts, subscription lists, deeds, stock certificates, and all other forms of obligations to be used in the pro- motion and organization of this corporation, as well as a copy of the power of attorney heretofore filed with the Secretary of State in ac- cordance with 22. The names and addresses of the directors of this proposed cor- poration for the first year are as follows, towit : 23. The names and addresses of the officers of this, proposed cor- poration for the first year are as follows, towit : 24. The names of the trustees for the stockholders of this proposed corporation in whose name all money or other things of value collected by the promoters shall be deposited in the depository selected in ac- cordance with law are as follows, towit : 25. The name and place of business of the bank, bank and trust ■ company, or trust company selected as a depository for the money or other things of value collected by the promoters of this corporation is: 26. Other information requested by the Secretary of State is as follows, towit: 27. Remarks 28. Wherefore, the applicant asks that this application be received, filed and granted; that the amount of the bond required by law be fixed, and that upon the filing and approval of the same that the permit asked for be issued. Applicant. The State of Texas, County of Before me, the undersigned authority, on this day personally ap- peared , known to me to be the per- son whose name is subscribed to the foregoing application, and who, being by me duly sworn, upon oath deposes and says. that all the state- ments made in said application are true. Applicant. Subscribed and sworn to before me on this the day of , A. D. 19. . . Notary Public inj and for County, Texas. . * Only in the promotion and sale of stock in mining:, oil, gas and townsite corporations is it necessary to make this (No. 20) statement. The provisions of Section 11, Chapter 32, General Laws, passed by the First Called Session of the Thirty-third Legislature, 828 TEXAS APPLICANT'S BOND (Proposed Foreign Corporation) The Stais of Texas, County of Travis. Whereas, the undersigend, has applied to the Secretary of State of the State of Texas for a permit to sell stock in a proposed foreign corporation to be hereafter chartered under the laws of the State of , and to be known as a copy of which said application, together with all exhibits attached thereto, is herewith attached and made a part of this bond ; and Whereas, in order to obtain said permit it is made and provided by the laws of Texas that a bond shall be entered into in accordance with the terms and provisions of Chapter 32 of the Genera.1 Laws passed by the First Called Session of the Thirty-third Legislature; Now, therefore, we, the said applicant, as principal, and the other subscribers hereto as sureties, do acknowledge ourselves indebted to and held firmly bound and obligated to pay to the Hon .j - Secretary of State of the State of Texas, and his successors in office, the sum of dollars, at Austin, in Travis County, Texas, for the payment of whicih well and truly to be made we do jointly and severally bind ourselves, our legal representatives, successors and assigns, firmly by these presents. The condition of this obligation is such, however, that in the event the facts set forth in said application for a permit, and the proof and statements offered by us to the said Secretary of State upon which said application is based are true, and that the undersigned applicant do comply with all of the provisions of Chapter 32 of the General Laws passed at the First Called Session of the Thirty-third Legislature in the sale of the stock of said proposed corporation in so far as said Act is applicable, then this obligation shall be null and void ; otherwise it is to remain in full force and effect. It is provided further, that should any person be induced to purchase any stock of said proposed corpora- tion by the applipant or anyone acting for him or by reason of any mis- representation of any material fact concerning such stock, then such person or persons shall have the right to bring suit upon this bond, and this bond shall be subject to and security for such person so pur- chasing the stock; provided, however, that such person shall not be en- titled to recover more than the money paid or the actual value of the property given or the labor performed in exchange for such stock, with legal interest from the date of the payment or the performance of the services or the transfer of the property. It is further provided that one or more recoveries upon this bond sh'all not vitiate the same, but that the same shall remain in full force and effect; provided, however, that TEXAS 829 no recovery or no number of recoveries upon this bond shall ever ex- ceed the full amount of the same. In testimony whereof witness our hands this the day of A. D. 19... Approved and filed this the day of. A. D. 19. . . Secretary of State. PROMOTER'S POWER OF ATTORNEY TO SELL STOCK IN A PROPOSED FOREIGN CORPORATION The State of Texas, County of Travis. Whereas, the undersigned, desires to obtain a permit to sell within the State of Texas the stock of a proposed corporation, to-wit to be organized and chartered under the laws of the State of Therefore, know all men by these presents : That I, having my domicile at , in the State of , in accordance with Chapter 32 of the Gen- eral Laws passed by the First Called Session of the Thirty-third Legis- lature, do now by this instrument hereby irrevocably designate, consti- tute and appoint , Secretary of State of the State of Texas, and his successors in office, and any officer or board which may hereafter be clothed with the powers and duties now de- volving upon said officer, my duly authorized agent and attorney in fact for the purpose of accepting service for me and being served for me with citation in any and. all suits which may be brought against me in any court of said State by, or to, or for the use of, the State of Texas ; and I do hereby expressly and irrevocably consent that the service of any and all civil process upon the above named Secretary of State of the State of Texas, and upon any of his successors in office, and upon any officer or board which may hereafter be clothed with the powers and duties now devolving upon said officer, as my at- torney for such purpose in any and all such suits or proceedings shall be taken and held to be valid; and I hereby expressly and irrevocably waive all claim and right to object to such service or to any error by reason of such service. This instrument and such appointment, agency and power shall be, continue and remain in full force and effect so long as I shall continue to sell the stock of said proposed corporation, or so long as there remains unpaid any sum on stock so sold by me or for me; and until any and 830 TEXAS all claims of any and every character which are now held or which may hereafter be held by any citizen or citizens of said State against me, and any and all claims of every character now held or which may here- after be held by the State of Texas against me, have been settled. Witness my hand on this the day of , A. D. 19... The State of '. , County of Before me, the undersigned authority, on this day personally ap- peared , known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed the same for the purposes and con- sideration therein expressed. Given under my hand and, seal of office, at on this the day of , A. D. 19. . . Notary Public in and for County, State of. (Blue Sky Form E) APPLICATION BY AN EXISTING FOREIGN CORPORATION FOR PERMIT TO SELL ITS CAPITAL STOCK To the Secretary of State: Now comes the undersigned and applies for a permit to offer for sale and sell its capital stock. In accordance with Chapter 32, General Laws, passed by the First Called Session of the Thirty-third Legislature, it makes the statement and representations following: 1. The name of applicant is 2. It is chartered under the laws of the State of 3. The purpose for which applicant is chartered is one authorized by the laws of the State of and is 4. Its location and domicile is 5. The amount of its capital stock is *6. The amount of the capital stock of applicant which has here- tofore been subscribed and paid in its , which amount is at least 50 per cent of its capital stock. Said amount of capital stock was so subscribed and paid in in accordance with the laws of the State of , under which applicant is incorporated. It was so subscribed and paid as follows, to-wit 7. The price at which its stock is to be sold is per share, which is in accordance with the laws of the State of. * This section (No. 6) has no application to corporations engaged or to be engaged exclusively in the business of lending money in Texas nor to any insur- ance company required by law to obtain a .permit from the Commissioner ot Insurance and Banking, TEXAS 831 8. The names and addresses of the promoters of this corporation are as follows : 9. Commission to be paid on sale of stock is 10. Which commission is to be paid in the following manner 11. Promotion fee to be paid for promoting the corporation is.... 12. Which is to be paid in the following manner 13. Other incidental expenses to be paid are itemized as follows . . . 14. Attorneys' fees to be paid to attorneys for the proposed corporation, are as follows. 15. Charter fees 16. Franchise tax 17. Stationery and supplies. 18. Permit fees __ 19. The promoters and those having in charge the sale of the stock of applicant propose to sell the balance of its stock in the following' manner, to-wit : 20.* The following are the facts upon which is based applicant's estimate of the actual value of the property which has and is to become an asset of the corporation, to-wit : 21. Attached to this application, and marked as Exhibits are copies of all the forms of contracts, subscription. lists, deeds, stock certificates, and all other forms of obligations to be used in the promo- tion and sale of applicant's stock, as well as a copy of the power of attorney heretofore iiled with the Secretary of State in accordance with the provisions of Section 11, Chapter 32, General Laws, passed by the First Called Session of the Thirty-third Legislature, as well as a copy of applicant's charter and all amendments thereto. 22. The names and addresses of applicant's directors are as fol- lows, to-wit: 23. The names and addresses of applicant's officers are as fol- lows, to-wit: • Only in the promotion and sale of stock in mining, oil, gas and townsite corporations is it necessary to make this (No. 20) statement. 832 TEXAS 24. The name and place of business of the bank, bank and trust company, or trust company selected as a depository for the money or other things of value collected by the promoters of this corporation is 25. Applicant's president and secretary have been authorized in the manner and form prescribed by the laws of the State under which ap- plicant is incorporated to make this application, and execute the neces- sary bond and papers relative thereto, all of which facts are shown by certified copies of applicant's minutes hereto attached and marked Ex- hibit 26. Other information requested by the Secretary of State is as follows, to-wit : , 27. Remarks 28. Wherefore, the applicant asks that this application be received, filed and granted; that the amount of the bond required by law be fixed, and that upon the filing and approval of the same that the permit asked for be issued. Applicant. By ■Attest: Its President. Secretary. The State of , County of Before me, the undersigned authority, on this day personally ap- peared , who, being by me duly sworn upon oath, deposes and says that he is secretary of the applicant whose name is subscribed to the foregoing application; that he is authorized to make this affidavit, and. that all statements made in the above and foregoing application are true. Subscribed and sworn to before me this the day of A. D. 19... Notary Public in and for County, State of. APPLICANT'S BOND (Foreign Corporation) The State of Texas, County of Travis. Whereas, the undersigned, a corporation chartered under the laws of the state of , has applied to the Secretary of State of the State of Texas for a permit to sell its capital stock, a copy of which said application, together with all exhibits attached thereto, is herewith attached and made a part of this bond; and TEXAS 833 Whereas, in order to obtain said permit it is made and provided by the laws of Texas that a bond shall be entered into in accordance with the terms and provisions of Chapter 32 of the General Laws passed by the First Called Session of the Thirty-third Legislature; Now, therefore, we, the said applicant, as principal, and the other subscribers hereto, as sureties, do acknowledge ourselves indebted to and held and firmly bound and obligated to pay to the Hon , Secretary of State of the State of Texas, and his successors in office, the sum of dollars, at Austin, in Travis County, Texas, for the payment of which well and truly to be made we do jointly and severally bind ourselves, our legal representatives, successors and assigns, firmly by these presents. The condition of this obligation is such, however, that in the event the facts set forth in said application for a permit, and the proof and statements offered by us to the said Secretary of State upon which said application is based are true, and that the undersigned applicant do comply with all of the provisions of Chapter 32 of the General Laws passed at the First Called Session of the Thirty-third Legislature in the sale of its capital stock in so far as said Act is applicable, then this obligation shall be null and void; otherwise it is to' remain in full force and effect. It is provided further, that should any person be induced to purchase any stock of applicant corporation by the applicant or any- one acting for him or by reason of any misrepresentation of any material fact concerning such stock, then such person or persons shall have the right to bring suit upon this bond, and this bond shall be subject to and security for such person so purchasing the stock; provided, however, that such person shall not be entitled to recover more than the money paid or the actual value of the property given or the labor performed in exchange for such stock, with legal interest from the date of the pay- ment or the performance of the services or the transfer of the property. It is further provided that one or more recoveries upon this bond shall not vitiate the same, but that the same shall remain in full force and effect; provided, however, that no recovery or no number of recoveries upon this bond shall ever exceed the full amount of the same. In testimony whereof witness our hands this the day of , , A. D. 19... By Its President, Attest : Secretary. Approved and filed this the day of... A. D., 19. . . 53 Secretary of State. 834 TEXAS (Blue Sky Form F) APPLICATION BY AN EXISTING FOREIGN CORPORATION FOR A PERMIT TO SELL ITS PROPOSED INCREASED CAPITAL STOCK To the Secretary of State: Now comes the undersigned and applies for a permit to offer for sale and sell its proposed increased capital stock. In accordance with Chapter 32, General Laws, passed by the First Called Session of the Thirty-third Legislature, it makes the statement and representations fol- lowing : 1. The name of applicant is 2. It is chartered under the laws of the State of 3. The purpose for which applicant is chartered is one authorized by the laws of the State of and is 4 . Its location and domicile is 5. The amount of its capital stock is 6. The amount of the capital stock of applicant which was here- tofore been subscribed and paid in is which amount is at least 50 per cent of its capital stock. Said amount of capital stock was so subscribed and paid in in accordance with the laws of the State of , under which applicant is in- corporated. It was so subscribed and paid as follows, to- wit : 7. The amount of proposed increase in the capital stock of applicant is $ , divided into . .". shares of the par value of $ each. 8. The price at which its proposed increased capital stock is to be sold is $ per share, which is in accordance with the laws of the State of 9. The names and addresses of the promoters of its proposed in- creased capital stock are as follows : 10. Commissions to be paid on sale of stock is 11. Which commission is to be paid in the following manner . . 12. Promotion fee to be paid for capital stock is promoting the increase of said • This section (No. 6) has no application to corporations engaged or to be engaged exclusively in the business of lending money in Texas nor to any insur- ance company required by law to obtain a permit from the Commissioner of In- surance and Banking. TEXAS 835 13. Which is to be paid in the following manner 14. Other incidental expenses to be paid are itemized as follows: 15. Attorneys' fees to be paid to , attorneys for the corporation, in the increase of its capital stock, are as follows 16. Amended charter fees __ 17. Franchise tax 18. Stationery and supplies 19. Permit fees 20. The promoters and those having in charge the sale of the in- creased capital stock of applicant propose to sell said stock and bring about the increase in its capital in the following manner, towit : *21. The following are the facts upon wihich is based applicant's estimate of the actual value of the property which has and is to become an asset of the corporation in the increase of its capital stock, towit:... 22. Attached to this application, and marked as Exhibits are copies of all the forms of contracts, subscription lists, deeds, stock certificates, and all other forms of obligations to be used in the promo- tion and sale of applicant's proposed increased capital stock, as well as a copy of the power of attorney heretofore filed with the Secretary of State in accordance with the provisions of Section 11, Chapter 32, General Laws, passed by the First Called Sesson of the Thirty-third Legislature, as well as a copy of applicant's charter and all amendments thereto. 23. The names and address of applicant's directors are as follows, towit : 24. The names and addresses of applicant's oflScers are as follows, towit : 25. The name and place of business of the bank, bank and trust company, or trust company selected as a depository for the money or other things of value collected in the sale of applicant's proposed in- creased capital stock is 26. This proposed increase in the capital stock of applicant has been authorized in the manner and form prescribed by the laws of the State under which it is incorporated, which facts are shown by certified copies of its minutes hereto attached and marked Exhibit ; likewise its president and secretary have been authorized to ma;ke this application and exeeute all the necessary bonds and papers as shown by * Only in the promotion and sale of stock in mining, oil, gas and townsite corporations is it necessary to make this (No. el) statement, 836 , TEXAS certified copies of its minutes hereto attached and marked Exhibit. 27. Other information requested by the Secretary of State is as follows, towit : 28. Remarks 29. Wherefore, the applicant asks that this application be received, filed and granted ; that the amount of the bond required by law be fixed, and that upon the filing and approval of the same that the permit asked for be issued. Applicant. By Its President. Attest : Secretary. The State of , County x>t Before me, the undersigned authority, on this day personally ap- peared , who, being by me duly sworn upon oath, deposes and says that he is secretary of the applicant whose name is subscribed to the foregoing application ; that he is authorized to make this affidavit, and that all statements made in the above and foregoing application are true. Subscribed and sworn to before me this the day of A. D. 19... Notary Public in and for County, State of. APPLICANT'S BOND TO SELL PROPOSED INCREASED CAPITAL STOCK (Foreign Corporation) The State of Texas, County of Travis. Whereas, the undersigned, a corporation chartered under the laws of the State of has applied to the Secre- tary of State of the State of Texas for a permit to sell its proposed increased capital stock, a copy of which said application, together with all exhibits attached thereto, is hereijvith attached and made a part of this bond; and WhiEreas, in order to obtain said permit it is made and provided by the laws of Texas that a bond shall be entered 4nto in accordance with the terms and provisions of Chapter 32 of the General Laws passed by the First Called Session of the Thirty-third Legislature; TEXAS 837 Now, therefore, we, the said applicant, as principal, and the other subscribers hereto as sureties, do acknowledge ourselves indebted to and held and firmly bound and obligated to pay to the Hon Secretary of State of the State of Texas, and his successors in office, the sum of dollars, at Austin, in Travis County, Texas, for the payment of which well and truly to be made we do jointly and severally bind ourselves, our legal representatives, successors and assigns, firmly by these presents. The. condition of this obligation is such, however, that in the event the facts set forth in said application for a permit, and the proof and statements offered by us to the said Secretary of State upon which said application is based are true, and that the undersigned applicant dp com- ply with all of the provisions of Chapter 32 of the General Laws passed at the First Called Session of the Thirty-third Legislature in the sale of its proposed increased capital stock in so far as said Act is applicable, then this obligation shall be null and void; otherwise it is to remain in full force and effect. It is provided further, that should any person be induced to purchase any of such proposed increased stock of applicant corporation by the applicant or anyone acting for it or by reason of any misrepresentation of any material fact concerning such stock, then such person or persons shall have the right to. bring suit upon this bond, and this bond shall be subject to and security for such person so purahas- ing the stock ; provided, however, that such person shall not be entitled to recover more than the money paid or the actual value of the pi-op- erty given or the labor performed in exchange for such stock, with legal interest from the date of the payment or the performance of the services or the transfer of the property. It is further provided that one or more recoveries upon this bond shall not vitiate the same, but that the same shall remain in full force and effect; provided, however, that no recovery or no number of recoveries upon this bond shall ever exceed the full amount of the same. In testimony whereof witness our hands this the day of , A. D. 19... By Its President. Attest : Secretary. Approved and filed this the day of. A. D., 19. . . §p<;retary of State, 838 UTAH UTAH STATUTES AN ACT To prevent fraud in the sale and disposition of stocks, bonds and other securities sold or offered for sale in the State of Utah, providing for the enforcement thereof, creating a State Securi- ties Commission, and defining offenses and prescribing penal- ties therefor. (Session Laws 1919.) Be it enacted by the Legislature of the State of Utah: Section 1 . Commission — duties — meetings — records — secre- tary — bond — reports — investigations. There is hereby created a Commission to be known as the State Securities Commission, hereinafter referred to as the "Commission," whose duty it shall be to administer and provide for the enforcement of the provisions of this Act. Said Commission shall consist of the Secretary of State, the Bank Commis- sioner, and the Attorney General. The Secretary of State shall be the State Commissioner of Securities, hreeinafter referred to as "Commis- sioner." Two members of said Commission shall constitute a quorum. Said Commission shall have its office in the State Capitol, Salt Lake _ City, to be furnished by the .State, and all its records kept in its said offite. It shall hold regular weekly meetings on such date as may be fixed by the Commission and may hold special meetings upon the call of the Commissioner. It shall keep a complete record of the business it transacts and shall prepare all blanks necessary in the conduct of its business. The Commission shall have authority to employ^ a secretary at a salary to be fixed by it not exceeding the sum of $3,000.00 per annum. The secretary shall qualify by taking the constitutional oath of office and by giving bond in the penal sum of $5,000.00, conditioned for the faith- ful performance of the office of secretary of said Commission to be ap- proved by said Commission, and said secretary shall hold office during the pleasure of the Commission. He shall perform all the duties re- quired by the Commission. On the 1st day of January of each year the Commission shall prepare and file in the office of the Governor a report containing an accurate statement of the work of the Commission for the fiscal year ending November 30th preceding the year of said report, which report shall also contain a schedule of all applications for licenses to sell securities in the State, a schedule of licenses granted, a schedule of licenses rejected, a schedule of licenses pending, a statement of the receipts and disbursements of the Commission and such other facts as may be necessary to a complete understanding of the work of gaid Commission. , UTAH 839 The Commission is hereby authorized to issue subpoenaes com- pelling the attendance of witnesses and the production of books and ' records, to administer oaths, and to do such other things as may be necessary in the investigation of matters properly coming before it. Section 2. Pravisions not applicable. The provisions of this Act shall not apply to : (a) Securities of the United States or any foreign government or any State or territory thereof or of any county, city, township, dis- trict or other public taxing subdivision of any State or territory of the United States or foreign government. (b) Securities of the federal reserve banks, federal farm loan banks, national banks or State banks. (c) Securities of public corporations, the issuance of which is regulated by public service commissions or boards of supervision, in this State or of any other State or territory of the United States. (d) Commercial paper or negotiable promissory notes due not more than three years from their date. (e) Securities of any domestic corporation or co-operative asso- ciation organized without capital stock and not for pecuniary gain or exclusively for educational, religious, benevolent, charitable or reformatory purposes. (f) Mortgages or notes or bonds secured by mortgages on real or personal property where the entire indebtedness and security is sold and transferred. (g) Securities sold pursuant to the order of any court, (h) Isolated or single transactions. (i) Sales of stock for delinquent assessment. (j) Securities of corporations which are listed in any standard manual of information approved by the Commission. Section 3. Investment Company — Deallar — Bucketing — Con- structions. "Investment company" for the purpose of this Act shall mean every person, firm, foreign and domestic corporation, excepting those specifically exempted under Section 2 of this Act, that shall engage in the business within the State of Utah of selling or negotiating for the sale of any stocks, bonds, investment contracts or other securities herein called "securities" issued by said person, firm, domestic or foreign corporation. "Dealer" for the purposes of this Act shall mean every person, firm, domestic or foreign corporation that sihall sell or offer for sale within this State any of the stocks, bonds, investment contracts or other securities issued by any investment company as herein defined and ex- cept such as are specifically exempted, as provided in Section 2 hereof, or that shall hy advertisement or otherwise engage in or profess to en- gage in the business of selling, bartering or offering for sale or ex- change such securities. 840 UTAH "Bucketing"' for the purposes of this Act shall mean : (a) The making of or offering to make any contract respecting the purchase or sale of any securities or commodities, wherein both parties thereto intend, or the dealer intends, that such contract shall be, or may be, terminated, closed, or settled according to or upon the basis of the public market quotations of prices made on any board of trade or exchange upon which said securities or commodities are dealt in and without a bona fide purchase or sale of the same; or (b) The making of or offering to make any contract respecting the purchase or sale of any securities or commodities, wherein both parties thereto intend, or the dealer intends, that such contract shall be, or may be, deemed terminated, closed, or settled, when such public market quotations of prices for the securities or commodities named in such contract shall reach a certain figure without a bona fide purchase or sale of the same ; or (c) The making of or offering to make any contract respecting the purchase or sale of any securities or commodities wherein both parties thereto do not intend, or the dealer does not intend, the actual or bona fide receipt or delivery of such securities or commodities, but do in- tend, or the dealer does intend, a settlement of such contract based upon the differences in such public market quotations of prices at which said securities or commodities are or are asserted to be bought and sold. Section 4. Registration — Statements — Deposits. No invest- ment company shall sell or offer for sale or exchange within the State of Utah any securities as herein defined or engage in the business of selling or offering for sale such securities without first registering with the Commission and filing under oath and upon forms prescribed by said Commission a statement containing the following information, to- wit: (a) The investment company's name and resident address. (b) General character of securities to be sold or dealt in. (c) A specific statement of the property, rights, titles, and inter- ests owned upon which the value of the stock is based. (d) The place or places where the business of selling securities is to be conducted within the State and where the business in this State is not to be conducted by the investment company then the names and addresses of all persons authorized to conduct such business. (e) The total authorized capital stock of any corporation whose securities are offered for sale. (f) The amount pf the capital stock of any corporation whose securities are offered for sale subscribed and issued. (g) The consideration paid to the corporation for capital stock issued and if any part of the stock so issued is issued for property, patent rights, copyrights, good will, or other thing of value, a detailed description of the property so transferred to and received by thevcorpora- tion. UTAH 841 (h) A detailed statement of all promotion stock issued, with the names and addresses of the individuals receiving the same. (i) The names of the officers and directors of the corporation with a statement of the salaries, commissions, fees, or any other compensa- tion paid to them as such' officers or directors. (j) The names of the agents authorized to solicit purchases of said stock; whether or not such agents receive fees, commissions, or salaries, and if so, the amount tjjereof. (k) Such other and further information as the Commission may from time to time in the performance of its duties require. Said investment company shall accompany the application for li- cense with a certified check or lawful money of the United States in the amount of one-tenth of one per cent of the face value of the securi- ties for the sale of which application is made, provided that such filing fees shall not exceed $25.00. Section S. Process Agents — Appointment Irrevocable. If the investment company or dealer be a non-resident of this State or a foreign corporation, he or it shall, at the time of making application for a license permitting him or it to conduct the business specified in this Act, execute, acknowledge and deliver to the Commissioner proper and legal authority appointing the said Commissioner process agent for the State of Utah, upon whom all legal process issued out of any court within the State of Utah may be served for and in behalf of the dealer or invest- ment company, which appointment shall be irrevocable. Section 6. License — Duration — Suspensions. Upon compli- ance by such investment company with the provisions of this Act, the said Commission may issue to such investment company a license under the seal of said Commission and signed by the secretary thereof, in such form or forms as the Commission shall adopt, which said license shall be valid for a period of one year from date of issuance unless sooner revoked by said Commission for good cause upon notice to such investment company and a hearing duly had; provided, however, that said license may be suspended as to the selling of specific securities pending the investigation and hearing by the Commission. Section 7. Fees of Agents — Time Due — Renewals. In addi- tion to the filing and ej^^minatipn fees herein provided for to be paid by said investment company or dealet*, there shall be charged and col- lected by said Commission a fee of $5.00 for the registration and au- thorization of e,ach agent of such investment company or dealer, which fee and regisrtation sh^ll entitle each agent to act as such until the 1st day of May following unless said authority i? sooner revoked. Each of such agents shrill make a new registration on M*y 1st of each year for the renewal of their agency, and the Commission shall charge and col- lect for each such renewal a registration fee of $5.00, 842 UTAH Section 8. Application and Statements by Dealers. On or before the date when this Act takes effect every person doing business as a dealer shall file with the Commission a statement in writing, under oath, which shall contain, in such form as the Commission shall pre- scribe, (a) the name and postoffice address of the dealer; (b) if the dealer be a, co-partnership or unincorporated association, the names and postoffice addresses of all the members thereof, and if the dealer be a corporation, the names and postoffice addresses of all the officers and directors thereof; (c) the location of the office or principal place of business of the dealer in Utah; (d) an application on behalf of the dealer for a license to do business under the provisions of this Act. Section 9. Fees and Bonds of Dealers. At the time of pre- senting such statement and application for filing the dealer shall: (1) Pay to the Commission the sum of $10.00 as a license fee for the calendar year, and a license fee of $10.00 shall be paid before the license shall be issued for any calendar year thereafter. Such fees shall be turned into the State treasury and credited to the State Securities Commission fund. (2) Deliver to the Commission a good and sufficient bond for $5,000.00, payable to the State of Utah, to be executed hy said applicant together with a surety company or two good and sufficient sureties, and to be approved both as to form and sureties by the Commission. Said bonds shall be conditioned upon the faithful compliance with the pro- visions of law by said applicant, and provide that upon failure to so com- ply, the applicant shall be liable to any and all persons who may suffer loss by reason thereof. Section 10. License Issued — Public Display. Upon payment of such license fee, the Commission shall file such statement and applica- tion and shall issue a license, under the seal of the Commission, reciting that the dealer is licensed to do business under the provisions of this Act during the fiscal year for *hich such license is issued. Said license shall at all times be publicly displayed by the dealer at his said office or place of business. Section 11. Expiration and Renewal of License. All dealers' licenses issued under the provisions of this Act shall expire at the end of the fiscal year for which the same are issued and may be renewed only upon filing the statement and application and payment of the license fee required for the granting of an original license. Section 12. Dealers to Keep Book of Accounts. Every dealer licensed under the provisions of this Act shall keep at his said office or principal place of business true and complete books of accounts showing all of the dealers' assets, liabilities, transactions and business. Section 13. Forms of Books — Examinations and Regulation. The Commission shall have power to prescribe the manner and form in which every licensed dealer's books of account shall be kept and to examine the same at all times and to require the dealer and his agents UTAH 843 and employees to produce for his examination all other papers and records relating to the dealer's transactions and business, and, in general, shall have the same powers of examination and regulation of the transactions and business of licensed dealers as the State Bank Commissioner has with respect to banks and other financial institutions of this State. Section 14. Powers of Suspension — Supervision of Commis- sion. If at any time, upon examination, it shall appear to the satis- faction of the Commission, that any licensed dealer is insolvent or is doing business in violation of any of the provisions of this "Act, the Commission may, by order, suspend the license of such dealer until such insolvency be cured or such unlawful practice shall cease, as the case may be. During such suspension it shall be unlawful for the dealer to do any business under said license, except under the supervision of and to the extent permitted by said Commission. Section 15. Statements Furnished Customers. Every licensed dealer shall, within twenty-four hours after demand, furnisih to any customer or principal for whom such dealer has executed any order for the purchase or sale of any securities or commodities either for im- ' mediate or future delivery, a written statement showing the time when, the place where and the price at which the same were bought or sold. Section 16. Publications Concerning Affairs or Properties Pro- hibited — Penalty. Any person who knowingly makes or publishes in any way whatever, or permits to be so made or publshed, any book, prospectus, notice, report, statement, exhibit or other publication of or concerning the affairs, financial condition or property of any corporation, joint-stock association, co-partnership or individual which said book, prospectus, notice, report, statement, exhibit or other publication, shall contain any statement which is false or wilfully exaggerated or which is intended to give, or which shall have a tendency to give, a less or greater apparent value to the securities or property of said corporation, joint-stock association, co-partnership, or individual, or any part of said securities or property then said securities or property or any part thereof, shall really and in fact possess, shall be deemed guilty of a felony, and upon conviction thereof shall be punished as provided in this Act. Section 17. Issuances Permissive Only — Statement Required, All securities issued under authority of this Act by an investment com- pany or dealer shall recite in bold type that the issuance thereof is permissive and that the Commission does not recommend or endorse the securities issued or sold. Section 18. Reports by Investment Companies — Period and Contents. Every investment company shall on or before the 1st day of March in each year, make and file with the State Securities Commis- sion a report, covering the calendar year ending December 31, preceding the filing thereof, .and the same shall show iully and clearly the true financial condition of the investment company at the close of said calendar year and shall specifically state the amount of stocks, bonds, or other 844 UTAH securities sold during the annual period, the price at which the same were sold, the commission paid for the sale of the same, the amount of money in the treasury, the amount of work done, the cost of acquisi- tion of property, the fair assessed valuation of property rights or in- terests owned or held by such investment company, the names, addresses and place or places of business of the officers of the company and those in charge of its business affairs, and such other detailed information as may be required by the Commission; provided that the Commission may require reports at such other times as it may deem necessary. Section 19. Securities Commission Fund — Deposits — Expenses. All fees and charges collected by the Commission, accompanied by a detailed statement thereof, shall be paid into the State treasury each month and credited to the State Securities Commission fund, which is hereby created a permanent fund. All moneys remaining to the credit of the State Securities fund at the end of each biennial period, in excess of five thousand dollars ($6,000.00) shall be covered into the general fund. The State Securities Commission fund shall be applied to the pay- ment each month of salaries for services rendered and necessary travel- ing and administration expenses incurred thereunder, upon vouchers therefor duly presented by said Commission to and approved by the State Board of Examiners. Section 20. Fees and Charges — Exceptions. The Commissioner shall charge and collect the following fees : (a) For any examination, audit, or investigation, not tp exceed '$10.00 per day or fraction thereof, plus the actual amount of traveling expenses reasonably incurred, in the performance of such work. (b) For copies of papers and records not required to be certified or otherwise authenticated by the Commissioner, 20 cents for each folio. (c) For certified copies of official documents, orders, and other papers filed in his office, and for transcripts 20 cents for each folio and $1.00 for each certificate under seal. (d) For certificate of serving and mailing process served upon the Commissioner in any action or proceeding commenced or prosecuted in this State against any person, corporation, or association that shall have appointed the Commissioner its agent, as provided in Section 5 hereof, $2.00. No fees shall be charged or collected for copies of papers, records or official documents furnished to public officers for use in their official capacity or for the reports of the Commissioner in the ordinary course of distribution; but the Commissioner may fix a reasonable charge for publications issued under his authority. SEfTiON 21. Bucketing Contract — Felonies. Any person who shall make or offer to make any bucketing contract shall be guilty of a felony and upon conviction thereof shall be punished as provided in this Act. UTAH 845 Section 22. Statement in Aid of Certain Contracts — Pro- hibited. Any person who shall communicate, receive, exhibit or display in any manner any statement of quotations of prices of stny sectirities or commodities, with intent to make or offer to make, or to aid in making or offering to make, any bucketing contract, shall be guilty of a felony and upon conviction thereof shall be punished as pro- vided in this Act. Section 23. Violations of Act a Felony — Penalties. Any per- son, firm, domestic or foreign corporation that publishes an advertise- ment of an investment company, dealer, or agent not duly licensed under the provisions of this Act, or that as an investment company, dealer, or agent, sells, advertises for sale, or offers for sale securities as herein defined without first making application to the Commission and receiving the license herein required or that sells, advertises, or offers for sale securities as herein defined after the suspension or revocation of any license granted, or does any other act or thing in violation of the terms of this chapter shall be guilty of a felony and upon conviction thereof, shall be fined in a sum not less than $100.0(> and not more than $5,OOJ3.00, or imprisoned in the State prison for a term of not more than five years. Section 24. Sale Contracts Unlawful — Liabilities to Pur- chasers. Any contract of sale made in violation of the terms of this chapter or without first applying for and receiving the license as herein required shall be unlawful and void and every person, firm, do- mestic or foreign corporation participating directly or indiectly in the sale of any. security in violation of the terms of this Act and every officer, director, and agent of any corporation wihere acting as an in- vestment company or dealer, or agent, shall be liable to the purchaser in a civil action instituted in any court of competent jurisdiction for the amount of the purchase price paid and all damages the purchaser may sustain, without proof of actual or constrictive fraud. Section 25. Effect of Invalidations of Part of Act. Should Hhe courts of this State declare any Section or provision of this Act un- constitutional or unauthorized, or in conflict with any other Section or provision of this Act, then such decision shall affect only the Section or provision so declared to be unconstitutional or unauthorized and shall not affect any other Section or part of this Act. Approved March 13, 1919. In effiect May 12, 1919. 846 VERMONT VERMONT STATUTES AN ACT To Provide for the Regulation of Investment Companies. (Act No. 170 of the Laws of 1912, as amended by Act No. 159 of the Laws of 1917.) Section 1. Section 4693 of the Public Statutes as amended by Sec- tion 1 of No. 170 of the Acts of 1912 (Sec. 5326 of the General Laws, as proposed) is hereby amended so as to read as follows : Sec. 4693. (Sec. 5326 G. L.). Every corporation, co-partnership, company, association or individual located in this state which shall sell or negotiate for the sale of any lands situated outside this state, any stocks, bonds or other securities of any kind or character, (except bonds of -the United States ; State of Vermont ; municipalities of this state ; notes secured by mortgages on real estate in this state; obligations given by individuals who are citizens or legal residents of this state; bonds, stocks or notes of corporations doing business in this state by virtue of a charter granted by this state, bonds, stocks or notes of corporations which have been approved by the Public Service Commission, or other governmental authority, of any state or of the United States), to any person in this state, shall be known for the purpose of this act as a do- mestic investment company. Every such corporation, coparhiership, com- pany, association and individual located or organized in any other state, territory or government, or organized under the laws of any other state, territory or government, shall he known for the purpose of this act as a foreign investment company. A corporation, copartnership, association, company or individual acting as a broker which wishes to sell in this state any of the securities or investments referred to in this siection which require a license for their sale, and which are listed on any or the exchanges in the principal cities of this country municipal bonds ; mortgages of real estate or securi- ties which have an established reputation, shall be known for the purposes of this act as an investment company, and may be granted a license to sell such investments and securities under the same regulations and conditions as apply to domestic and foreign investment companies. Section 2. Section 4694 of the Public Statutes is hereby amended so as to read as follows: Sec. 4694. Before offering or attempting to sell any lands situated outside this state or stocks, bonds or other securities of any kind or ■character other than those specifically exempted in section 1 of this act to any person or persons or transacting any business whatever in this VERMONT 847 state, excepting that of preparing the documents hereinafter required, every such investment company, domestic or foreign, shall file in the office of the bank commissioner together with the filing fee of twenty-five dollars, the following documents to-wit : A bond to the state for such amount as said bank commissioner may require, not more than twenty- five thousand dollars and not less than one thousand dollars, with sucn sureties or security as he may approve, conditioned for compliance with the laws of this state affecting such investment companies ; a statement showing in full detail the plan upon which it proposes to transact busi- ness ; ^ copy of all contracts, bonds or other instruments which it pro- poses to make with or sell to its contributors ; a statement which shows the name and the location of the investment company, and an itemized account of its actual financial condition, and the amount of its property and liabilities, and such other information touching its affairs as said bank commissioner may require. If such inviestment company is a co- partnership or an unincorporated association it shall when requested in writing by the bank commissioner also file with the bank commissioner a copy of its articles of co-partnership or association, and all other papers pertaining to its organization, and if it he a corporation organized under the laws of Vermont it shall when requested in writing by the bank commissioner also file with the bank commissioner a copy of its articles of incorporation, constitution and by-laws, and all other papers pertain- ing to its organization. If it is an investment company organized under the laws of any other state, territory or government, incorporated or unincorporated, it shall when requested in writing by the bank commis- sioner also file with the said bank commissioner a copy of the laws of said state, territory or government under wihich it exists or is incorporated, and also a copy of its charter, articles of incorporation, constitution and by-laws and all amendments thereof which have been made and all other papers pertaining to its organization. All of the above described papers, except charters or articles of association of a domestic corporation re- quired to be filed with the secretary of state of this state, shall be verified by the oath of a member of a co-partnership or company, if it be a co- partnership or company, or by the oath of a duly authorized officer, if it be an incorporated or unincorporated association. AH such papers, however, as are recorded or are on file in any public office shall be further certified to by the officer of whose records or archives they form a part, as being correct copies of such records or archives. The bank commissioner may in his discretion, waive the filing of any of the papers, bonds or documents described in this section. Section 3. Section 4697 of the Public Statutes is hereby amended so as to read as follows : Sec. 4697. Every foreign investment company shall when requested in writing by the bank commissioner also file its written consent, irre- vocable, that actions may be commenced against it, in the proper court of any county in this state in which a cause of action may arise or in which 848 VERMONT the plaintiflf may reside, by the service of process on the secretary of state, and stipulating and agreeing that such service of process on the secretary of state shall be taken and held, in all the courts, to be as valid and binding as if due service had been made upon the company itself, according to the law's of this or any other state, and such instru- ment shall be authenticated by the seal of said foreign investment com- pany and by the signature of a member of the co-partnership or com- pany, if it be a co-partnership or company, or by the signatures of the president and secretary of the incorporated or unincorporated associa- tion, if it be an incorporated or unincorporated association, and shall be accompanied by a duly certified copy of the order or resolution of the board of directors, trustees, or managers of the corporation authoriz- ing the said secretary or president to execute the same. Section 4. Section 4696 of the Public Statutes is hereby amended so as to read as follows : Sec. 4696. It shall be the duty of the bank commissioner to ex- amine the statements and documents so filed, and if he shall deem it advisable he shall make or cause to be made a detailed examination of such investment company's affairs, which examination shall be at the expense of such investment company, as hereinafter provided; and if he finds that such investment company is solvent, that its articles of in- corporation or association, its constitution and by-law?s, its proposed plan of business and proposed contract contain and provide for a fair, just and equitable plan for the transaction of business, and in his judg- ment promises a fair return on the lands, stocks, bonds and other se- curities by it offered for sale, the bank commissioner shall issue to such investment company a statement reciting that such company has com- plied with the provisions of this act, that detailed information in regard to the company and its securities is on file in his office for public in- spection, that such investment company is permitted to do business in state for one year and such statement shall also recite in bold type that the bank commissioner in no wise recommends the securities to be offered for sale by such company. But if said bank commissioner finds that said articles of incorporation or association, charter, constitution and by-laws, plan of business or proposed .contract contain any provisions that are unfair, unjust, inequitable or oppressive to any class of contributors, or if he decides from his ^examination of its affairs that said investment company is not solvent and does not intend to do a fair and honest business, and in his judgment does not promise a fair return on the lands, stocks, bonds or other securities by it offered for sale, then he shall notify such investment company of his findings, and it shall be unlawful for such company to do any further business in this state until it shall so change its constitution and by-laws, articles of incorporation or association, its proposed plan of business and proposed contract and its general financial condition in such manner as to satisfy the bank commissioner that it is solvent, and its articles of incorproation or asso- VERMONT 849 ciation, its constitution and by-laws, its proposed plan of business and proposed contract, provide for a fair, just and equitable plan for the transaction of business and does, in his judgment, promise a fair re- turn on the lands, stocks, bonds and other siecurities by it offered for sale; provided, that all expenses paid or incurred and all fees or charges received or collected for any examination made under the provisions of this section shall be reported in detail by the bank commissioner and a full report and record thereof made in detail. Section 5. It shall not be lawful for any investment company, either as principal or agent, to transact any business, in form' or char- acter similar to that set forth in section 1 of this act, except as is provided in section 2 of this act, until it shall have filed the papers and documents above provided for ; nor shall an unlicensed company advertise its business in newspapers in this state or by circulars. No amendment of the charter, articles of incorporation, constitution and by-laws of any such investment company shall become operative until a copy of the same has been filed with the bank commissioner as pro- vided in regard to the original filing of charges, articles of incorpora- tion, constitution and by-laws, nor shall it be lawful for any such in- vestment company to transact business on any other plan than that set forth in the statement required to be filed by section 2 of this act or make any .contracts other than that shown in the copy of the proposed contract required to be filed by section 2 of this act, until a written state- ment showing in full detail the proposed new plan of transacting the busi- ness and a copy of the proposed new contract shall have been filed with the bank comrnissioner, in like manner as provided in regard to the original plan of business and proposed contract, and the consent of the bank commissioner obtained as to making such proposed new plan of transacting business and proposed new contract. Section 6. An investment " company may appoint one or more agents, but no such agent shall do any business for said investment com- pany in this state until he shall first register with the bank commissioner as agent for such investment company. Such registration shall entitle such agent to represent said investment company until the first day of April following, unless said authority is sooner revoked by the bank commissioner; and such authority shall be subject to revocation at any time by the bank commissioner for cause appearing to him sufficient. Section 7. Section 469& of the Public Statutes is hereby amended so as to read as follows : Sec. 4699. Every investment company, domestic or foreign, shall when requested in writing by the bank commissioner file at the close of business on the last day of June and December of each year, and at such other times as required by the bank commissioner, a statement verified by the oath of the co-partnersihip or company, if it be a co- partnership or company, or by the oath of a duly authorized officer, if it be an incorporated or an unincorporated association, setting forth 64 850 VERMONT in such form as may be prescribed by the said bank commissioner, its financial condition and the amount of its assets and liabilities, and furnish- ing such other information concerning its affairs as said bank commis- sioner may require. Each regular statement of June and December shall be accompanied by a filing fee of five dollars. Any investment company when requested in writing by the bank commissioner failing to file its report at the close of business on the last day of June or December of each year within ten days of the date, or failing to file any other or special report herein required within thirty days after receipt of request or requisition therefor, sfiall forfeit its right to do business in this state. Section 8. The bank commissioner shall have general supervision and control, as provided by this act, over any and all investment com- panies, dom,estic or foreign, doing business in this state, and all such in- vestment companies shall be subject to examination by the bank commis- sioner or ihis duly authorized deputy at any time the bank commissioner may deem it advisable and in the same manner as is now provided for the examination of state banks, and make such examination of securi- ties sold by them in Vermont as shall be necessary tor him to determine their character. The rights, powers, and privilege of the bank commis- sioner in connection with such examinations shall be the same as is now provided with reference to examination of state banks; and such invest- ment company shall pay a fee for each of such examinations of not to exceed ten dollars for each day or fraction thereof plus the actual travel- ing and hotel expenses of said bank commissioner or deputy in making such examination, and the failure or refusal of any investment company to pay said fees upon the demand of the bank commissioner or deputy while making such examination shall work a forfeiture of its right to do business in this state. Section 9. Section 4700 of the Public Statutes is hereby amended so as to read as follows: Sec. 4700. Whenever it shall appear to the bank commissioner tliat the assets of any investment company doing business in this state are impaired to the extent that such assets do not equal its liabilities, or that it is conducting its business in an unsafe, inequitable or unauthorized manner, or jeopardizing the interest of its stockholders or investors in lands, stocks, bonds or other securities by it offered for sale, or when- ever any investment company shall fail or refuse to file any papers, state- ments or documents, required by this act, without giving satisfactory reasons therefor said bank commissioner shall at once communicate such facts to the attorney general who shall thereupon revoke the license of such investment company and send a copy of such revocation to the principal office of such company and to each agent thereof in this state and caus? the same to be published in such manner as he deems proper; he shall also forthwith apply to a chancellor for the appointment of a receiver to take charge of and wind up the business of such investment company and if such fact or facts be made to appear it shall be sufficient VERMONT 851 evidence to authorize tlie appointment of a receiver and the making of such orders and decrees in such cases as equity may require. Section 10. A person who knowingly or willfully subscribes to or makes or causes to be made any false statement, or false entry in any book of suoh investment company, or exhibits any false paper, with the intention of deceiving any person authorized to examine into the affairs of such investment company, or makes or publishes any false statement of the financial condition of such investment company, or the lands, stocks, bonds or other securities by it offered for sale, shall be fined not more than one thousand dollars, or shall be imprisoned for not more than ninety days, or both. Section 11. A person wiho sells or attempts to sell the lands, stock, bonds or other securities of an investment company, domestic or foreign, or the lands, stock, bonds or other securities by it offered for sale, who has not complied with the provisions of this act, or an investment com- pany, domestic or foreign, whidh does any business, or attempts to do any business, except as provided in section 2 of this act which has not complied with the provisions of this act, or an agent who does or at- tempts to do any business for an investment company, domestic or for- eign, in this state, which agent is not at the time duly registered and has not fully complied with, the provisions of this act, shall be fined for each offense not more than one thousand dollars, or shall be imprisoned for not more than ninety days, or both. Section 12. All fees herein provided for shall be collected by the bank commissioner and by him shall be turned into the state treasury, and all fees so turned into the state treasury or suoh part thereof as may be required are hereby reappropriated to the bank commissioner for the purpose of paying salaries and expenses necessary for carrying this act into effect; and the bank commissoiner is hereby authorized to appoint such clerks and deputies as are necessary to carry this act into full force and effect. Money necessarily paid out by the bank commis- sioner to a clerk or deputy appointed under this act, as salaries, or neces- sarily paid out by the bank commissioner, or by a clerk or deputy ap- pointed under the provisions of this act for traveling or incidental ex- pienses, shall be paid by the state treasurer out of such fees upon the order of the auditor of accounts. From the fees collected under this act there shall be paid to the bank commissioner for his services five hundred dollars annually. Section 13. Should the court declare any section of this act un- constitutional or unauthorized by law, or in conflict with any other sec- tion or provision of this act, then such decision shall affect only the sec- tion or provisions so declared to be unconstitutional and shall not affect any other section or part of this act. Section 14. All acts and parts of acts inconsistent with this act are hereby repealed. Approved February 13, 1913. 852 VERMONT Administration Under Act No. 170, Laws of 1912, which is called the "Blue Sky Law" which requires corporations, co-partnerships, associations, etc., to be licensed bj? the Bank Commissioner before selling or offering for sale certain investments or securities, there has been licensed on an average about seventy-five companies, a part of the time being some less than this proportion and a part of the time eighty or more. Under the discretion given the Commissioner by the law it has been possible to administer it in such a way as to fairly protect the State against the operations of those who would sell worthless securities, and at the same time not to hamper the business of legitimate investment companies, I have ex- artiified during the past four years investment companies, corporations, associations and individuals which were offering for sale and selling in Vermont, farm mortgages to the banks Emd individuals, and have ex- amined the territory where the mortgages were placed, in the states of Iowa, Kansas, Oklahoma, Missouri, North Dakota, Minnesota, Montana, Washington, Georgia, Texas, Colorado, California, Michigan, Illinois, Arkansas, and Oregon, and it is my opinion that it is safe for individuals or banks to invest in first mortgages of improved farms in any of those states provided the investrtient is made by experienced, responsible, re- liable and competent companies or individuals. — Report of Bank Com- missioner, 1916. Investment Companies The Legislature of 1912 passed Act! 170, called the "Blue Sky Law,'' which requires corporations, co-partnerships, associations, etc., to be li- censed by the Bank Commissioner before selling or offering for sale certain investments or securities. This act went into effect April 1st, 1913, and the number of investment companies licensed and doing busi- ness in Vermont has largely increased. I think the law has worked well and has saved the people of the statel a large amount of money by keep- ing out worthless and poor investments. No litigation has occurred as the result of the enforcement of the law, and very few legitimate dealers criticise its requirements, for they believe that it is in the interest of honest investments, and consequently is an advantage to their business. I have been obliged to cause two companies which had received a license, to retire from doing business ini the state during the past year, and have refused to license a good many who applied, and a good many others who wished to sell securities of doubtful value in the state have with- drawn after ascertaining what the conditions were. As the state banks are not allowed to invest in railroad stocks, industrial stocks and Public Service stocks, it is evident that citizens of the state, or national banks have purchased during the year from licensed investment companies something over two hundred thousand dollars of such stocks, and a comparison of the statement showing the amount of securities sold by VERMONT 853 licensed investment companies with the tables showing the increase in various investments by the banks, indicates that citizens of Vermont and national banks have purchased during the year quite a large amount of such securities. The department organized under the "Blue Sky Law" by the Bank Commissioner, is self-supporting, all the lexpense of in- vestigation, clerical work, etc., being paid by the licensees. - — Report of Bank Commissioner, 1915. 854 VIRGINIA VIRGINIA STATUTES Blue Sky Law AN ACT To prevent unfairness, imposition or fraud in the sale or disposition of certain "securities" herein defined by requiring an inspection thereof, providing for such inspection, supervision and regula- tion of the business of any person, association, partnership, or corporation, engaged or intending to engage, whether' as principal, broker or agent, in the sale of any such securities in the State of Virginia as may be necessary to prevent unfair- ness, imposition or fraud in the sale or disposition of said securities, and prescribing penalties for the violation thereof. (Chap. 408.) 1. Definitions of terms "securities", "speculative securities", "speculative enterprise" and "promoter" as used in this act. Be it enacted by the general assembly of Virginia, That the term "securities" as used in this act shall be taken to mean stock certificates, shares, bonds, debentures certificates of participation, contracts, contracts or bonds for the sale and conveyance of land on deferred payments or installment plan, or other instruments in the nature thereof by what- soever name known or called. The term "speculative securities" as used in this act shall be taken to mean and include (1) all securities to pro- mote or induce the sale of which, profit, gain or advantage unusual in the ordinary course of legitimate business is in any way advertised or promised; (2) all securities for promoting the sale of which a commis- sion of more than seven and one-half per centum is offered or paid, either in money, stock, property or otherwise, either directly or indi- rectly; (3) all securities the value of which materially depends on pro- posed or promised future promotion rather than on present tangible assets and conditions; (4) the securities of any enterprise, association, partner- ship or corporation' which has included or proposes to include in its assets as a material part thereof, oil, gas, coal or mineral lands, leases or rights, options, patents, formulae, good-will, promotion, or intangible assets, or which has issued or proposes to issue a material part of its securities in payment for formulae, options, patents, good-will, promotion or in- tangible assets; (S) securities made or issued in furtherance or promo- tion of any enterprise or scheme for the sale of unimproved or unde- veloped land on any deferred payment or installment plan, where the value of such securities materially depends on the future performance VIRGINIA 855 of any stipulation or promise to furnish irrigation or transportation facilities, sidewalks, sewers, gas, light, streets, or other value enhancing utility or improvemfnt ; (6) contracts issued by persons or companies commonly styling themselves as "home" companies, which purport to entitle the holder thereof to a loan from the issue after the payment of certain installments or dues, or contracts of a similar nature by whom- soever issued, or by whatsoever name called; (7) any stock contract, certificate of participation or other agreement which purports to permit persons, associations, partnerships or corporations to purchase any prop- erty, real, personal, or intangible at a less price or upon more favorable terms than the general public is permitted to purchase same. The term "speculative enterprise" as used in this act shall be taken to mean any business undertaking, project, venture or activity for the promotion or furtherance of which "speculative securities" as herein defined are made, issued, sold, or offered for sale. The word "promoter" as used, in this act shall include any person, agent, broker, partnership, association or corporation who shall sell, offer for sale, advertise or do any act in furtherance of the sale, barter or exchange of any "speculative securities" as defined in this act. 2. Information and fees required of promoters — conditions precedent to offerinjf securities for sale. It shall be hereafter unlawful for any promoter to sell or ofifer for sale (except to banks, bankers, trust companies or dealers in se- curities), or by means of any advertisement, circulars, or prospectus, or by any other form of public offering, to attempt to promote the sale of any speculative securities in this State, unless there first shall have been filed with the State corporation commission, hereafter called the com- mission, duly sworn to; (1) a copy of the securities so to be promoted; (2) a statement in substantial detail of the assets and liabilities of the person or company making and issuing such securities and of any per- son or company guaranteeing the same, including specifically the total amount of such securities and of any securities prior thereto in interest or lien, authorized or issued by any such person or company; (3) if such securities are secured by mortgage or other lien, a copy of such mortgage or of the instrument creating such lien, and a competent ap- praisal or valuation of the property covered thereby, with 'a specific state- ment of all prior liens thereon, if any; (4) a full statement of facts showing the gross and net earnings of any person or company making and issuing or guaranteeing such securities, or of any property covered by any such mortgage or lien; (5) all knowledge or information in the possession of such promoter relative to the character or value of suoh securities, or of the property or earning power of the person or company making and issuing or guaranteeing the same; (6) a copy of any prospectus or advertising matter which is to be used in connection 856 VIRGINIA with such promotion, and no such prospectus or advertising matter shall be used, unless the same has been filed hereunder, but same may be amended from time to time, ■ by filing copies of the amendments with the commission ; (7) the names, addresses and selling territory in this State of any agents by or through whom any such securities are to be sold, and no such agents shall be employed unless such statement with respect to them, together with satisfactory evidence of their good char- acter, has been filed- hereunder and there shall have been paid to the commission a registration fee of five dollars for each such agent. The payment of such fee shall be payment in full of all fees for registration of such agent until and including the first day of May next following; (8) the name and address of such promoter, including the names and addresses of all partners, if the promoter be a partnership, and the names and addresses of the directors or trustees, and of the owners of the capital stock, if the promoter be a corporation or association; (9) a statement showing in detail the plan on which the business or enter- prise is to be conducted; (10) the articles of co-partnership or associa- tion, and all other papers pertaining to its organization, if the securities be insured or guaranteed by a co-partnership or unincorporated asso- ciation; (11) a copy of its charter and by-laws if the securities be issued or guaranteed by a corporation; (12) any other information concerning the said promotion, its assets or the persons interested therein, which the commission may require; (13) a copy of the contract to be used in taking subscriptions for such securities wlherein shall be set out a complete and accurate statement without unnecessary verbiage of any stock or security of the corporation whose securities are being oitered for sale, which has hten or is proposed to be issued in payment for patents, options, formulae, copyrights, leases, or for any consideration, whether similar thereto or not, other than par value or more in money, together with a full statement of the exact amount which is being paid directly or indirectly in money, securities or otherwise for the promotion of such corporation or the flotation of such securities either directly or indirectly to any person whatsoever; (14) a filing fee of twenty-five ($25.00) dollars. 3. Foreign promoter to appoint Secretary of the Common- wealth as agent on whom process may be served. Effect of service. Every foreign promoter before selling or offering for sale any speculative securities, in this State shall also file with the commission his or its written consent, irrevocable, that action may be commenced against him or it in the proper courts of any county or city in this State in which a cause of action may arise, by the service of process on the secretary of the Commonwealth and stipulating and agreeing that such service of process on the secretary of the Commonwealth shall be taken and held in all courts, to be as valid and binding as if due service had VIRGINIA 857 been made upon himself in person or the company itself, according to the laws of this or any other State, and such instrument shall be au- thenticated by the seal of said foreign corporation, and shall be ac- companied by a duly certified copy of the order or resolution of the board of directors, trustees, or managers of the corporation authorizing the said secretary and president to execute the same. When lawful process against any such promoter shall be served upon the secretary of the Commonwealth, he shall forthwith mail a copy of such process to the defendant or defendants therein named, at such address as may have been filed with tlie commission by such defendant. A judgment, decree or order of any court entered or made against any such person, firm or corporation after service of process or notice as aforesaid shall be valid and binding on such defendant, in case of a corporation, as if it had been incorporated under the laws of this State and served with process or notice therein, and in the case of members of a firm or in- dividuals, as if they had been personally served with process or notice therein. 4. Adverse finding of Commission, notice of, effect of. If from the statements, papers and documents on file, or from other evidence submitted, it shall appear, and the commission shall find (1) that the makers or guarantors of said securities are insolvent, or are untrustworthy; (2) or that the promoters' plan of business is dishonest, or fraudulent; (3) or that the promoters' plan of business does not adequately secure investors against the unlawful dissipation or misappli- cation of the funds of the enterprise, or business ; (4) or that the pro- moters' literature or advertising is misleading and calculated to deceive purchasers or investors ; (5) or that the enterprise or business of the promoter is unlawful or against public policy; (6) or is a mere scheme of a promoter or promoters to get money or property at the expense of the purchasers of the aforesaid securities; the said commission shall reduce its said findings to writing and attest the same by the signature of the chairman or secretary thereof. Notice of such finding or findings^ shall immediately be given to the applicant by registered mail. And it shall thereafter be unlawful for the promoter or other person to sell, offer for sale, or by means by any advertisement, circular, or prospectus, or by any other form of public offering to attempt to promote the sale of any such speculative security or securities in this State, until such order be set aside as herein provided. 5. Investigations by Commission — Findings. The commission shall, at any time, have the authority and juris- diction to investigate the affairs of any speculative enterprise, the securi- ties of which are being sold or offered for sale in this State, so far as may be necessary to ascertain whether or not the facts would justify any 858 VIRGINIA or all of the findings enumerated in paragraph (4), and to ascertain whether or not any order which may be promulgated as provided in para- graph (4) shall be continued or vacated, and after giving the promoters a hearing, may, if the evidence warrant, make any of the adverse find- ings enumerated in section four of this act, and may make such order as to the costs as appears to be just, and it shall thereafter be unlawful for any promoter to sell, offer for sale, or by means of any advertise- ment, circular, or prospectus, or by any other form of public offering to attempt to promote the sale of the securities of such speculative enter- prise in this State, until such order be set aside as herein provided. -6. Appeals from decisions of Commission. Appeals may be taken by either party from the decision of the com- mission to the supreme court of appeals of Virginia. The granting of such appeal, however, unless so ordered by the court, shall not operate as a stay of proceedings. 7. Securities exempt from operation of this act. The provisions of this act shall not apply to (a) securities of the United States; or any foreign government; or of any State or territory; or of any county, city, township, district or other public taxing sub-di- vision of any State or territory of the United States or any foreign government, (b) Securities of public service or utilities corporations, the issues of which are regulated by the commission or by the public service commission or board of similar authority of any State or terri- tory of the United States; or securities senior thereto, (c) Securities of any national bank, or of any bank, trust company or huilding and loan association organized under the laws of this State, after organization and while subject to examination and supervision by the proper authori- ties thereof, (d) Securities of any company which are not offered for sale to more than twenty-five persons in this State, (e) Securities of any domestic corporation organized without capital stock, for religious, charitable or reformatory purposes, (f) Securities of persons, firms' or corporations which are not comprehended in the definition of "specu- lative securities'' contained in clause one of this act. (g) Securities of any corporation whose maximum authorized capital stock is not more than twenty-five thousand dollars. 8. Investigation by Commission. Powers, findings, effects. Mailing of Notices. The commission, its assistants or agents shall have the power to issue subpoenas and process compelling the attendance of any person and the production of any papers or books for the purposes of such investigation and examination, as is provided for in this act, and shall have power to administer an oath to any person whose testimony may VIRGINIA 859 be required on such examination or investigation; and it shall be un- lawful for any person to refuse to obey any such subpoena or make answer to any competent and material question propounded to him by the commission, its assistant or agent. No person shall refuse to testify because his testimony would tend to incriminate himself, but if called to testify by the commission or the Commonwealth, he shall not there- after be prosecuted for any crime growing out of the transaction con- cerning which he testifies. Upon the conclusion of any investigation, the commission amy make findings of fact touching the matter or mat- ters under investigation, and such findings shall be prima facie evidence of the truth of the matters therein found by the commission in any action, either civil or criminal, instituted under any of the laws or statutes of this State against the person, persons, partnership, corpora- tion or association selling or offering for sale such securities, or their agents or representatives. The notices provided for in this act may be given by registered letter mailed to the last known address of person or persons or corporations to be investigated and the commission's cer- tificate shall be sufiicient evidence of such notice and the mailing thereof.. 10}^. Contract used by Promoter, forms, contents, type. It shall be unlawful for any promoter to engage in selling, offering to sell or contracting to sell any speculative security, except by printed contract, the form* of which shall be approved by the corporation com- mission and in which shall be plainly set out in ten point -type without unnecessary verbiage, the exact amount of money, fees, commissions, bonus or promotion stock which any person has received or is to, receive by reason of the promotion or salq of such securities or which has been or is to be given or paid for any property, patents, options, formulas, copyrights, leases, or promotion or intangible assets, either directly or indirectly, by any shift or device whatsoever, and it shall be unlawful for any corporate officer or other person in any capacity whatsoever to pay or issue or cause to be issued for any such consideration or as a bonus any money, stock or securities except as set forth in such sub- scription contract, unless any changed plan together with a properly changed form of contract, which form of contract, shall have first been approved by the commission and such change shall be agreed to in a regularly called stockholders' meeting or in the event the promoter be not a corporation then same must be agreed to by the holders who have purchased at par or more the majority of such securities. In every such contract as provided for in this section the following shall be stated in twelve point bold face type: "The value of the stock or securities re- ferred to in this contract have not been passed upon by the State cor- poration commission," 860 VIRGINIA 10. Violation of provisions of this act, Punishment for. Any promoter who shall commit, in whole or in part, in this State any act declared unlawful by this act shall be deemed, guilty of a misde- meanor where not otherwise provided, and on conviction, ibe punished by a fine of not less than one hundred nor more than five thousand" dollars, or by confinement in jail for not less than thirty days or more than one year, or by both such fine and imprisonment. 11. Persons exempt from operation of this act. Successive sales evidence of fraud. This act shall not apply to the owner of any speculative security, who is not the maker or issuer thereof, who shall acquire and sell the same for his own account in the usual and ordinary course of business and not for the direct or indirect promotion of any enterprise or scheme within the purview of this act, providing that such ownership is in good faith. Repeated or successive sales of any such speculative security or securities shall be prima facie evidence that the claim of ownership is not bona fide, but is' a mere shift or device to evade the provisions of this act. 12. Fees, disposition of. Assistants, expenses and salaries. All fees herein provided for shall be collected by the commission and shall be turned into the State treasury. The commission shall also have full power to employ such temporary asssitants or clerks as he may from time to time deem necessary and fix their compensation, and all salaries and expenses necessarily incurred in the administration of this act shall be paid out of fees collected and turned into the State treasury under the provisions of this act and the acts hereby repealed, upon the presentation of itemized vouchers, duly verified, and having the approval of the commission. The auditor shall issue his warrant on the State treasurer for such salaries and expenses, and the State treasurer shall pay the same out of said fees, and for that purpose the said fees are hereby appropriated for use during the fiscal years end- ing on the twenty-eig'hth day of February, nineteen hundred and nineteen, and the twenty-ninth day of February, nineteen hundred and twenty, respectively. 13. False statement or entry, making of, a. felony. Punishment. Any person who shall knowingly or wilfully subscribe to, or make, or cause to be made any false statements or false entry in any book of account of any persons, co-partnership, association, or corporation, sub- ject to the provisions of this act, or exhibit any false paper with inten- tion of deceiving any person authorized to examine into the affairs of such persdn, co-partnership, association or corporation, shall knowingly inal^e any false statements materially affecting the value of the stocks, , VIRGINIA 861 bonds or otlier securities offered for sale by any such person, co-partner- Sihip, association or corporation, shall be deemed guilty of a felony and upon conviction thereof, shall be fined not less than one hundred dollars nor more than five thousand dollars, or shall be imprisoned not less than , six months or more than one year in jail, or not less than one year nor more than ten years in the State penitentiary, or by both such fine and imprisonment. 14. Constitutionality of this act. Should the courts declare any section or clause of this act uncon- stitutional, then such decision shall affect only the section or clause so declared to be unconstitutional, and shall not affect any other section or part of this act. 15. Promotion securities, powers of Commission relating to in escrow. The commission shall determine what part if any of the securities which any person, firm or corporation subject to the provisions of this act proposes to offer or are offering are promotion securities and may make such order as may seem just and proper to prevent the sale of such promotion securtiies in competition with treasury securities in such way as to defraud the public as may seem proper and just to that end and for that purpose may, where it appears necessary to prevent the pub- lic from being defrauded, require that such securities shall be placed in escrow upon such conditions as the commission may direct. 16. Promotion fees, amount of. Powers of Co.mmission relat- ing to. It shall be unlawful for any person, or persons, associations, co- partnership or corporation to receive either directly or indirectly under any guise, devise, or pretext whatsoever, as promotion fee or as com- pensation for the organization of any corporation or flotation of any security whatsoever, more than twenty per centum of the value of the security promoted, floated or sold, unless in the judgment of the corpora- tion commission it should be proper to allow a larger per centum, this to cover the total promotion, organization or flotation fees or expenses either paid to one or more persons, firms or corporations, either paid in money, stock or other thing whatsoever. 18. Purpose of this act. May require securities to be placed in escrow. This act shall not be construed to prevent the sale of purely specu- lative securities, but to give to the commission power to require that the promoters of such securities shall honestly apply the proceeds of the s^le thereof to the purpose for which such securities are sold; an4 tQ 862 VIRGINIA this end the commission may further require such' promoters to place promotion securities in escrow or to give security for the proper and honest application of such funds, as may come into their possession, for another, by reason of such promotion. 22. Failure of promoter to comply with orders of Commission, effect of. In the event of the failure of any promoter to comply with any order which the commission is authorized by this order to make, then it shall be unlawful for such security to be sold until such order is complied with or set aside, as herein provided. Approved March 23, 1918. Provisions for Selling Stock in Insurance Companies; Penalty for Violation of Same. (Laws, 1916.) Sec. 63. No stock salesman, broker or other person representing any insurance company, wherever incorporated, in process of organiza- tion and not licensed to transact business in this State, shall be per- mitted to solicit subscriptions to or sell the stock of such company in this State unless and until such company has furnished the Bureau of Insurance with full particulars as to the methods and proposed cost of promotion. Before any such person shall solicit subscriptions to or sell the stock of such company, he shall be required to secure a license from' the Commissioner of Insurance, who, prior to the issuance of such license, shall investigate the record of the applicant and may, for good cause shown, refuse to issue same. The fee for each such license shall be ten dollars and shall be collected by the Commissioner of Insurance and paid into the treasury of the Commonwealth. The cost of promo- tion, including commissions to the stock salesman and all expenses of organization of whatever character, shall not exceed five per centum of the subscription or selling price of each share of stock and the Com- missioner of Insurance shall require this provision to be plainly set forth in the stock subscription agreement or contract for the sale of stock. No part of the commissions to the salesman or other organization ex- pense under any subscription for stock shall be payable until such share or shares of stock have been fully paid for in cash or securities of equivalent value.. The subscription to or sale of stock in any such com- pany in series is prohibited, except that after a company is organized and actively engaged in the insurance business, the Commissioner of In- surance is empowered to authorize it to sell a new issue of stock at an advanced price on conditions not otherwise inconsistent with the pro- visions of this section. The fiscal agent, person or corporation, engaged in promoting the organization of any such insurance company shall be required to give to the Commissioner of Insurance a surety bond in the VIRGINIA 863 amount of ten per centum of the proposed maximum capital of such company for a faithful performance of the undertaking in accordance with the provisions of this section by both himself and his salesmen, but the provisions of this section shall not apply to any company in process of organization at the time of the passage of this act. Any violation of the provisions of this section shall render the offender, whether promoter or salesman, subject to a fine of not exceed- ing one hundred dollars for each offense. Approved as amended, March 21, 1916. 864 WEST VIRGINIA WEST VIRGINIA STATUTES Speculative Securities Act AN ACT To prevent fraud in the sale and disposition of stocks, bonds, notes, contracts, or other securities, and certain real estate, sold or offered for sale, within the State of West Virginia, and pro- viding penalties for the violations thereof. (Laws 1915, Chap- ter 18.) Section 1. That no person or persons mentioned in section six of this act, shall, as principal or agent, promote by advertisement, circular, prospectus, or any other form of public or general offering, inducement or persuasion, the issuance, transfer, distribution, sale or negotiation of any speculative securities, as hereinafter defined in sec- tion two of this act, unless prior thereto he, or they, shall have filed with the auditor of this state, duly verified by his, or their, oath or aflfirmation and accompanied by a filing fee of five dollars, a statement containing the following: provided, however, that this section s.hall not apply to a bona fide offer directly made to banks, bankers, brokers or trust companies who deal in such securities : (a) A copy of the securities so to be promoted. (b) A copy of the charter, or articles of association, and by-laws, and such other information as may be necessary to establish the character of the promotion, and validity and value of the securities, not otherwise referred to in this section. (c) A statement in substantial detail of the assets and liabilities of the person or company issuing such securities and of any company or person guaranteeing the same, uicludihg specifi- cally the total amount of such securities and of any securities prior thereto in interest or lien. (d) If such securities are secured by mortgage or other lien, a copy of such mortgage or of the instrument creating such lien, and a competent appraisal or valuation of the property covered thereby with a specific statement of all prior liens thereon, if any. (e) A full statement of facts showing the gross and net earnings actual or estimated, of any person or company issuing or guaranteeing such securities, or of any property covered by any such mortgage or lien. WEST VIRGINIA 865 (f) All knowledge or information in the possession of such pro- moter, relative to the character or value of such securities, or of the property or earning power of the person or company issuing or guaranteeing the same, including a statement that such promoter has fully investigated the same and believes the facts as stated to be reliable and true, with such exceptions, if any, as may be stated. (g) A copy of any prospectus or advertising matter which is to be used in connection with such promotion. Such prospectus shall contain a clear and concise statement of the amount of money estimated as necessary to carry out the objects of the promotion ; the price at which it is intended to sell securities ; the amount of promotion expense, commissions and other overhead expenses contemplated, and the net amount to be derived by the company from the sale of each share of stock, bond, note, contract or other security, and no prospectus or other advertising matter shall be used unless the same has been filed hereunder. But in case no prospectus or advertising matter is filed or used, a statement containing the information referred to in this sub-section shall be filed with the auditor. (h) The names and addresses of any agents by or through whom any securities are to be sold in this state, and n'o agent shall be employed or act unless such statement with respect to them has been filed hereunder. (i) The name and address of such promoter, including the names and addresses of all partners, if the promoter be a partnership, and the names and addresses of the directors or trustees (and of any and all persons owning ten per centum or more of the capital stock), if the promoter be a corporation or association. Compliance by any person or persons mentioned in section six of this act, with the provisions of this section, shall ipso facto operate to appoint the auditor of this state as his, or their attorney-in-fact, irre- vocable, for the specific purpose of receiving service of notices and pro- cesses which may be issued against him or them in any action arising out of the promotion, negotiation, issuance, transfer, distribution, or sale by him, or them in this state, of any of the speculative securities concerning which such compliance is made, and the servce of any such notice or process on said auditor, or his acceptance of service endorsed thereon shall be equivalent for all purposes to, and shall be and con- stitute due and legal service of such notice or process upon any such per- son or persons. Immediately after being served with or accepting any such process or notice, the auditor shall file a copy of such process or ntoice with a note thereon endorsed of the time of service or acceptance, as the case 55 866 WEST VIRGINIA may be, and transmit such process or notice by registered mail to the head office of such person or persons. Suits and, actions may be commenced against such person or persons in the proper court of any county in this state in which a cause of action may arise, or in which the plaintiff may reside. Section 2. The term "speculative securities," as used in this act, shall include all the stocks and securities mentioned in section six of this act, which shall, in their subscription, issuance, sale, transfer, negotia- tion or distribution, be represented to yield a profit to the purchaser, or other transferee of more than eight per cent. Section 3. No person or persons described in section six of this act, and not coming within the terms of section two of this act, shall, as principal or agent, promote by advertisement, circulation, prospectus, or any other form of public or general offering, inducement or per- suasion, the issuance, sale, transfer, negotiation or distribution of any of the securities mentioned in section six of this act, without first hav- ing notified the auditor, describing such securities, and if it shall appear therefrom, or from any investigation which the auditor is hereby au- thorized to make, that such information is not sufficient to determine the character and value of such securities, or of such promotion, or of the honesty thereof, then such securities shall be taken and deemed to ' be speculatiife under the terms of the preceding section hereof, and after notice in writing by the auditor of state, such securities shall be sub- ject in all respects to the provisions of this act regarding speculative securities. Section S-a. The listing and necessary description of any securities, with the price thereof, in any sales list distributed or advertised by any dealer in securities shall be subject to the provisions of this section. Section 4. (I) In the case of a person or persons mentioned in section six of this act, not yet on a dividend paying basis, if more than five hundred dollars in cash, or the equivalent at par in the stocks or securities to be promoted, has been or is to be paid or issued for in- tangible assets or property taken over by such person or persons, a subscription blank showing the amount of such payment or issue, and such other information in connection therewith as may be deemed neces- sary by the auditor, shall be filed with said auditor, and subscriptions or applications for said stocks and securities s.hall be recognized by such person or persons only when made upon such subscription blank and signed by the subscriber or applicant. The auditor may secure stock or securities, issued or to be issued for property or intangible assets as aforesaid, to be deposited in escrow under such terms as he may provide. (II) In the case of stocks, the total promotion expense shall not exceed ten per centum of par value of stock sold, and if sold at less than par, ten per centum of the selling price. WEST VIRGINIA 867 In the case of bonds, notes, contracts, or other securities, the total promotion expense shall not exceed five per centum of par value. (III) The provisions of sections one, two and three of this act, shall not apply to the stocks of state and national banks, building and loan associations, and corporations not organized for profit; nor to other stocks and securities, (a) When sold pursuant to the order of any court ; (b) When sales are confined to the old stockholders of the issuing company ; (c) When the issue is taken by the incorporators only as bona fide final holders; (d). When the issue is taken by the stockholders, bondholders, or incorporators in connection with a merger ; (e) When bona fide private holdings of promoted stocks, bonds, notes, contracts or other securities are offered for sale. (IV) All the provisions of this section shall apply to both specu- lative and non-speculative securities. Section 5. The auditor shall immediately examine the papers sub- mitted under section one of this act; pi^ovided, that as to any of the papers required to be filed under sub-paragraphs (c), (d) and (e) of section one, the auditor may waive same, or any part thereof, if he has on file sufficient information believed by him' to be reliable with reference thereto. If the provisions of this act are complied with, the auditor shall give notice to the applicant that the papers have been filed, and notice from the auditor of said filing, shall, so long as it remains unrevoked, be conclusive evidence of compliance with this act. If, from the examination of such papers, or of any additional in- formation or proof, or by reason of the failure to file any information or proof required as aforesaid, it shall appear that the issuance, trans- fer, sale, promotion, negotiation or distribution of such stocks or se- curities, constitutes, or would constitute, a violation of this act, the auditor shall so notify such applicant in writing, and no such applicant or other person shall thereafter issue, transfer, sell, promote, negotiate or distribute any such stocks or securities or commit any overt act in connection therewith. Any person aggrieved by the decision of the auditor of state underc this section, shall within sixty days thereafter, have the right to petition any court having jurisdiction, or the judge thereof in vacation, for a writ of mandamus, or for other appropriate remedy provided by existing law, for the correction of said decision, if the same be erroneous or unjust, or without jurisdiction. Section 6. Any person, co-partnership, association or domestic corporation, or foreign corporation, doing business within the state of West Virginia, or any or all of the officers or agents thereof, alone or in conjunction with others, having devised or intending to devise any 868 WEST VIRGINIA scheme or artifice to defraud any person or persons by securing sub- scriptions for, or by promoting or negotiating the issuance, transfer, distribution or sale of any stocks, bonds, notes, contracts, or other se- curities of any kind or character, who shall for the purpose of executing or attempting to execute such scheme or artifice commit any overt act within this state, shall be guilty of a felony, and upon conviction thereof, shall be punished by a fine of not more than five thousand dollars, or by imprisonment in the penitentiary for not more than five years, or by both such fine and imprisonment, at the discretion of the court. Section 7. If any person or persons mentioned in section six of this act, with intent to induce the purchase of any of the securities men- tioned in section six of this act, or of any real estate situate outside of this state, shall knowingly or recklessly make any false statement, either oral or written, or knowingly or recklessly conceal any fact materially affecting the value of any such securities, or of such real estate, he or they shall be guilty of a felony, and upon conviction thereof shall be punished by a fine of not more than one thousand dollars, or by im- prisonment in the penitentiary or county jail for not more than twelve months, or by both fine and imprisonment, at the discretion of the court, and shall be liable in damages to any party who has been occasioned loss thereby. Section 8. Any person, whether as principal or agent, who shall knowingly make or file, or cause to be made or filed, any statement, circular, prospectus or other advertising matter required by this act, which is materially false, shall be guilty of a felony and subject to pun- ishment as provided in section six hereof. Section 9. Upon request of the auditor, the attorney general, or the prosecuting attorney having jurisdiction, shall direct and control any prosecution for violation of this act. Section 10. No person or persons, mentioned in section six of this act, and operating within the scope of sections one and two of this act, shall make any amendments to his or their charter, articles of incorpora- tion, constitution, or by-laws, or any other change materially affecting any statement or representation made in his or their statement filed under section one hereof, unless he or they first prepare and file with the auditor of the state, a duly verified supplemental statement, setting forth clearly and concisely all material facts in connection with the change, which said supplemental statement shall be subject in all respects to the provisions of section one hereof in like manner as the original. Section 11. Any person or persons mentioned in section six of this act, and operating within the scope of sections one and two of this act, may appoint one or more agents, but no agent shall act, or attempt to act for or in behalf of his principal, until he shall have first registered with the auditor as such agent, and for each registration, such person or persons shall pay to said auditor a registration fee of two dollars. Such registration shall authorize the agent to represent such person or WEST VIRGINIA 869 persons so registering him until the first day of July following, unless the registration is theretofore cancelled and recalled by such person or persons, or by the auditor, for failure to comply with the provisions of this act, authority for which revocation or cancellation is hereby given to such person or persons and to said auditor. Section 12. Every person or persons mentioned in section six of this act, and operating within the scope of sections one and two of this act, shall file at the close of business on June thirtieth of each year, and at such other times as may be required by the auditor, a sworn statement in such forms as may be prescribed and furnished by the auditor, setting forth his or their financial condition, the amount of assets and liabilities, and such other information as the auditor may require. Every regular statement of June thirtieth shall be accompanied by a filing fee of two dollars, and if such person or persons fail, neglect or refuse to file his or their regular statement within fifteen days from said date, or to file any, other special report herein provided for within thirty days from receipt of request therefor, then the right of such person or persons to transact business in this state shall be deemed to be in abeyance during the continuance of such delinquency. Section 13. The auditor shall have general supervision and control over any person or persons mentioned in section six of this act, residing or doing business in this state, engaged in securing subscriptions for, or in the issuance, transfer, sale, promotion, negotiation or distribu- tion of any speculative securities, and every such person or persons shall be subject to examination by said auditor, or by his duly authorized deputies, at any time he may deem it advisable. The rights, powers and privileges of the auditor in making such examinations shall be the same as now provided with reference, to the examination of insurance com- panies by the insurance commissioner, and such person or persons shall pay the expense of such examination, and their failure or refusal to pay upon the demand of the auditor shall work a forfeiture of their right to do business in the state. Section 14. Any person or persons mentioned in section six of this act shall keep proper records and books of accounts in a business- like and intelligent manner, which sjiall be open to the inspection of stockholders and investors in their stocks or securities. Section 15. Whenever it shall appear to the auditor that any per- son or persons who have complied with the provisions of this act are insolvent, or are conducting their business in such manner as to jeopard- ize the interests of creditors or investors, or whenever they shall fail, neglect or refuse to file any circulars, papers, statements, prospectuses, documents or other advertising matter or reports, or to pay any of the fees required or provided for by this act, without satisfactory reason therefor, the auditor may report the facts to the attorney general, or to the prosecuting attorney having jurisdiction, who shall at once make an investigation of the case and institute such proceedings in law or in 870 WEST VIRGINIA equity in the name of the state, in any circuit court having jurisdiction as may be appropriate to enforce the provisions of this act, and to pro- tect the interests of stock and bond holders and other creditors and investors. The jurisdiction of the circuit court shall extend to the en- forcement of any proper remedy now existing for the protection of any creditor, stockholder, bondholder, or other person beneficially interested, and the suit, action or proceeding may be brougiht in any county in which any one or more of the parties reside, or in Kanawha county. Section 16. Should the courts of this state declare any section or provision of this act, unconstitutional or unauthorized, or in conflict with any other sections or provisions of this act, then such decision shall affect only the section or provision so declared to be unconstitutional or unauthorized, and shall not affect any other section or part of this act. , SECTiots 17. All corporations, companies, associations, partnerships and individuals now holding the statement or license of the auditor, under chapter fifteen, acts one thousand nine hundred and thirteen, shall be deemed to have complied with the provisions of this act. Section 18. All expenses and fees herein provided for shall be collected by the said auditor and shall be accounted for and turned into the state treasury, and the amount of the expenses and fees so turned into the state treasury are hereby re-appropriated to the said auditor for the purpose and in an amount suificient to pay the cost and expense of carrying this act into effect; and the said auditor is hereby authorized to appoint an additional clerk, if the same shall be found by him to be actually and absolutely necessary to carry this act into full force and effect. All money actually and necessarily paid out, or expenses in- curred by the said auditor or any clerk under his direction, under this act, shall be paid by the state treasurer out of such sums for expenses and fees received under this act, upon the state auditor's warrants, to be issued upon vouchers containing an itemized account of the salaries or expenses for which the same are issued. All expenses and fees which have been collected by the auditor under the provisions of chapter fifteen of the acts of one thousand nine hundred and thirteen, and now remaining in the state treasury, are hereby ap- propriated to the said auditor for the purposes of this act. Section 19. "Person or persons" as used in this act, shall include any person, co-partnership, association, domestic corporation or foreign corporation. Section 20. Any person or persons, violating any of the provisions of the preceding sections of this act, for which no specific penalty is provided, shall be fined not more than five hundred dollars, or imprisoned in the county jail for not more than thirty days, or both at the discre- tion of the court. Section 21. Chapter fifteen of the acts of one thousand nine hun- dred and thirteen, and all acts and parts of acts in conflict herewith are hereby repealed. Approved February 15, 1915, WEST VIRGINIA 871 Annotations Act W. Va. Feb. 11, 1913 — 1M3 laws, chap. 15 — Code 1913 C. 5S B, commonly known as "Blue Sky Laws" declared unconstitutional on the groUnd that it distinctly s6eks to abridge and deny the rights of citizens of the United States to buy and sell property in the state thus depriving them of their property without due process of law ; that it denies them the equal protection of the laws ; that it imposes a restraint and burden on interstate commerce contrary to the provisions of the constitution of the United States. — Bracey et al vs. Darst et al. 218 Fed. 482. Forms ANNUAL STATEMENT FOR THiE YEAR ENDING JUNE 30, 191f. . Of the Conmtions and Affairs of the Organized under the Laws of the State of . . . .^ made to the AUDITOR OF THE STAtE OF WEST VIRGINIA pursuant to the laws thereof Incorporated Commenced ^ business , Home Office ■ (Street and Number) (City or Town and State) OPPicESs President Secretary Vice-Presidents Treasurer Directors 872 WEST VIRGINIA I.-CAPITAL STOCK 1. Amount of capital paid up in cash, (at date of this statement) $ , 2. Amount of Ledger Assets (as per balance) at beginning of period covered by this statement $ 3 crease of paid-up capital during the period covered by this statement ( months) $ Extended at II.— INCOME Gross interest on Mortgage loans $ Collateral loans $ Personal loans $ . . Total Gross interest on Bonds $ stocks $ and dividends on Total Gross interest on Deposits in trust Companies and banks Gross interest from other sources (give items and amounts) Gross rent for Company's property Income from all other sources (give items and amounts) WEST VIRGINIA 873 1 Gross profit on sale or maturity of Ledger assets (give items) Gross increase by adjustment in book value of ledger assets (give items) Total Income Amount carried forward (total income plus extension at top of page) III.— DISBURSEMENTS Amt. brought forward Salaries, fees and all other compensation of officers, di- rectors, trustees and home office employees Salaries, traveling and all other expenses of agents not paid by commissions Rent - Repairs and expenses (other than taxes on Real Estate) Taxes on Real Estate All other licenses, fees and taxes, give items and amounts 874 WEST VIRGINIA Legal expenses Advertising Printing and Stationery Postage, telegraph, telephone and express Furnitiire and fixtures Stockholders for dividends (amount declared during year 19....) Commissions paid agents for sale of capital stock Other disbursements (give items and amounts) ■ \ V Gross loss on sales or maturity of ledger assets (give items and amounts) Gross decrease by adjustment in hook value of ledger assets (give items and amounts) WEST VIRGINIA 875 Total disbursements Balance (amount brought forward, less disbursements) IV.-LEDGER ASSETS Book value of Real Estate Mortgage loans on Real Estate, first liens $ 2nd liens $ ... Collateral loans ' Book value of bonds of other companies owned by this company- ... , Book value of stocks of other companies owned by this Company Deposit in trust companies and banks not on interest Deposit in trust companies and banks on interest Loans on personal property (whether endorsed or not) Other bills' receivable Other ledger assets (give items and amounts) - Ledger Assets (as per balance page 3) 876 WEST VIRGINIA NON-LEDGER ASSETS Interest due and accrued (give classes and amounts) Rents due and accrued Market value of ledger assets over book value (give classes and amounts) Other non-ledger assets (give items and amounts) Gross Assets DEDUCT ASSETS NOT ADMITTED Bills receivable (not collectable) $ Book value of ledger assets over market value (give classes and amounts) $ Admitted Assets V.-LIABILITIES Sinking funds (description and amounts) Salaries, rents, expenses, bills, accounts, fees, etc. due or accrued WEST VIRGINIA 877 Estimated amount hereafter payable for taxes upon the year's business transacted to date Dividends declared and unpaid to stockholders Due and to become due for borrowed money Interest due or accrued Advance payments, ownership of which is not yet vested in company Commissions due or accrued Other liabilities (give items and amounts) 878 WEST VIRGINIA Total amount of all liabilities except capital Capital stock outstanding • Surplus over all liabilities Total Liabilities (equal admitted assets) VI.— CAPITAL STOCK 1. What is the total authorized issue of capital stock? Answer. 2. How much par value has been issued for each? Answer. 3. How much par value has been issued for other consideration or with- out consideration? Answer. Give full information. 4. What is the total amount outstanding at date of this statement? Answer. 6. What is the par value per share? Answer. 6. What has the stock been sold for per share? Answer. If sold at different prices give detailed information. 7. At what price per share is remainder of stock to be sold? Answer. 8. Is any stock to be issued for other consideration than cash ? Answer. If so, give full information. 9. Is stock to be paid for in installments? Answer. If yes, state terms. WEST VIRGINIA 879 10. Will any stock be delivered to purchaser before being fully paid for ? Answer. 11. What is the total amount received to date of statement from sale of stock? Answer. , 12. What is the amount (par value) of stock on which one or more payments have been made, but not fully paid for in cash? Answer. Do you hold purchasers' notes for unpaid installments? Answer. 13. What is the amount upon which no payments have been made but for which you hold notes of purchasers? Answer? STOCK COMMISSIONS 1. State total amount of commissions or other compensation of what- ever kind that has been paid directly or indirectly for sale of stock. Answer. Cash $ stock (par value) $ other compensation (describe) 2. What commissions or other compensation will be paid for future sales ? Answer. 3. When is the commission or other compensation payable? Answer. 4. What have the officers or directors of the company received in com- missions or other compensation for or on account of sale of stock? Answer. 5. Will the officers or directors receive commissions or other compensa- tion by whatever narne known, for future sales of stock? Answer.. 6. What arhount is due or may hereafter become due and not yet paid by reason of stock already sold? Answer. 880 WEST VIRGINIA SCHEDULE A— LEASED LANDS Name of Lessor. Name of Lessee. Location of Property. 1 o 2 1 O . a to V 1^ u < l- < 3 •Si. . SCHEDULE B Show all salaries, compensations and emoluments of whatever kind or amount received in the present year, directly or indirectly, by officers and directors. Title. Name of Payee. , Service Performed. II Authorized by Whom. ' WEST VIRGINIA 881 SCHEDULE B-(PART 2) Showing all salaries or other compensation to be received by officers and directors for year following date of statement. Title. Name of Present Holder Service to be Performed. Am't to be Paid. How Authorized. SCHEDULE C Showing all Bonds, Stocks, Real Estate or other property owned by the Company at date of Statement. Description. From Whom Acquired. 1 & U «> s M 5* rtt-tpL( P " 56 882 WEST VIRGINIA SCHEDULE D Give detaSed statement of all indebtedness of the Company at date of statement, to include outstanding bonds, mortgages, and borrowed money in whatever manner secured or evidenced. From Whom Borrowed. Form of Debt. § g V 6 Q a < & u President: Vice-President: Secretary : Treasurer : General Manager: Directors : ■ 57 898 WISCONSIN 3. The securities which the applicant desires to offer for sale are described as follows : Common Stock. Preferred Stock. Bonds. Total amount to be offered (a) In Wisconsin Par value Maturity . Secured by Total authorized by articles (or, Total outstanding Fee payable on amount offered in Wisconsin S The preferred stock (if any) has' the following privileges. 4. The above-described securities are to be offered for sale at the following price and on the following terms, and will. not be offered at any other price or on any other or different terms without first obtain- ing from the Commission a permit so to do. Method of sale Terms of sale Percentage of proceeds of sales to be used for the payment of com- missions, promotion and organization expenses (to be stated in the written contract of sale) Use to be made of proceeds (state fully) : 5. The- assets and liabilities of said company on the first instant are as follows : WISCONSIN 899 Assets. 10. 11. 12. 13. 14. 16. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. , Total Liabilities. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. Total 900 WISCONSIN 6. The following is a true and correct description of the assets and liabilities above listed: 7. Said company's method of transacting business is to be as fol- lows : WISCONSIN 901 8. The foUownig is a true and correct statement of the income account of the company for the two fiscal years immediately preceding the date of this application (or, for the period of the company's existence, if less than two years) : Revenues (in detail). Year Ended Year Ended 1 4 . {; ', ' Expenses (in detail), 9 ^ 12 13 17 Net revenues ('8-161 ' 19 Other interest 22. Net income (17-21) ■ 25. Adjustments (profit and loss account) Surplus or deficit 902 WISCONSIN 9. Attached hereto are the following dosuments, numbered from to , inclusive, and made a part of this application : A. Copy of proposed contract of sale or subscription for use in Wisconsin. B. Copy of all existing or proposed contracts relating to the sale of the securities described herein. C. (If applicant is a foreign corporation and not a broker) (1) Certificate of the secretary of state of Wisconsin that the applicant is licensed to do business in Wisconsin under section 1770b of the statutes. (2) Certificate of the proper oiificial of the state where applicant is in- corporated that applicant is authorized to do business therein. D. (If the company issuing the securities is a foreign corporation) Certificate of the proper oificial of the state where the company's busi- ness is carried On that the company is authorized to engage in business therein. E. (If the company issuing the securities is not incorporated) Copy of articles of association, co-partnership, agreement, deed of trust or other instrument, and all other documents pertaining to its organization. F. (If the applicant, being a company, is not incorporated) Power of attorney constituting the secretary of the Railroad Commission of Wisconsin its attorney in fact for the service of process. (Blanks for such power of attorney are furnished upon request.) 10. The applicant files herewith all printed, or otherwise duplicated, advertisements, pamphlets, circulars and other documents to be used in Wisconsin relating to the securities above described or to the conduct of the business of the company; said documents are numbered from to ; and said applicant will file with the Commission in duplicate copy for all similar documents to be printed and issued by it in the future, before circulating or delivering said documents in Wisconsin. 11. Said applicant will file, on or before the 10th day of each month, a report showing all sales of the above-described securities by the applicant or any agent during the preceding month, and will cause to be filed, on or before the 15th days of January and July in each year, a balance sheet of said company as of the preceding December 31st and June 30th, and an income account of said company for the six months' period ending on the dates last mentioned. 12. Application will hereafter he made for a certificate of authority for each agent to be employed by the applicant in the sale of these se- curities and no person will be permitted to act as such agent prior to obtaining a certificate for such person. 13. There is enclosed herewith draft for $ cover- ing the amount of fees required- by statute "to accompany this application. NOTE: — For companies: Ten dollars plus one dollar per thousand for each thousand dollars par value of the securities to be offered in Wisconsin. For brokers holding certificates: One dollar per thousand on the securities covered by this application. WISCONSIN 903 In Witness Whereof, The applicant has caused this statement to be prepared on its behalf and has affixed hereto its official seal, this day of... , A. D. 19... (Name of Applicant) By President. [Or principal Executive Oificer] Secretary. [Or person in charge of accourts] State of I County or J ^^" Personally appeared- before me this day of , 19 , the above-named , to me known to be the person who executed the foregoing statement as President of the above- named applicant, and, being first duly sworn, stated upon oath that said statement, and all exhibits attached thereto, were true and correct at the date of said statement. (Title of Officer) (officer's) ( SEAL ) } State of County of ' ^^' Personally appeared before me this .day of , 19 , the above-named , to me known to be the person who executed the foregoing statement as Secretary of the above- named applicant, and, being first duly sworn, stated upon oath that said statement, and all exhibits attached thereto, were true and correct at the date of said statement. (Title of Officer) (officer's) ( seal ) 904 WISCONSIN APPLICATION FOR BROKER'S CERTIFICATE For the Term Ending December 31, 19 Name ; P. O. Address....; The undersigned hereby makes application to the Railroad Commis- sion of Wisconsin for a certificate of authority to act as a broker for the sale of securities for the period ending • December 31, 19..., pursuant to sections 1758-48 to 1753-68, inclusive, of the Wisconsin Statutes, and for that purpose makes the following representations : 1. The above-named applicant is a (corporation, co-partnership, or, individual) 2. The principal oflfice of the applicant is located at in the city of and state of 3. Branch offices of the applicant in the state of Wisconsin are located as follows : in charge of in charge of 4. The officers and directors of the applicant (if a corporation) are as follows : Name Residence President — Vice President ; Secretary — Treasurer General Manager Directors : 5. The members of the applicant (if a co-partnership) are as fol- lows ; Name Residence WISCONSIN 905 6. The applicant has dealt in securities as a broker for a period of years and months last past, and during the same period has also engaged in the following other lines of business (if any) : 7. The general plan and character of the applicant's business is : 8. There is attached hereto a general statement showing for each of the officers and directors (or, members) of the applicant the chief business activities in which such person has been engaged during the five years last past. 9. This application is made only for the purpose of obtaining au- thorization for the applicant to act as a broker of securities, a permit for the sale of which is required by the Wisconsin Securities Act. No securities subject to the Act will be offered for sale by the applicant until a permit has been issued by the Commission covering each security which the applicant may desire to oflfer for sale in Wisconsin. 10. A draft payable to the order of the Commission in the sum of $25 is enclosed herewith. I'l. (If applicant is a foreign corporation) There is filed here- with a certificate of the secretary of state of Wisconsin showing that the applicant is licensed to do business under section 1770b of the Wis- consin Statutes. 12. (If applicant is not incorporated) There is filed herewith a power of attorney constituting the secretary of the Railroad Commis- sion of Wisconsin the attorney of the applicant for the service of process. ' . (Blank forms are furnished as requested.) 13. The applicant agrees that there will be filed with the Railroad Commission of Wisconsin on or before the tenth day of each month, a report, in such form as the Commission may prescribe, showing in detail the securities sold in Wisconsin by the applicant during the pre- ceding month, and will also file with the Commission copy in duplicate for all printed or otherwise duplicated circulars, pamphlets, advertise- ments or other documents relating to the securities offered for sale by the applicant in Wisconsin ; all such copy will be filed before being published or circulated in Wisconsin. 14. The applicant ^ill hereafter apply for a certificate of authority for each agent to be employed in the sale of securities for the applicant in Wisconsin, and no person will be permitted to act as such agent prior to obtaining a certificate for such person. 906 WISCONSIN In Witness Whereof, The applicant has caused this statement to be signed by its proper officers and attested by its seal (if any) this day of ,19.... (Name of Applicant) By. President. Secretary. State of 1 County of J ®®" Personally appeared before me this day of , 19. . ., the above-named and ; , to me known to be the person (s) who executed the foregoing instrument on behalf of the ap- plicant, and being first duly sworn, stated upon oath that the facts set forth in said statement are true and correct. (Official Title) (official seal) WVOMtNG 907 WYOMING STATUTES "Blue Sky" Law. AN ACT To define "securitilbs" and "speculative securities", and to prevent unfairness, imposition and fraud in the sale or disposition thereof by requiring the filing and publishing of information respecting the same; authorizing the inspection and investiga- tion thereof, and prescribing penalties for the violation thereof. (Chapter 118, Session Laws, 1919.) Be It Enacted by the Legislature of the State of Wyoming: Section 1. The term ''securities'' as used in thia Act shall be taken to mean stock certificates, shares, bonds, -debentures, certificates of par- ticipation, contracts, or other instruments in the nature thereof by what- soever name known or called. The term "'speculative securities" as used in this Act shall be taken to mean and include: (1) All securities to promote or induce the sale of which profit, gain or advantage unusual in the ordinary course of legitimate business is in any way advertised or promised; (2) all securities for promoting the sale of which a com- mission of more than five per cent is offered or paid; (3) all securities into the specified par value of which the element of chance or hazard of speculative profit or possible los equal or predominate over the elements of reasonable certainty, safety and investment; (4) all securi- ties the value of which materially depends on proposed or promised future promotion or development rather than on present tangible assets and conditions; (5) the securities of any enterprise, association, partnership or corporation which has included or proposes to include in its assets as a material part thereof, patents, formulae, good will, promotion or in- tangible assets, or which has issued or proposes to issue a material part of its securities in payment for patents, formulae, good will, promotion or intangible assets. The term "speculative enterprise" as used in this Act shall be taken to mean any business, undertaking, project, venture or activity for the promotion or furtherance of which "speculative securi- ties" as herein defined, are made, issued, sold or offered for sale. Section 2. It shall be hereafter unlawful for any person, co-partner- ship, association or corporation, hereinafter called the promoter, either as principal or through brokers or agents, or as brokers or agents, to sell or offer for sale, or by means of, any advertisements, circulars or prospectus, or by any other form of public offering, to attempt to pro- mote the sale of any speculative securities in this State, unless there shall 908 WYOMING first have been filed with the State Examiner and with the County Clerk of each county in which such speculative securities shall be sold or offered for sale: (1) a copy of the securities so to be promoted; (2) a state- ment in substantial detail of the assets and liabilities of the person or company making and issuing such securities sLnd of any person or com- pany guaranteeing the same, including specifically the total amount of such securities and of any securities prior thereto in interest or lien, authorized or issued by any such person or company; (3) if such securi- ties are secured by mortgage or other lien, a copy of such mortgage or of the instrument creating such lien, and a competeilt appraisal or valua- tion of the property covered thereby, with a specific statement of all prior liens thereon, if any; (4) a full statement of facts showing the gross and net earnings, actual or estimated, of any company making and issuing or guaranteeing such securities, or of any property covered by any such mortgage or lien; (5) all knowledge or information in the , possession of such promoter relative to the character or value of such securities, or of the property or earning power of the person or com- pany making and issuing or guaranteeing the same; (6) a copy of any general or public prospectus or advertising matter which is to be used in connection with such promotion, and no such prospectus or advertib- ing matter shall be used unless the same has been filed hereunder ; (7) the names, addresses and selling territory in this State of any agents by or through whom any such securities are to be sold, and ho such agents shall be employed unless such statements . with respect to them have been filed hereunder ; (8) the name and address of such promoter, including the names and addresses of all partners, if the promoter be a partnership, and the names and addresses of the directors or trustees, and of any person owning ten per cent or more of the capital stock, if the promoter be a corporation or association; (9) a statement showing in detail the plan on which the business or enterprise is to be conducted ; (10) the articles of co-partnership or association, and all other papers pertaining to its organization, if the securities be made and issued by a co-partnership or unincorporated association; (11) a copy of it^ charter or articles of incorporation if the securities be made and issued by a corporation; (12) a filing fee of twenty-five ($25.00) dollars to be de- posited with the State Examiner only. Section 3. Every foreign corporation before selling or offering for sale any speculative securities in this State shall also file its written consent, irrevocable, that actions may be commenced against it in the proper courts of any county or district in this State in which a cause of action may arise, by the service of process on the Secretary of State, or on the County Clerk of the county in which the action shall be brought, and stipulating and agreeing that such service of process shall be taken and held in all courts to be as valid and binding as if due service had br>en made on the company itself, according to the laws of this or any /'*■'■- State, and such instrument shall be authenticated by the seal of WYOMING 909 such foreign corporation, and shall be accompanied by a duly certified copy of the order or resolution of the board of directors, trustees, or manageirs of the corporation authorizing the said secretary and president to execute the same. Section 4. It shall be the duty of the State Examiner as soon as practical, to examine the statement and documents so filed, and if he shall deem it advisable, ihe shall make or have made a detailed inspec- tion, examination, audit and investigation of the affairs of the makers or guarantors of such securities. As a part of the aforesaid inspection, examination, audit and investigation, he may cause an appraisal to be made of the property of the maker or guarantor, if, from the statements, papers and documents on file, and the investigation of the State Examiner, or otherwise, the State Examiner shall find that the promoters' literature or advertising is misleading and calculated to deceive purchasers or in- vestors, or that any of the statements, papers and documents on file are inaccurate or contain any untrue statements of facts, he shall make a written statement of such findings, copies of which shall be filed in the office of the County Clerk in each county in which are filed the docu- ments required to be filed by Section 2 hereof, and he shall immediately cause a copy thereof to be sent to the promoter and to, all selling agents designated in the statement on file hereunder. If the State Examiner shall find that the promoters' literature is not misleading, or calculated to deceive purchaser or visitors, he shall issue a permit for the sale of such securities. Such permit shall state that an examination has been made as required by law, and that permission to sell such securities is granted and must also state in bold type that the issuance of said permit is not a recommendation or endorsement of the securities ftientioned thereon. Every promoter offering for sale any securities in this State must produce and show to the prospective purchaser such permit from the State Examiner. Section 5. Any person, co-partnership, association or corporation being dissatisfied with any finding or findirigs of the State Exarniner made in accordance with the provisions of this Act, may within thirty days from the making thereof commence an action in any court of com- petent jurisdiction within the State against such State Examiner as de- fendant, to vacate and set aside said finding or findings on the ground that the same are unjust or unreasonable. The rules of pleading and proce4ure in such action shall be the same as are provided by law for the trial of equitable actions in the district courts of this State, and on the hearing the judge of said court may set aside, modify or confirm said finding or findings as the evidence may require. Appeals may be taken from the decision of the District Court to the Supreme Court by either party in the same manner as is provided by law in other civil actions. If no action shall be brought to set aside said findings within thirty days, the same shall become final and binding, and it shall be un- lawful for the promoter or any broker or agent of said promoter to 910 WYOMING sell, offer for sale, or by means of any advertisement, circular or pros- pectus or by any other form of public offering to attempt to promote the sale of any such speculative securities in this (State. Section 6. No amendment of the charter, articles of incorpora- tion, constitution or by-laws of any such corporation, or the articles of association or by-laws of any unincorporated association subject to this Act, shall become operative until a copy of i the same has been filed with the State Examiner and County Clerks as provided in regard to the original filing of charters, articles of incorporation or association, con- stitution and by-laws, and it shall be unlawful for any person, co- partnership, association or corporation to transact business on any other plan than that set forth in the statement required to be filed by Section 2 of this. Act, or to make, issue or sell or offer for sale any speculative security or securities required to be filed by Section 2 of this Act, until a written statement showing in full detail the proposed new plan of transacting business and a copy of the proposed new security or securi- ties shall have been filed in like manner as provided in regard to the original plan of business and proposed security or securities. Section 7. The provisions of this Act shall not apply to (a) se- curities of the United States, or any foreign government, or of any state or territory, or of any county, city, township, district or other public taxing subdivision of any state or territory of the United States or any foreign government; (b) securities of public or quasi-public corporations, the issues of which are regulated by the public utilities commission or board of similar authority of any state or territory of the United States ; (c) securities of state or national banks or trust companies, mortgage companies dealing exclusively in bona fide mortgages on farm and city real estate, or building and loan association authorized to do business in the state; (d) securities of domestic corporation organized without capital stock, for religious, charitable or reformatory purposes. Section 8. The general accounts of every person, co-partnership, association or corporation, issuing or guaranteeing any speculative securi- ties subject to the provisions of this Act, shall be kept in a business-like and intelligent manner and in sufficient detail so that the State Examiner or his authorized representative can ascertain at any time the financial condition of such person, co-partnership, association or corporation, and the books of account and affairs of any such person, co-partnership, asso- ciation or corporation shall be subject to examination by the said State Examiner, or upon his direction by his assistants, accountants or ex- aminers, at any time said State Examiner shall deem it advisable, and in the same manner as is now provided for the examination of state banks. And it is provided further, that every person, co-partnership, association or corporation making or guaranteeing any speculative se- curities subject to the provisions of this Act, shall file with the State Examiner and County Clerks at the close of business December 31st, March 31st, June 30th, and September 30th of each year, and at such WYOMING 911 other times as may be required by the State Examiner, a statement certified by the oath of some person^ having actual knowledge of the facts' therein stated, setting forth, in such form as may be prescribed by the State Examiner, the financial condition, amount of property and liabilities of such person, co-partnership, association or corporation and such other information as said State Examiner may require. It shall be unlawful for any person, partnership, association, or corporation subject to the provisions of this Act, failing or refusing to comply with the provisions of this section within ten days after compliance is required, to there- after sell or offer for sale in this State any speculative stock which said person, partnership, association or corporation is selling or offering for sale in this State. Section 9. The State Examiner shall have power upon reasonable notice either upon his own initiative or upon complaint of any responsible person, to make or cause to be made any special inspection or investiga- tion that he may deem necessary, in connection with the promotion, sale, disposal, or offering for sale or disposal in this State, of any certificates, shares, stocks, bonds, securities, contracts, or contracts or bonds for deeds, to determine whether the same constitute a violation of this Act or any other statute of this State, by any individual, co-partnership, cor- poration or association, promoting, offering, selling or pledging the same ; and the State Examiner shall have the power to issue subpoenas and process compelling the attendance of any person and the production of- any papers or books for the purposes of such investigation and ex- amination, and shall have power to administer an oath to any person whose testimony may be required on such examination or investigation; and any person who shall refuse to obey any such subpoena or make answer to any competent and material question propounded to him by the State Examiner shall upon conviction in any court of competent jurisdiction be deemed guilty of a misdemeanor, and fined in any sum not exceeding five hundred dollars ($500.00) or be punished by confine- ment in the county jail for not more than ninety days, or by both such fine and imprisonment. Upon the conclusion of any such investigation, the State Examiner may make findings of fact touching the matter or matters under investigation, and such findings shall be prima facie evi- dence of the truth of the matters therein found by the State Examiner in any action, either civil or criminal, instituted under any of the laws or statutes of this State against the person, persons, partnership, corpora- tion* or association. The notice herein provided for may be given by registered letter mailed to the last known address of person or persons or corporations to be investigated and the State Examiner's certificate shall be sufficient evidence oi such notice and the mailing thereof. Section 10. Any person who shall knowingly make? or file or cause to be made or filed with the State Examiner any statement, document, circular, advertisement or prospectus, required to be filed by this Act, which is false in any material respect or matter, or who shall commit 912 WYOMING in this State any act declared to be unlawful by Sections 2, 5, 6 and 8 of this Act, shall be deemed guilty, of a felony, and on conviction in any court of competent jurisdiction punished by a fine of not less than one hundred dollars ($100.00) or more than five thousand dollars ($6,000.00), or by imprisonment in the state penitentiary for not less than one nor more than five years, or by both such fine and imprisonment. Section 11. This Act shall not apply to the owner of any speculative security, who is not the maker or issuer thereof, who shall acquire and sell the same for his own account in the usual and ordinary course of business and not for the direct or indirect promotion of any enterprise or scheme within the purview of this Act, providing that such ownership is in good faith. Repeated or successive sales of any such speculative security or securities shall be prima facie evidence that the claim of ownership is not bona fide, but is a mere shift or device to evade the provisions of this Act. Section 12. All fees herein provided for shall be collected by the State Examiner and shall be turned into the state treasury, and the State Examiner is hereby authorized to appoint a special assistant who shall have charge of the administration of this Act under the direction of the said State Examiner, and who shall receive a salary of two thou- sand dollars ($2,000.00) per annum. Section 13. In any case wherein the value of the securities or , contracts hereinbefore enumerated are in any way dependent upon the present or proposed development of land or mines, oil or gas wells, the State Examiner may cause such investigation thereof as he may desire to be made by experts from the appropriate departments of the state gov- ernment or the State University, or both, as the case may be. Section 14. Any person who shall knowingly or wilfully subscribe to, or make or cause to be made any false statements or false entry in any book of account of any person, co-partnership, association, or cor- poration, subject to the provisions of this Act, or exhibit any false paper with intention of deceiving any person authorized to examine into the affairs of such person, co-partnership, association or corporation, or shall make or publish any false statement of the financial condition of any person, co-partnership, association or corporation subject to the pro- visions of this Act, or shall knowingly make any false statements ma- terially affecting the value of the stocks, bonds, or other securities offered for sale by any such person, co-partnership, association or corporation, shall be deemed guilty of a felony and upon conviction thereof shfll be fined not less than one hundred dollars nor more than five thousand dol- lars, or shall be imprisoned not less than one year nor more than ten years in the state penitentiary. Section 15. This Act shall take effect and be in force from and after its passage. Approved February 25, 1919. HALL VS. GEIGER-JONES CO. 913 LEADING CASES INVOLVING BLUE SKY LAWS HARRY T. HALL, SUPERINTENDENT OF BANKS AND BANK- ING OF THE STATE OF OHIO vs. GEIG?R-JONES COMPANY HARRY T. HALL, SUPERINTENDENT OF BANKS AND BANK- ING OF THE STATE OF OHIO vs. DON C. COULTRAP HARRY T. HALL, SUPERINTENDENT OF BANKS AND BANK- ING OF THE STATE OF OHIO vs. WILLIAM R. ROSE AND THE RICHARD AUTO MANUFACTUR- ING COMPANY 242 U. S. 539. 61 L. ed. 480, 37 Sup. Ct. Rep. 217. The Ohio "Blue Sky Law" Supplement to Page & Adams Ann. Gen. Code of Ohio, 1916, Vol. 2, Sec. 6S73-1 to 6873-24 examined as to its constitutionality and upheld. In the exercise of the power to prevent fraud and Imposition, Hutchinson Ice Cream Co. v. Iowa, ante, 153, a State may forbid dealing in stocks and other securities within its borders without a license, and subject the business to executive supervision. The liability of a business to regulation is not necessarily dependent upon its liability to be abolished under the police power. Under the so-called "Blue Sky Law" of Ohio, dealers within its provisions (including companies floating their own issues) are not licensed to sell stocks and other securities unless an executive officer designated is satisfied of the good business repute of the applicants and their agents, and licenses, when issued, may be revoked by him upon ascertaining that the licensees are of bad business repute, have violated any provision of the act, or .have engaged, or are a1?out to engage under favor of their licenses, in illegitimate business or fraudulent transactions; his findings, however, are made subject to judicial review. Held, that the powers thus conferred are not arbitrary but consistent with due process under the Fourteenth Amendment, Gundling v. Chicago, 177 U. S. 183, 44 L. ed. 725, 20 Sup. Ct. Rep. 633, affirming Gundling v. City of Chicago, 176 Ills. 340, 52 N. E. 44, 48 L. R. A. 230. 58 914 DECISIONS The fact that the Statute designates a particular court to review the executive fipdings does not affect its validity. It is to be presumed that the executive officer will act properly in the public interest, and not wantonly or arbitrarily. Whether there is a constitutional liberty to buy securities on one's own judgment of value without governmental interposition to protect from bad bargains — will not be determined at the suit of parties whose rights are involved only from the standpqint of sellers ; but quaere : whether the state power does not extend to such guardianship over buyers. The equal protection clause of the Fourteenth Amendment leaves the State at liberty to regulate those activities which they deem con- spicuous sources of existing evils, without embracing others which, but for this distinction would fall in' the same class. A state law designed to prevent fraud in the selling of securities, which affects securities coming from other states only in requiring that persons dealing in them within the State sihall be first licensed, shall file information concerning them and be subject in such dealing to executive supervision, is not invalid as a direct burden on interstate commerce, Quaere : As to when and under what circumstances securities transported into a State may be held to have lost their interstate character? 230 Fed. Rep. 233 Reversed. (Argued October 16 and 17, 1916. Decided January 22, 1917) Three appeals from the District Court of the United States for the Southern District of Ohio to review decrees enjoining the enforce- ment of the so-called "Blue Sky'' law of that state. Reversed and re- manded for further proceedings. Statement by Mr. Justice McKenna: These cases were heard together in the district court and there dis- posed of in one opinion. They were argued and submitted together here. The bills of complaint attacked from different angles the so-called Blue Sky Law of the state of Ohio, which provides : "Sec. 6373-1. Except as otherwise provided in this act, no dealer shall, within this state, dispose or offer to dispose of any stock, stock certificates, bonds, debentures, collateral trust certificates or other similar instruments (all hereinafter termed 'securities') evidencing title to or interest in property, issued or executed by any private or quasi public corporation, copartnership or association (except corporations not for profit), or by any taxing subdivision of any other state, territory, province or foreign government, without first being licensed so to do as herein- after provided." "Sec. 6373-2. . . . The term 'dealer,' as used in this act shall be deemed to include any person or company, except national banks, disposing or offering to dispose, of anjr such security, through agents or otherwise, and any company engaged in the marketing or flotation of its own securities_ either directly or through agents or underwriters or any stock promotion scheme whatsoever, except ; HALL VS. GEIGER-JONES CO. 915 "(a) An owner, not the issuer of the security, who disposes of his own property, for his own account ; when such disposal is not made in the course" of repeated and successive transactions of a similar char- acter by such owner; or a natui-al person, other than the underwriter of the security, who is a bona fide owner of the security and flisposes of his own property for his own account; . . . "As used in this act, the term 'company' shall include any corpora- tion, copartnership or association, incorporated or unincorporated, and whenever and wherever organized; . . ." [Laws 1914, p. 110.] The Geiger-Jones Company is an Ohio corporation, licensed to do the business of buying and selling investment securities, and of buying and selling the stocks and bonds of industrial corporations. It has a regularly established clientage, it alleges, of about 11,000 persons resid- ing in the state of Ohio and other states, and has sold and there are now outstanding in the hands of persons to whom it has" sold, securities of about twenty to twenty-five million dollars, par value, and has stock- holders in Ohio and other states. That the securities above referred to consist of securities of over twenty corporations of Ohio and other states and foreign countries. That it is still selling such securities and is and has been engaged in intrastate, interstate, and foreign commerce. The appellee, Don C. Coultrap, in No. 439, repeats the allegations made by Geiger-Jones Company, with enumeration of some of the com- panies in whose stocks and securities that corporation is engaged in dealing, and alleges that he is the owner and holder of its stocks and of the stocks of other companies, and is engaged in buying and selling and offering to sell such stocks in the state of Ohio and in the state of Penn- sylvania, and in the course of suah transactions travels back and forth between those states and conducts a correspondence from Pennsylvania to Ohio, and receives certificates evidencing the ownership of stock from the state of Ohio, and sends them from Pennsylvania to Ohio. William R. Rose, one of the appellees- in No. 440, alleges himself to be a citizen of Ohio and engaged in that state in the business of buying and selling investment securities, and particularly the stocks and bonds of industrial corporations, and that he has built up and maintained a large and profitable business and an enviable reputation. The RiChard Auto Manufacturing Company, the other appellee, is a corporation of West Virginia, but has its principal place of business in Cleveland, Ohio, and has a contract to manufacture and is ready to manufacture automobiles tinder certain patents obtained by Francois RiChard as soon as and not until the stock of the company can be put upon the market and a sufficient amount realized therefrom for such purposes. That on September 25, 1914, and prior thereto. Rose was actively engaged in buying and selling stocks and bonds of industrial corpora- tions and investment securities in general, and particularly the stock of the RiChard Auto Manufacturing Company, of which company he 916 DECISIONS was the secretary, and for which business he had unusual aptitude and was able to prosecute more successfully "than any other man whose services were available to said corporation." Tljat on September 25th he was arrested upon an affidavit filed by one H. R. Young, a subordinate and deputy of the state superintendent of banks and banking for the state of Ohio, under whose immediate di- rection and control he was then acting. Rose, upon being taken before a magistrate, waived examination and was "bound over to the grand jury" of Cuyahoga county, which jury subsequently returned an indict- ment against him for violation of the law. The grievance alleged in Nos. 438 and 439 is that, under the laws of the state, the attorney general is threatening to give an opinion to Hall, the superintendent of banks and banking, that the law is valid, and that it is the duty of Hall to cancel appellees' license, and that this will result in irreparable injury to appellees and to their security holders from the publicity they will obtain. And it is apprehended that Hall will act' on such advice, believing that he is bound by the opinion of the attorney general. The statute is attached to the bills, and is asserted to be unconsti- tutional, invalid, and void, and the particulars are enumerated to be that ,it\will deprive appellees of their property without due process of law, deny them' the equal protection of the laws, impose burdens on interstate commerce, confer executive powers, delegate such powers and legislative powers, in violation of the Constitution of Ohio. Appellees consider them- selves remediless) except in equity, and pray injunctions interlocutory and permanent. The complaint of Rose and the Auto Company is that Hall, superin- tendent of banks and banking, is actively engaged in the prosecution of the proceedings against Rose, and has, together with the prosecuting attorney, interfered with, interrupted, and completely prevented Rose from carrying on his business in the state of Ohio, and especially in attempting upon his part to dispose of and sell the stock of the Auto Company, and that the prosecuting attorney and the sheriff of Cuyahoga county, unless restrained, will assist and actively cooperate with Hall, to the great and irreparable injury of both) Rose and the Auto Company. The charge is amplified by details which it is unnecessary to give, and the law is charged to be unconstitutional in the same particulars as those enumerated by the Geiger-Jones Company. Injunctions temporary and perpetual are prayed. The district court in the Geiger-Jones Case considered that it was without power to enjoin the attorney general, but decided that it could and should, under the charges of the bill, restrain Hall from further action under the law, the restraint to continue until the hearing and determination of the applications of the respective complainants for inter- locutory injunctions. HALL VS. GEIGER-JONES CO. 917 The applications subsequently came to be heard before three judges, and Hall and all of his employees and subordinates were enjoined from attempting to enforce the provisions of the law. There was an exception in No. 440, as follows : "... except suah procfedings as may be deemed proper in any criminal action pending against said complainants or either of them when the complaint in this cause was filed." The in- junctions in all the cases were to continue until final decisions or further order of the court. The court declared the law to be obnoxious to all of the charges made by the respective complainants against it. 230 Fed. 233. Mr. Edward G, Turner, Attorney General of Ohio, for appellant. Messrs. John A. Shauck, Timothy S. Hogan, A. M. McCarty, E. N. Huggins, M. B. Johnson, H. H. Johnson, and Francis R. Marvin for appellees. Messrs. Robert R. Reed, George W. Wickersham, and Qiarles K. Allen as amici curiae. Mr. Justice McKenna, after stating the case as above, delivered the opinion of the court: It will be observed that these cases bring here for judgment an asserted conflict between national power and state power, and bring, be- sides, power of the state as limited or forbidden by the natiohal Consti- tution. The assertion of such conflict and limitation is an ever-recurring one ; and yet it is approa^ched as if it were a new thing under the sun. The primary postulate of the state is that the law under review is an exercise of the police power of the state, and that power, we have said, is the least limitable of the exercises of government. Sligh v. Kirkwood, 237 U. S. 52, 59 L. ed. 835, 35 Sup. Ct. Rep. 501. We get no accurate idea of its limitations by- opposing to it the declarations of the 14th Amendment that no person shall be deprived of his life, liberty, or property without due process of law, or denied the equal protection of the laws. Noble State Bank v. Haskell, 219 U, S. 104, 110, 55 L. ed. 112, 116, 32 L.R.A. (N.S.) 1062, 31 Sup. Ct. Rep. 186, Ann. Gas. 1912A, 487. A stricter in- quiry is necessary, and we must consider what it is of life, liberty, and property that the Constitution protects. What life is and what may or may not affect it, we have quite ac- curate tests ; and what liberty is in its outside sense, and, in like sense, what property; is. We know that it is of the essence of liberty — indeed, "we may say, of life — that there shall be freedom of conduct; and yet there may be limitations upon such freedom. We know that, in thel con- cept of property, there are the rights of its acquisition, disposition, and enjoyment,- — ^in a word, dominion over it. Yet all of these rights may be regulated. Such are the declarations of the cases, become platitudes by frequent repetition and many instances of application. , The question, then, is. Is the statute of Ohio within the principles declared? The statute is a restraint upon the disposition of certain 918 DECISIONS property, and requires dealers in securities evidencing title to or interest in such property to botain a license, — a requirement simple enough in itself, and yet of itself asserted to be an illegal control of a private busi- ness, made especially so by the conditions which are imposed. These conditions, summarized, are as follows : To obtain the license there must be filed with the superintendent of banks and banking (termed in the act "Commissioner") application for such license, together with information in such form as the commis- sioner shall determine, estting forth : " (a) . The names and addresses of the directors and officers if such applicant be a corporation or association, and of all partners if it be a partnership, and of the person if the applicant be an individual, together with names and addresses of all agents of such applicant assisting in the disposal of such securities ; "(b) Location of the applicant's principal office and of his principal office in the state, if any; "(c) The general plan and character of the business of said ap- plicant, together with references which the 'commissioner' shall confirm by such investigation as he may deem necessary, establishing the good repute in business of such applicant, directors, officers, partners, and agents. "If the applicant be a corporation organized uiider the laws of any other state, territory, or government, or have its principal place_ of business therein, it shall also file a copy of its articles of incorporation, certified by the proper officer of such state, territory, or government, and of its regulations and by-laws ; and if it be an unincorporated associa- tion, a certified copy of its articles of association, or deed of settlement." The applciant is also required to file a written instrument irrevocably consenting to be sued in a particular county, and, if personal service there cannot be had, consenting to service upon the sheriff of the county. It is also provided that all of the applications shall be published in a daily newspaper, and if the commissioner be satisfied that the applicant is of good repute, he shall, upon payment of certain fees, register the applicant as a licensed dealer in securities. Pending disposition of the application, temporary permission to transact business may be given. Yearly renewals of the licenses are provided for. The commissioner may revoke a license upon ascertaining that the licensee: (a) Is of bad repute; (b) has violated any provision of the act; or (c) has engaged, or is about to engage, under favor of such license, in illegitimate business or fraudulent transactions. It will be observed, therefore, that the law is a regulation of busi- ness, constrains conduct only to that end, the purpose being to protect the public against the imposition of unsubstantial schemes and the securi- ties based upon them. Whatever prohibition there is, is a means to the same purpose, made necessary, it may be supposed, by the persistence of evil and its insidious forms and the experience of the inadequacy of penalties or other repressive measures. The name that is given to the HALL VS. GEIGER-JONES CO. 919 law indicates the evil at which it is aimed; that is, to use the language of a cited case, "speculative schemes which have no more basis than so many feet of 'blue sky ;' " or, as stated by counsel in another case, "to stop the sale of stock in fly-by-night concerns, visionary oil wells, distant gold mines, and other like fraudulent exploitations." Even if the de- scriptions be regarded as rhetorical, the existence of evil is indicated, and a belief of its detriment ; and we shall not pause to do more than state that the prevention of deception is within the competency of govern- ment, and that the appreciation of the consequences of it is not open for our review. Trading Stamp Cases, Rast v. Van Deman & L. Co. 240 U. S. 342, 60 L. ed. 679, L.R.A.1917A, 421, 36 Sup. Ct. Rep. 370 ; Tan- ner V. Little, 240 U. S. 369, 60 L. ed. 691, 86 Sup. Ct. Rep. 379 ; Pitney v. Washington, 240 U. S. 387, 391, 60 L. ed. 703, 706, 36 Sup. Ct. Rep. 385. Therefore, the purpose being legal, the question only remains whether the manner in which it is accomplished is illegal. This is con- tended, and the provisions which render the law void are found, it is stated, in: (1) Power conferred upon the commissioner to grant or re- fuse licenses ; (2) the authority given the commissioner to place for- bidden restrictions and burdens on the conduct of the business of one who has obtained a license. The basis of these contentions is that the law confers arbitrary power upon the commissioner. In oonisdering the contentions we must keep in mind that the law is addressed to a complex situation. Its purpose is, as we have seen, to give a basis for judgment of the securities offered the purchasing public; assure creidt where it is deserved and confidence to investment and trading; prevent deception and save credulity and ignorance from imposition, as far as this can be done by the approved reputation of the seller of the securities and authoritative information. It may, however, be said that character establishes itself, and neither needs nor can be compelled to accept the stamp of government; and it is asserted that the "normal investment business of the country" and its "individual transactions" are not subject to "executive control,' — the broad contention being made that, as such business cannot be prohibited, it cannot be regulated. This, indeed, is the basic principle of the opposi- tion to the statute. It is expressed in many ways, and the various pro- visions of the statute — those that are explicit in direction to the com- missioner and those that commit discretion to him — are said to so burden and complicate "normal business as to make it difficult, if not impossible, to carry it on in a normal way, if at all." As broadly made, we cannot assent to these propositions. The reason and extent of the law we have indicated and the control to which individual transactions are subjected, and we think both are within the competency of the state. It is to be remembered that the value of securi- ties consists in what they represent, and to determine such value is a complex problem even to the most skillful and informed. 920 DECISIONS We have very lately decided a case upon the principle of the power of the state to prevent frauds and impositions. Hutchinson Ice Cream Co. V. Iowa, 242 U. S. 153, ante, 28, 37 Sup. Ct. Rep. 28. The principle applies as well to securities as to material products, the provisions of the law necessarily varying with the objects. As to material products the purpose may be accomplished by a requirement of inherent' purity. The intangibility of securities, they being representatives or purport- ing to be representatives of something else, of property, it may be, in distant states and countries, schemes of plausible pretensions, requires a difference of provision, and the integrity of the securities can only be assured by the probity of the dealers in them and the information which may be given of them. This assurance the state has deemed neces- sary for its welfare to require; and the requirement is not unreasonable or inappropriate. It extends to the general market something of the safeguards that are given to trading upon the exchanges and stock boards of the country, — safeguards that experience has adopted as advantageous. Inconvenience may be caused and supervision and surveillance, but this must yield to the public welfare; and against counsel's alarm of con- sequences, we set the judgment of the state. We turn back, therefore, to consider the more specific objections to the law. The basis of them is, as we have seen, the power conferred upon the commissioner, which is asserted to be arbitrary. The objection is somewhat difficult to handle. It centers in the provision that requires the commissioner, as a condition of a license, "to be satisfied of the good repute in business of such applicant and named agents,'' and in the power given him to revoke the license or refuse to renew it upon ascertain- ing that the licensee "is of bad business repute, has violated any pro- vision of the act, or has engaged or is about to engage, under favor of such license, in illegitimate business or fraudulent transactions." It is especially objected that, as to these requirements, no standard is given to guide or determine the decision of the commissioner. Therefore, it is contended that the discretion thus vested in the commissioner leaves "room for the play and action of purely personal and arbitrary power.' " We are a little surprised that it should be implied that there is any- thing recondite in a business reputation or its existence as a fact which should require much investigation. If in special cases there may be controversy, those cases the statute takes care of ; an adverse judgment by the commissioner is reviewable by the courts. § 6373-8. So also as to the other judgments. Besides, it is certainly apparent that, if the conditions are within the power of the state to impose, they can only be ascertained by an executive officer. Reputation and character are quite tangible attributes, but there can be no legislative definition of them that can automatically attach to or identify individuals possessing them, and necessarily the aid of some executive agency must be invoked. The contention of ap- pellees would take from government one of its most essential instru- HALL VS. GEIGER-JONES CO. 921 mentalities, of which the various national and state commissions are instances. But the contention may be answered by authority. In Gundling v. Chicago, 177 U. S. 183, 44 L. ed. 726, 20 Sup. Ct. Rep. 633, an ordinance of the city of Chicago was passed on which required a license of dealers in cigarettes, and, as a condition of the license, that the applicant, if a single individual, all of the members of the firm, if a copartnership, and any person or persons in charge of the business, if a corporation, should be of good character and reputation, and the duty was delegated to the mayor of the city to determine the existence of the conditions. The ordinance was sustained. To this case may be added Red "C" Oil Mfg. Co. v. Board of Agriculture, 222 U. S.. 380, 394, 56 L. ed. 240, 245, 32 Sup. Ct. Rep. 152, and cases cited; Mutual Film Corp. v. Industrial Commission, 236 U. S. 230, 59 L. ed. 552, 35 Sup. Ct. Rep. 387, Ann Cas. 1916C, 296; Brazee v. Michigan, 241 U. S. 340, 341, 60 L. ed. 1034, 1035, 36 Sup. Ct. Rep. 561. See also Reetz v. Michigan, 188 U. S. 505, 47 L. ed. 563, 23 Sup. Ct. Rep. 390 ; New York ex rel. Lieberman v. Van De Carr, 199 U. S. 552, 50 L. ed. 305, 26 Sup. Ct. Rep. 144. The discretion of the commissioner is qualified by his duty, and besides, as we have seen, the statute gives judicial review of his action. Pending such review, we must accord to the commissioner a proper sense of duty and the presumption that the firactions intrusted to him will be executed in the public interest, not wantonly or arbitrarily to deny a license to or take one away from a reputable dealer. (Plymouth Coal Co. V. Pennsylvania, 232 U. S. 531, 545, 58 L. ed. 713, 719, 34 Sup. Ct. Rep. 359) ; and, as we have said, in cases where there can be a dispute of fact, the statute provides for judicial review, and we see no legal ob- jection to the designation of a particular court for such review. We are not disposed to give serious attention to the contention -that while the statute in form prohibits sales, "it at the same time necessarily prevents purchases, and thereby shields contemplated purchasers from loss of property by the exercise of their own "defective judgment," and puts them as well as the sellers under guardianship. If we may suppose that such purchasers would assert a liberty to form a "defective judg- ment," and resent means of information as a limitation of their free- dom, we must wait until they themselves appear to do so. Besides, there are examples in legislation of unsolicited protection, and there is much in -the business we are considering which urges to an imitation of the examples. It is not wise to put out of view the tendencies of the busi- ness, and that it tempts to and facilitates speculative judgments, if the purpose be trading, improvident judgments, if the purpose be investment. Whatever detriment may come from such judgments the law may be powerless to prevent; but against counterfeits of value the law can give protection, and such is the purpose of the statute under review. It must be judged of upon that consideration, not upon the assertion of an ab- solute liberty of conduct which does not exist. 922 DECISIONS Discriminations are asserted against the statute which extend, it is contended, to denying appellees the equal protection of the laws. Counsel enumerates them as follows : "Prominent among such discriminations are between the cases where more or less than 50 per cent of an issue of bonds is included in the state to one person ; between securities which have and which have not been authorized by the Public Service Commission of this state; between the securities issued by a bank, trust company, a building and loan asso- ciation organized under the laws of this state and those which are not; between an owner who sells his securities in a single transaction and one who disposes of them in successive transactions; between a bank or trust company who sells at a commission of not more than 2 per cent and one which sells at a higher commission ; against securities when any part of the proceeds to be derived from the sale are to be applied in payment for patents, services, good will, or for property not located in this state; in providing for such delays in the issuance of a license and in the subsequent conduct of business thereunder as to substantially hinder, and in many cases naturally arising, to utterly prevent sales ; in discriminating between securities which have and which have not been published in regular market reports ; between sales where, in a single transaction, the sale is for $5,000 or more ; in discriminations against securities issued by taxing subdivisions of other states ; between securi- ties upon which there has and has not been a default as to principal or interest; against securities which have not from time to time for six months been published in the regular market reports or the news columns of a daily newspaper of general circulation in the state; where the securities are or are not of manufacturing or transportation com- panies in the hands of bona fide purchasers prior to March 1st, 1914, where such companies were on that date, and shall be at the time of the proposed sale, going concerns ; between cases where the information contemplated is or is not contained in a standard manual of information approved by the commissioner; where the disposal is or is not made for a commission of less than 1' per cent of the par value thereof by a licensee who is a member of a regularly organized and recognized stock exchange and who has an established and lawfully conducted business in ' this state, regularly open for public patronage as such ; between cases in which the vendor proposes to sell securities for which he has and those for which he has not paid 90 per cent of the price at which they are to be sold by him; where the securities are or are not those of a common carrier or of a company organized under the laws of this state and engaged principally in the business of manufacturing, transporta- tion, etc., and the whole or a part of the property upon which such se- curities are predicated are located within this state." We cannot give separate attentoin to the asserted discriminations. It' is enough to say that they are within the power of classification which a state has. A state ''may direct its law against what it deems the evil HALL VS. GEIGER-JONES CO. 923 as it actually exists without covering the whole field of possible abuses, and it may do so none the less that the forbidden act does not differ in kind from those that are allowed. ... If a flass is deemed to present a conspicuous example of what the legislature seeks to prevent, the 14th Amendment allows it to be dealt with although otherwise and merely logically not distinguishable fronn others not embraced in the law." Central Lumber Go. v. South Dakota, 226 U.' S. 157, 160, 57 L. ed. 164, 169, 33 Sup. Ct. Rep. 66. The cases were cited from which those propositions were deduced. To the same effect is Armour & Co. v. North Dakota," 240 U. S. 617, 60 L. ed. 776, 36 Sup. Ct. Rep. 440, Ann. Cas. 1916D, 548. The next contention of appellees is that the law under review is a burden on interstate commerce, and therefore contravenes the commerce clause of the Constitution of the United States. There is no doubt of the supremacy of the national power over interstate commerce. Its in- action, it is true, may imply prohibition of state legislation, but it may imply permission of such legislation. In other words, the burden of the legislation, if it be a burden, may be indirect and valid in the absence of the assertion of the national power. So much is a truism; there can only be controversy about its application. The language of the statute is : "Except as otherwise provided in this act, no dealer shall, within this state, dispose" of certain securities "issued -or esecuted by any private or quasi public corporation, copartnership or association (except corporations not for profit) . . . without first being licensed so to do as hereinafter provided." The provisions of the law, it will be observed, apply to dispositions of securities tiHthin the state, and while information of those issued in other states and foreign countries is required to be filed (§ 6373-9), they are only affected by the requirement of a license of one who deals in them within the state. Upon their transportation iiito the state there is no impediment, — no regulation of them or interference with them after they get there. There is the exaction only that he who disposes of them there shall be licensed to do so, and this only that they may not appear in false character and impose an appearance of a value which they may not possess, — and this certainly is only an indirect burden upon them as objects of interstate commerce, if they may be regarded as such. It is a police regulation strictly, not affecting them until there is ari attempt to make disposition of them within the state. To give them more im- munity than this is to give them more immunity than more tangible ar- ticles are given, they having no exemption from regulations the purpose of which is to prevent fraud or deception. Such regulations affect inter- state commerce in them only incidentally. New York ex rel. Hatch v. Reardon, 204 U. S. 152, 51 L. ed. 415, 27 Sup. Ct. Rep. 188, 9 Ann. Cas. 736 ; Ware & Leland v. Mobile County, 209 U. S. 405, 52 L. ed. 855, 28 Sup. Ct. Rep. 526, 14 Ann, Cas. 1031 ; Engel v. O'Malley, 219 U. S. 128, 55 L, ed. 128, 31 SUp. Ct. Rep. 190; Brodnax v. Missouri, 219 U. S. 285, 924 DECISIONS 55 L. ed. 219, 31 Sup. Ct. Rep. 238; Banker Bros. Co. v. Pennsylvania, 222 U. S. 210, 56 L. ed. 168, 32 Sup. Ct. Rep. 38; Savage v. Jones, 225 U. S. 501, 56 L. ed. 1182, 32 Sup. Ct. Rep. 715; Standard Stock Food Co. V. Wright, 225 U. S. 540, 56 L. ed. 1197, 32 Sup. Ct. Rep. 784; Trad- ing Stamp Cases, supra. With these cases International Textbook Co. V. Pigg, 217 U. S. 91, 54 L. ed. 678. 27 L.R.A.(N.S.) 493, 80 Sup. Ct. Rep. 481, 18 Ann. Cas. 1103; Buck Stove & Range Co. v. Vickers, 226 U. S. 205, 57 L. ed. 189, 33 Sup. Ct. Rep. 41, and the Lottery Case (Champion v. Ames) 188 U. S. 321, 47 L. ed. 492, 23 Sup. Ct. Rep. 321, 13 Am. Crim. Rep. 561, are not in discordance. We might, indeed, ask, When do the designated securities cease migration in interstate commerce and settle to the jurisdiction of the state? Material things, choses in possession, pass out of interstate com- merce when they emerge from the original package. Do choses in action have a longer immunity? It is to be remembered that though they may differ in manner of transfer, they are in the same form in the hands of the purchaser as they are in the hands of the seller, and in the hands of both as they are brought into the state. We ask again, Do they never pass out of interstate commerce? Have they always the freedom of the state? Is there no point of time at which the state can expose the evil that they may mask? Is anything more necessary for the supremacy of the national power than that they be kept free when in actual transporta- tion, subjected to the jurisdiction of the state only when they are at- tempted to be sold to the individual purchaser? The questions are pertinent, the answer to them one way or the other, of consequence ; but we may pass them, for, regarding the securities as still in interstate commerce after their transportation to the state is ended and they have reached the hands of dealers in them, their interstate character is only incidentally affected by the statute. Decree reversed and the causes remanded for further proceedings in conformity with this opinion. Mr. Justice McReynolds dissents.' (Geiger-Jones Co. v. Turner, Attorney General of State of Ohio, et al., Coultrap v. Same. Rose et al. v. Hall, Superintendent of Banks and Banking of State of Ohio et al. 230 Fed. 233 Reversed). CLARENCE C. CALDWELL, AS ATTORNEY GENERAL OF THE STATE OF SOUTH DAKOTA AND EX-OFFICIO MEMBER OF THE STATE SECURITIES COMMISSION OF THE STATE OF SOUTH DAKOTA, vs. SIOUX FALLS STOCK YARDS COMPANY 242 U. S. 559, 61 L. ed. 493, 37 Sup. Ct. Rep. 224. The South Dakota "Blue Sky Law" Laws of 1915 c 275 is the ?ame in principle as the laws of Ohio and Michigan involved in Hall CALDWELL VS. SIOUX FALLS CO. 925 V. Geiger-Jones Co. ante 539 and Merrick v. Halsey & Co. poste 568, and is sustained over constitutional objections, for the reasons assigned in those cases, as applied to a Colorado corporation seeking to raise capital by sale of its own shares, and to individuals, dealing in such shares. When a statute regulating complainant's business is alleged to be unconstitutional and its effect, if the business be continued in disregard of it, will be to vest him with repeated criminal prosecutions involving heavy fines and imprisonment, the remedy at law is not adequate. A suit to enjoin state officials from instituting criminal proceedings in enforcement of such a statute is not a suit against the state. Reversed ; For decree below see 230 Fed. Ry. 286. Note. Appeal from the District Court of the United States from the District of South Dakota to review a decree enjoining the enforcement of the so-called "Blue Sky" law of that state. Reversed and remanded for further proceedings. The facts are stated in the opinion. Mr. Clarence C. Calvweu., Attorney General of South Dakota, in propria persona, and Mr. Byron S. Payne for appellants. Messrs. George J. Danforthi, Hugh S. Gamble, Frank McLaughlin, and Edward E. Wagner for appellees. Mr. Justice McKenna delivered the opinion of the court : This case was argued and submitted with Nos. 438, 439, and 440, just decided [242 U. S. — , ante, 217, 37 Sup. Ct. Rep. 217], and with No. 413 [242 U. S. — , post, 227, 37 Sup. Ct. Rep. 227], which concerns a statute of Michigan of like kind, the opinion in which is to follow. It involves the same general questions as those cases, and is presented to review a decree of the district , court enjoining appellants from en- forcing a statute of the state of South Dakota relating to the 'sale of securities. The act ([Sess. Laws 1915, chap. 275] § 23) makes viola- tions of its provisions a misdemeanor, and criminal prosecutions under the act were the particular actions of the officers of the state that the appellees prayed to be enjoined. After a consideration of the pleadings and argument the court, consisting of three judges, expressed the view that the statute violated the Constitution of the United States, and cited in confirmation Alabama & N. 0. Transp. Co. v. Doyle, 210 Fed. 173; William R. Compton Co. v. Allen, 216 Fed. 537 ; and Bracey v. Darst, 218 Fed. 482. The court decreed that the appellants be enjoined from instituting and prosecuting any actions, civil or criminal, against complainants (ap- pellees) under the statute for alleged violations thereof, and from tak-' ing any proceedings for its enforcement except such as might be deemed proper by them in the criminal actions already pending. The Sioux Falls Stock Yards Company is a Colorado corporation, having' its principal place of business at the city of Denver, and the Morleys are residents and citizens of Iowa, 926 DECISIONS Tihe Stock Yards Company was at the times mentioned in the bill engaged in building and constructing a stock yard in Sioux Falls, South Dakota, and in selling a certain amount of its capital stock for raising sufficient capital for that purpose. The Morleys, at such time, were en- gaged in the buying and selling of stock and especially in selling the stock of the Stock Yards Company to various farmers and other pur- chasers, such sales being necessary to complete the construction of the stock yard, and also necessary to enable the Morleys to earn a livelihood. Six informations were filed against appellees at the instigation of appellants for violations of the statute, and it is alleged that appellees will be prosecuted immediately under such informations and will be further prosecuted. The statute, it is alleged, is an infraction of the 14th Amendment of the Constitution of the United States, and imposes a burden upon and practically amounts to a prohibition of interstate commerce, and hence offends the commerce clause of the Constitution of the United States; and "that it attempts to vest in and delegate to the State Securities Com- mission judicial powers unauthorized by law." Against the bill appellants urge, besides asserting the validity of the statute, three defenses: (I) That complainants have a plain, speedy, and adequate remedy at law; (2) the suit is one against the state; (3) that the plea of the unconstitutionality of the statute was made in the criminal actions. The three defenses are without merit. Six informations have already been filed against appellees and as many more may be brought as there may be violations of the statute, and a conviction of each may bear a fine of $1,000 or imprisonment, or both. The suit manifestly is not one against the state, and the decree ap- pealed from does not enjoin criminal actions commenced before the filing of the bill. We therefore pass to the merits. A summary of the statute is all that is necessary. Its purpose as declared in its title is to prevent fraud in the sale and disposition of stocks, bonds, or other securities sold or offered for sale within the state. It creates a commission, called the State Securities Commission, of which the appellants — except Hanson, who is prosecuting attorney of Turner county — -are members. Those dealing in securities — and they may be persons, corporations, copartnerships, companies, or associations, incorporated or unincorpora- ated — shall be known, it is provided, "as a domestic investment com- pany." Those resident of or organized in any other state, territory, or government shall be known "as a foreign investment company." Certain securities are exempt from the provisions of the act, and information as to those to which it applies must be furnished to the Commission as follows : If the securities are of the dealer's own issue, a statement must be filed with the Commission, showing in full detail (1) the plan upon which it proposes to transact business; (2) a copy gi CALfiWELL VS. SIOUX PALLS CO. 927 all contracts, stocks, and bonds which it proposes to make with or sell to contributors or customers, together with a copy of its prospectus and of the proposed advertisements of its securities ; which statement shall also show the names and location of its main office; (3) the names and addresses of its officers and an itemized account of its financial condi- tion and the amount of its assets and liabilities ; (4) such other informa- tion as the Commission may require; (5) if a foreign corporation, a copy of the law under which it was incorporated; (6) a copy of its charter and certain ather papers relating to its constitution and organiza- tion. A filing fee is provided for of not less than $10 nor more than $100. The described papers are to be verified, and, if of record, certified to. If a foreign corporation, the applicant must file its irrevocable con- sent to suits against it by service of summons upon the public examiner. The Commission is authorized to require further information than that mentioned above, and to make an appraisal of the property of the applicant at the expense of the applicant. If the Commission find from the statements filed and the reports of the investigations conducted by it that the securities or investment contracts offered for sale would, in its opinion, work a fraud upon the purchaser, the Commission shall disapprove of their sale and notify the company by registered mail of its findings and disapproval, and it shall be unlawful for the company to sell such securities, and they shall not be sold in the state. If, however, the proposed plan of business and the securities are not of that character their sale shall be approved and a certificate issued of permission to sell. The person who is authorized to sell the securities designated in the act is termed a "dealer" in them, and he shall not sell or offer them for sale until he shall have filed a list of the same in the office of the Commission. The term "dealer," it is provided, shall not include an owner nor issuer of securities when the sale of them is not made in the course of continued and successive transactions of a similar nature, nor one who, in a trust capacity created by law, lawfully sells securities "impressed with such trust." A "dealer" is required to furnish prac- tically the same information as that required of corporations. All au- thorized agents of a "dealer" or investment company shall be registered with the Commission, and if the "dealer" be a nonresident or a corpora- tion other than a domestic corporation, he shall, at the time he registers with the Commission, file with it a written, duly authenticated appoint- ment of the public examiner of the state as his or its agent in the state upon whom process or pleadings may be served for or on behalf of the "dealer," which appointment shall be irrevocable. Upon com- pliance with the terms of the act, the Commission shall issue to such "dealer" a license which shall be good until revoked by the Commission for good cause upon notice to the "dealer," and after a hearing duly had. There is a provision for keeping accounts, payment of fines, and other details, and it is provided that if, after permission has been issued 928 nK( isioNS authorizing the sale of the designated securities, it shall be made to ap- pear to the Commission, from an examination of an investment company, that the further sale of the securities would work a fraud upon the purchaser, the Commission may make an order revoking the license of the company, and, pending the hearing, suspend the right of the company. It is unlawful for a dealer or investmeijt company to sell or offer for sale securities other than those approved by the Commission, or to transact business on any other plan than that set forth in the state- ments and papers required to be filed with the Commission; or to cir- culate advertisements or other documents in the state differing in any way from the copy filed with the Commission ; or until the same has been approved by the Commission. And no dealer shall sell or offer for sale securities of an investment company until such company has complied with the act. He may, however, if such investment company has not itself complied with the act, make application for a license. Records of the Commission shall be public records, and they shall be so arranged and preserved as to facilitate their examination, except that the Commission may, in its discretion, withhold information relating to the private affairs of persons or corporations when, in its judgment, the same shall not be required for the public welfare, or any informa- tion relative to any matter that may be at issue in any court, unless upon an orcler of the court. Except as so provided, the Commission may furnish to those who may apply therefor any information regarding any investment company or its affairs. Annual statements are reuired to be filed by investment companies, domestic or foreign, in such form and containing such information as the Commission may demand; and failure to do so forfeits its permit. The supreme court of the state, upon petition of any person ag- grieved, may review by certiorari any final order or determination of the Commission. The issue of the writ shall not, however, unless speci- fically ordered by the court, operate as a stay of proceedings. Violations of the act are made misdemeanors punishable by a fine of not more than $1,000 or imprisonment for not more than one year, or both fine and imprisonment. And it is provided that if any section of the act be declared unconstitutional or unauthorized, the other sec- tions shall not be vacated thereby. The statute of South Dakota differs in some details from the statute of Ohio, but in its purpose and general provisions it is the same. There is urged against it, as was urged against the Ohio statute, that it violates the 14th Amendment and the commerce clause of the Con- stitution of the United States. The argument to support these conten- tions, while affluent in citation of cases, is not so circumstantial as that which is presented against the Michigan statute. Therefore, we shall rest this case upon our opinion in Nos. 438, 439, and 440 [242 U. S. — MERRICK VS. HALSEY & CO. 929 ante, 217, 37 Sup. Ct. Rep. 217], reserving to the Michigan case our reply to the more specific objections. Decree reversed and cause remanded for further proceedings in conformity with this opinion. Mr. Justice McReynolds dissents. FRANK W. MERRICK, JOHN W. HARRER AND GRANT FELLOWS, vs. N. W. HALSEY & COMPANY ET AL., AND THE WEIS FIBRE CONTAINER CORPORATION 242 U. S. 568, 61 L. ed. 498, 37 Sup. Ct. Rep. 227. The Michigan "Blue Sky Law" Act No. 46 Public Acts, 1915 p. 63 is the same in principle as the laws of Ohio and South Dakota, in- volved in Hall v. Geiger-Jones Co. ante 539 and Caldwell v. Sioux Falls Stock Yards Co. ante 559 and is sustained over constitutional objec- tions for the same reasons, whether the dealing in stocks and' other securities, or sale of their own issues by corporations, require govern- mental regulation for the prevention of fraud, and whether such regula- tion should by executive control or otherwise, are questions for the state legislature, and unless its judgment in these regards, or the exe- cution of it, be palpably arbitrary, the Courts will not interfere. It is not a function of this court to pass upon the expediency or adequacy of legislation. The purpose of the Michigan statute is to protect investors in se- curities not from financial loss generally, but from fraud. In prevention of fraud, the regulatory power of a State is not neces- sarily confined to those classes of business which by their nature or as generally conducted involve or encourage fraud; it may extend to those in .which fraud usually, when it arises, is occassioned and confined to in- dividual transactions, but which may nevertheless be conducted for fraudulent purposes. The limitations- of the Constitution are not so rigid as to render state legislation inadequate to the changing conditions of life. Section 3 of the Michigan Act, which exempts from its operation securities "listed in any standard manual of information" approved by the securities commission, held, not to render the act unduly discrim- inatory or involve unlawful delegation of power. The Act complies with the requirements of the Michigan constitution that no law shall embrace more than one subject which shall be expressed in its title. 228 Fed. Ry. 805 Reversed. (Argued October 16 and 17, 1916. Decided January 22, 1917) Appeal from the District Court of the United States for the Eastern District of Michigan to review a decree enjoining the enforcement of 59 930 DECISIONS the so-called 'Blue Sky" law of that state. Reversed and remanded for further proceedings. See same case below, 228 Fed. 805. Statement by Mr. Justice McRenna: The question in the case is the validity of the Blue Sky Law (using this designation for convenience) of the state of Michigan. The law is almost identical with that of South Dakota, which is the subject of the decision in No. 386 [242 U. S. — , ante, 224, 37 Sup. Ct. Rep. 224]. The pleadings are elaborate and practically defy synopsis. There are direct complainants and intervening complainants, expressing the grievances of dealers in the state and outside of the state, and of per- sons who would like to be dealers in the state, but are deterred, they allege, by the expense of the undertaking. The law, therefore, is assailed from all points and in all aspects. The original bill includes in it as parties, corporations, individuals, copartnerships, residents, and citizens of different states, all engaged in the investment banking business and in the business of buying and sell- ing stocks, bonds, and other securities, and offering them for sale in Michigan, and who have contracted from time to time to sell such se- curities for the owners thereof and for the issuers thereof. They have expended large sums of money in advertising their business and have a valuable good will and an extensive clientele, and have acquired valuable information as to the conduct of their business and as to the names and addresses of persons, firms, and corporations who buy the designated securities in Michigan. They send into the state their agents and employees, who there solicit orders for the securities and- transmit such orders to complainants, at Chicago, Illinois, which orders are ac- cepted, and the securities so purchased are transmitted to Michigan. Their representations of the securities are true reprsentations, they allege, and that they have been solicited to sell and have contracted to sell them, but have been informed that they cannot be permitted to sell them without complying with the Michigan statute. The various provisions of the statute are set out, with details as to the manner of its operation; the irrelevancy of it is asserted, the useless labor of it,- — in some cases the impossibility of it, — and in other cases its unreasonableness ; and it is further asserted that its ex- action of matters of confidence and its requirements invade and destroy property rights, curtail freedom of contract, and otherwise seriously damage complainant's business and property. All of this is alleged with industrious and elaborate detail. The other charges of invalidity against the act are: (1) It is in violation of the Constitution of Michigan, which provides that no law shall embrace more than one object, which shall be expressed in its title, with specifications. (2) It offends against the 14th Amendment of the Constitution of the United States, especial stress being put upon the MERRICK VS. HALSEY & CO. 931 exceptions of the statute, which are asserted to be discriminations in violation of the equal protection of the laws guaranteed by that Amend- ment. (3) It imposes a burden on interstate commerce in violation of § 8, article 1, of the Constitution of the United States. Under the latter objection there is elaborate specification of par- ticulars which exhibit, with the specifications under the other objections, every shade of meaning, purpose, or effect that ingenuity can ascribe to the statute, — indeed, every provision of the statute is reviewed and charged with some form of illegality. However, the attacks may be condensed in the charge that the statute is a violation of the prohibitions of the 14th Amendment of state action because of its restriction.s or pro- hibitions of a lawful business ; and a violation of the commerce clause of the Constitution because the designated securities are articles of com- merce, and, as such, entitled to unmolested transportation between the states, and that the statute is a direct burden upon them in many cases, prohibitive in others, — with the addition that the statute delegates legis- lative power to the commission created by it, inflicts cruel and unusual punishments, and imposes penalties whose object is to deter from a test of its validity; and inflicts cruel and unusual punishments, in violation of the Constitution of Michigan. It is also alleged that in a suit entitled Alabama & N. O. Transp. Co. V. Doyl'e, in the district court for the eastern district of Michigan, the statute, of which the statute under review is an amendment, was de- clared unconstitutional and void, the opinion in which case is reported in 310 Fed. 173, and that the statute there passed upon is similar in all illegal particulars to the present statute. A remedy in equity is asserted because of alleged irreparable injury and on account of the penalties im- posed, and an injunction is prayed against the enforcement of the act. At the same time that the bill outlined above was filed another bill was filed by the Weis Fibre Container Corporation, a corporation of South Dakota, whose purpose is to manufacture, buy, and sell paper or fiber containers and similar products. It is not an investment company, but a manufacturing company. Its securities are not supervised or regu- lated by any public service hoard or commission, and the proceeds from the sale of its stocks and securities are employed in the prosecution of its business, and are not otherwise invested. The corporation is duly authorized to do business in Michigan; its stock is vlauable, and it has offered^ it for sale in Michigan directly and through agents and em- ployees ; and it is alleged that the representations made in regard thereto are true. It has solicited various persons in Michigan to offer its stock for sale, and they have informed it that its stocks cannot be sold in Michigan unless full compliance is made with the statute. The bill attacks the statute for the illegalities detailed in the other bill, and, considering that the only remedy is in equity, prays an injunction against the enforcement of the act, 932 DECISIONS A restraining order was issued entitled in both cases. Subsequently, on September 16, 1915, a partnership, organized and existing under the laws of the state of Ohio, having the name of Otis & Company, and composed of citizens of Colorado and Ohio, filed a petition in interven- tion. That company is a dealer in bonds and other securities in Michigan, and such bonds and securities are of the kind which the statute of the state regulates. It also sends agents into the state to solicit orders for such securities and transmits orders to its offices in Cleveland, Ohio. It asserts identity of situation with the complainants in the other bills, and adopts their charges against the statute, and prays to be made a party complainant to the cause, and for the benefit of the restraining order issued therein, and for such other relief as the court may deem meet. A demurrer was filed to the bills and a motion made for injunction. The company was given the benefit of thei restraining order and a like benefit was given to all others who might petition to intervene, the restraining order to continue until the disposition of the motion which had been made for injunction. The injunction was subsequently granted (228 Fed. 805), and to review it this appeal! is prosecuted. There was a partnership under the name of Remick, Hodges & Com- pany, Remick and Hodges being residents of New York and March a resident of New Jersey, having their office at the city of New York and engaged in buying and selling stocks, bonds, and other securities. Their business is known as investment banking and is carried on in New York and by their agents there and elsewhere, and by mail with various cor- porations, associations, and persons throughout the United States and in the state of Michigan. They own many of such securities which they have offered and are offering for sale, and desire to continue to offer to their customers in the state of Michigan. They have no place of business in the state and are not at the present time sending agents into the state, but are endeavoring to sell securities there; but the volume of such business is not sufficient to justify them to attempt to comply with the statute of the state, and the statute, if enforced against them, will have the effect of preventing them from making any further offers in the state, and from attempting to establish or develop any business therein, and they are excluded thereby from interstate commerce in such securities which they have heretofore enjoyed. Thy allege themselves to be in like situation with complainants and adopt the allegations of complainants' bills, and especially complain of the penalties which may be enforced against them and their agents, and pray to come into the suit as parties. The causes were subsequently consolidated by a nunc pro tunc order. The injunctions restrained the defendants from enforcing the act and from beginning or instituting any action, civil or criminal, against complainants, "based upon or pursuant to such act," MERRICK VS. HALSEY & CO. 933 Mr. Grant Fellows, Attorney General of Michigan, in propria per- sona, for appellants. Messrs. George W. Wickersham, Robert R. Reed, Hal H. Smith, and Charles K. Allen for Appellees. Mr. George Cosson, Attorney General of Iowa, and Mr. Walter C. Owen, Attorney General of Wisconsin, as amici curije. Mr. Justice McKenna, after stating the case as above, delivered the opinion of the court: The statute of Michigan is the same as the statutes of South Dakota and Ohio, and our reply to the attacks made upon it might be rested upon our discussion of those statutes. But in the present case, as we have said elsewhere, the arguments, while fundamentally the same, are in some respects more circumstantial. All the supposed consequences of the law are dilated upon — wherein, as it is contended, it meddles with or burdens a business asserted to be legitimate, wherein it prohibits or gives power to an executive officer to arbitrarily prohibit such business, and wherein it confuses legislative and executive powers, and in these ways and other ways, as it is further con- tended, transgresses the Constitution of the United States. Many cases are cited to support the contentions and publicists are avouched to -the same end. In our discussion we cannot be as elaborate in details as counsel, nor is it necessary. There are certain outside propositions upon which all others may be regarded as dependent. These propositions were considered in the other cases and we need now only supplement what was there said. The appellants justify the law by the police power of the state and its comprehensive reach. Replying, appellees urge against it the limita- tions of the 14th Amendment and the national supremacy over interstate commerce; and applying the 14th Amendment, assert in many ways (we select one and upon it the changes are rung) that the issue of the se- curities "is in effect the making of contracts 'proper and necessary and essential' to the pursuit of lawful livelihoods or avocations," and can- not be "made the subject of discretionary executive license," controlling thereby' individual transactions. The assertion encounters immediately many cases in which laws have been sustained limiting the making of contracts and regulating busi- ness through executive agencies and necessarily controlling individual transactions. Indeed, there are too many for even marginal citation. They, however, are attempted to be distinguished or restricted. It is said by counsel that they "deal with administrative control over matters of public right or public grant or existing at public sufferance." And it is admitted that "the legislature may deal drastically with many mat- ters of private right, to prevent or redress iridividual wrongs." It is further admitted that "drastic remedies may be prescribed by law [italics ours] for evils deemed by the legislature to require them." Excluding the proposition so expressed from application to the Michigan law, it 934 DECISIONS is insisted that the business to which it applies "neither requires nor justifies, nor is susceptible of, administrative or executive control for the purpose of preventing a wrong or injury by one individual to an- other." Of course, the implication, if not the direct assertion, is that the business of dealing in securities has not that character. Neither the principle nor the assertion is very tangible. The first incidence of any evil from a business or conduct is upon some individual, and through the individual (let us say individuals, for necessarily there are more than one) upon the community; nor can it be affected in any other way. Besides, it is for the state to judge in such circumstances, and the judg- ment and its execution would have to be palpably arbitrary to justify the interference of the courts. Counsel, indeed, frankly concedes the evil of get-rich-quick" schemes and quotes the banking commissioner of the state of Kansas for the statement that the "Blue Sky" law of that state had saved the people of the state $6,000,000 since its enactment, and that between 1,400 and 1,500 companies had been investigated by the department and less than 400 of the number granted permits to sell securities in the state. Counsel also quotes the confidence of the com- missioner in the efficacy of the law, and that it will "eventually result in the regulation and supervision of all kinds of companies in the same manner as banks are now regulated and supervised." Against this statement, however, counsel cites the view expressed by the British Board of Trade of the inexpediency of an official in- vestigation "into the soundness, good faith, and prospects" of companies. Upon this difference in views we are not called upon to expressi an opin- ion, for, as we have said, the judgment is for the state to make, and in the belief of evils and the necessity for their remedy and the manner of their remedy the state has determined that the business of dealing in securities shall have administrative supervision, and twenty-six states have expressed like judgments. Much may be said against these judgments, as much has been said, and decisions of the courts have been cited against them. We are not insensible to the strength of both, but we cannot stay the hands of gov- ernment upon a consideration of the impolicy of its legislation. Every new regulation of business or conduct meets challenge, and, of course, must sustain itself against challenge and the limitations that the Con- stitution imposes. But it is to be borne in mind that the policy of a state and its expression in laws must vary with circumstances. And this capacity for growth and adaptation we said, through Mr. Justice Matthews, in Hurtado v. California, 110 U. S. 516, 530, 28 L. ed. 232, 237, 4 Sup. Ct. Rep. Ill, 292, is the "peculiar boast and excellence of the common law." It may be that constitutional law must have a more fixed quality than customary law, or, as was said by Mr. Justice Brewer, in Muller v. Oregon, 208 U. S. 412, 420, 52 L. ed. 551, 555, 28 Sup. Ct! Rep. 324, 13 Ann. Cas. 957, that "it is the peculiar value of a written constitution that it places in unchanging' form limitations' upon legis- MERRICK vs. HALSEY & CO. 935 lative action.'" This, however, does not mean that the form is so rigid as to make government inadequate to the changing conditions of life, preventing its exertion except by amendments to the organic law. We may feel the difficulties of the new applications which are invoked, the strength of the contentions and the arguments which support or oppose them, but our surest recourse is in what has been done, and in the* pend- ing case we have analogies if not exact examples to guide us. So guided and so informed, we think the statute under review is within the power of the state. It burdens honest business, it is true, but burdens it only that, under its forms, dishonest business may not be done. This mani- festly cannot be accomplished by mere declaration; there must be con- ditions imposed and provision made for their performance. Expense may thereby be caused and inconvenience, but to arrest the power of the state by such considerations would make it impotent to discharge its function. It costs something to be governed. Bu counsel say that the conditions imposed either are not adequate to such purpose or transcend what is necessary for it. Indeed, it is asserted that the statute has not that purpose, "but rather to prevent financial loss." The assertion is against the declaration of the title of the statute and against the words of its body, and cannot be justified by assigning to it the purpose of the law which it amends ; nor can we assent to the contention that such purpose must be inferred from § 8 or other provisions which point, it is said, to the probability of financial loss, not fraud. The act must be considered from its declared purpose and as a whole, not from detached portions which can be easily overwhelmed when assigned a false character. It is, however, said that, assuming the statute have such purpose, the fraud referred to is not a proper object for the police power, and it is asked, "Can the occasional fraud, that fraud which arises in the individual transaction, justify a law regulating the business of which the single transaction is a part? Or must it be fraud which is incidental to the business, — a fraud which the business itself, from its character and the manner in which it is generally conducted, invites and en- courages?" And, quoting from People ex rel. Tyroler v. Warden, 157 N. Y. 116, 43 L.R.A. 264, 68 Am. St. Rep. 763, 51 N. E. 1006 : "It is a novel legislation, indeed, that attempts to take away from all the people the right to conduct a business because there are wrongdoers in it." To the latter we say the right to do business is not taken away; the other we have already answered and need only add that we cannot, upon such considerations, limit the power of the state. The state must adopt its legislation to evils as they appear, and is not helpless because of their forms. Engel v. O'Malley, 219 U. S. 128, 55 L. ed. 128, 31 Sup. Ct. Rep. 190, was, not decided because fraud was incidental to the business of banking by individuals " or partnerships, but because fraud could be practiced in it, and that hence it could be licensed. Nor was it decided 936 DECISIONS in Allen v. Riley, 203 U. S. 347, 61 L. ed. 216, 27 Sup. Ct. Rep. 95, 8 Ann. Cas. 137, that the transfer of patent rights was of itself illegal, or that any particular transfer would be deceptive, but that some trans- fers might be; and so a statute of Kansas which requierd any person selling or offering to sell such rights to conform to certain requirements was declared valid. Nor did we hesitate to hold valid th-e regulation of the business of employment agencies. It was a lawful business and would not in instances be injuriously conducted; but in instances it might be, and because it might be, with injurious consequences, its regulation was provided. This court sustained the regulation and the condition that it was to be enforced according to the legal discretion of a commissioner. B razee v. Michigaii, 241 U. S. 340, 60 L. ed. 1034, 36 Sup. Ct. Rep. S61. See also Brodnax v. Missouri, 219 U. S. 285, 55 L. ed. 219, 31 Sup. Ct. Rep. 238. Other cases might be cited of similar import. It may be that there are better ways to meet the evils at which the statute is directed, and counsel have felt it incumbent upon them to suggest a better way. We can only reply that it is not our function to decide between measures, and, upon a comparison of their utility and adequacy, determine their legality. The contentions upon the discriminations of the statute we rest upon the comment made on like contentions in the other cases. A special emphasis, however, is put by appellees upon the adoption by the Com- mission of "so-called 'standard manuals of investment.' " The adoption of these manuals, it is said, is justified by the Commission under § 3, which enumerates the securities that are exempt from the law, among others, "(h) securities which are listed in any standard manual of in- formation approved by said Commission." The provision is attacked as " 'the Michigan idea' of providing an easy way out of the act at all times.'' And further : *It is not so much an exemption of existing standard securities as a working exemption available for new offerings to be listed as issued." And again: "It is to be a permanent means of exempting new securities from the act." Even this, it is asserted, is not all of the power that is given for discrimination, for it is pointed out that the Commission may call for additional information than that contained in the manuals, and may, pending the filing of the informa- tion, suspend the sale of the securities, and may also suspend, either temporarily or permanently, the sale of any securities listed in such manuals after a hearing upon notice, if the Commission shall find that the sale of such securities would work a fraud upon the purchasers thereof. The exemption and the provision are declared to be unconstitu- tional, and it seems to be intimated that in the flexibility of what is considered their subterfuge a vicious character is not only given to the act, but constituted its inducement, and therefore brings the act down with it, for without it, it is insisted, the statute would not have been enacted. We cannot agree either to the characterization of the provision ALABAMA VS. DOYLE 937 or its effect. The first would attribute a sinister purpose to the legisla- tion of which there is no indication ; the second would give too much, imiiortance to a subordinate provision, one that is only ancillary or con- venient to the main purpose. The contentions based on the exemption and provision are a part of that which accuses the law of conferring arbitrary discretion upon the Commission, and committing to its will the existence or extinction of the business. The accusation is formidable in words, but it is the same that has been made many times. It is answered by the comment and the cases cited in the opinion in the other cases. Besides, we repeat, there is a presumption against wanton action by the Commission, and if there should be such disregard of duty, a remedy in the courts is explicitly given, and if it were not given it would necessarily be implied. Objection is made that the title of the act does not indicate its pro- visions, and that the act hence violates the Constitution of Michigan. The objection is untenable and does not call for particular notice. Answer to the contention that the statute is an interference with interstate commerce we leave to our opinion in Nos. 438, 439, and 440 [242 U. S. — . ante, 217, 37 Sup. Ct. Rep. 217]. Decree reversed and cause remanded for further proceedings in conformity with this opinion. Mr. Justice McReynolds dissents. (N. W. Halsey & Co. et al. v. Merrick, Bank Commissioner et al. ; Weis Fibre Container Corp. v. Same, 228 Fed. 805, Reversed). ALABAMA AND N. O. TRANSP. CO., ET AL. vs. DOYLE ET AL (District Court, E. D. Michigan, S. D.). 210 Fed. 173. Public Acts, Mich., 1913, No. 143, which undertakes to provide for the regulation and supervision of foreign and domestic investment com- panies, their agents and other persons, corporations and associations, selling the stocks, bonds, or other securities issued by such investment companies; to protect the purchasers of the stocks, bonds or other se- curities issued by such investment companies; and to prevent fraud in the sale thereof ; and to create a commission to administer' the provisions of the law, is unconstitutional in so far as it gives the Securities Com- mission authority to prohibit the sale of securities at a price less than the Commission considered to be a proper price, and for the reason that it constitutes a direct and substantial interference with interstate com- me^rce in stocks, bonds and commercial paper, and in that it prohibits the sal« of securities during the period of- 30 days after the appHeatioh is made and data filed with the Comniission. 938 ni'XT.siONS In Equity. Consolidated action by the Alabama & New Orleans • Transportation Company, the Continental & Commercial Trust & Sav- ings Bank, N. W. Halsey & Co., H. L. Higginson and others, and A. B, Leac^ and others, against Edward H. Doyle and others, members of the Michigan Securities Commission, to restrain the execution of Pub. Acts Mich. 1913, No. 143, known as the "Blue Sky Law." On motion for a preliminary injunction. Granted. Hal H. Smith, of Dteroit, Mich., and Robert R. Reed, of New York City (Beaumont, Smith & Harris, of Detroit, Mich., and Caldwell, Masslich & Reed,, of New York City, of counsel), for plaintiffs. Grant Fellows, Atty. Gen., of Lansing, Mich., for defendants. Before Dennison, Circuit Judge, and Sessions and Tuttle, District Judges, under section 266 of the 'judicial Code (Act March 3, 1911, c. 231, 36 Stat. 1162 [U. S. Comp. St. Supp. 1911, p. 236] J, as amended March 4, 1913 (chapter 160, 37 Stat. 1013). Per Curiam. We take judicial notice of the common understand- ing that this "Blue Sky Law" was intended, as is said by the Attorney General, "to stop the sale of stock in fly-by-night concerns,- visionary oil wells, distant gold mines and other like fraudulent exploitations." If just this intent had been carried into effect by the act as passed, these cases would not be here; but scrutiny of the law discloses additional and very different effects. It is not confined to corporations, but covers partnerships issuing, and individuals dealing, in, securities ; it does not relate alone to stocks, but as well to bonds, mortgages, and promissory notes; it is not limited to investment companies, as that term would ordinarily be defined, but extends the definition so that it may include most of the private corporations and partnerships in the United States; it does not cover fraudulent securities merely, but reaches and prohibits the sale of securities that are honest, valid, and safe; it does not simply protect the unwary citizen against fraudulent misleading, but it prevents the experienced investor from deliberately assisting an enterprise which he thinks gives sufficient promise of gain to offset the risk of loss, or which, from motives of pride, sympathy, or charity, he is willing to aid, notwithstanding a probability that his investment will prove unprofitable. Of course, not all of these results always follow; but some of them always may, and sometimes will. Take concrete instances. A mer- chandising partnership cannot borrow additional capital from its home bankers on long time notes (over nine months) unless the Commission approves. If a timber company is insolvent, no one can deal in its first mortgage or underlying bonds, though these bonds are perfectly good, are not in default and not likely to be, nor can the Commission permit such dealing if it would. A successful automobile or furniture company may not increase and sell its capital stock, save by the Commission's approval, and, if such a company has not been successful and the Com- mission thinks it is not likely to be, the company must liquidate; it will ALABAMA VS. DOYLE 939 not be permitted to get new capital. If a company is organized to make and sell a new invention, and if the Commission thinks the enterprise will not succeed, the stock may not be sold, even to skilled bankers who have investigated thoroughly and still desire to buy. If, through local pride or in the effort to save an existing investment or for any indirect benefit to come, the citizens of a town wish to take stock or bonds in a local company, though knowing they are likely to lose their investment and being willing to take the chance,, yet they may not ; this law forbids. With the economic wisdom of such a law, this court has nothing to do ; all such consideratoins are for the Legislature. McLean v. Ar- kansas, 211 U. S. 539, 547, 29 Sup. Ct. 206, 53 L. ed. 315; C, B. & Q. R. Co. V. McGuire, 219 U. S. 549, 669, 31 Sup. Ct. 259, 55 L. ed. 328. The generally laudable and remedial purposes of the act are to be granted ; but, in endeavoring to make it so all-embracing as they though wise, its draftsmen, as we are forced to conclude, disregarded fundamental limitations imposed by the federal Constitution. We reach this result fully recognizing the rule that a court must not make such a decision on any evenly balanced or doubtful considera- tions, but must be clearly satisfied of the law's invalidity; and we proceed to state the reasons which compel our conclusions. It is necessary, first, to recite the substance of the law, which covers ten pages of the published statutes, and cannot be quoted at length. By its title it purports to — "define and provide for the regulation and supervision of foreign and domestic investment companies, their agents and other persons, corpora- tions and associations, sellirig the stocks, bonds or other securities issued by such investment companies ; to protect the purchasers of the "stocks, bonds or other securities issued by such investment companies ; and to prevent fraud in the sale thereof; to create a commission to administer the provisions of this law ; and to provide penalties for the violation thereof." It then defines an investment company, foreign or domestic, as in- cluding every corporation, copartnership, company, or association which shall, either by itself or through others, sell or negotiate for the sale, in Michigan, of any stocks, bonds, or other securities issued by it. Ex- cepted from this definition of investment companies are : Municipal corporations, banks, trust companies, building and loan associations, and corporations not for profit. Exempted from the "stock, bonds or other securities" affected by the act are: commercial paper running less than nine months; the securities of quasi public corporations, the issue of which is regulated by any public service commission; and real estate mortgages where the entire mortgage is sold with the notes secured therehy (ordinary trust mortgage bonds remaining within the act). The State Banking Commissioner, the State Treasurer, and the Attorney General are constituted a "Securities Commission." No investment com- 940 '*''"' ''-'f)NS pany shall offer to sell any of its securities until more than 30 days after it has filed with the Commission full data regarding itself and its se- curities, and paid to the Commission one-tenth of 1 per cent, (with a maximum of $100) upon the face value of the securities for the sale of which permission is sought. The Commission shall examine the data filed with it, and may require such further information as it desires. If the Commission finds that the investment company is not solvent, or that its organization or plan of business is not fair, or that its proposed contracts or other securities are fraudulent' or of such a nature that their sale would, in all probability, work a fraud upon the purchaser, or finds that such securities are of such a nature and character as would, in all probability, result in loss to the purchaser, then the sale thereof is to be permanently prohibited. Every investment company (probably mean- ing any company which has ever, since the passage of the act, issued and sold its securities) must file with the Commission annual and special reports, must keep its books according to a prescribed system, shall be subject to inspection by the examiners of the Commission whenever the Commission desires, and must pay the cost of such examinations. A "dealer" is defined as any person, firm, copartnership, corporation, or association, not the tssuer, who shall sell or offer for sale any of the securities issued by any foreign or domestic investment company within the' act, or who shall profess or engage in the business of such selling; but the definition does not include the owner of such securities who is not the issuer, but who, for his own account, sells them, but the owner- so selling is excluded from the class of "dealers" only if "such sale is not made in the course of continued and successive transactions of a similar nature." Dealers must be registered with the Commission, pay a registration fee of $50, furnish all requested information, and file and maintain lists of their authorized agents (at $3 each). No dealer shall offer for sale any securities unless the issuing investment company has complied with the law, or unless the dealer himself furnishes the informa- tion which would have been required from the investment company. In no case can any issue or sale be made of the stocks, bonds, contracts, or commercial paper covered by the act until 30 days have elapsed after the application and data are filed with the Commission, after which time, lacking objection by the Commission," the prohibition expires, and tlie sale is (tacitly) approved. Some violations of the act are made felonies punishable by not more than $5,000 fine and five years in the state prison ; others are made misdemeanors punishable by not more than $1,000 fine and 90 days' imprisonment. The only power of review conferred on any court is that "the Supreme Court may review by certiorari any final order of the Commission." This law is now attacked in five cases which, for the purposes of this motion, have been consolidated. The defendants have filed a motion to dismiss, in the nature of a demurrer, without other showing, and therefore this motion for a temporary injunction must be decided upon ALABAMA VS. DOYLE 941 the properly pleaded allegations of the bills and the accompanying • affidavits, from which the following additional and essential facts ap- pear : The Alabama & New Orleans Transportation Company is a New York corporation, engaged in the transportation business upon the Gulf of Mexico and between the city of New Orleans, La., and the city of Tuscaloosa, Ala., with principal offices in the city of New York, and operating offices at New Orleans and Tuscaloosa. It owns steamboats, wharves, and docks. A part of its authorized capital stock, both common and preferred, has been > issued, and a part of its authorized first and second mortage bonds have also been issued and sold. Through its agents, it has offered its first and second mortgage bonds and preferred stock for sale and desires to make further sales in Michigan. The purchaser of its first mortgage bonds, already issued, desires to sell them in Michigan. It is solvent, its property is ample to discharge all its obligations, its bonds and stock are valuable and the security therefor is amply suffi'cient, its business is profitable, the representatibns, upon which the sale of its bonds have been made, are true, its bonds and stock are of such a nature that the sale thereof will not work a fraud upon, nor, in all probability, cause a) loss to, the purchaser, and the plan of the business is fair and promises a substantial profit from its operation. In the other caises, two of the plaintiffs are corporations and two are partnerships. All are nonresidents of Michigan, are engaged as "investment bankers" in buying and selling, through traveling agents and otherwise, stocks bonds and other securities affected by the act, have been so engaged for a considerable time, have invested large sums of money in, and have acquired a valuable good will connected with, their business, and have not misrepresented to their customers the character or value of the securities which they sell. The objections urged against^ the act are: (1) That it deprives plaintiffs of their property in violation of the fourteenth ammendment; (2) that it deprives- plaintiffs of the equal protection of the laws in violation of the same ammendment; (3) that it directly burdens interstate commerce ; (4) that it delegates to the Commission legislative power and judicial power in violation of the Michigan Constitution; (5) that the title of the act is not confined to one object and does not express that object, as required by the Michigan Constitution. Before considering these questions, it is well to ' remember that this act is neither a tax law nor a mere license law. It does not pur- port to be the former; and, while it carries some of the nomenclature and some of the features of the latter, its dominant characteristics and effect are prohibitory. We may therefore disregard the principles and decisions which have sustained, as constitutional, various state tax laws and various state laws which merely licensed the carrying on of some business or occupation. With this elimination in mind, we pro- ceed to the questions involved. 942 DECISIONS 1. Are plaintiffs deprived of their property or liberty without due process of Umi? That this act does deprive plaintiffs of property, as well as of liberty, is clear. Their right to issue and sell, or to buy and' sell, se- curities is "property" and "liberty under the familiar definitions adopted by the Supreme Court of the United States as well as by the Supreme Court of Michigan. ■'The liberty mentioned in that amendrrnpnt means not only the right of the citizen to be free from the mere physical restraint of his person, as by incarceration, but the term is deemed to embrace the right of the citizen to be free in the enjoyment of all his faculties, to be free to use them in all lawful ways, to live and work where he will, to earn his livelihood by any lawful calling, to pursue any livelihood or voca- tion, and for that purpose to enter into all contracts which may be proper, necessary, and essential to his carrying to a successful conclusion the purposes above mentioned." Allgeyer v. Louisiana, 165 U. S. 578, 589, 17 Sup. Cf. 427, 41 L. ed. 832; Lochner v. New York, 198 U. S. 45, 25 Sup. Ct. 539, 49 L. ed. 937, 3 Ann. Cas. 1133; Adair v. United States, 208 U. S. 161, 28 Sup. Ct. 277, 52 L. ed. 436, 13 Ann. Cas. 764. "The Legislature of the state is not empowered by the Constitu- tion to regulate contracts between its citizens who are engaged in legitimate commercial business, or to require any class of persons to pay a fee for the right to carry on business, or to give a bond to perform their contracts which, other parties may choose to make with them." People v. Berrien Circuit Judge, 124 Mich. 664, 667, 83 N. W. 594, 595 (50 L. R. A. 493, 83 Am. St. Rep. 352). Indeed, we do not understand the Attorney General to question that the statute does operate to deprive plaintiffs of their liberty and prop- erty. "He relies, rather, upon the principles stated by the Circuit Court of Appeals of this Circuit, speaking by Judge Cochran, in this lan- guage : "In the first place, it is to be noted that a statute or ordinance de- priving one of his liberty or property is not in violation of said amend- ment merely because of such deprivation. Either of three things is es- sential to bring the deprivation within the amendment. It must have no real or substantial relation to the public welfare, or the deprivation it provides for must be a deprivation without due process of law, or it must amount to a denial of the equal protection, of the laws. If the statute or ordinance has a real and substantial relation to the public welfare, if it provides for a deprivation by due process of law, and if it affords an equal protection of the laws, it is valid, notwithstanding its enforcement will deprive a person subject thereto of his liberty or property." Grainger v. Douglass Park Club, 148 Fed. 513, 523, 78 C. C. A. 199, 209 (8 Ann. Cas. 997). The first vital question, then, must tie whether the provisions of the statute have "real or substantial relation to the public welfare." This form of words is capable of a construction broader than may ultimately be approved (Noble Bank v. Haskell,, 219 U. S. 104, 111, 580, 31 Sup. Ct. ALABAMA VS. DOYLE 943 299, 55 L. ed. 341), but we take it as intended to be definitive of the police power, and so the extent of that power is the real question. It would be profitless to undertake any review of the decisions on this subject, or to try to adopt or to formulate any comprehensive and ac- curate definition of this phrase. It is enough, now, to remember that the prohibition in question has to do with transactions predominantly private, and not with those Which are affected by a public interest, which arise from public grant or which exist by public! sufferance. This statute does not deal with common carriers, grain elevators, or other enter- prises of that class, nor distinctly with corporations, nor at all with saloons, itinerant peddlers, and the like. The issuing of commercial paper, stock, or bond by a private company to get money for its own business no one can suppose is a public or quasi public enterprise; the business of buying and selling stocks and bonds and other securities is no more "affected by a public interest" than is the business of buying and selling groceries. When we thus recall that the prohibition applies to a private business, the question at once presents itself whether frauds and opportunities for fraud sufficiently characterize the business to justify its entire prohibition save under drastic restrictions. We cannot shut our eyes to the fact, which all men know, that, as compared with the total dealings in securities covered and contingently prohibited by this act, those which may fairly be suspected to be of a fraudulent character are a very trifling proportion; and there is no reason to suppose that the percentage of fraud is any greater than in each of the ordinary busi- ness and professional occupations. Applying the principle announced by the Supreme Court of Michigan in the Commission Dealers' Case,' it is not clear that any scheme of modified prohibition can be applied at all to this entire business. We do not need to go so far. It is to be presumed that this question was considered by the Legislature; it has (theoretically) been decided by the legislators ; and we may not unneces- sarily overrule that decision. However, there are some features of the statute which are not even within the shadow of the police power. The first of these is the pro- vision that no promissory note, bond, stock, contract, or other security shall be sold within the state unless the Commission thinks it is worth the price which is asked. The act does not put it quite so baldly, but the language can mean nothing else. If the Commission finds that the "sale will, in all probability, result in loss to the purchasers," the sale is prohibited. Unless the security is worth the price asked, the "sale will, in all probability, result in loss to the purchaser.'' This is the plain meaning of the words. In that event, the Commission has no power to permit the sale; and if, after such a finding, the property is sold to a careful purchaser, who is in no way misled, but buys just what he wants and pays what he thinks it is worth, the seller may be imprisoned for five years; and it would be quite immaterial that the Commission was wrong and that the security sold was in fact worth the price. The 944 DECISIONS element of fraud is wholly eliminated from this part of the statute, and all the dependent police power to protect the citizen against fraud must concurrently disappear. No definition of the' police power, which we have seen- or which the industry of counsel has found, is broad enough to cover such a prohibition, and we are aware of no consideration which even plausibly supports its validity. ^ "The business of buying and selling on commission has existed ever since commerce began. There are and always have been dishonesl m;en engaged in it, as there are and always have been in every other branch of business. There are and always have been dishonest sellers, who will pack their produce in such a manner as to deceive. It would be as reasonable to require the latter to give bond to properly pack their produce. In every such case the common law provides an ample remedy for redress to the injured party for breach of contract. There is no more reason why a commission merchant should pay a licenses fee and execute a bond to pay his debts and to do his business honestly than there is that any other merchant should pay a like fee and file a like bond to properly do his business and pay his debts. The business requires no regulation, any more than any other mercantile pursuit. There is nothing in it hostile to the comfort, health, morals, or even convenience, of a community. It is carried on by private persons in private buildings, and in a manner no different from that in which the merchant selling hardware or groceries or dry goods carries on his business. The law can find no support in the police power inherent in the state. It is not like the liquor traffic, which, under the decisions of every court, is sub- ject to the police power, because of the injury it does to the health, morals, and peace of the community, and may be prohibited altogether. Neither is there anything in it requiring regulation, as do hack drivers, peddlers, keepers or pawn shops, and the like. The Legislature of this state is not empowered by the Constitution to regulate contracts between its citizens who are engaged in a legitimate commercial business, or to require any class of persons to pay a fee for the right to carry on busi- ness, or to give a bond to perform their contracts which other parties may choose to make with them." People v. Berrien Circuit Judge, 124 Mich. 664, 667, 83 N. W. 594, 5% (50 L. R. A. 493, 83 Am. St. Rep. 352). Of like effect and subject to like infirmity is the provision forbid- ding the sale of securities, if the Commission thinks that the company's organization or proposed plan of business is not "fair." Broader and vaguer language could not be chosen. It subjects to the practically un- controlled discretion of the Commission every issue or general sale of stocks, bonds, or securities hereafter to be made in Michigan. For this and the provision regsrding probable loss, we heard upon the argument and we find in the briefs no claim of justification on grounds of public welfare; and we know of none. They deprive plaintiffs of property, and they do not carry the semblance of "due process of law." It may be assumed that the officiats who constitute the Commis- sion are more experienced and wiser than two citizens who desire to buy and sell property, with which they are fapiiliar, at the price they have agreed upon ; it may be assumed that these officials can foresee the coming events which will bring loss or profit on a proposed investment; ALABAMA VS. DOYLE 945 but it has never yet been supposed by any court or any text-writer that it was within the police power of a state to decide for its citizens the financial advisability of their investments, so long as the investors were not misled or deceived. Still another limitation which we think wholly beyond the authority of the police power is this: During the period of 30 days after the ap- plication is made and data filed with the Commission, there can be no sale of the securities. The Commission is powerless to permit; any company which issues and sells or any dealer who sells is guilty of felony. This is the law, without regard to the character of the securi- ties. They may be of the' highest quality in every respect ; the emergency requiring immediate sale may be extreme; these considerations cut no figure ; the law proclaims a 30-day paralysis. If a company, perfectly solvent but in need immediately of ready money, arranges a bond issue and has people ready to purchase the bonds, nothing can be done for 30 days ; in the meantime things must stop and the company, perhaps, must lose its credit and fail. Such a provision is an arbitrary and op- pressive interference with the right of contract; it bears no "reasonable relation'' to the public health or the public 'morals, or even to the "pub- lic welfare," in the broadest conceivable sense of that phrase. The decisions on the Bulk Sales Laws (Lemieux v. Young, 211 U. S. 489, 29 Sup. Ct. 174, 53 L. ed. 295; Kidd v. Musselman, 2,17 U. S. 461, 30 Sup. Ct. 606, 54 L. ed. 839) are neither controlling nor closely analogous. For a retail dealer, who is seriously indebted, to sell his stock in bulk suddenly and without the general knowledge of his creditors is an unusual and abnormal thing. It is almost, perhaps quite, a badge of fraud in itself; and to provide that such sales shall be de- layed a very brief time, perhaps five days, in order that notice may be given to individuals directly interested distinctly tends to protect the business community from fraud. Such a theory of the police power furnishes no support for thinking that the regular and normal course of dealings in one great branch of business may be suspended for 30 days. 2. Does tha act deprive plaintiffs of the equal protection of the laws? This is the second question stated by Judge Cochran ; and the an- swer depends on wrhether the classifications adopted by the statute are justified by the rules of classification which have beep considered in many cases by the Supreme Court of the United States. Plaintiffs, under this head, urge many detailed objections. They say that Slich • distinctions as ' are attempted cannot lawfully be made between partner- ships and individuals, between long-time and short-time paper, between ordinary mortgages and trust mortgages securing a bond issue, between the owner and the dealer, between stock subscription? and stock sales, and in other pajrtieu]ars which we nee4 not specify. We have not recited the statute fully enough to make all of these objections intel- 60 946 DECISIONS ligible, because we do not decide them. Some are hypercritical; some are at least serious. For example, it is difficult to see why one rule should be applied to an individual who gives a trust mortgage upon his property securing a series of his notes and bonds, and a different rule to a partnership which does the same thing. However, we pass these objections by, as other grounds are clearer. Another reason urged why plaintiffs are deprived of equal protec- tion of the laws is that the statutory penalties are so excessive that per- sons interested dare not make a test case in the ordinary way. Such terrorizing penalties furnish a reason why a court of equity may have jurisdiction to enjoin the enforcement of the law, temporarily, till its validity can be determined (Ex parte Young, 209 U. S. 123, 28 Sup. Ct. 441, 52 L. ed. 714, 13 L. R. A. [N. S.] 932, 14 Ann. Cas. 764) ; but where the penalties are separable, as they are here, their possible in- validity may be a defense against their direct enforcement, but does not furnish ground for pronouncing the whole law invalid (Willcox v. Consolidated Gas Co., 212 U. S. 19, 53, 29 Sup. Ct. 192, 53 L. ed. 382, 15 Ann. Cas. 1034 ; Reagan v. Farmers' Loan & Trust Co., 154 U. S. 862, 395, 14 Sup. Ct. 1047, 3SL. ed 1014 ; L. & N. R. Co. v. Garrett, 231 U. S. 298, 84 Sup. Ct. 48, 58 L ed. — ; Grand T. Ry. Co. v. Mich. Ry. Com., 231 U. S. 457, 84 Sup. Ct. 152, 58 L. ed. ). 3. Do the provisions of the act constitute a direct and substantial burden on interstate cowmierce? It must be conceded that, if such burden is created, the act is, so far, void. We cannot doubt that stocks and bonds are now the subject of interstate commerce, and that shipments and sales of them, between the states, are interstate commerce. We do not find that this has been expressly held in any authoritative decision, but, in the present develop- ment of commerce, it would be regarded as obvious, save for the argu- ment based upon Nathan v. Louisiana, 8 How. 73, 12 L. ed. 992 (in- volving foreign bills of exchange), and Paul v. Virginia, 8 Wall. 168, 19 L. ed. 857 (involving insurance contracts). The former case really involved only the question whether, a state tax or license fee could be imposed upon a citizen dealing in foreign bills of exchange. Such a tax, under the rules now familiar, and even if made an incident at- tendant on interstate commerce, would often be only an indirect burden upon such commerce, and so would be valid. The special insurance contract involved in the latter case is essentially different from stocks, bonds, and commercial paper. However, if either of these cases might otherwise be thought now controlling, we think the opinion in the Lot- tery Cases (188 U. S. 321, 23 Sup. Ct. 821, 47 L. ed. 492) requires the contrary result. As to stocks, some distinctions from Lottery Cases can be drawn, because the certificates, in part, represent rights of mem- bership ; but we cannot appreciate the force of any considerations whereby it might follow that, although lottery tickets are the subject of interstate commerce, bonds and commercial paper are not. They pass freely from ALABAMA VS. DOYLE 947 hand to hand, title to many of them passing by delivery; they are sub- ject to state taxation; they are protected by state statutes against larceny; in an increasing volume from year to year, they have come to take a most important place in the business and commerce of the country. They satisfy, in every respect, the essentials of the definition in the Lottery Cases; indeed, they satisfy the more limited definition contended for in the minority opinion in that case. If bonds and commercial paper and (probably) stocks are the sub- ject of interstate commerce, are interstate dealings in them directly burdened by this law? Dealings wholly by mail, in which the nonresi- dent vendor only sends letters into the state, and, upon the end of the negotiatoins, sends the securities into the state to be there paid for, might escape the statute, not because its general language does not cover them, but because its operation might be limited to avoid the clear in- validity which would otherwise result. However, we know that the great mass of business of this kind is done by traveling agents or solicitprs for' foreign investment bankers, brokers, and issuing corporations. These , solicitors and salesmen travel through the state and negotiate and close sales. They may carry with them the stock certificates or bonds, or they may, on closing a sale, telegraph or write to the home office and have the securities sent over, either directly to the purchaser or to them- selves, for delivery by them. If the home office is at (e. g.) Chicago, the delay is for only a few hours. The distinctions between these two methods (personal carrying by salesmeri and sending home) are shadowy in principle and often negligible in practice. We think the statute is clearly intended to be applied to this kind of business, by either method. The law says, in section 16 : "It shall be unlawful for any corporation, copartnership, associa- tion, company, firm, person or agent to sell or offer for sale, or attempt to sell at any place within this state or to any person within this state, stocks, bonds, or other securities, * * * unless, etc. * * * No in- vestment company or dealer shall sell or offer for sale at any place or to any person within this state any stocks, bonds, or other securities issued to any investment company, unless, etc." Indeed, upon the argument, the Attorney General fi-ankly admitted that the statute must be interpreted to cover these methods of business by nonresidents, and it is this very feature for the protection of which at least four of the consolidated bills are filed. This brings us to the inquiry whether the burden is direct and so forbidden, or indirect and so permitted. It is Established by many familiar cases, some of the more recent of which are cited in the margin, that, although certain exercises of the police power (of which ordinary- licensing laws and food inspection laws are the most familiar examples) do burden interstate traffic in legitimate articles of commerce, yet, be- cause the law is within the police power, the burden is considered not 948 DECISIONS sufficiently substantial and direct to make the law invalid. Whether there may be a field for exercise of police power, which exercise is legitimate from all other points of view and yet forbidden as against interstate commerce under the rule which has its latest development in Crenshaw V. Arkansas, 227 U. S. 389, 399, 33 Sup. Ct. 294; 57 L. ed. 565, Rogers V. Arkansas, 227 U. S. 401, 409, 33 Sup. Ct. 298, 57 L. ed. 569, and Adams Express Co. v. City of N. Y., ■ U. S. , 34 Sup. Ct. , 58 L. ed. , we need not consider. We may assume, for the purposes of this opinion, that this inquiry, whether the burden is "direct," is only another form of the question whether the act is within the police power. Is this a mere licensing law? So far as it affects the investment company, we see no similitude. Engaging in ? business is not regulated or permitted; it is the proposed individual transaction which is the sub- ject of scrutiny. The investment company receives no license in sub- stance or in form. If it fully complies with the law, and the issue and sale of stocks and bonds are approved, and if the next year or the next month it wishes to make another issue which may be substantially . similar, it is forbidden to do So until there is another submission and another tacit approval. To call such provisions the licensing of an occupation or business is a misnomer. As to dealers, there is more of the form of license. They are re- quired to register and to pay a registration fee and are subject to some general provisions and regulations. For this reason we said above that some parts of the act used the nomenclature of a license law. How- ever, if this is a license to the dealers, it avails them nothing. They cannot do one item of business, until that item has passed scrutiny; hence it is clear that the dominant purpose is not to license and super- vise individuals in the following of an occupation or business, but to regulate, to the point of prohibition, the business itself. Is the act, although affecting interstate commerce, sustainable as an inspection statute, upon the same principle on which food inspection laws have been held valid? This question may be answered by con- sidering the case of Savage v. Jones, 225 U. S. 501, 525, 32 Sup. Ct. 715, 56 L. ed. 1182, in which many of the decisions are collated. The Indiana act required certain food products offered for sale to display a statement of their ingredients. This was thought to be a provision wholly appropriate to the protection of the purchasing public, and not to go beyond the reasonable occasion for such protection, and was said to be "appropriate means for accomplishing the legitimate purpose of the act." To the argument that the statute permitted the officials to set up arbitrary standards, the court replied, "That it does not appear that any arbitrary standard has been set up." In the' present case, the statute itself sets up the arbitrary standard, viz., the Commission's opinion as to the probability of loss. If the Indiana statute had provided that the food product should not be sold in the state, if the state chemist con- cluded that in all probability it was not of much nutritive value, the -^. ALABAMA VS. DOYLE 949 case would be parallel. An examination of numerous other cases cited indicates that in each one, where a regulation somewhat affecting inter- state commerce has been sustained, it has been found that the regulation and prohibition involved had immediate and direct relation to the legiti- imate object of the statute, and so were within the police power. We rest our conclusion here on the proposition that this statute, in the respects which we havei pointed out, finds no support in the police power, and accordingly that its restraint of interstate commerce is not merely indirect or incidental. Another reason, if it were necessary, for holding that the restraint upon this interstate commerce is direct is found in the fact, already dis- cussed, that for 30 days there is an absolute prohibition of any dealings on any terms. When we observe that a nonresident, owning stocks or bonds of the highest quality and upon which no criticism has been or can be made, and who desires to sell them in Michigan to some one who there desires to buy, is totally forbidden to do so for a period of 30 days on penalty of being guilty of a felony, and that there is no ma- chinery of the law by which he can get permission or approval until the thirty-first day, it is clear enough that the restraint is substantial and direct. 4. Does the act delegate legislative orj judicial power? So far as this objection is directed against the creation of an ad- ministrative board supervising business affected with a public interest, it is, of course, untenable. So far- as it is directed to the power of the Commission to determine the value of the securities and their fraudulent character, it is, in part, covered by what we have said. Whether the right to determine finally what is and what is not fraudulent, and under a statute which creates no standards, can be vested nowhere save in a court, we will not now consider. So, with the questions whether the failure to provide for notice and hearing is a fatal defect, and whether, it is necessary, considering all the provisions of the act, that there should be some judicial review beyond a mere writ of certiorari, under which the Commission's improvident finding of fact would be unassail- able. 5. Is the title of the act suMcientt It is doubtful whether one reading the titl-e of the act would sup- pose that it prohibited the sale of securities which were not fraudulent but merely not worth the selling price; but the broad language of the title is capable of a construction which will cover all the provisions of the act, and, in advance of any decision by the Supreme Court of the state, we should hesitate to make a conclusion of general invalidity de- pend upon this ground. 6. There remains only one question. We have found that the power given to the Commissioners to forbid the sale of securities at less than what they think the proper price is a taking of property and is not within the police power, apd that the act directly and substantially 950 DECISIONS burdens interstate commerce. Can it be said that these features can be eliminated and still that the law generally may stand? This question is put in concrete form by section 24 of the &ct, which is : "Sec. 24. Should the courts of this state declare any section or provision of this act unconstitutional or unauthorized, er in conflict with any other section or provision of this act, then such decision shall affect only the section or provision so declared to be unconstitutional or un- authorized and shall not affect any other section or part of this act." While this provision in terms refers only to the state courts, such limitation may well be overlooked, for we think the whole section is only declaratory of the existing and well-settled judicial rule. It has long been established that the presence, in an act, of an unconstitutional section or provision would not make the whole act invalid if that part could be cut out and leave a workable act which it might be presumed the Legislature would have passed. We cannot see that section 24 has any force beyond this, except; perhaps, to accentuate the existing pre- sumption that the Legislature would have adopted the remaining, pri- marily valid, portion of this act. It cannot be that, if the unconstitutional portions are so interwoven with the whole purpose and operation of the statute that they are not fairly separable, the act may nevertheless be enforced in a form in which it was not passed and in which it might not be recognized by its framers. The provisions that the Commission shall pass on the probability of loss (as distinct from fraud) and on the "fairness" of the plap form an integral part of each section creat- ing the Commission's powers. They are bound to modify and characterize the Commission's whole action. It is not improbable that these pro- visions were inserted in the belief that without them the statute would be practically unworkable. They form an inherent part of the unitary statutory scheme to save citizens from probable financial loss. Certainly the difference between a fraudulent enterprise and an unprofitable one is vital. The criterion of "probable loss" is broader and more inclusive than the criterion of "fraud" ; it is not consistent to destroy the in- clusive and preserve the included. We cannot, even with the aid of section 24, presume that the law would have been passed if it had pro- hibited only fraudulent transactions. So, too, the direct restraint on interstate commerce is an inherent part of many different section. To enforce the law against the citizens of Michigan and not enforce it against nonresidents would doubtless be a result most surprising to the Legislature. It is an essential part of the scheme of the law that all persons, residents, and nonresidents shall be prohibited from selling, in Michigan, securities which will prob- ably result in loss to the purchaser ; and the excissioii of this feature leaves the law without vitality. Further, after the 30-day provision is eliminated, nothing operative remains. ALABAMA VS. DOYLE 951 Another branch of what we have called the only remaining ques- tion is this : May all the statutory restrictions be enforced against cor- porations, foreign or domestic, upon the principle that the state may attach any conditions to what it creates or voluntarily permits? This act does not purport to regulate corporations. There are no separate sections relating to corporations, which can be preserved and enforced. Particularly as relates to dealers, every restriction is carefully applied to corporations and partnerships and individuals. If only corporate deal- ers were affected, the statute would be evaded so easily as to make it worthless. It is clear to us that, if we undertook to preserve this act to affect corporations only, we would be making a law in violation of the legislative intent. Furthermore, as regards foreign corporate dealers, like two of the present plaintiffs, whose business constitutes partly, if not mainly, inter- state commerce, the act, to be sustained, must be separable with reference to their interstate and intrastate transactions ; and this is upon the well- established principle that states have no power to prohibit or to fetter by conditions the right of corporations to carry on interstate trade in legitimate articles of commerce. International Text-Book Co. v. Pigg, 217 U. S. 91, 30 Sup. Ct. 481, 54 L. ed. 678, 27 L. R. A. (N. S.) 493, 18 Ann. Cas. 1103. We are aware that in the Berea College Case, 211 U, S. 45, 29 Sup. Ct. 33, 53 L. ed. 81, the Supreme Cou^t enforced against a corpora- tion a statute which was drawn to apply to corporations and individuals, and did so without deciding whether individuals must submit; but this may well have been upon the theory that the particular statute justified a presumption that it would have been passed as to corporations alone. It did not appear that there was any person within the state to be affected by the law at the time it passed, except the corporation which com- plained. There can be no such presumption where it was known that the law would affect partnerships and individuals in great number, and where equality of treatment between corporations and 'individuals was clearly intended. Further, in the Berea College Case, the state court had decided that the statute was to be construed as if it had been amenda- tory of the college charter, and that construction of the statute was con- trolling. The preliminary injunction must be granted. The District Judge for the Eastern District of Michigan will settle the terms of the order and will allow an appeal, if one is desired. The court, as now con- stituted, has no jurisdiction beyond the motion for injunction. 952 DECISIONS WILLIAM S. EDWARD, vs. WALTER lOOR, MICHIGAN SECURITIES CORPORATION, A MICHIGAN CORPORATION, UNITED VENDING COMPANY, A FOREIGN CORPORATION, NATIONAL PIANO MANU- FACTURING COMPANY A FOREIGN CORPORATION OF ILLINOIS, AND NATIONAL PIANO MANUFACTURING COMPANY, A FOREIGN CORPORATION OF ARIZONA, DEPENDENTS. (j^j^^.) 1. Where a foreign corporation desires to carry on its business and also sell its stock iti the state of Michigan, it must comply with both the Foreign Corporation Act (Sec. 90&3 et. seq. Comp. Laws 1915) and the Commission Act (Sec. 11945 et seq. Comp. Laws 1915). 2. The owner of stock in a foreign corporation may sell his stock in this State without violating the Commission Act (Sec. 11945 et seq. Comp. Laws 1915). 3. The exchange of stock in subsidiary corporations for stock in the holding company constitutes a sale within the meaning of the Com- mission Act. 4. The sale of stock in this State in a foreign corporation which has not complied with the Commission Act is void, and upon the tender back of such stock, plaintiff is entitled to recover what he has paid for such stock under Sec. 14 of said act. Before the Entire Bench : Plaintiff is a resident of Sault Ste. , Marie and defendants have a common office in the City of Grand Rapids. Defendant, United Vending Company, is a corporation organized under the laws of the State of Arizona. It had been authorized to sell its stock in this State by the Michigan Securities Commission pursuant to the provisions of Act 46, Public Acts 1915, hereafter called the Commission Act, but had not complied with the provisions of Act 206, Public Acts 1901, as amended by Act 310, Public Acts 1907, hereafter called the Foreign Corporation Act. Defendant, National Piano Manufacturing Company of Illinois, hereafter called the Illinois Piano Con^jany, had complied with the For- eign Corporation Act but had not complied with the Commission Act. Defendant, National Piano Manufacturing Company of Arizona, here- after called the Arizona Piano Company, had complied with neither act. Defendant, Michigan Securities Corporation, is a Michigan corporation, and it seems has been licensed as a dealer under the provisions of the Commission Act. The status of the Sparta Manufacturing Company and of the National Automatic Music Company, both of which are mentioned in the record, but neither of which is made defendant, does not clearly EDWARD VS. lOOR 953 appear nor is it important. The companies seem to possess interlocking directorates and defendant, loor, is president or secretary of some if not all of them and appears to be the dominant factor in them all. Plaintiff purchased through the Michigan Securities Corporation 500 shares of stock of the United Vending Company, paying therefor $5,000 in cash. He also purchased from defendant loor 27 shares of stock in the Illinois Piano Company, paying therefor $6,750 in cash. Both of these stocks .paid dividends and there is no evidence tending to show that they were not worth what he paid for them. It should also be stated that Sarah Tyndall purchased stock of the United Vending Com- pany to the amount of $450 and plaintiff's son to the amount of $225. Some time after the purchase of these stocks by plaintiff the di- rectors of the United Vending Company, the Sparta Manufacturing Company and the Illinois Piano Company conceived tlie organization of the Arizona Piano Company to take over the stock of these companies, issuing stock in the new company in payment therefor. Plaintiff and other stockholders, seem to havei been informed of this plan: After correspondence, some of which was with the Michigan Securities Cor- poration, in which the advantages of carrying out such plan were im- pressed on plaintiff, he acquiesced in this transaction, sent his old stock to defendant, Michigan Securities Corporation and received stock in the new Arizona Piano Company. Mrs. Tyndall and plaintiff's son did the same. Prior to the bringing of this action, Mrs. Tyndall and plaintiff's son assigned their stock in the Arizona Piano Company in blank and delivered it to plaintiff who paid them the amount they had invested. " There is testimony in the case that all of the stock was tendered back before suit was brought by a representative of plaintiffs counsel, the tender being made to defendant loor; and there is testimony that in declining the tender he told the representative making it to "tell them to go to hell" ; there is testimony that the representative demanded $12,425, the amount invested in the original stocks, and there is testimony that neither the original stocks or their value were ever delivered or paid to plaintiff. To review a judgment for defendants upon a directed verdict this writ of error issued. Fellows, J (after stating the facts). In disposing of the case the following questions will be considered: (1) Is a foreign corporation required to comply with both the Foreign Corporation Act and the Commission Act before offering its stock for sale in this State? (2) Did the sale to plaintiff by the defendant loor of the 27 shares of Stock in the Illinois Piano Company offend the Commission Act? (3) Did the exchange of the Arizona Piano Company stock for the stock of the other companies constitute a sale within the meaning of the Commission Act? 954 DECISIONS (4) If so may the plaintiff rescind the sale and recover the con- sideration paid? (5) Estoppel. (6) Other questions. (1) Under the provisions of the Foreign Corporation Act (sec. 9093 eH seq. Comp. Laws 1915) a foreign corporation is required to com- ply w^ith its provisions in order to "carry on its business in this state." Under the provisions of the Commission Act (sec. 11945 et seq. Comp. Laws 1915) a foreign corporation for the purpose of the Act is known as a "foreign investment company", and before selling, offering for sale, taking subscriptions for or negotiating for the sale in any manner its stocks or securities in this State, such foreign corporation must secure permission from the Michigan Securities Commission. Compliance with the Corporation Act permits a foreign corporation to "carry on its business", the business for which it is organized in the, State; compliance with the Commission act permits it to sell its stock and other securities. One is not in any way dependent upon the other. One foreign corpora- tion may desire to carry on its business in the State, but may not desire to sell stock; another may desire to sell stock but may not desire, to carry on its business in the State. If a foreign corporation desires to carry on its business and also sell its stock in the State it is obvious that it must comply with both Acts. It is equally obvious that if it de- sires to do but one of these things it is required to comply with only the provisions of the appropriate Act. (2) The record discloses that defendant loor was the owner of one hundred shares of stock of the Illinois Piano Company. He sold twenty-seven of these shares to the plaintiff. He sold no other shares of stock of this company. Section 10 of the Commission Act (Sec. 11954 Comp. Laws 1915) defines the term "dealer", and so far as im- portant here provides : "The term 'dealer' shall not include an owner, not issuer, of such securities so owned by him when such sale is not made in the course of continued and successive transactions of a similar nature." This provision was thought important by the framers of this Act to re- move the question of unconstitutional taint, and preserve the constitu- tional right of the individual to sell his own stock, but by prohibiting "continued and successive transactions of a similar nature'' prevented the abuse of that right and its exercise in a manner contrary to the spirit of the Act. Mr. loor had the right to sell this stock to plaintiff. He did not by continued and successive transactions of a similar nature be- come a dealer. He was acting within his constitutional rights and by this sale to plaintiff did not violate the Act. No liability can be predicated on this transaction. (3) The plan contemplated by these defendants provided for the organization of a corporation under the laws of Arizona to take over EDWARD VS. lOOR 955 and hold the stock in the other companies, giving its own stock in vary- ing proportions in exchange therefoi". It was to be largely a holding corporation. Did the exchange of its stock for that of the other. com- panies constitute a sale within the meaning of the Commission Act? This Court has defined a) sale as follows : "A sale is a parting with one's interest in a thing for a valuable consideration." Western Massachusetts Ins. Co. v. Riker, 10 Mich. 279, "But every transfer of property for an equivalent is practically and essentially a sale, and the deed of bargain and sale is almost universally used to convey land so transferred. Money's worth is a valuable con- sideration, as much as money itself." Huff v. Hall, 66 Mich. 456. Bouvier defines a sale as : "An agreement whereby the seller transfers the property in goods to the buyer for a consideration called the price." 3 Bouvier's Law Dictionary, 2983. This definition has been adopted by the legislature of this State in the Uniform Sales Act, (Act 100 Public Acts 1913, sec. 11882 et seq. Comp. Laws 1915). We must assume that the legislature had in mind this well under- stood meaning of the word ''sale" when the Commission Act was passed. If the Act is not so construed, as was suggested upon the argument, one may exchange worthless stock for government bonds and escape with • impunity. We are impressed that when the Arizona Piano Company exchanged its stock for that of other companies it was a sale of its stock within the meaning of the Commission act. (4) Section 14 of the Commission Act (sec. 11958 Comp. Laws 1915) provides in part as follows : "It shall be unlawful for any investment company or dealer, or representative thereof, either directly or indirectly, to sell or cause to be sold, offer for sale, take subscriptions for, or negotiate for the sale in any manner whatever in this State, any stocks, bonds, or other securi- ties (except as expressly exempted herem), unless and until said com- mission has approved thereof and issued its certificate in accordance with the provisions of this Act." Section 23 of the Act (sec. 11967 Comp. Laws 1915) provides : "Any person or persons who shall violate any of the provisions of this act shall be deemed guilty of a misdemeanor and upon conviction thereof shall be fined not more than one thousand dollars or shall be imprisoned in the county jail for not more than one year, or both such fine and imprisonment in the discretion of the court." It is admitted that the Arizona Piano Company had not at the time of this transaction been authorized by the Michigan Securities Commission 956 DECISIONS to sell its stock in Michigan. Under the provisions of the Commission Act it was a foreign investment company. It could not lawfully sell its stock without being authorized so to do by the Commission. Under the evidence in the case it was selling its stock not only to plaintiff but also to many others. It was engaged in the business of disposing of its stock by continued and successive transactions. The sale, and it was a sale as we have seen, of its stock to plaintiff and others was in viola- tion of the Act and sttbmitted all connected therewith as vendors to the penalties for its violation. The sale of stock without approval by a public board or commission was not bad at common law, is not malum in se, but by the terms of the Act it is ■malmn prohibitum. The act in question was passed under the police power of the state, (see Merrick v. Halsey & Co., 242 U. S. 568), to prevent fraud in the sale of stocks, and to safeguard the public from exploitation at the hands of the pro- moter. It was passed to protect and for the benefit of the purchaser. It laid penalties upon the seller, not upon the buyer. As remarked by Lord Mansfield in Browning v. Morris, 2 Cowp. 790 : "And it is very material that the statute itself, by the distinction it makes, has marked the criminal ; f or* the penalties are all on one side." And as we have shown under (2) the sale by an owner of his own stock, except by continued and successive transactions, does not offend the Act. The plaintiff therefore violated no law when he sold and transferred his own stock to the Arizona Piano Company, was not in pari delicto, and as we shall presently see he supposed defendants were proceeding in a regular and legal manner, and such acts as were done by him were done at the request of the defendants, or some of them. This sale to plaintiff of the stock of the Arizona Piano Company was in conflict with the terms of a penal statute. Malum prohibitum, and void, although not expressly declared so to be by the statute : Loranger v. Jardine, 56 Mich. 518; Brewing Co. v. Wall, 88 Mich. 158; In re Reidy's Estate, 164 Mich. 167 ; Ferle v. City of Lansing, 189 Mich. 501; Cashin v. Pliter, 168 Mich. 386; Maurer v. Greening Nursery Co., 199 Mich. 522. Some of these cases are so recent and they so fully consider the authorities and the principles involved that we forego further discussion of the subject. When plaintiff's stock in the Arizona Piano Company, received on this void contract, was tendered back he was entitled to the stocks he had assigned in payment therefor. The transaction had been rescinded, and upon its rescission he was entitled to be restored to what he had parted with. Failure to restore to him what he had parted .with entitled him to its value. (5) After this suit was instituted the plaintiff executed a proxy to defendant loor for the annual meeting of the Arizona Piano Company, We discover nothing in' this to estop plaintiff from pursuing this remedy, EDWARD VS. lOOR 957 The stock upon the books of the company stood in his name; he through his attorney had tendered it back to Mr. loor. By executing this proxy Mr. loor was permitted to vote this stock as he desired. A dividend partly in stock and partly in cash was paid after the suit was brought. Plaintiff's counsel offered that this might be offset against plaintiff's claim. There is no evidence in the case that any of the acts of plaintiff led defendents to take any steps or do any act in reliance thereon. Mr. Edwards lived at Sault Ste. Marie, and the defendants were in Grand Rapids. It is quite doubtful upon this record if plaintiff personally fully understood the workings of the corporations until he came to Grand Rapids for the trial. He testified that he supposed that the transactions were all legal, tliat they were legally transacting the business. The letters written him gave no hint otherwise. We discover ho estoppel as matter of law. (6) As we have already stated this case is brought to recover upon the rescission of a contract, made so far as defendants are con- cerned, in violation of the terms of. a penal statute. It is in no way analogous to a proceeding instituted by a stockholder for mismanagement of company affairs, which should be in equity. Plaintiff has sought the proper forum. When the representative of plaintiff's counsel tendered back the stock of the Arizona Piano Company he demanded the amount of money invested in the original stocks. This plaintiff was not entitled to. Plaintiff was entitled to what he had paid on the void contract which payment was made in stock. He was therefore entitled to the return of the stocks. But the contract was void and no demand under the circumstances necessary. Defendant loor by the language attributed to him plainly indicated that his refusal to accept the tendered stock was in no way based on the form of the demand. Had defendants returned to plaintiff the stocks he was entitled to, his claim would have been satisfied and extinguished ; not having done so he is entitled to their value. The defendants appeared by separate counsel and upon the. argu- ment it was strenuously urged that there was no liability as to some of them. But the record discloses they were engaged in a common enterprise, in consummating a transaction in face of, and contrary to the terms of a penal statute. Under such circumstances we cannot say as matter of law that any of them should) be exonerated from liability. For the reasons stated the judgment is reversed and a new trial ordered. Plaintiff will recover his costs in this Court. 958 DECISIONS NATIONAL MERCANTILE CO., LIMITED, re. KEATING, STATE AUDITOR OF MONTANA, ET AL. 218 Fed. 477 (District Court, D. Montana, December 8, 1914) A court of equity will not pass upon the constitutionality of the so- called "Blue Sky" Law of a state (Laws Montana 1913, Ch. 85), in the action of a corporation, whose plan of business on its face, antagonizes sound economic principles and is designed to defraud its clients. In Equity. Suit by the National ^Mercantile Company, Limited, against William Keating, State Auditor of ^lontana and Investment Commissioner ex officio, jind others. Suit dismissed. Joseph H. Griffin, of Butte, Mont., for plaintiff. D. M. Kelly, Atty. Gen., of Montana, J. H. Alvord, Asst. Atty. Gen., of Montana, and J. J. McCaffery, of Butte, Montj for defendants. BouRQUiN, District Judge. Plaintiff is a Canada corporation doing business in Montana. It seeks to enjoin enforcement of the state's "blue sky law." Final hearing has been had. The law (Laws 13th Sess. Montana, p. 367) is like unto those referred to in Alabama & N. O. Transp. Co. v. Doyle (D. C.) 210 Fed. 175, National Mercantile Co. v. Watson (D. C.) 215 Fed. 931, and William R.. Compton Co. v. Allen (D. C.) 216 Fed. 548, save that, curiously enough, it declares investment companies shall include all corporations that sell securities issued by any other corporation, though it also declares unlawful any sale of any securities by any investment company unless a permit be first secured. There are exceptions not material here. Plaintiff contends the law violates the federal Constitution in various particulars. It seems plaintiff's business is in the nature of a loan and mortgage business, and defendants contend that, even if this is sale of securities, it is not of securities issued by any other corporation ; hence plaintiff is not within the class in respect to which, if any, the law is un- constitutional, and so is precluded from attacking it. The definition of investment companies in the law is to be construed as a precautionary extension, rather than as excluding subjects not named. Furthermore, defendants assume to apply the law to plaintiff, and, if thereby plaintiff's constitutional rights are infringed, it may contest the law's validity. Home Tel., etc., Co. v. Los Angeles, 227 U. S. 288, 33 Sup. Ct. 312, 57 L. ed. 510. At the hearing, plaintiff submitted in evidence documents fully and exhaustively setting out its methods and business. In addition, its gen- eral manager testified briefly in relation thereto, though this was limited by the court upon the theory that no issue was made upon plaintiff's reliability or responsibility. Upon reading the documents aforesaid, how- MERCANTILE CO. VS. KEATING 959 ever, the court is satisfied that they embody a scheme tending to de- fraud; and if the restriction placed upon the manager's testimony was error, it is harmless, in that such testimony was but cumulative and could not relieve this sinister aspect. Plaintiff solicits applications for and issues "loan and home pur- chasing contracts.'' Each contract is limited to an amount from $300 to $5,000 in any series ; a series being composed of contracts aggregating not in excess of $100,000. In their main features the contracts provide . that the applicant shall pay the amount stipulated in an initial and 99 monthly equal payments. After 10 per cent, of the stipulated amount or "face value" has been paid, the applicant is "eligible to receive a loan in a sum equal to the face value of his contract in the order of his ap- plication * * * out of the loan and reserve fund of the particular series" of his contract, on adequate security in substance and form to be approved by plaintiff's board of directors, provided the said fund contains sufficient moneys. This fund is made up of all payments made by applicants not taken as needed by plaintiff for legitimate expenses governed by its board hi directors (the applicant agreeing to such tak- ing), interest earned, forfeitures, etc. If the loan is made, it is repaid at the monthly rate of $7 and accrued interest at 3 per cent, per anmtm, per $1,000 of loan, or interest may be in an "equated amount" of $1.20 per month per $1,000. The applicant may or may not surrender the contract in payment upon the loan to the extent of the contract pay- ments made. If he retains the contract, there are various surrender features, wherein the applicant will receive a certain amount of cash if and "when accumulated for." If he makes all payments, plaintiff agrees to pay at the end of 120 months the face of the contract, 15 per cent, and such equitable proportion of any surplus (if created) as may he apportioned to him by plaintiff's board of directors, but not to exceed 33i per cent, of the face of the contract, out of the loan and reserve fund oj soon as the amount on hand to the credit of his contract equcds the amount so due him. Or at his option the applicant (1) "may accept" in cash in full settlement the amount, if any, in said fund standing or placed to his credit and not less than $866.30 per $1,000 paid by him, as soon as accumulated, or (2) may so accept the full amount, if any, standing to his credit in said fimd. It is to be observed plaintiff is not a mutual concern. Applicants have no part in management or control. Nothing indicates plaintiff is endowed or a philanthropic institution. There are no restrictions upon it, save in so far as the collective conscience of its owners may be inspired by high morality impregnable to the assaults of avarice incited by opportunity. Plaintiff binds itself to no uncon- ditional loans to applicants, to no unconditional payments on account of contract payments by applicants made. It loans and pays only if, after it has "taken" for itself practically all it pleases (for "legitimate expenses * * * governed by the board of directors" is sufficiently 960 DECISIONS elastic therefor), there is aught and sufficient accumulated therefor in a possible loan and reserve fund. The alluring feature to the applicant is a loan to build a home at rates of interest that in view of circumstances antagonize sound economic principles. Under any circumstances, few could realize their hopes ; and that fewer would, in view of conditions and contingencies, is obvious. That this corporalSon is designed to profit its owners at the expense of victims enticed by pseudo promises and deceptive prospects seems clear. Therein, a court of equity — of conscience — will give no aid. Those appealing to equity to restrain the trespasses of others must themselves be free from imputation. If the right they assert is to do iniquity, they cannot have equity. Equity interferes in behalf of righteous dealing only, and not to further schemes of questionable morality cal- culated to deceive the public. Otherwise it would do violence to its prin- ciples, work injustice, and forfeit respect. The strong arm of equity — injunction — is cautiously exercised, when plaintiff's right is not doubt- ful, but clear and certain, and when upon broad consideration of all the circumstances good conscience requires it. All this is settled law since the classic case wherein one highwayman of two operating upon Black- heath near London came into chancery for an accounting of profits accruing from their villiany. In this view of the case, it is unnecessary to consider the attack upon the constitutionality of the state's "blue sky law," for in no event is plaintiff entitled to the relief sought. The suit is ordered dismissed, with costs to defendants. STATE vs. WALLACE AGEY 171 N. C. 831 171 N. C. 831, 88 S. E. REP. 727 1. A company organized in another State and having agents here for the purpose of selling small lots of land upon a certain cash pay- ment, the balance payable in a term of years, with obligation on the part of the company to set out and cultivate figs thereon, with guarantee as to quantity of bushes thereon and price of figs at the end of the period, and to convey the land to the purchaser, or his heirs or assig^ns in the event of his death if the deferred payments are promptly met by him or them according to his obligations, falls within the intent and meaning of our statutes. Revisal Sec. 4805 and the amendatory acts of 1911 and 1913, being section 4805a, Gregory's Supplement, requiring that the company be licensed by the Insurance Commissioner, when he is satisfied that the company is safe and solvent and has complied with the laws of this State applicable, etc. STATE VS. AGEY 961 2. Where a foreign corporation oflfers, through its agent here, small lots of land for sale, obligating itself to cultivate the lands under stated terms, and upon the full payment of the purchase price, in install- ments during a term of years, to make title to the purchaser, etc., the transaction cannot be regarded as commerce, or affected by the Con- stitution or Federal Statutes regulating interstate commerce; and our statutes requiring that to do business here they be licensed are valid as a proper police regulation. Revisal Sec. 4805 Amended by Laws. 1911, 1913 being Section 4805a, Gregory's Supplement. The Court, in this case, takes judicial notice that by the United States census Tatnall County, Georgia, is the largest county in that State, covering 1100 square miles ; that much land can be found in that sec- tion of comparatively small value, as also the services to be performed by corporation, in comparison with the price to be paid for the land. On the facts in this case, the failure or refusal of the corporation to comply with the requirements of our statutes to obtain license makes the defendant, its agent, guilty of the offense charged. Revisal Sec. 4805 amended by Laws 1911 and 1913. Grego.r/s Supplement. Sec. 4806a. Clark, C. J. The defendant is indicted under Rev., 4805, and ch. 196, Laws 1911, and ch. 156, Laws 1913, being sec. 4805a of "Gregory's Supplement" (amending said Rev., 4805), known as the "Blue-sky Law." Upon the special verdict the court was of opinion that the defendant was guilty, and the jury so found, and from the judgment thereon the defendant appealed. The special verdict finds that the foreign corporation represented by the defendant is authorized under the laws of the" State of Tennessee to buy and sell real estate, and that it has bought large tracts of land in Tatnall County, Georgia, which it has divided, and is selling these tracts of land for fig orchards, and, in some instances, is contracting to furnish and set out fig trees on said tracts for a stipulated period of time, and has not obtained a license so to do of our Insurance Commissioner. The indictment and the special verdict, which are set out in full, present two questions : 1. Whether such contract is within the provisions of the statute. 2. If so, is the statute invalid as a regulation of interstate com- merce ? As to the first proposition, ch. 196, Laws 1911 : "Before any bond, ifwestment, dividend, guarantee, registry, title guarantee, debenture, or such other like company (not strictly an insurance company as defined in this ciiapter), or any individual, corporation, or copartnership who shall be agents, offer for sale or sell the stocks, bonds, or obligations of any foreign corporation., whether organized or to be organized or being promoted, shall be authorized to do business in this State, it must be licensed by the Insurance Commissioner, which the Commissioner is authorized to do when he is satisfied that such company or corporation 61 962 DECISIONS is safe and solvent and has complied with the laws of this State ap- plicable to fidelity companies and governing their admission and super- vision by the Insurance Department. If such company is chartered and organized in this State and has its home office within the State it may, if a stock company, commence business with a capital stock of twenty- five thousand dollars, provided it is solvent to the extent of not less than fifteen thousand dollars. The license issued to such companies and their, agents s:hall be issued and paid for as provided for those of in- surance companies." Section 4805a, subsection 1 (ch. 156 of the Public Laws of 1913), provides : "Every corporation, company, copartnership or association, all of which are in this act termed company, organized, proposed to be organized, or which shall _ hereafter be organized without this State, whether incorporated or unincorporated, which shall in this State sell or negotiate for sale any stocks, bonds, or other evidences of property, or interest in itself or any other company, all of which are in this act termed securities, upon which sale or proposed sale the whole or any part of the proceeds are u^ed, or to be used, directly or indirectly, for the payment of any commission or other expenses incidental to the organization or promotioji of any such company shall be subject to this act." The question, therefore, is whether the company represented by the defendant is an "investmenf company, or whether the defendant was offering for sale the "obligations of any foreign corporation," within the meaning of section 4805, or whether the defendant, as the agent of the foreign corporation, was offering for sale in this State "evidences of property, or interest in itself or any other company," within the meaning of section 4805a. In addition to the parts of the special verdict referred to, it appears from the exhibit, which was made a part of the special verdict, that in an application of a prospective purchaser the following stipulations ap- pear: "In event of death of purchaser hereof, warranty deed will be de- livered to his or her estate, provided payments are not in arrears." "The company guarantees to scientifically develop, cultivate, prune, and take care of said orchard plot or plots for five years, and, upon completion of the payments as above set forth, to make, execute, and deliver to the purchaser hereof a general warranty deed for the number of plots mentioned above, which shall have at that time 200 living trees thereon." And "The company guarantees the purchaser hereof 3 cents per pound for all fruit grown on said trees delivered at the preserving plant in good condition." It will be apparent from the facts set out in the special verdict that the contract offered by the defendant for his company comes within at least three provisions of the state. STATE VS. AGEY 963 It is an "investment company" offering to the public' an investment in lands and fig orchards in Georgia. It is also offering the ''obliga- tions of said corporation" to cultivate said land, and giving its contract to make title on compliance with certain terms ; and, lastly, it is offering for sale, within the terms of Laws 1'913, ch. 156, such "evidences of prop- erty." Under all tliree of these provisions it is within the scope of the act. This transaction took place entirely within the State of North Caro- lina, and is subject to the police' power of this State. There can be no interstate commerce unless, as a part of the transaction, there is in con- templation some act of transportation between two or more States. In this case the defendant was selling to a citizen of this State an obliga- tion to make title to real estate in Georgia, and, upon compliance with the terms therein stated, to make title to a certain small lot of land in Georgia. There is nothing to be transported either from this State to Georgia or from Georgia to this State. There is no element of inter- state commerce involved. Paul v. Virginia, 75 U. S. (8 Wall.), 168, at p. 183. The intent of the statute is to protect our people, under the police power, from fraud and imposition by irresponsible nonresident parties. These instances have been so frequent that "the U. S. Postoffice Depart- ment has estimated that the people of this country have been losing annually more than one hundred millions of dollars by speculative schemes which have no more substantial basis than so many feet of "blue sky." To prevent such impositions on its people is an essential duty of gov- ernment. If there is fraud and imposition in a case of this kind the parties imposed on can rarely go to Georgia and hunt up the guilty party, even if to be found there, and undergo the expense incident thereto. Even if this could be done, there would rarely be any assets which could be applied to the demands of the plaintiff. This State has sought to protect its people, not by forbidding such transactions, but by the very reasonable requirement that when parties, whether incor- porated or not, acting under the authority, actual or merely asserted, of another State, propose to do business in our borders they must submit their statement of assets and the nature of their business to the Insur- ance Commissioner of this State, who will issue his license to do busi- ness here when he "is satisfied that the company or corporation is safe and solvent and has complied with the law of this State applicable to fidelity companies and governing their admission and supervision by the Insurance Department," and making it indictable to transact such busi- ness in this State until such license has been obtained. This is a reason- able requirement under the police power of this State. There is nothing in the Constitution of the United States or in the Constitution of North Carolina which prohibits the people of North Carolina, ^acting through their Legislature, from making so reasonable 964 DECISIONS and just a regulation for the prevention of fraud and imposition. If the thirty-nine men who signed the Qjnstitution at Philadelphia more than a century and a quarter ago had intended to so cripple the State governments that they could not thus protect their owrn ' people, such purpose is not expressed in the Constitution, and if they had so de- signed they would have earned the execration of the public and not the honorable place which they hold in the hearts of posterity. Without passing upon the bona fides of this particular proposition, there is enough before us to require this supervision and license by the Insurance Commissioner before the defendant's company could proceed with its proposition. The proposition, in brief, is that the defendant's company will sell to the intending purchaser a lot of land 120x450 feet (which is less than one-eighth of an acre), for which they require $600 to be paid, i. e., near $6,000 per acre. Of this $600, $120 must be paid down at the signing of the paper and another $120 during the first year, and the company does not agree to set out any fig cuttings till after said $240 is paid. The remainder of the $600 is to be paid in monthly in- stallments during the next five years. The company reserves the title, giving merely its unsecured promise to make title on payment of all the purchase money, and providing that if there is default in any one pay- ment all the deferred payments shall at once become due and payable. The company agrees to "cultivate, prune, and take care of said orchard plot for five years," and, upon final completion of the payments stipu- lated for ($600 for each of said one-eighth acre lots), to make title to the lot, "which shall have at that time 200 living trees thereon" — which may, or may not, mean "if" they have 200 living trees thereon. The obligation does not stipulate that the company will set out 200 trees or cuttings thereon, nor that the company shall make title if there should not be 200 trees living thereon at the end of said five years. But taking it that it is intended to obligate the company to set out said fig cuttings (the usual mode) and to obligate further that there shall be 200 fig trees thereon at the end of five years, still there is no assurance that the company now has any assets, nor is there any security to the buyer that at the end of five years and after payment of the said $600 (for less than o;ie-eighth acre of land) there will be any means to enforce specific performance or recover damages if the company has or has not set out the 200 fig trees on the land, or there shall or shall not be 200 living trees on the lot at the end of 'five years, or any guarantee that there will be any assets to which the purchaser can look for damages. The defendant company has failed and refused to lay before the Insur- ance Commissioner its schedule of assets, the names of its corporators or managers, and to procure the license which the statute of this State requires after investigation by its official of the reliability of the com- pany which offers this scheme to the public. We can take judicial notice of the fact that by the U. S. census, Tat- nall Cpunty, Georgia, is the largest county in that State, over 1,100 STATE VS. AGEY 965 square miles, being larger than Wake County in this State. It is not specified in what part of that large county these lots are to be found, if they are there. We know that the county lies some 60 miles west of Savannah in the coastal region of Georgia, where there are large fiat areas of land known in this State as "pocosins," which a few years ago could be bought at a few cents per acre. Even if the land has been- actually bought by this company, of which there is no assurance, for it has refused the required investigation, it is offering the same for sale under the scheme at $5,000 per acre. If the company really agrees to set out 200 fig trees to the acre (after $240 has been paid on each one- eighth of an acre lot), it is common knowledge that fig trees are set out by cuttings, and that probably the 200 cuttings could be put on the lot at a cost, including price of land, of not more than $S per lot. It is true there is an agreement to prune and cultivate the said lot for five years, but there is no guarantee that this will be done, or as to the manner in which it shall be done, or of damages on failure to do so. In the meantime the purchaser must have paid his ^40 down and is under obligation to make payment of $360 more, which promise to pay may be transferred or assigned to some holder in due course before maturity. In short, the proposition, if honestly complied with, would probably not call for an expenditure of more than $5 for each lot, including the purchase price of the land (if any is really bought), and including the setting out of 200 fig cuttings, if set out. As to the cultivation, if really made, the cost would probably be more than re- couped to the seller in the corn or other crop grown thereon, if the land will produce crops. The defendant's company, however, has declined to lay before the Insurance Commissioner any evidence that it has bought any land, or that it has any assets, and offers merely its anonymous obligation to "prune and cultivate." The State has a right to reqijire evidence of good faith, of assets, and of responsibility from nonresident parties offering to sell to our people "investments'" or "evidences of property" on such contracts as these. The defendant's company has failed to do this, in defiance of our laws, and upon the special verdict he, as its agent, has been properly found guilty. * , Some years ago parties offered, upon a somewhat similar scheme, "lots in New York City." When one of the purchasers investigated the matter he found that the lots in question were within the nom'nal limits of that great city, but were under water altogether, or at least at high tide. In the same manner small pieces of land, a few feet in area, have been capitalized at millions of dollars in copper mining stock, and stock sold to the public when there was no probability of an ounce of copper being on the property, or if any, at not less than a mile beneath the sur- face, and the swindlers who sold the stock possessed no assets, and had no probability of any, beyond the cash received from the credulous and 966 DECISIONS confiding public for this fictitious stock sold by manipulators and their agents. Whether the scheme under which the defendant was acting offers any probability of realizing the promises made for the company, or whether there is any bona fide^s, the outline which has been given "does not give much assurance. But, however this may be, the State had a right to require that when such propositions are offered to our people there shall be an investigation as to the reliability of the company, the character of its promoters and managers, and the nature of its business and amount of its assets, and that it shall not offer its stock, its invest- ments, its ''evidence of property," until the Insurance Commissioner has examined into its reliability and assets and issued license to such com- pany to do business in this State. The company which the defendant purports to represent has not done this, and he has been properly found guilty. ■ ■ '■ i%r\ No Eeror. NATIONAL MERCANTILE CO., L'T'D. vs. WATSON, CORPOEATION COMMISSIONER, ET AL. 215 Fed. 929 (District Court, D. Oregon, July 27, 1914) A foreign corporation which has not complied with the laws of Oregon, which compliance is a condition preced-ent to its right to do business in that state, can not maintain an action in the federal court for the district of Oregon. In Equity. Suit fcy the National Mercantile Company, Limited, against R. A. Watson, as Corporation Commissioner, and others. Judg- ment for defendants. * Wilson, Neal & Rossman, of Portland, Ore., for plaintiff. Martin L. Pipes, ohn M. Pipes, and George A. Pipes, all of Port- land, Ore., for defendant Watson. A. M. Crawford, of Salem, Ore., and Walter H. Evans and Arthur A. Murphy, both of Portland, Ore., for all 'other defendants. Before Gilbert, Circuit Judge, and Wolvehton and Bean, District Judges. WoLVERTON, District Judge. The chief purpose of this suit is to have declared void and inoperative an act of the legislative assembly of the state of Oregon entitled "An act to protect purchasers of stocks and bonds and prevent fraud in the sale thereof; to create a corpora- tion department," etc., approved February 28, 1913 (Laws 1913, p. 668), and commonly known as the "Blue Sky Law." The complainant is a British Columbia corporation, with its principal place of business at Vancouver, and claims to be doing a loaning busi- MERCANTILE CO. VS. WATSON 967 ness, upon real estate mortgage security. It has a general agent, A. D. Baker, residing in Portland, Ore. Applications for loans are made to him, and he forwards them to the company for approval. When ap- proved, the company issues to Baker an undertaking, under seal, agree- ing, in consideration of the payment of one-hundredth of the loan each month, to pay to said Baker the amount of the desired loan as soon as the loan fund of the company contains a sufficient amount of money to make up the said loan. The undertaking being assignable. Baker at once assigns the same to the prospective borrower, who thereupon makes his payments to Baker, or to the company, at his option. The loans so made or agreed to be made are secured by mortgages upon real property in Oregon. Baker attends to securing the mortgages, and, when executed, forwards them to the company, and also collects and forwards to the company the monthly installments as they become, due and payable. The question is presented primarily whether, under this state of facts, the complainant is doing business within the state of Oregon. The answer is obvious. Practically the entire business of the company relating to loans within the state is transacted by Baker, the general agent, residing at Portland. He solicits the loans, takes applications, collects the first payment, together with all installments, attends to tak- ing the mortgages, and forWards all to the company at its home office. From the home office is issued the obligation, to Baker, which he assigns to the borrower at Portland. The business does not consist of the securing of one loan only, or of a limited number, but of continuotis such charter or articles of incorporation is of a genuine, valid, and cannot be other than a carrying on of the business, and that within the state. Being engaged in business within the state, the defendants, by plea in abatement, challenge complainant's right properly so to continue in business or to maintain this suit on the ground that a copy of its charter or articles of incorporation has not been properly certified. The objection consists in the -fact that the certificate of the consul general of the United States residing at Vancouver, B. C, fails to state that the certifying officer (that is, the legal keeper of the original charter or articles of incorporation) has the requisite knowledge as to whether such charter or articles of incorporation is of a genuine, valid, and subsisting character. The statute of Oregon (section 6727, Lord's Oregon Laws) requires that every foreign corporation shall, before transacting business in the state, file with the Secretary of State a written declaration of its desire and purpose to engage in business within the state, which declaration shall, among other things, be accompanied by a certified copy of the charter or articles of incorporation of the company, certified to by the Jegal keeper of the original, together with a certificate of a United States ambassador, minister, consul general, vice consul, or charge ^6S DECISIONS d'affaires in such foreign country, "that such certifying officer has the requisite official knowledge as to whether such charter or articles of in- corporation are of a genuine, valid, and subsisting character, and that such copy is duly certified by the officer having the legal custody of the original." The company has' the certificate of the registrar of joint-stock com- panies to the effect that the annexed copy of the articles of association is a true and correct copy of the original filed in the registrar's office; also the certificate of the provincial secretary of British Columbia to the effect that the registrar is the duly appointed officer, and that the signature and seal attached to his certificate are his signature and seal, and that said registrar 'has the legal custody of the original document; and also a certificate of the consul general of the United States residing at Vancouver, B. C, to the effect that the registrar is duly appointed and commissioned registrar of joint stock companies for the province of British Columbia, and that to all his official acts full faith and credit are due and given. This officer does not, however, certify, as required by the statute of Oregon, that the registrar has requisite official knowl- edge "as to whether such charter or articles of incorporation are of a genuine, valid, and subsisting character." This leaves the credentials for obtaining a certificate or license for engaging in business in this state, as we think, fatally defective, and for that reason the complainant can have no proper or legal standing for doing or transacting business within the state. Not being authorized to do "business within the state^ it follows irresistibly that it has no legal standing for maintaining a suit here, and it has been so held in this jurisdiction. Cyclone Mining Co. v. Baker Light & Power Co. (C. C.) 165 Fed. 996; La Moine Lumber & Trading Co. v. Kesterson (C. C.) 171 Fed. 980. It is further maintained, under the plea in abatement, that the complainant has failed to pay or offer to pay the annual license fee of $100, as required by an act of the legislative assembly of the state, approved March 4, 1913. Session Laws 1913, p. 772. This statute re- quires that every foreign corporation shall, between July 1st and August 15th of each year, pay in advance to the corporation department an annual license fee of $100. And this objection is also perhaps well assigned. Again, it is urged that the' complainant is engaged in a lottery busi- ness. While we are not assured that the business carried on can be so characterized, yet, from a cursory examination of the scheme under which the company makes its supposed loans and prosecutes its project, we are not at all persuaded that it is not engaged in a fraudulent busi- ness. But for the fatality in the consul general's certificate, as heretofore indicated, the suite ought to abate, and such will be the order of the court. McKINNEY VS. WATSON 969 McKINNEY vs. WATSON ET AL. 74 Ore. 220, 145 Pac. Rep. 266 (Supreme Court of Oregon. Jan. S, 1915) A taxpayer, while entitled to resist by litigation the enforcement of an unconstitutional statute which will increase his taxes, cannot resist the enforcement of Act Feb. 28, 1913 (Laws 1913, p. 668), creating a corporation departitient to protect purchasers of stocks and bonds and prevent fraud in the sale thereof, though the act provided for consider- able expenditures, where, the moneys for the expenditures would be de-~ rived from license fees and other contributions demanded of corpora- tions. The constitutionality of a statute will not be determined where the party attacking it has no interest, and the question is purely academic. In Banc. Appeal from Circuit Court, Marion County; Wm. Gal- loway, Judge. Action by W. B. McKinney against R. A. Watson, as pretended Corporation Commissioner, and others. From a judgment for de- fendants, plaintiff appeals. Affirmed. The plaintiff styles himself a resident, citizen, and taxpayer, owning real and personal property in the state, subject to taxation, and brings this suit for himself and for all other taxpayers in the state. He seeks to en- join the secretary of state from auditing, and the state treasurer from paying, claims for salaries incurred by the defendant Watson, as corpora- tion commissioner, under the act of February 28, 1913, commonly known as the "Blue Sky Law," entitled : "An act to protect purchasers of stocks and bonds and prevent fraud in the sale thereof; Xo create a corporation department to administer this and other laws relating to the regulation and supervision of cor- porations, and providing penalties for the violation hereof." Laws 1913, p. 668. The principal features of the act and the appointment of the de- fendant Watson as corporation commissioner are recited in the complaint. It is stated in general terms that the official mentioned has been operating under the sanction of the act and has incurred expenses which, together with his salary, will be audited and paid as other claims against the state, unless prevented by injunction. Matjy reasons are assigned by the plaintiff is unconstitutional. He founds his right to bring this suit on the following allegation : "That if claims certified by said pretended corporation commissioner are audited and approved, and warrants are permitted to be drawn upon 970 DECISIONS any fund so attempted to be appropriated, and the same are paid by the said state treasurer, which said officer threatens to do, and will do, un- less restrained by this court, the same will greatly increase the taxes of this plaintiff, and all other citizens and taxpayers of the state of Oregon, wrongfully and unlawfully, and to their great damage and irreparable injury." The circuit court sustained demurrers to the complaint, and, as the plaintiff declined to plead further, entered a decree dismissing the suit, from which the plaintiff appeals. George Rossman, of Portland (Wilson, Neal & Rossman, of Port- land, on the brief), for appellant. Martin L. Pipes, of Portland (A. M. Crawford, of Salem, on the brief), for respondents. BURNETT, J. (after stating the facts as above). The act in ques- -tion,' like most of the laws providing for government by commission, de- votes much space to salaries and expenses of administration and other matters' well calculated to make the taxpayer look askance. It authorizes the establishment of a corporation department, and that all fees, charges, interest, fines, and penalties provided by the act itself or heretofore paid into the public treasury hy foreign and domestic corporations, joint-stock companies, and associations shall go ^ into a. fund to be known as the "corporation fund," which shall be liable for the expenses of carrying on the corporation department. It is required that whenever the amount of money in that fund shall exceed $15,000, all in excess of $10,000 shall be transferred by the state treasurer to the general fund of the state. (1) The controlling question presented by the demurrer is the right of the plaintiff to bring this suit. It is well established by precedents in this state that a taxpayer whose enforced contribution to the public funds will be increased has a right to resist by litigation in his own name the enforcement of an unconstitutional statute, or the misapplication of public money. Instances of such decisions are found in Carman v. Woodruff, 10 Ore. 133; Wormington v. Pierce, 22 Ore. 606, 30 Pac. 450; Sherman v. Bellows, 24 Ore. -553, 34 Pac. 549 ; Avery v. Job, 25 Ore. 512, 36 Pac. 293 ; Brov/nfield v. Houser, 80 Ore. 534, 49 Pac. 843 ; Bjirness v. Multnomah County, 37 Ore. 460, 60 Pac. 1005 ; Sears v. Steel, 55 Ore. 544, 107 Pac. 3 ; McKenna v. McHaley, 62 Ore. 1, 123 Pac. 1069. In our judgment, however, the allegations of the complaint are not sufficient to show that the plaintiff's burden of taxation will be increased by the administration of the statute under consideration. That enactment contains various provisions designed to increase the revenues of the state in the form of fees exacted from concerns subject to it's regrulation. It is true that the liecense fees and other contributions demanded of corpora- tions and like institutions by previous legislation are to be turned into the corporation fund, which is apparently designed to be kept at the standard of $10,000; the excess of that amount being returned to the general fund. Whether this shifting of the public money from one fund to another and back again will cause the plaintiff to pay more taxes than he otherwise BRACEY Vs. DARST 971 * would does not appear, if we remember the increment of revenue which the act provides. The plaintiff does not disclose that he is engaged in any busiijiess that is subject to the regulation of the act in question, and, in the absence of any showing of facts from which the court can deduce the legal conclusion that he is about to suffer a greater burden of taxation than before, his contention appears to be a mere academic proposition. (2) The courts wiU not decide a moot question by enjoining a co- ordinate branch of the government from the execution of a law. It is of no copcern to the plaintiff that corporations or business concerns with which he has no apparent connection may suffer illegal exations under an unconstitutional statute. Under such circumstances sound public policy and due respect to the legislative and executive departments restrain the courts from interference with the operation of a statute a,t the instance of a private s,uitor, unless it appears that his personal interests are at stake. For ,these reasons, the circuit court was right in refusing to entertain this suit, and the decree must be affirmed. BRACEY ET AL. - V. DARST, STATE AUDITOR OF WEST VIRGINIA, ET AL. 218 Fed. 482. (District Court, N. D. West Virginia, Deceinber 5, 1914.) Laws of West Virginia 1913 ch. 15; Code 1913, ch. 55 B. (so called "Blue Sky" Law) provides in Section 1 that "Every corporation, every copartnership, every compar;y, every individual and every association" ex- cepting municipal corporations and others specifically named, which "sell or negotiate for the sale of any stocks, bonds, debentures, or other securities of any kind or character other than bonds of the United States" or others specifically excepted, "to any person or persons in the State of West Virginia shall be known for the purpose of this ^ct as a domestic investment company. Every such investment company organized in any other state, territory or government shall be known for the purpose of this act, as a foreign investment company. Section 2 provides that before conducting any business as specified in Section 1, every investment com- pany "shall file in, the office of the auditor of this state" a full statement showing the plan upon which it proposes to transact business and its financial condition. Held/ that because this act affects individuals as well as corporations it distinctly seeks to abridge and deny the rights of citizens of the United States to buy and sell property in the State, thus depriving them of their property without due process of law ; that because it denies them the equal protection of the laws; and that because it im- poses a restraint and burden on interstate commerce it is unconstitutional as applied to individuals^ partnerships or voluntary associations of indi- viduals. 972 DECISIONS In Equity. Suit by Smith H. Bracey, Howie Mining Company, W. R. Covert, C. E. Wyatt, Augustus Tyler, and Charles La Due against John S. Darst, Auditor of the State of West Virginia, A. A. Lilly, At- torney General of the State of West Virginia, and R. L. Addleraan, Pros- ecuting Attorney for the County of Ohio, West Virginia. On motion for preliminary injuction. Motion granted. John A. Howard and J. M. Ritz, both of Wheeling, W. Va. for plaintiflfs. A. A. Lilly, Atty. Gen., Frank Lively, Asst. Atty. Gen., and C. B. Johnson and C. M. Hanna, both of Charleston, W. Va., for defendants. Before Pritchard and Woods, Circuit Judges, and Dayton, District Judge. Dayton, District Judge. This hearing is had under the provisions of section 266 of the Judicial Code of the United States (Comp. St. 1913, § 1243), upon application of the plaintiflfs for a temporary injunction to restrain the state officers, named as defendants, from prosecuting criminal proceedings against the individual plaintiffs for alleged violations of an act of the Legislature approved February 11, 1913, commonly known as the "Blue Sky Law." This act is charged to be unconstitutional, invalid, and void: (1) Be- cause it deprives them of their rights to sell in the state of West Vir- ginia valuable stocks, bonds, and securities, which is depriving them of their property without due process of law; (2) that it denies the plaintiffs and each of them of the equal protection of the laws as guaranteed to them under the fourteenth amendment to the federal Constitution; (3) that it imposes a burden and practically amounts to prohibition of inter- state commerce, contrary to section 8 of article 1 of the Constitution of the United States ; (4) because it attempts to vest in and delegates to the Auditor of the State legislative, executive, and judicial powers in violation of the Constitution of West Virginia, and especially section 1, art. 5, thereof. The terms of the act so assailed are : "Section 1. Every corporation, every copartnership, every com- pany, every individual and every association, (other than state and na- tional banks, surety or guaranty companies, trust companies, and duly authorized insurance companies, real estate mortgage companies, deal- ing exclusively in real estate mortgage notes, building and loan associa- tions, and corporations not organized for profit), organized or which shall be organized in this state, whether incorporated or unincorporated, which sell or negotiate for the sale of any stocks, bonds, debentures, or other securities of any kind or character other than bonds of the United States, or of some county, district or municipality of the state of West Virginia, and notes secured by mortgages on real estate located in this state, to any person or persons in the state of West Virginia, shall be known for the purpose of this act as a domestic investment company. Every such investment company organized in any other state, territory or government shall be known for the purpose of this act, as a foreign investment company. In all respects, other than those covered by thsi BRACEY VS. DARST 973 act, such foreign investment companies shall be governed by the law of this state applicable to non-resident corporations. "Sec. 2. Before offering. or attempting to sell any stocks, bonds, debentures, or other) securities of any kind or character, other than those specifically exempted in section one of this act, to any person or persons, or transacting any business whatever in this state, except that of pre- paring the documents hereinafter required, every such investment com-, pany, dpmesti^ar foreign, shall file in the office of the auditor of this state, together with a filing fee of two dollars and fifty cents, the fol- lowing documents, viz. : A statement showing in full detail the plan upon which it proposes to transact business ; a copy of all contracts, bonds, or other instruments which it proposes to make with, or sell to, its con- tributors; a statement which shall show the name and location of the investment company, and an itemized account of its actual financial con- dition, and the amount and location of its property and liabilities, and such other information touching its affairs as said auditor may require. If such investment company shall be a copartnership or an incorporated association, it shall also file with the auditor a copy of its articles of copartnership or association, and all other papers pertaining to its or- ganization, and if it be a corporation organized under the laws of this state, it shall also file with the auditor a copy of its articles of incorpora- tion, constitution and by-laws, of any and all resolutions under which any contracts are to be made with contributors, or securities issued for sale, and all other papers pertaining to its organization. If it shall be an investment company organized under the laws of any other state, territory or government, incorporated or unincorporated, it shall also file with the said auditor a copy of the laws of said state, territory or government, under which it exists or is incorporated, and also a copy of its charter, articles of incorporation, constitution and by-laws and all amendments thereof which have been made, and all other papers per- taining to its organization. No investment company which is a non- resident corporation shall be entitled to receive the license to transact business in this state provided by law until it shall have complied in all respects with the provisions and requirements of this act. "Sec. 3. All of the above described papers shall be verified by the oath of a member of the copartnership or company, if it be a copartner- ship or company, or by the oath of a duly authorized officer, if it be an incorporated or unincorporated association. All such papers, however, as are recorded, or are on file, in any public office shall be further certi- fied to by the officer of whose record or archives they form a part, as being correct copies of such record or archives. "Sec. 4. Every foreign investment company shall also file with the auditor its written consent, irrevocable, that actions may be commenced against it in the proper court of any county in this state, in which a cause of action may arise, or in which the plaintiff in such suit may reside, by the service of process on the auditor of this state, and stipulat- ing and agreeing that such service of process on such auditor shall be taken and held in all courts to be as valid and binding as if due service had been made upon the company itself, according to the laws of this or any other state, and further expressly authorizing such auditor to accept service of any process, order or notice against such company, issued from any court in this state and agreeing that such acceptance of service shall have like force and effect as is above provided for service thereof upon such auditor, and such instrument shall be authenticated by the seal of said foreign investment company and by the signature of a member of the copartnership or company, if it be a copartnership or company, or by the signatures of the president and secretary of the in- 974 DECISIONS corporated or unincorporated association, if it be an incorporated or un- incorporated association, and shall be accompanied by a duly certified copy of the order or resolution of the board of directors, trustees or managers of the corporation or association authorizing the said presi- dent and secretary to execute the same. "Sec. 5. It shall be the duty of the auditor to examine the state- ment and documents so filed, and if said auditor shall deem it advisable he shall have made a detailed examination of such inves^ent company's affairs, which examination shall be made under the supervision of said auditor, and such examination shall be at the expense of such investment company, as hereinafter provided. And if the said auditor, upon his investigation, finds that such investment company is solvent, that its articles of incorporation or association, its constitution and by-laws, its proposed plan of business and proposed contract or securities contain and provide for a fair, just and equitable plan for the transaction of busi- ness, and in his judgment promises a fair return on the stocks, bonds, debentures and other securities by it offered for sale, said auditor shall issue to such investment company a statement reciting that such com- pany has complied with the provisions of this act; that detailed informa- tion in regard to the company and its securities is on file in the auditor's ■ office for public inspection and information ; that such investment com- pany is permitted to do business in this state; and such statement shall also recite in bold type that such auditor in no wise recommends the securities to be offered for sale by such investment or security company. But if said auditor finds that such articles of incorporation, or associa- tion, charter, constitution and by-laws, plan of business, or proposed contract contain any provisions that are unfair, unjust, inequitable or .oppressive to any class of contributors, or if he decides from .his investi- gation of its affairs that such investment company is not solvent and does not intend to do a fair and honest business, and in his judgment does not promise a fair return on the stocks, bonds, debentures, or other securities by it offered for sale, then he shall notify such investment com- pany in writing of his findings, and it shall be unlawful for such com- pany to do any further business in this state until it shall so change^ •its constitution and by-laws, articles of incorporation or association, its' proposed plan of business and proposed contract, and its general financial condition, in such manner as to satisfy the auditor that it is solvent, and its articles of incorporation or association, its constitution and by- laws, its proposed plan of business, and proposed contract are bona fide, and provide for a fair, just and equitalDle plan for the transaction of business, and does in his judgment promise a fair return on the stocks, bonds and other securities by it offered for sale. All expenses paid or incurred and all fees or charges received or acquired for the filing and examination of any report required hereunder, or for any examination authorized to be made hereunder, shall be reported in detail by the said auditor, and a full acount rendered and made thereof. "Sec. 6. It shall not be lawful for any investment company, either as principal or agent, to transact any business in form or character similar to that set forth in section one of this act, except as provided in section two, until it shall have filed the papers and documents, and received from the auditor the statement above provided for. No amendment of the charter, article of incorporation, or constitution and by-laws of any such investment company shall become operative until a copy of the same has been filed with the auditor of this state as provided in regard to' the original filing of chraters, articles of incorporation, constitution and by-laws, nor shall it be lawful for any such investment company to tran- sact business on any other plan than that set forth in the statement re- BRACEY VS. DARST 975 quired to be filed by section two of this act, or to make any contracts other than the one shown in the copy of the proposed contract required to 'be filed by section two of this act, until a written statement showing in full detail the proposed new plan of transacting business, and a copy of the proposed new contract shall have been filed with the auditor in like manner as provided in regard to the original plan of business and proposed contract, and the consent of the auditor obtained to the pro- posed change in the plan or contract. "Sec. 7. Any investment company may appoint one or more agents, but no such agent shall do any business for said investment company in this state until he shall first register with the auditor ,of this state as agent for such investment company, and for each of said registrations there shall be paid to the auditor the sum of one dollar. Such registra- tion shall entitle such agent to represent said investment company as its agent until the first day of July following, unless such authority is sooner revoked by the auditor; and such' authority shall be subject to revoca- tion at any time by said auditor upon notice to the holder for cause appearing to him sufficient. "Sec. 8. Every investment company, domestic or foreign, shall file at the close of business on June thirtieth and December thirty-first of each year, and at such other times as may be required by the auditor, a statement verified by the oath of at least two members of the copartner- ship or company, if it be a copartnership or company, or by the oath of a duly authorized officer, if it be an incorporated or unincorporated association, setting forth iii such form as may be prescribed by t'he said auditor, its financial condition and the amount and description of its assets and liabilities, and furnishing such other information concerning its affairs as said auditor may require. Each regular statement of June thirtieth and December thirty-first shall be accompanied by a filing fee of two dollars. Any investment company failing to file its report at the close of business on June thirtieth and December thirty-first of each year or within ten days of that date, or failing to file any other or special report herein provided for within thirty days after the issuance by the auditor of notice or request- therefor, shall forfeit its right to do busi- ness in this state, and the auditor shall thereupon revoke the statement in favor of such company provided for in section five of this act. "Sec. 9. The general accounts of every investment company, do- mestic or foreign, doing business in this state, shall be kept by double entry, and such company, its copartners or managing officers, shall at least once a month make a trial balance of such accounts, ■which shall be recorded in a book provided for that purpose ; such trial balance and all other books and accounts of such company shall at all times during business hours, except on Sundays and legal holidays, be open to the inspection of stockholders and investors in said company, or investors in the stocks, bonds or other securities by it sold or offered for sale, and to the state auditor and his assistants. "Sec. 10. The auditor of this state shall have general supervision and control, as provided by this act, over any and all investment com- panies, domestic or foreign, doing business in this state, and all such investment companies shall be subject to examination by the said auditor, or .his duly authorized assistants, at any time the said auditor may deem it advisable. The rights, powers and privileges of the state auditor in connection with such examinations shall be the same in all respects as is now provided with reference to the examination of insurance com- panies ; and_such investment company shall pay the. expense of such ex- amination, and the failure' or refusal of any investment company to pay 976 DECISIONS such expense, upon the demand of the auditor or his assistant, shall work a forfeiture of its right to do business in this state. "Sec. 11. Whenever it shall appear to the said auditor that the assets of any investment company doing business in this state are im- paired to the extent that such assets do not equal its liabilities, or that it is conducting its business in an unsafe, inequitable or unauthorized manner, or is jeopardizing the interests of its stockholders, or investors in stocks., bonds, or other securities by it sold or offered for sale, or whenever any investment company shall fail or refuse to file any papers, statements or documents required by this act, without giving satisfactory reasons therefor, said auditor shall at once communicate such facts to the Attorney General who shall thereupon apply to the circuit court of the county in which such company is located or is doing business, or to the judge of such court in vacation, for the appointment of a receiver to take charge of and wind up the business of such, investment company, and if such fact or facts be made to appear, it shall be sufficient evidence to authorize the appointment by the court of such receiver and the mak- ing of such orders and decrees in such case as equity and the proper protection of the interests of investors may require. "Sec. 12. Any person who shall knowingly or wilfully subscribe to, or make, or cause to be made, any false statement or false entry in any book of such investment company, or exhibit any false paper with the intentoin of deceiving any person authorized to examine into and pass upon the affairs of such investment company, or who shall make and publish any false statement of the financial condition of such in- vestment company, or who shall make and publish any false statement in relation to the stocks, bonds or other securities by it offered for sale, shall be deemed guilty of a felony and upon conviction thereof shall be fined not less than two hundred dollars nor more than ten thousand dollars, and shall be imprisoned for not less than one year nor more than five years in the state penitentiary. Provided, that nothing herein shall in any wise limit or interfere with the civil liability of any person or persons so convicted for any loss occasioned by such criminal act. "Sec. 13. Any person or persons, agent or agents, who shall sell or attempt to sell, or who shall offer for sale in this state any of the stocks, bonds, debentures or any other securities of any investment com- pany, domestic or foreign, which has not obtained the statement pro- vided for in section five, or the stocks, bonds or other securities of other concerns by it offered for sale, who have not complied with the pro- visions of this act, or any investment company, domestic or foreign, which shall do any business, or offer or attempt to do any business except filing the statements and reports provided for in section two of this act, vsrhich shall not have complied with the provisions of this act, and received from the auditor the statement thereof provided for in section five of . this act, or any agent or agents who shall do or attempt to do in this state any business for any investment company, domestic or foreign, which agent is not at the time duly registered and has not fully com- plied with the provisions of this act, shall be deemed guilty of a mis- demeanor, and upon conviction thereof shall be fined for each offense not less than one hundred dollars nor more than one thousand dollars ; and shall, in the case of an individual, be imprisoned in the county jail for not less than thirty days nor more than ninety days. Every officer, agent, employe or stockholder of any such investment company who shall violate, or who procures, aids or in any manner abets any viola- tion of this act shall be deemed guilty of either the felony or misdemeanor above provided, as the fact may be, and all shall be guilty as principals and upon conviction shall be punished as hereinbefore provided. BRACEY VS. DARST 977 "Sec. 14. All expenses and fees herein provided for shall be col- lected by the said auditor (save where fees are directed to be paid to some other officer), and shall be accounted for and turned into the state treasury, and the amount of the expenses and fees so turned into the state treasury are hereby reappropriated to the said auditor for the pur- pose, and in an amount sufficient to pay the cost and expense of carry- ing this act into effect; and the said auditor is hereby authorized to ap- point an additional clerk, if the same shall be found by him to be actually and absolutely necessary, to carry this act into full force and effect. All money actually and necessarily paid out, or expenses incurred by the said auditor or any clerk under his direction, under this act, shall be paid by the state treasurer out of such sums for expenses and fees re- ceived under this act, upon the state auditor's warrants, to be issued upon vouchers containin'g_ an itemized account of the salaries or expenses for which the same are issued. "Sec. 15. AH acts atid parts of acts in conflict with this act or any provision thereof are hereby repealed." The Legislatures of at least six other states have enacted so-called "Blue Sky Laws." These states are Arkansas, Kansas, Iowa, Michigan, Oregon and Florida. So far as we can learn, the Arkansas act has not been passed upon by either the court of last resort of the state or by the United States courts of the state, but a similar statute of the state of Iowa has been passed upon by one Circuit Judge and two District Judges of the Eighth circuit, which includes the state of Arkansas. The same state- ment is true of the Kansas act; Kansas being>in the Eighth circuit. The Iowa act has been declared unconstitutional by the District Court of the United States for the Southern District of the state; Circuit Judge Smith and the two District Judges of the state, McPherson and Pollock, sitting and all three concurring. William R. Compton Co. v. Allen (D. C.) 216 Fed. 537. - The Michigan act has been declared unconstitutional by the United States District Court for the Eastern District of that state ; Circuit Judge Denison, of the Sixth circuit, and the two District Judges of the state. Sessions and Tuttle, sitting and all concurring. Alabama & N. O. Transp. Co. V. Doyle (p. C.) 210 Fed. 173. The constitutionality of the Oregon act, in a case styled National Mercantile Co, v. R. A. Watson et al., 215 Fed. 929, was submitted to the United States District Court of Oregon, Gilbert, Circuit Judge, and Wol- verton and Bean, District Judges, sitting, but was not passed upon, the court dismissing the proceeding upon a plea in abatement, denying plain- tiff's right to sue, it not having conformed to the provisions of the Oregon law permitting corporations, to do business in that state. The Superme Court of Florida, in Ex parte C. H. Taylor, 66 Soutli. 292, at its June term, 1914 (not yet officially published), has sustained the so-called "Blue Sky Law" of that state. An analysis of that law shows that it provides by section 1 that every corporation (municipal and others specifically named^ excepted) which shall offer for sale within the state of Florida, and outside of the county where it has its principal office or place 62 978 DECISIONS of business, "through any agency whatsoever," any of its stocks, bonds, debentures, certificates, policies, or other securities of any kind or char- ' acter, is defined to be a "domestic investment company." "Any corporation organized under the lavi^s of any other state, territory or country shall be known for the purposes of the act as a 'foreign investment company.'" Section 2 requires both domestic and foreign investment companies, before offering any stocks, bonds, etc., to file with the comptroller with a $5 filing fee (a) its proposed plan of business, (b) a copy of all con- tracts, etc., which it proposes to make with or sell to its contractors, (c) its name and location, (d) a financial statement of its affairs, (e) such other information of its affairs required by the comptroller, and (f) veri- fied copies of its charter, constitution, by-laws and other papers pertaining to its organization. Section 3. Foreign investment companies are also required to file written irrevocable consent that actions against them may be commmenced in the proper court of any county in the state where either cause of action arose or plaintiff resides, by service of process upon the Comptrollei". * Section 4 makes it the duty of comptroller and Attorney General to examine the statements filed or to make or have made a detailedd state- memnt of the corporation's affairs, and, if it is ascertained that it is sol- vent, that its plan of business is just and equitable, then the comptroller shall issue to it a statement to the effect that it has complied with the act. If the contrary is found, the corporation is to be notified, and it then becomes unlawful for it to sell its securities, etc., until it shall change its constitution, etc., its plan of business, etc., and its financial condition in such manner as to satisfy the comptroller and Attorney General that it is solvent and its plan of business is just and equitable. Section 5 makes it unlawful for any domestic company or any agent of it to se.ll its securities iii Florida, outside of the county where its principal office or place of business is, until it has complied with the act. Section 6 pi>t}^es that an investment corporation may appoint agents, but such agents may not sell the company's securities in Florida (outside the county wherein its principal office is) until such agent has registered with the comptroller and paid .the sum of one dollar, and bond may, in the discretion of the comptroller and Attorney General, be required of such agent, etc. Section 7 provides for statements by the company of its financial condition to be filed and filing fees therefor of five dollars to be paid. Section 8 provides that when, at any time, it appears that the com- pany's condition is unsound or unsafe or it refuses to file statements, etc., its license, etc., shall be revoked. Section 9 makes it criminal to subscribe or make false statements or entry in the company's books with design to deceive. ■ Section 10 makes it criminal for any person or agent to sell the . bonds, securities, etc., of any company that has not complied with the act. This section, however, has this significant proviso : BRACEY VS. DARST 979 "Provided that nothing in this act shall extend to any seller of stock, bond or other security, w'ho has purchased the same in good faith for value, and who is the bona fide owner of such stock, bond, or other security at time of such sale." The difference between the scope and extent of this Florida act a,nd that of West Virginia is very apparent in many particulars. For example : The Florida act is confined exclusively to corporations, while the West Virginia act includes individuals, copartnerships, and associations of individuals. The Florida act restricts the corporation from selling in that state (other than in the county wherein is its principal oiiSce or place of business) only its own stocks, bonds, debentures, certificates, policies, or other securities of any kind or character, while the West Virginia act pro- hibits sale or attempt to sell any stocks, bonds, debentures, or other securi- ties of any kind or character (except those specially mentioned) by any^ individual, corpartnership, corporation, or association. The Florida act expressly excludes from the effect of its provisions the sale by any bona fide owner of stock, etc., purchased in ,good fajith ; the West Virginia act makes no such exception. The Florida act expressly permits its domestic company to sell its stock, etc., in the county in the state wherein it has its principal office or place of business ; the West Virginia act permits no such exception. In short, while the provisions of both acts, to some extent, obscure and fail to define clearly their true intent and meaning as to what kind of business operations are- sought to be regulated, one might well reach the conclusion that the Florida act had for its purpose the defining of terms and conditions under which corpora- tions can do business in that state and sell its stock and bonds for the purpose of doing such business, a perfectly legitimate thing for. the state to do, for its domestic corporations are simply the offsprings of its own creation, while it has long since been determined that as to foreign corpora- tions a state exercising its sovereign power may -exclude them from doing business within its territorial limits altogether. But, on the other hand, the West Virginia act must by its terms be construed to regulate indi- viduals, copartnerships, corporations, or associations seeking to engage in the business of buying and selling stocks, bonds, and securities of "any kind or character" other than those expressly exempted. In other words, to prevent any such person, corporation, etc., from selling in the state any obligation of any corporation whether doing business in the state; or not, which had not the auditor's permission to do business therein. The sweep- ing effect of suoh provision is at once apparent, as it would substantially limit the brokerage business in the state and the purchase by. its citizens of standard foreign securities which would have to be sold by them out- side the state. The decision of the Supreme Court of Florida in Ex parte Taylor, supre, is expressly based upon the fact that the power is clear in the Legis- lature to "limit and regulate the powers and operations of corporations 980 DECISIONS which it brings into existence." And because Taylor, as agent for a do- mestic corporation, was charged solely with offering to sell in Leon county, another county of the state than the one where the corporation had its principal office or place of business, shares of the capital stock of this domestic corporation within the statutory definition and regulation, the court held that no question of interstate commerce was presented. It further says : "It is manifestly competent for the lawmaking power to authorize an administrative finding whether the 'proposed place of business and the contracts of a domestic corporation 'contain a fair, just and equit- able plan for the transaction of business,' which findingwill warrant ad- ministrative action duly taken under a statutory police regulation in the interest of the public welfare, unless restrained or controlled by ap- propriate judicial action. * * * Such regulations as those prescribed are peculiarly appropriate to corporations as classified in the statute." We have examined the acts of Arkansas, Kansas, Iowa, and Mich- igan, the last two of which have been subject to judicial consideration and held to be unconstitutional as hereinbefore set forth; Without enter- ing into detailed analysis of- each, it will be sufficient to say that those of Kansas and Arkansas contain substantially the provisions of the West Virginia act. Each seek to make an "investment company" out of any individual, copartnership, corporation, or association seeking to sell any bonds, stock or securities of any kind or character. The Iowa act is made expressly applicable to "investment companies" and also to stockbrokers, defining "investment companies" as including "every corporation or con- cern, however constituted, now or hereafter organized, which shall sell or cause to be sold or offer for sale, take subscriptions for, or negotiate for the sale of any stocks, bonds, or other securities of any kind or character to any person or persons in the state of Iowa." The Kansas act defines an "investment company" substantially to be as set forth in the West Virginia act, and in its section 10 provides : "Any investment company or stockbroker failing to file its report as herein provided * * * shall forfeit its right to do business in this state by reason thereof." The Michigan act is much clearer and more logical than any of the others in that it undertakes to accomplish two things substantially : First, to prevent "every corporation, every copartnership or company and every association" (other than those expressly excepted) from offer- ing for sale the stocks, bonds, etc., of its own issue without permit of the securities commission; second, to prevent any dealer in stocks, etc., from doing so until he has registered and from selling the stocks, etc., of any investment company that has not complied with the act until such dealer shall file such statements and give such information. It goes without saying, as hornbook law, that it is the duty of the courts to endeavor to carry out the intention and policy of the Legis- BRACEY VS. DARST 981 lature, and, that tlierefore they will not declare a statute unconstitutional in whole or in part where it is reasonably susceptible of a construction giving it effect in all its. parts. But 'it is as well settled that courts must confine themselves to the construction of the law as it is, and not attempt to supply defective legisjation, or otherwise amend or change - the law under the guise of construction. The wisdom or want of wisdom , displayed in the act is not a question for the courts, nor are the motives of the Legislature in including or omitting certain provisions. The legislative intention, however, must be the interition, as expressed in the statute itself, and it only must be given eflfect by the courts, other- wise they would be assuming legislative authority. For courts to violate this rule and assume legislative functions justly merits the severest con- demnation. In the interpretation of statutes, words in common use are to be construed in their natural, plain, and ordinary signification. It is a well-settled rule- that, so long as the language used is unambiguous, a departure from its natural meaning is not justified by any consideration of its consequence, or of public policy-; and it is the plain duty of the court to give it force and effect. A statute cannot in plain, common, unambiguous words say one thii^g and be held to mean another thing. Authority for these principles will he found in the hundreds of cases cited in 36 Cyc. 1102 et seq. But, in this connection, while the courts should be, and are, quick and ready to uphold legislative e;nactments, and where the meanings are doubtful, to solve all such doubts in f^vor of their validity, they have to recognize a higher and more solemn ob- ligation to uphold^ and maintain the Constitutions, federal and state, upon which oiir government rests. These Constitutions emanate from the people themselves and are existent by virtue of their solemn ap- proval. Legislative acts entitled as they are to all presumptions in- their favor, originate and become existent by the approval of changnig bodies of men, comparatively small in number. Where therefore legislative acts plainly violate the true meaning and effective force of constitutional provisions, courts should be far more prompt and active to prevent pernicious results therefrom, by declaring them invalid, than by specious interpretation, strive to uphold them in spite of such constitutional in- hibitions. In the argument of this case it was insisted by defendants' counsel that this act by interpretation should be limited in its applica- tion; to corporations, and to individuals acting in concert by organization, and not to apply to a single individual conducting his own business. How can we be expected to place this construction upon it when its first words are : "Every corporation, every copartnership, every company, every in- dividual and every association (other than state and national banks, surety or guaranty companies, trust companies, and duly authorized insurance companies, real estate mortgage companies, dealing exclusively in real estate mortgage companies,^ dealing exclusively in real estate mortgage notes, building and loan associations, and corporations not organzied for 982 DECISIONS profit), organized or which shall be organized in this state, whether in- corporated or unincorporated, which sell or negotiate for the sale of any stocks, bonds, debentures or other securities of any kind or character other than bonds of the United States, or of some county, district or municipality of the state of West Virginia, and notes secured by mort- gages on real estate located in the state, to any person or persons in the state of West Virginia, shall be known for the purpose of this act as a domestic investment company," and then, by subsequent sections, proceeds to require such investment company to comply with terms and conditions as set forth under pain of criminal penalties. If it was intended to apply only to corporations, why did it not sto.p if its first two words, "every corporation," embraced the full scope of its legislative intent? Why did it add "every copartnership, every company, every individual and every association"? Are we to adopt the conclusion that these words were/ only used as ejusdera generis with those of "every corporation"? If so, why accentuate the alleged intent by qualifying all with the words "whether incorporated or unincorpo- rated"? How can you have an "unincorporated" corporation? How can you have an "organized" individual? If you say the word "in- dividual" should be judicially construed out of the act and it should be held applicable only to corporations and to "individuals acting in concert by organization,'' the objections to it are just as valid as if the word "individual" be allowed to remain for the legal rights, under the^ federal and state Constitutions, by reason of personal citizenship, attach to every individual just as fully, if he conducts a legitimate and lawful business alone, or by association with other individuals. As we will point out later on, the power of the Legislature to "regulate" the business operations of corporations and those of individuals are vastly diflferent, based upon the fact that individuals, under article 4, § 2, of the federal Constitution, are "citizens" of a state "entitled to all privileges and immunities of citizens in the several states," while corpo- rations are not. So this contention must hark back, at last, to the one that the true intent of the Legislature was that this act should only be made applicable to corporations. It is now substantially admitted that if its intent is to prevent a "citizen" from selling his own notes or other obligations, or bonds, securities, etc., which he may have ac- quired in the course of business, without a certificate from the auditor oi solvency and "sound business capacity," it is clearly subversive of the inalienable right he has to acquire and sell property, and its validity cannot be asserted. As regards this "interpretation" now sought to be obtained from this court in order to save this act from its' inherent con- stitutional defects, two things can very pertinently be noted : First. The interpretation sought is not the one drawn from it by these state officials themselves, as shown by the facts (without sub- stantial denial) alleged in the bill. These facts, stated briefly, are that Bracey, owning a valuable property, sold it to the Howie corporation, taking its stock in payment. When he offered to sell this stock, his own BRACEY VS. DARST 983 / individual property, to citizens of West Virginia, he and those to whom he has sold are, at the instance of these officials, confronted with criminal proceedings for violation of this act. Second. It cannot be for a moment questioned that the words of the first section of this West Virginia act, defining those subject to its provisions, are equally if not more particularly minute and inclusive; than similar defining words contained in the Iowa and Michigan acts, with which, and others in its provisions, this West Virginia act is largely identical. In the two cases declaring the Iowa and Michigan act to be unconstitutional, all six of the judges sitting- have not hesitated to reject the interpretation now sought here and to hold the defining words to include individuals. Says the court in the Iowa case : "Coming now to a consideration of the act for the purpose of de- termining whether it does in express terms and undoubted meaning and intent contravene any provision of the organic law of the nation or this state, it is seen to undoubtedly prohibit any person or citizen, natural or corporate, of any foreign state, from selling or offering for sale, in person or through another, in any manner or way whatever, any stocks, bonds, or other securities or obligations, of every kind and nature, to any person within this state, unless the provisions of the act are first complied with, under heavy penalties. That is to say, by its express terms the act prohibits a citizen of a sister state of this country, owning and having stocks, bonds, certificates, or securities, although the same are listed on the exchanges of the country and 'have a well-established actual and salable value, from either bringing or sending the same into this state for sale unless he first meets the exactions of this law, or by so doing subjects himself to its penalties. * * * That the act in ex- press terms and by inclusive definitions employed therein does so ordain cannot be gainsaid or denied. That such is the effect and purpose of the act in controversy was not disputed by the able Attorney General of the state on the argument of this cause." In the Michigan case the court says : "We take judicial notice of the common understanding that this 'Blue Sky Law' was intended, as is said by the Attorney General, 'to stop the sale of. stock in fly-by-night concerns, visionary oil" wells, distant gold mines, and other like fraudulent exploitations.' If just this intent 'had been carried into effect. by the act as passed, these cases would not be here; but scrutiny of the law discloses additional aiid very different effects. It is not confined to corporations, but covers partnerships issu- ing, and individuals dealing in, securities ; it does not relate alone to stocks, but as well to bonds, mortgages, and promissory notes ; it is not limited to investment companies, as that term would ordinarily- be de- fined, but extends the definition so that it may include most of the private corporations and partnerships in the United States ; it does not cover fraudulent -securities merely, but reaches and prohibits the sale of securi- ties that are honest, valid, and safe ; it does not simply protect the unwary citizen against fraudulent misleading, but it prevents the experienced in- vestor from deliberately assisting an enterprise which 'he thinks gives sufficient promise of gain to offset the risk of loss, or which, from motives of pride, sympathy, of charity, he is willing to aid, notwithstanding a 984 DECISIONS probability that his investment will prove unprofitable. Of course, not all of these results follow; but some of them always may, and sometimes will." And most striking concrete instances of such effects in practical administration are then set forth. Recurring to the Florida Case, a careful study of it clearly shows that there is' no conflict in principle between its ruling and those of the Michigan and Iowa cases, but, on the contrary, by implication may be held to admit their soundness and integrity. As we have shown, the Florida statute is confined to corporations alone, selling through their agents, their own stocks, etc., in the state, excepting, however, the county thereof wherein is its principal office or place of business, and it expressly excepts from its operation "any seller of stock, bond or other security, who has purchased the same in good faith for value, and who is the bona fide owner of such stock, bond, or other security at the time of such sale." The exercise of this control over the operations of corpora- tions by state Legislatures is perfectly legitimate from the legal point of view, for ever since the decision in Bank v. Earle, 13 Pet. 519, 10 L. ed. 274, it has been settled that a corporation can have no legal existence outside of the boundaries of the sovereignty by which it was created ; that such corporations are not "citizens" within the meaning of article 4, § 2, of the federal Constitution, entitling them "to all privileges and immunities,'' as such "in the several states"; and the power of the states to determine the terms and conditions under which they, whether domestic or foreign, may do business in the state, has been repeatedly upheld, by the Circuit Court of Appeals for this circuit in Kirven v. Va. Car. Chem. Co., 145 Fed. 288, 76 C. C. A. 172, 7 Ann. Cas. 219; Cumberland gaslight Co. v. West Va. & Md. Gas Co., 188 Fed. 585, 110 C. C. A. 383. A state Legislature may therefore prevent foreign corporations from transacting business altogether within its territorial limits, and it may limit all corporations, foreign and domestic, as to what particular kind of business they may or may not do within the state. So far as they are concerned, it is not a question of police power nor of inter- state commerce, but purely and simply the exercise of a well-recognized sovereign power over these artificial bodies. But no such power is vested in any Legislature over either the individual citizen or over the copartner- ships or voluntary associations formed or organized by him to do busi- ness. He has the equal right with any other citizen to do business in any state, and the states cannot restrict or hamper his right to engage in interstate commerce or his inalienable right to contract, to buy and sell legitimate property. As regards corporations even, it may truthfully be said that comity between the states, and common sense business considerations, have practically given them unlimited permission to do business throughout fekACfeY VS. DAkSt 980 the country; but this freedom should certainly not be abused to the extent of allowing them to defraud and cheat, and it may well be the jealous care and concern of the state Legislatures that they do not do so. And in one sense we think this evil has been fully provided for. So far as we know, the states uniformly have criminal statutes against the pro- curement of money or things of value under misrepresentation, false pretenses, and fraud, and the civil right of the victim of such to recover back the money or property so secured is universally upheld and en- forced. In another sense some of the states may have failed to meet their full moral obligation to the citizenship of the whole country, in that they have indiscriminately granted charters to corporations without safeguarding its citizenship and those of sister states from unsound, fraudulent, '"wild-cat," and "fly-in-the-night" organizations, forgetting perhaps the homely maxim that an "ounce of prevention is better than a. pound of cure." The wisdom of making these provisions in advance, and as part of the conditions upon which" the franchise is granted, and by the state granting it, is apparent, for that it cannot be gainsaid that if all the 48 states of the Union attempt to enforce these afer-incorpora- tion provisions set forth in these "Blue Sky Laws," with all their fines, penalties, and fee exactions, against all legitimate and sound business corporations, because some states have recklessly chartered others that were unsound and conceived to cheat and defraud, business conditions throughout the country will be greatly affected and injured. We do not think it can be longer questioned that stocks, bonds, debentures, and other securities are subject-matters of interstate com- merce. Gibbons v.Ogden, 9 Wheat. 1, 6 L. ed. 23; Brown v. Maryland, 12 Wheat. 419, 6 L. ed. 678 ; Chy Lung v. Freeman, 92 U. S. 275, 23 L. ed. 550; Railroad Co. v. Husen, 95 U. S. 465, 24 L. ed. 527; Telegraph Co. V. Telegraph Co., 96 U. S. 1, 24 L. ed. 708 ; Telegraph Co. v. Pendle- ton, 122 U. S. 347, 7 Sup. Ct. 1126, 80 L. ed. 1187; Lottery Cases, 188 U. S. 321, 23 Sup. Ct. 321, 47 L. ed. 492; Book Co. v. Pigg, 217 U. S. 91, 30 Sup. Ct. 481, 54 L. ed. 678, 27 L, R. A. (N. S.) 493, 18 Ann. Cas. , 1103; West v. Kansas Co., 221 U. S. 229, 31 Sup. Ct. 564, 55 L. ed. 716, 35 L. R. A. (N. S.) 1193; Cook on Corp. (7th ed.) vol. 2, § 486, p. 1364; A. & N. O. Trans. Co. v. Doyle (D. C.) 210 Fed. 173; Compton v. Allen (D. C.) 216 Fed. 537. It follows that we must reject the contention that this act can be interpreted to affect only corporations, and not individuals. On the contrary, we are driven to the conclusion that it distinctly seeks to abridge, and deny the rights of citizens of the United States to buy and sell prop- erty in the state, thus depriving them of their property without due process of law; that it denies them the equal protection of the laws; and that", it imposes a restraint and burden on interstate commerce con- trary to the provisions of the Constitution of the United States. We do not deem it necessary to extend further discussion in support of this conclusion. The opinions in the Iowa and Michigan cases are so clear. 986 DECISIONS sound, and convincing as to not only command our admiration, but lead us to the conclusion that ntohing more complete and effective can be added to them. The temporary injunction prayed for must be awarded. WooBS, Circuit Judge (dissenting). The question to be decided under this application for a temporary injunction is whether the enforce- ment of the statute of West Virginia approved February 11, 1913, known as the "Blue Sky Law,'' will violate the rights of the plaintiffs under the Constitution of the United States. The plaintiff Howie Mining Company is an Arizona corporation with an authorized capital in preferred stock of 300,000 shares and common stock of 1,700,000 shares, all of the par value of one dollar each. Its property consists of mining property in North Carolina alleged to be of great value, conveyed to the company by Smith H: Bracey in consideration of the issue to him of all the stock both common and preferred, except four shares. The plaintiff Bracey sold some of rhis. holdings to the other individual plaintiffs, with an under- taking on the part of Bracey and his wife to take the stock back at an advance of 10 per cent., if so requisted at the end of a year. Bracey and these purchaser from him having offered stock of the company for sale in West Virginia, prosecutions were commenced and others threatened against them under the statute making a criminal offense the offering for sale of such stock without having filed a statement of its affairs with the State Auditor as required by the statute, and without having obtained from him- the certificate provided for by section 5 of the act, to the effect that the company is solvent, that its articles of incorporation or association, its constitution and by-laws, its proposed plan of business, and proposed contract or securities contain and provide for a fair, just, and equitable plan for the transaction of business, and in his judgment promises a fair return on the stocks, bonds, debentures, and other se- curities by it offered for sale. Thereupon this action was brought to enjoin the prosecution on the ground that the statute is unconstitutional for these reasons : (1) By its enforcement the plaintiffs and others in like situation will be deprived of liberty and property without due process of law. (2) The attempt is^made to confer on the auditor legislative power. (3) The attempt is made to confer on the auditor both legislative and judicial powers in violation of the Constitution of West Virginia. (4) It denies to the plaintiffs and other citizens the equal protec- iion of the laws. (5) It materially and directly "burdens interstate commerce. The force of these objections depends chiefly on the construction of the statute. If it means that no corporation, copartnership, or in- dividual, a citizeiy of West Virginia or other state, can give his or its note or other obligation or sell any security he or it may have acquired in the course of business, without a certificate of solvency, of fair transac- tion of business, and promise of a fair return on the paper, it would BRACEY VS. DARST 987 be so obviously subversive of the right to acquire and sell property that its validity would hardly be- asserted in any court. Indeed, nothing but language which admitted of no other construction should induce a court to impute to the Legislature the intention 'to do a thing so • arbitrary and unreasonable. When the language of this statute is considered in view of the evil which the Legislature intended to prevent, I think the objections to it will fail. The priry:iple that courts must reject con- struction of a statute, which would make it inconsistent with the Con- stitution if consistency with the Constitution can be found in any other reasonable construction, applies with especial force in the consideration of statutes which are intended to protect the public from prevalent frauds or to remedy evil conditions affecting the public. Courts must also recognize in such an issue the civic aspiration of enlightened people of our land, as it is expressed in legislative action by providing laws which will protect the community by holding "back the evil-minded from crime, rather than by mere provision for punishment after its commis- sion. The laudable desire and effort to this end has resulted in the en- actment of many laws which seem to be novel in their scope. But novelty does not argue unconstitutionality. The power of the courts to declare such statutes invalid should be exercised with great caution, and the pre- sumption is always in favor of the validity of the regulations they pre- scribe. They should not be declared void unless they clearly go beyond the evil to be remedied and so constitute a clear invasion of the rights - of the citizen. What business is effected with a public interest, and therefore the proper subject of police regulation, is primarily a matter for legislative determination. Giozza v. Tiernan, 148 U. S. 657, 13 Sup, Ct. 721, 37 L. ed. 599, Rippey v. Texas, 193 U. S. 504, 24 Sup. Ct. 516, 48 L. ed. 767. The statute here involved was intended to prevent, or at least check, one of the most generally recognized and harmful evils of economic life. With increasing facilities of communication all sorts of fraudulent and visionary schemes are imposed on the public by selling stocks, bonds, and other papers,' in form of securities, calling for' returns on the invest- ment. Nothing seems plainer than" the right of the Legislature under the police power to provide by statute a reasonable method of having these schemes examined into by some public authority and requiring those who would sell to the public securities based on them to make a showing of good faith, solvency, and a reasonable chance of return on the investment. This I think is all that the Legislature of West Virginia has undertaken to do. The validity of similar legislation has been so often sustained that citation of authority seems hardly necessary. On the same principle rests the regulation of railroads by commissions, the inspection of meat, the condemnation of impure food, examination and inspection of cattle and fertilizers, examination and regulation of in- surance companies and their contracts, the inspection and regulation of markets and mines, and the regulation of the business of labor agents. 988 DECISIONS and of certain classes of banks. Tihe police power of a state extends to all regulations of its internal commerce designed to promote the pub- lic convenience or to prevent imposition or fraud, as well as those de- signed to- promote public health, public 'morals, or public safety; and this, too, though the regulations described may incidentally affect inter- state commerce provided Congress has not acted in the particular matter. Savage v. Jones, State Chemist of. State of Indiana, 225 U. S. 501, 32 Sup. Ct. 715, 66 L. ed. 1182 ; Lemieux v. Young, Trustee, 211 U. S. 489, 29 Sup. Ct. 174, S3 L. ed. 295; Booth v. Illinois, 184 U. S. 425, 22 Sup. Ct. 425, 46 L. ed. 623 ; Chicago, etc., Ry. Co! v. Drainage Commissioners, 200 U. S. 562, 26 Sup. Ct. 341, 50 L. ed. 596, 4 Ann. Cas. 1175; Wilming- ton Star Mining Co. v. Fulton, 205 U. S. 60, 27 Sup. Ct. 412, 51 L. ed. 708; Bacon v. Walker, 204 U. S. 311, 27 Sup. Ct. 289, 51 L. ed. 499; Williams V. Fears, 179 U. S. 270, 21 Sup. Ct. 128, 45 L. ed. 186 ; Broadnax V. State of Missouri, 219 U. S. 285, 31 Sup. Ct, 238, 55 L. ed. 219; Natal V. Louisiana, 139 U. S. 621, 11 Sup. Ct. 636, 35 L. ed. 288; Slaughter House Cases, 16 Wall. 36, 21 L. ed. 394; Assaria State Bank v. Dolley, 219 U. S. 121, 31 Sup. Ct. 189, 55 L. ed. 123 ; SaVage v. Jones, 225 U. S. 501, 32 Sup. Ct. 715, 56 L. ed. 1182 ; Simpson v. Kennedy, 230 U. S. 352, 33 Sup. Ct. 729, 67 L. ed. 1511, 48 L. R. A. (N. S.) 1151. In Patapsco Guano Co. v. North Carolina, 171 U. S. 345, 18 Sup. Ct. 862, 43 L. ed. 191, the court says : "Where the subject is of wide importance to the community, the consequences of fraudulent practices generally injurious, and the sup- pression of such frauds matter of public concern, it is within the pro^ tective power of the state to intervene." The statute is to be analyzed and tested by these principle?. The first section provides : "Every corporation, every copartnership, every company, every in- dividual and every association * * * organized in this state, whether incorporated or unincorporated, which sell or negotiate for the sale of any stocks, bonds, debentures or other securities of any kind or character other than the bonds of the United States, or of some county, district or municipality of the state of West Virginia, and notes secured by mort- gage on real estate located in this state, * * * shall be known for the purpose of this act as a domestic investment company. Every such investment company organized in any other state * * * shall be known for the purpose of this act, as foreign investment company." Section 2 requires that before offering or attempting to sell any stocks, bonds, debentures, or other securities of any kind or character, other than those specificially exempted in section 1 of this act, to any person or persons, or transacting any business in this state, the invest- ment company shall file a statement of its condition and affairs with the auditor of the state. Section 5 provides ; BRACEY VS. DARST " 989 "It shall be the duty of the auditor to examine the statement and documents so filed, and if said auditor shall deem it advisable he shall have made a detailed examination of such investment company's affairs, which examination shall be made under the supervision of said auditor, and such examination shall be at the expense of such investment com- pany, as hereinafter provided. And if the said auditor, upon his investi- gation, finds that such investment company is solvent, that its articles of incorporation or association, its constitution and by-laws, its proposed plan of business and proposed contract or securities contain and provide for a fair, just and equitable plan for the transaction of business, and in his judgment promises a fair return on the stocks, bonds, debentures and other securities by it offered for sale, said auditor shall issue to such investment company a statement reciting that such company has com- plied with the provisions of this act; that detailed information in regard to the company and its securities is on file in the auditor's office for pub- lic inspection and information ; that such investment company 'is per- mitted to do business in this state; and such statement shall also recite in bold type that such auditor in no wise recommends the securities to be offered for sale by such investment or security company." It is~then provided that if the auditor shall make an adverse find- ing on the matters of solvency, fairness, or the plan of business and the promise of a fair return on the stocks, etc., it shall be unlawful for the investment company to do business in the state until it makes such changes as shall satisfy the auditor that it meets the requirement of the law. The act then provides a penalty against — "any person or persons, agent or agents, who shall sell or attempt to sell, or who shall offer for sale in this state any of the stocks, bonds, ' debentures or any other securities of any investment company, domestic or foreign, which has not obtained the statement provided for in sec- tion five, or the stocks, bonds or other securities of other concerns by it offered for sale, .who have not complied with the provisions of this act, or any investment company, domestic or foreign, which shall do any business, or offer or attempt to do any business," without complying with its requirements. In the first place, it seems quite clear that the statute is limited in its application to corporations, and to individuals acting in concert by organization — that is, by making a whole of interdependent parts — and was not intended to apply to a single individual conducting his own business. This is apparent from the use of the limiting adjective "or- ganized," used in the first section of the act. Neither the absurdity of calling a single individual a company, nor the impossible thing of legis- lating against his doing acts when "organized," could have been in- tended. Not only do the words of the first section exclude the in- dividual, but the text of the entire statute indicates an intention to apply and limit the legislation to business organizations or combinations of a number of persons. By sections 3 and 5 the application of the law is clearly limited to those who are associated together under some sort of articles pr agreement of association, It is true that the first section 990 DECISIONS of the statute in designating those to be subject to its provisions uses the singular "individual" ; but under the well-known rule the court should hold the plural to have been intended when that construction is required by the context as- in this instance, and especially where it will aid in sustaining the validity of the statute. People v. Aurora, 84 111. 157; Ellis v. Whitfock, 10 Mo. 781. It is next to be observed that the statute does not restrict the bor- rowing of money or even relate to the borrowing or lending of money, but regulates, for the protection of the public, the business of those or- ganized combinations of individuals "which sell or negotiate for the sale of any stocks, bondSj debentures, or other securities." It is vital to consider that this language cannot be construed to fetter a corpora- tion, or partnership, or other association of individuals engaged in other business by forbidding it to sell a security acquired in the regular course of such other business ; on the contrary, by its meaning appearing from the context, it limits the organizations or combinations to which it applies to those which sell or negotiate securities as the whole or a constituent part of their business either as a temporary measure or as a permanent enterprise. Thus construed, the statute meets a very im- portant public purpose, without undue restraint of personal liberty. Frauds or impositions in the sale of securities are not usually effected by sale to the public of the obligation of a single individual. Usually an organization is effected of two or more persons under an organiza- tion name to give the appearance of greater responsibility and to make such responsibility more illusory. When the whole or a constituent part of the business either as a temporary measure oi" a permanent enter- prise is to raise money by the sale of the securities of such an organiza- tion to the public — that is, to any one who will buy, I am unable to find any ground for holding that the state may not in the exercise of its police power provide for such examination into the business of the organization as is reasonably necessary to protect its citizens against imposition. The case on this point comes distinctly within the scope of the police power as defined and illustrated in the decisions of the Supreme Court of the United States above! cited. It is argued, however, that the powers conferred on the auditor are so broad and vague as to be arbitrary, in that they require him to refuse a license or certificate unless he finds that the investment com- pany (1) is solvent, (2) that its plan of business and proposed con- tracts or securities contain and provide for a fair, just, and equitable plan for the transaction of business, and (3) in his judgment promises a fair return on the securities by it offered for sale. Received stand- ards of solvency, of fairness, of the prospect of fair returns on invest- ment are sufficiently definite for a conclusion to be reached with reason- able certainty, after investigation, that a business enterprise falls above or below them ; and therefore reaching such a conclusion after investiga- tion does not denote the exercise of arbitrary power. Certainly no ob- BRACEY VS. DARST 991 jection can be made to the ascertainment of solvency, for that is now- intrusted by law, without objection, to public officials in the examination of banks and other institutions. It is true that no exact standard of what is a fair plan of business and what is a promise or prospect of a fair return on a bond or other security can be laid down with ac- curacy. But in many ways the affairs of men depend on the ascertain- ment by public authority of fair valuation, fair sale, fair va:lue, fair return on investment. Such ascertainment is required in passing on rates and management of railroads and other public service corporations by commissions; in deciding' on the sufficiency of sanitatibn and fire protection, and on the fitness of men to practice medicine and other, professions ; and in passing on many other matters in which the public has a special concern. Indeed, the necessity and legality of intrusting to men the power and duty to ascertain and determine what is reasonable or fair between citizens or between the citizen and the public enters of necessity into the whole fabric of the law, not only in its judicial, but in its executive and legislative department. The distinction between this power to determine -the fairness or reasonableness of a matter or the fitness of a person which may be conferred, and mere arbitrary power which cannot be conferred, is set out and illustrated in Yick Wo v. Hopkins, Sheriff, 118 U. S. 356, 6 Sup. Ct. W>64, 30 L. ed. 220, and numerous other cases. In Gundling v. Chicago, 177 U. S. 183, 20 Sup. Ct. 633, 44 L. ed. 725, the court says : "Regulations respectmg; the pursuit of a lawful trade or business are of very frequent occurrence in the vari.ous cities of the country, and what such regulations shall be and to what particular trade, business, or occupation they shall apply, are questions for the state to determine, and their determination comes within the proper exercise of the police power by the state, and unless the regulations are so utterly unreasonable and extravagant in their nature and purpose that the property and per- sonal rights of the citizen are unnecessarily, and in a manner wholly arbitrary, interfered with, or destroyed without due process of law, the}' do not extend beyond the power of the state to pass, and they form no subject for Federal interference." It is no objection to the discretionary power conferred on the auditor that he may exercise it arbitrarily; for the presumption is that he will not, and the citizen is protected from arbitrary action by the judicial power. Chicago v. Wellman, 143 U.' S. 339, 18 Sup. Ct. 400, 86 L. ed. 176. Discussion of the position that the statute undertakes to confer on the auditor legislative and judicial power is unnecessary, since the point was recently deeided against the contention of the plaintiff in Manu- facturers' Light & Heat Co. et al. v. Lee Ott et al., Puhlip 'Service Com- mission of West Virginia (D. C.) -215 Fed. 940, on the authority of 992 DECISIONS Interstate Commerce Commission v. Goodrich Transit Co., 224 U. S. 194, 32 Sup. Ct. 436, 56 L. ed. 729. The statute only indirectly affects interstate commerce in the cor- rection of an evil upon which Congress has not legislated. It relates to commercial transactions within the state, and places the citizens of other states on an equal footing with the citizens of West Virginia. It is not therefore a regulation of interstate commerce within the ex- clusive power of Congress. Minnesota Rate Case, 230 U. S. 852, 33 Sup. Ct. 729, 57 L. ed. 1511, 48 R. L. A. (N. S.) 1151; Brimmer v. Rebman, 130 U. S. 78, 11 Sup. Ct. 213, 35 L. ed. 862. Tihe plaintiffs have no ground to complain that the statute exempts state and national banks, surety or guaranty companies, trust com- panies, duly authorized insurance companies, real estate mortgage com- panies, dealing exclusively in real estate mortgage notes, building and loan associations, and corporations not organized for profit. The classification was not arbitrary and was within the power of the Legis- lature. Engel V. O'Malley, 219 U. S. 128, 31 Sup. Ct. 190, 55 L. ed. 128; Broadnax v. State of Missouri, 219 U. S. 285, 31 Sup. Ct. 238, 55 L. ed. 219. In Compton v. Allen, Circuit Judge Smith and District Judges Mc- Pherson and Pollock decided on July 6, 1914, a statute of Iowa, similar in terms to be unconstitutional; and the same result was reached in Alabama & N. O. T. Co. et al. v. Doyle (D. C.) 210 Fed. 173, as to a statute of the state of Michigan. The statutes as construed in these opinions are more restrictive of the sale of securities than we find the West Virginia statutes to be. On the other hand, the Supreme Court of Florida, in Ex parte Taylor, decided June, 1914, has held a similar statute constitutional. No case has been found which passes upon a statute precisely like that here involved. Section 4 of the act must be declared unconstitutional, in that it imposes a burden on the individual citizens of other states not imposed on citizens of West Virginia lay requiring them to file an irrevocable consent that an action may be commenced against them by service of process on the state auditor. This deprives the citizens of the state of West Virginia and denies to them the equal protection of the laws. Guy v. Baltimore, 100 U. S. 434, 25 L. ed. 743. But the elimination of this section does not ma- terially affect the remainder of the statute and does not destroy the validity of its other provisions. In my opinion the statute should be, held constitutional and the in- junction refused. If the plaintiffs do not fall within the terms of the statute, the fact may be proved in their defense to the indictment; but it is not available in an action to enjoin the enforcement of the statute as a nullity. Fitts v. McGhee, 172 U. S. 516, 19 Sup. Ct. 269, 43 L. ed. 535; Davis & Farnum Mfg. Co. v. Los Angeles, 189 U. S. 207, 23 Sup. Ct. 498, 47 L. ed. 778. STANDARD HOME CO. VS. DAVIS 993 STANDARD HOME CO., vs. DAVIS (District Court, E. D. Arkansas, W. D., October 15, 1914) No. 1819. 217 Fed. 904 The Act of March 28, 1913 (Laws 1913, p. 904) known as the "Blue Sky Law" and which provides for the regulation and supervision of investment companies is constitutional and it is not in violation of the federal or state constitutions in that it places limitations upon the right of foreign corporations to do business within the State of Ar- kansas, nor does it contain unreasonable requirements as tO| the informa- tion required from applicants for permission to do business in the State; and said act is not a deprivation' of the right of freedom of contract but is within the police power of the State. In Equity. Suit by the Standard Home Company against John M. Davis, Bank Commissioner of the State of Arkansas, and others. On motion to dismiss. Motion sustained. The plaintiff seeks to enjoin the enforcement of what is known as the "blue sky law" of the state of Arkansas, enacted by the General Assembly of 1913, upon the ground of its unconstitutionality. The de- fendants filed a motion to dismiss for failure to state a cause of action, the plaintiff not asking for a temporary injunction. In order that the issues involved may be fully understood, a copy of the act, as- approved March 28, 1913, is here set forth: "An act to provide for the regulation and supervision of investment com- panies and to provide a penalty for the violation thereof. "Be it enacted by the general assembly of the state of Arkansas : "Section 1. Every individual, corporation, co-partnership or com- pany, and. every association (other than national banks and corporations not organized for profit) now, or which shall hereafter be organized in this state, whether incorporated or unincorporated, which shall sell or negotiate for the sale of any stock, contracts, bonds or other securities of any kind or character other than bonds of the United States, or of some municipality authorized to issue bonds of the state of Arkansas, and notes secured by mortgages on real estate located in the state of Arkansas, or sell building stock or loan investments, or building invest- ments to any person or persons in the state of Arkansas, other than those specifically exempted herein, shall be known for the purpose of this act as a domestic investment company. Every such investment companj organized in any other state, territory or government, organized under the laws of any other state, territory or government, shall be known for the purpose of this act as a foreign investment company. "Section 2. Before offering or attempting to sell any stock, con- tracts, bonds or other securities, building contracts, loan investments or other securities of any kind or character other than those specifically exempted in section 1 of this act to any person or persons, or transact- ing any business wliatever in this state; except that of preparing the 63 994 DECISIONS documents hereinafter required, every such investment company, domestic or foreign, now or hereafter doing business in this state shaU file in the office of the insurance commissioner of this state, together with a filing fee of five dollars. ($5.00), in addition to the fees now required of all corporations, the following document to-wit : "A statement showing in full detail the plan upon which it proposes to transact business. A copy of all contracts, bonds or other instru- ments which it proposes to make with or sell to its contributors. A statement which shall show the name and location of. the investment company, and an itemized account of its actual financial condition and the amount of its property and liabilities, and such other information touching its affairs as said insurance commissioner may require. If such investment company shall be a copartnership or unincorporated asso- ciation it shall also file with the insurance commissioner a copy of its articles of copartnership or association, and all other papers pertaining to its organization, and if it be a corporation organized under the laws of Arkansas it shall also file with the insurance commission a copy of its articles of incorporation, constitution and by-laws, and all other papers pertaining to its organization. If it shall be an investment company or- ganized under the laws of any other state, territory or government, in- corporated or unincorporated, it shall also file with said insurance com- missioner a copy of the laws of such state, territory or government imder which it exists or is incorporated, and also a copy of its charter, articles of incorporation, constitution and by-laws and all amendments thereof which have been made and all other papers pertaining to its organization. "Section 3. The duties devolving upon the insurance commissioner under this act shall automatically pass to and become a part of the duties of the bank commissioner whenever that office shall be created in this state, and the fees provided for herein for the services of the insurance commissioner and his assistants shall also pass to the bank commissioner and his assistants to pay them for the time required in the performance of the duties set out in this act. • Provided in no event shall this act be construed so as to increase the salary of the bank commissioner, beyond that fixed by the act creating his office, nor shall this act increase the salary of the insurance commissioner, but in order to carry out the pro- visions of the act an assistant or deputy may be appointed at a salary of $1,800 a year, to be paid monthly in accordance with section 15 of this act, and said sum is hereby appropriated out of the fund mentioned in section 15 for said salary. "Section 4. All of the above described -papers shall be verified by oath, of a member of a copartnership or company, if it be a copartnership or company, or by the oath of a duly authorized officer, if it be an in- corporated or unincorporated association. All such papers however, as are recorded or are on file in any public office shall be further certified to by the officer of whose records or archives thev form a part, as being correct copies of such records or archives. The verification described in this section shall be made in the office of the insurance commissioner or bank commissioner as the case may be,, and it will not be sufficient for the same to be made in the state where the company is domiciled and then mailed to the commissioner but where the individual, corpora- tion, copartnership or company or association is a nonresident of this state, then the verification and filing must take place as described in this proviso. Provided further, that the verification and filing of papers as provided in this act may be mailed or otherwise sent to the commis- sioner where the individual, corporation, copartnership or company or association is a resident of the state. STANDARD HOME CO. VS. DAVIS 995 "Section . 5. Every foreign investment company shall also file its written consent, irrevocable that actions may be commenced against it, in the proper court of any county in this state in which a cause of action may arise, or in which the plaintiff may reside, by the service of process on the secretary of state, and stipulating and agreeing that such service of process on the secretary of state shall be taken and held, in all courts, to be as valid and binding as if due service had been made on the com- pany itself, according to the laws of this state or any other state, aiid such instrument shall be authenticated by the seal of said foreign in- vestment company and by the signature of a meniber of the copartner- ship or company, if it be a copartnership or company, or by the signatures of the president and secretary of the incorporated or unincorporated association, if it be an incorporated or unincorporated association, and shall be accompanied by a duly certified copy of the order or resolution of the board of directors, trustees or managers of the corporation au- thorizing the said secretary and president to execute the same. When- ever service of process is served on the secretary of state, he shall within twenty-four hours thereafter mail the same to the home 9f the company against whom the process is directed. The secretary of state is hereby commanded to register said summons and if within a reasonable time he does not receive a return card showing the same has been_ delivered, he shall register another letter to said company. "Section 6. It shall be the duty of the insurance commissioner to examine the statements and documents so filed, and if said insurance commissioner shall deem it advisable he shall make or have made a de- tailed examination of such investment company's affairs, which examina- tion shall be at the expense of such investment company, as hereinafter provided ; and if he find that such investment company is solvent, that its articles of incorporation or association, its constitution and by-laws, its proposed plan of business and proposed contract contain and provide for, a fair, just and equitable plan for the transaction of business, and in his judgment promises a fair return on the stocks, bonds and other securities by it offered for sale, the insurance commissioner shall issue to such investment company a statement reciting that such company has complied with the provisions of this act, that detailed information in regard to the company and its securities is on file in the insurance com- missioner's office for public inspection and information, that such invest- ment company is permitted to do business in this state, and such state- ment shall also recite in bold type that the insurance commissioner in no wise recommends the securities to be offered for sale by such se- curity company. But if said insurance commissioner finds that such articles of incorporation or association charter, constitution and -by-laws, plan of business or proposed contract contain any provision that is un- fair, unjust, inequitable or oppressive to any class of contributors, or if he decides from his examination of its affairs that said investment company is not solvent and does not intend to do a fair and honest business, and in his judgment does not promise a fair return on the stocks, bonds, or other securities by it offered for sale, ■ then he shall notify such investment company in writing of his findings, and it shall be un- lawful for such company to do any further business in this state until it shall so change its constitution and by-laws, articles of incorporation or association, its proposed plan of business and proposed contract and its general financial condition in such manner as to satisfy the insurance commissioner that it is solvent, and its articles of incorporation or asso- ciation, its constitution and by-laws, its proposed plan of business and proposed contract provide for a fair, just and equitable plan for the 996 DECISIONS transaction of business and dues, in his judgment promise a fair return on the stocks, bonds and other securities by it offered for sale; provided, that all expenses paid or incurred and all fees or charges received or collected for any examination made under the provisions of this section of this act be reported in detail by the insurance commissioners and a full report and record thereof made in detail. After any such dornestic or foreign investment company is admitted under the terms of this act its license may be revoked by said insurance commissioner if he finds that said company is attempting in any manner to defraud the public. Whenever a right of vany investment company to do business in this state is refused or revoked as- set out in this section, said company may within 20 days after notification institute a suit in the chancery court in any county in this state where its principal office is maintained or its prin- cipal agent resides, asking that said refusal or revocation be annulled. The insurance commissioner or his deputy shall defend said suit upon notice that the same is pending and the Attorney General or his assistant shall represent him. If it be determined that the refusal or revocation was wrongful the company shall be reinstated and the cost shall be paid in the same manner and out of the same fund as the cost for maintain- ing this department. If it be ascertained that the refusal or revocation be justified, the cost shall be paid by the company. The company shall not be permitted to do any business after notice of refusal or revocation until it be determined by the chancery court that the refusal or revoca- tion was wrongful, provided, such company may be allowed to continue in business in the_ discretion of the chancery court under such regula- tions as said court may prescribe. "Section 7. It shall not be lawful for any investment company either as principal or agent, to transact any business, in form or char- acter similar to tha^ set forth in section 1 of this act, except as is pro- vided in section 2 of this act, until it shall have filed the papers and documents above provided for. No amendment of the charter, articles of incorporation, constitution and by-laws of any such investment com- pany shall become operative until a copy of the same has been filed with the insurance commissioner as provided in regard to the original filing of charter, articles of incorporation, constitution and by-laws, nor shall it be lawful for any such investment company to transact business on any other plan than that set forth in the statement required to be filed by or to make any contract other than that shown in the copy of the proposed contract required to be filed by section 2 of this act, until, a written statement showing in full detail the proposed new plan of transact- ing business and a copy of the proposed new contract shall have been filed with the insurance commissioner, in like manner as provided in regard to the original plan of business and proposed contract, and the consent of the insurance commissioner obtained as to making such pro- posed new plans of transacting business and proposed new contract. "Section 8. Any investment company may appoint one or more agentS; but no such agent shall do any business for said investment com- pany in this state until he shall first register with the insurance com- missioner as agent for such investment company, and for each of such registrations there shall be paid to the insurance commissioner the sum of two dollars ($2.00). Such registration shall entitle such agent to represent said investment company as its agent until the first day of March following, unless said authority is sooner revoked by the insurance commissioner; and such authority shall be subject to revocation at any time by the insurance commissioner for cause appearing to him sufficient. "Section 9. Every investment company, domestic or foreign, shall file at the close of business on December 31'st and June 30th of each STANDARD HOME CO- VS. DAVIS 997 year, and at such other times as is required by the insurance commis- sioner, a statement verified by the oath of the copartnership or company if it be a copartnership or company, or by the oath of a. duly authorized officer, if it be an incorporated or an unincorporated association, setting forth in such form as may be prescribed by. the said insurance commis- sioner, its financial condition and the amount of its assets and liabilities, and furnishing such other information concerning its affairs as said in- surance commissioner may require. Each regular statement of Decem- ber 31st and June 30th shall be accompanied by a filing fee of two dollars and fifty cents. Any investment company failing to file its report at the close of business December 31st or June 30th of each year within ten days of that date, or failing to file any other or special report herein required within thirty days after receipt of request or requisition there- for, shall forfeit its right to do business in this state. "Section 10. The general accounts of every investment company, domestic or foreign, doing business in this state, shall be kept by double entry, and such company, its copartners or managing officers, shall at least once in each month make a trial balance of such accounts, which shall be recorded in a book provided for that purpose ; such trial balances and all other books and accounts of such company shall at all times dur- ing business hours, except on Sundays and legal holidays, be open- to the inspection of the insurance or bank commissioner and his deputies. "Section 11. The insurance or bank commissioner shall have gen- eral supervision and control, as provided by this act, over any aHd all investment companies, domestic or foreign now or hereafter doing busi- ness in tbis state, and all such investment companies shall be subject to examination by the insurance or bank commissioner or his duly authorized deputy at any time the insurance or bank commissioner may deem ad- visable and in the same manner as is now or may hereafter be provided for the examination of insurance companies. The rights, powers, and privileges of the commissioner shall be the same as is now or may here-' after be provided with reference to examination of insurance companies. If such examination resulted in a revocation of the examined company's right to do business in this state or a change in its method of doing business and this finding if appealed from is sustained, such company shall pay a fee for such examination of not to exceed five dollars ($5.00) for each day or fraction plus the actual travel and hotel expenses of the person making the examination, however not to exceed ten days. The failure to pay either expenses shall work a forfeiture of the right to do business. "Section 12. Whenever it shall appear to the insurance commis- sioner that the assets of any investment company now or hereafter doing business in this state are impaired to the extent that such assets do not equal its liabilities, or that it is conducting_ its business in an unsafe, inequitable or unauthorized manner, or is jeopardizing the in- terest of its stockholders or investors in stock, bonds, or other securities by it offered for sale, or whenever any investment company shall fail or refuse to file any papers, statements or documents required by this act, without giving satisfactory reasons therefor, the insurance commis- sioner shall at once communicate such facts to the Attorney General, who shall thereupon apply to the chancery court where such company is lo- cated or is doing business, or to a judge of said court for the appoint- ment of a receiver to take charge and if such facts or fact be made to appear it shall be sufficient evidence to authorize the appointment of a receiver and the making of such orders and decrees in such cases as equity may require. 998 DECISJONS "Sectoin 13. Any person who shall knowingly or wilfully sub- scribe to or make or cause to be made any false statements or false entry in any book of such investment company or exhibit any false paper with the intention of deceiving any person authorized to exarnine into the affairs of such investment company, or shall make or publish any false statement of the financial condition of such investment company, or the stocks, bonds or other securities by it offered for sale, ' shall be deemed guilty of a felony, and upon conviction thereof shall be fined not less than two hundred dollars ($200.00) nor more than ten thousand dol- lars, and shall be imprisoned for not less than one year nor more than ten years in the state penitentiary. "Section 14. Any person or persons, agent or agents, who shall sell or attempt to sell the stock, bonds or other securities of any invest- ment company, domestic or foreign, or the stock, bonds or other securi- ties by it offered for sale, who have not complied with the provisions of this act, or any investment company, domestic or foreign, which shall do any business, or offer or attempt to do any business, except as pro- vided in section 2 of this act, which shall not have complied with the provisions of this act, or any agent or agents who shall do or attempt to do any business for any investment company, domestic or foreign, in this state, which agent is not at the time duly registered and has fully complied with the provisions of this act, shall be deemed guilty of a misdemeanor, and upon conviction thereof shall be fined for each offense not less than one hundred dollars nor more than five thousand dollars, or by imprisonment in the county jail for not more than ninety days, or both such fine and imprisonment, at the discretion of the court. "Section 15. All fees herein provided for shall be cbllected by the insurance commissioner and 'by him shall be turned over into the state treasury, and all fees so turned into the state treasury or so much thereof as may be necessary not to exceed five thousand dollars ($5,000) in any one year, are hereby reappropriated to the insurance commissioner for the purpose of paying the salaries and expenses necessary for carry- ing this act into effect; and the insurance commissioner is hereby au- thorized to appoint such clerk and deputies as are actually and absolutely necessary to carry this act into full force and effect. Provided, however, none of them shall be related by blood or marriage to such insurance commissioner or any of his deputies. All moneys actually and necessarily paid out by' the insurance commissioner to any clerk or deputy appointed under this act, as salaries, or any money actually and necessarily paid out by the insurance commissioner, or by any clerk or deputy appointed under this act, for traveling or incidental expenses shall be paid by the state treasurer out of such fees upon the state auditor's warrants, to be issued upon sworn vouchers containing an itemized account of such salaries or expenses. "Section 16. Should the courts declare any section of this act un- constitutional or unauthorized by law, or in conflict with any other sec- tion or provisions of this act, then such decision shall effect only the section or provision so declared to be unconstitutional, and shall not effect the other sections or part of this act. "Section 17. In addition to the other penalties provided by this act, no contract made by any domestic or foreign investment company which has failed to secure a license as provided for in this act shall be enforceable in any of the courts of this state by said company. "Section 18. Any individual, or_ persons, copartnership, corpora- tion, companies or association, domestic or foreign which shall sell any building or investment contracts or like securities on which payments are required to be made by the purchaser from time to time, shall first STANDARD HOME CO. VS. DAVIS 999 before being permitted to do business in this state enter into a bond with the state of Arkansas in the sum of twenty thousand dollars ($20,000) for the faithful performance of its contract or undertaking. Said bond must be approved by the insurance commissioner and in all suits for a violation of contract or otherwise, the bonding company or securities may be joined in the original suit. Provided, that in lieu of the bond provided for in this section, such individual or persons, co- partnership, corporations, companies or associations, domestic or foreign, may deposit twenty thousand dollars ($20,000) . in cash, United States bonds, bonds of the state of Arkansas, if any such be issued or any municipality or improvement district in the state, or note's secured by first mortgages on real estate in Arkansas on which money has been loaned, provided the commissioner shall be the sole judge as to whether the bonds, secured notes or other securities are in fact worth twenty thousand dollars ($20,000) on the open market. Provided further, that any such individual or person, firm, company or corporation shall be entitled to collect the interest on any such bond, certificates of deposit, mortgages, notes or other security so deposited, and shall also be entitled to affect an exchange of any such obligations so deposited by depositing in lieu thereof other security of equal value, or of the value of said sum of twenty thousand dollars ($20,000). "Section 19. This act being necessary for the immediate preserva- tion of the public peace, health and safety, shall take effect and be in force from and after its passage .and all laws and parts of laws in con- flict herewith a*e hereby repealed." The allegations of the bill, in so far as they affect the questions involved herein, are : That the plaintiff is an investment company, or- ganized and existing under and by virtue o"f the laws of the state of Delaware. That it is engaged in the business of writing and selling investment home purchasing contracts and in lending money on real estate collateral in the state of Arkansas and other states of the Union. That by the terms of these contracts the applicant therefor agrees to pay $6 at the time of signing the application therefor, and an additional $6 on the, 15th day of each month thereafter until a loan has been made, when he pays an additional sum as interest, or until 80 monthly install- ments of $6 have been paid ; it being further provided by the , contract that -in the event 80 monthly installments of $6 each have been paid for 80 consecutive months the company will refund to the purchaser the total monthly installments paid thereon and a pro rata share of the profits, which will amount to $240, and entitle the stockholder to $720, but the $720 is to be paid out of a certain fund if the money is in that fund. If the money is not in that fund and the party wants cash at maturity, he, is to receive only $528, or a profit of $48 on the $480 paid. That by prompt payment of 12 installments the purchaser of the contract becomes eligible to receive a loan of funds to purchase a home, in the sum of $1,000, in the order of his application therefor, out of the loan or reserve fund of the number and series to which such contract rnay belong, the loan to be made when such funds have accumulated; but if there is a default in the monthly payments within the first 12 months all payments made are forfeited. To provide for this reserve .fund the company agrees to place to the credit thereof $4.75 from each monthly installment received from the contract holder, after the third install- ment, together with return principal payments from loans granted from such fund, profits on loans, interest, and other items. The reserve fund is to be used only for loans to holders of contracts. After a loan has been made, the purchaser agrees to pay the same back to the company 1000 DECISIONS in small monthly installments, which payments are credited to the in- debtedness and returned to the loan or reserve fund. It is further alleged that plaintiff is offering- these securities or contracts for sale in the state of Arkansas, and has been engaged m such business for a long time, and has expended large sums of money in advertising such business in order to build it up, and had invested large sums of money therein before the enactment of the act in ques- tion; that it has acquired in the course of such business a valuable good will and an extensive clientele, and valuable information as to the con- duct of its business; that it has complied with all the laws of the state of Arkansas relative to foreign corporations, and has paid all fees re- quired by law. It is further alleged that plaintiff sends into the state of Arkansas its agents and employes, who there solicit orders for the securities hereinbefore described, which orders are transmitted to the company at Birmingham, Ala., its principal place of business, where such orders are accepted or rejected, and if accepted- the securities so purchased are then forwarded to the purchaser in Arkansas from the company^s office in Birmingham, Ala. ; that it has contracted to sell certain such securities, and is being solicited by various persons, firms, and corpora- tions to sell the same, but is prohibited from so doing by the provisions of this act; that the defendants have notified plaintiff, and those with whom it has contracts upon which loans are ready to be made, that its securities cannot be sold in Arkansas, and that plaintiff cannot transact any business whatever in .said state, because of the terms and provisions of said act. In an amendment to the original bill it is alleged that plaintiff's business is transacted almost exclusively through- the mails of the United States, the applications for securities and their acceptance being sent through the mail ; that said business consists exclusively of interstate transactions. It is further alleged that plaintiff has filed with the bank commissioner all of the statements, papers, and information required by said act, but notwithstanding this the said commissioner arbitrarily re- fuses to give plaintiff the certificate of compliance provided by said act; that -said defendants have announced their intention of arresting and prosecuting plaintiff, its solicitors, agents, and employes, and en- force the penalties provided by said act, should it attempt to further carry on its business in this state. The bill attacks the constitutionality of the act upon the following grounds : 1. That it is in violation of the fourteenth amendment to the Con- stitution of the United States, because it denies complainant the equal protection of the law : (a) In that said act is applicable to state banks and trust companies, but not to national banks ; (b) that it applies to stocks, bonds, and other securities, but is not applicable to the bonds of the United States, nor to any municipal bonds of the state of Arkansas ; (c) that it applies to mortgage securities upon real estate situated with- out the state of Arkansas, but does not apply to mortgages on real prop- erty-situated within the state of Arkansas; (d) that it does not apply to notes secured by mortgage upon real property situated within this state, but is applicable to mortgages on property within the state, if said mortgage's secure bonds. 2. That said act is violative of section 8 of article 1 of the Con- stitution of the United States, because it imposes a burden upon inter- state commerce, in that it prohibits the sale of stocks, bonds, and other securities of the plaintiff in the state of Arkansas unless said plaintiff and other companies of like nature, though organized under the laws of another state or country, shall have filed with the bank commissioner STANDARD HOME CO. VS. DAVIS 1001 the report and information and paid the fees required by said act, and in till other respects conformed thereto; that the contracts and other securities issued by said investment company are legitimate articles of commerce, and that the sale thereof in interstate commerce is not sub- ject to regulation by the state of Arkansas in any way whatsoever, and that the sale thereof by said investment company, its agents and brokers, to residents of the state of Arkansas, to be delivered in the state of Arkansas, payment therefor to be made upon such delivery and from time to time thereafter, to said investment company in another state, is interstate commerce, and the burden and restriction imposed upon such sale are burdens upon interstate commerce. 3. That said act is violative of the fourteenth amendment to the Constitution of the United States, because it deprives plaintiff of its property without due process of law and denies to it the freedom of contract guaranteed by the Constitution, in that: (a) It denies the right of any investment company, as defined in said act, to sell or dispose of its stocks, bonds, or any security, unless said investment company is solvent, irrespective of the price at which said security is to be sold, or the value thereof, and denies any person the right to purchase of any such investment company any of its stocks, bonds, or other securities, if said purchase will, in the opinion of said bank commissioner, prob- ably result in loss to the purchaser, irrespective of the price at which said security is to be sold, and irrespective of the probability that such purchase may result in profit to said purchaser, even though such in- vestment company sells the same without misrepresentation and after having truthfully set forth all facts in relation thereto to the purchaser thereof, (b) The the restrictions and conditions prescribed by the act are not within any power of the state of Arkansas to- impose, and are not within the police power of said state, because said restrictions and conditions are not necessary to protect the health, safety, morals, and welfare of the people of the state of Arkansas ; and since such restric- tions and regulations are imposed upon the business of selling all securi- ties of any kind, as described in said act, except those specifically ex- erripted, they will seriously impede business and commerce of every kind whatsoever by preventing the free purchase of said securities, and the free investment in the stocks, bonds, and securities covered by the said act. (c) Because said act provides that the defendant bank com- missioner, his clerks, accountants, and examiners, may examine the busi- ness of said investment companies, and their accounts, and may renuire them to divulge any and all facts in connection with said business, whether or not the same relates in any way to securities proposed to be sold in Arkansas, (d) Tha^ having entered the state of Arkansas be- fore the passage of said act for the purpose of doing business therein, filed its charter or articles of association as required by the then exist- ing laws, and paid its money to the state, it became entitled to transact its business therein so long as it continued to do so fairly, honestly, and free from just objection; that the state contracted with it that it should have this right; that under said act, if enforced, it is not only unlawfully deprived of its property without any compensation whatever, but the obligation of its contract with said state is impaired and de- stroyed, and is, therefore, in violation of the Coristituti'on of the United States prohibiting the passing of any law by any state impairing the obliga-. tion of contracts ; that if said act is enforced it will be deprived of the -benefit of previous transactions whereby it has sold many securities, made many contracts, and loaned out money in said state. 4. That said act is violative of section 11 of article 12 of the Constitution of the state of Arkansas, in that it. places restrictjoni, regu- 1002 DECISIONS lations, and limitations on plaintiff's right to do business in this state which are not placed upon domestic corporations, the restrictions com- plained of being that while individuals, corporations, etc., residents of this state, may verify the statements required to be mailed before any officer of the state, and then sent by mail to the bank commissioner, non- residents must verify them in the office of the bank commissioner and not elsewhere, thus requiring plaintiff and others similarly situated to make long journeys and incur heavy expenses for the purpose of attest- ing the papers required to be filed by said act. 5. That said act is violative of the Constitution of the United States, in that the powers and duties conferred upon the said bank com- missioner amount to a delegation of legislative power to him, .because it empowers said commissioner to determine whether the proposed plan of business, or the proposed contract, of the' said investment company is or is not "fair, just, and equitable," and likewise confers upon him ihe power to determine whether the purchase of said securities promises a "fair return thereon" ; that the act in no respect determines the stand- ard of what is or is not "fair," and in no respect determines the stand- ard of what would be a "fair return" on said securities. 6. That said act is violative of section, 9, article 2, of the Constitu- tion of the state of Arkansas, because it subjects violators of the pro- visions of said act to excessive fines and cruel and unusual punishment, in that they are so severe as to prevent plaintiff from challenging the validity of said act in the courts, and necessarily constrain it to sub- mit to the provisions thereof rather than take the chance of the penalties being imposed. 7. That the defendant bank commissioner has announced what facts and information in connectoin with said business he will require in its preliminary statement, on which the securities of such investment companies will or will not be permitted to be sold in the state of Arkansas, and has had advertised and published blank forms for the furnishing of information by said companies, which he requires all such companies to use in making application to do business in this state ; that said blank requires that said investment companies furnish information which is unreasonable, not pertinent to the purpose for which said statement is required under the act, and substantially impossible to furnish for the following reasons: (a) Said blank requires a statement of the con- sideration paid for its stocks and bonds, whereas, to the unissued stocks and bonds of investment companies, no consideration has yet been paid, (b) It requires a true and complete list of the holders of the securities of said investment companies, wherever located, whereas such list is constantly changing and cannot be truly and completely made. More- over, said list would require your orator and others similarly situated to furnish the said bank commissioner names of its contract holders, or the holders of its securities, not only in the state of Arkansas, but in all other states and territories throughout the United States, (c) It requires a profit and loss statement which is not in conformity with the account upon its books, and which cannot be made in the manner re- quired in the blank from the books of complainant and others similarly situated, (d) It requires a true and complete statement of its receipts and disbursements for the past 6 or 12 months, whereas such a state- ment would be cumbersome in the extreme, and would convey no informa- tion to said bank commissioner pertinent to the purposes expressed in said act. (e) It requires a list of the officers of said investment companies, together with their holdings of stocks and bonds, the actual cash invested, their estimated net worth, and the time devoted to the company, whereas the number of shares and bonds owned is a matter confidential to said STANDARD HOME CO. VS. DAVIS 1003 officers, which said company has no right to divulge, nor has said com- pany accurate information thereof, nor any way in which to determine the actual cash invested by said officers in said company, nor the estimated net worth of its said officers ; that all such information is not pertinent to the purposes of said act and is beyond the power of defendants to require, (f) It requires certain references to the character, responsibil- ity, and financial standing of each director, and of said investment com- pany, whereas the giving of such references is not pertinent in any way to the purposes of said act, and is beyond the power of said defendants to require, (g) That said act requires that all such information ob- tained by said bank commissioner, and all the records of his office in regard thereto shall be open to examination by the public; that the in- formation called for by said blanks is a valuable property right, the pub-, lication of which would deprive plaintiff of valuable property rights and would seriously damage its business and otherwise cause it damage and loss. Murphy & McHaney, of Little Rock, Ark., for plaintifif. Wm. L. Moose, Atty. Gen., and John P. Streepey, Asst. Atty. Gen., - for defendants. Trieber, District Judge (after stating the facts as above). It is a well-settled rule of law that a statute will not be declared' unconstitu- tional at the instance of one not affected by it. ' Williams v. Walsh, 222 U. S. 415, 423, 32 Sup. Ct. 137, 56 L. ed. 253; Murphy v. California, 225 U. S. 623, 32 Sup. Ct. 697, 56 L. ed. 1229, 41 L. R. A. (N. S.) 153; Rosenthal v. New York, 226 U. S. 260, 271, 33 Sup. Ct. 27, 57 L. ed. 212, Ann. Cas. 1914B, 71; Missouri, K. &^T. R. R. Co. v. Cade, 233 U. S. 642, 650, 34 Sup. Ct. 678, 58 L. ed. -^. Applying this rule, a number of the grounds upon which the plaintiff attacks the constitutionality of this act cannot be considered in this, proceeding. As the plaintiff is not engaged in the banking business, it cannot be affected by the fact that the statute is applicable to state banks and trust companies, and not to national banks, for, as stated in Collins v. Texas, 223 U. S. 288, 295, 32 Sup. Ct. 286, 56 L. ed. 439: "Where the party attacking the constitutionality of a statute has, not suffered, the court will not speculate whether others may suffer." Aside from this, the fact that national banks are excluded from the provisions of the act does not affect its validity for two reasons : First : National banks, being creatures of the national government, are not subject to control or regulations concerning the management of their business by the states. McClellan v. Chipman, 164 U. S. 347, 17 Sup. Ct. 85, 41 L. , ed. 461 ;, Easton v. Iowa, 188 U. S. 220, 23 Sup. Ct. 288, 47 L. ed. 452; Abilene Nat. Bank v. DoUey, 228 U. S. 1, 33 Sup. Ct. 409, 57 L. ed. 707, affirming 179 Fed. 461, 102 C. C. A. 607, 32 L. R. A. (N. S.) 1065. Second: The fact that some reasonable exceptions are made does not make the act unconstitutional. As stated in Mutual Loan 1004 DECISIONS Co. V. Martell, 222 U. S. 225, 236, 32 Sup. Ct. 74, 76 (56 L. ed. 175, Ann. Cas. 1913B, 529) : "Legislation may recognize degrees of evil without being arbitrarily unreasonable, or in conflict with the equal protection provision of the fourteenth amendment to the Constitution" — citing Ozan Lumber Co. V. Union Bank, 207 U. S. 251, 28 Sup. Ct. 89, 52 L. ed. 195; Heath & M. Mfg. Co. V. Worst, 207 U. S. 338, 28 Sup. Ct. 114, 62 L. ed. 236. There are reasonable grounds for accepting national banks. The same rule applies to the objection that, while the act applies to stocks, bonds, and other securities/ it is not applicable to the bonds of the United States, nor to municipal bonds of the state of Arkansas. It is unnecessary to state reasons why this is not an unreasonable classi- fication. They are apparent. Nor is it material, so far as the rights of the plaintiff are concerned, whether ~that provision of the statute which prohibits the sale of stocks, bonds, or other securities, tmless the company issuing them is solvent, is constitutional or not, as the complainant specifically alleges that it is a solvent corporation and can therefore satisfy the bank commissioner of that fact. That the act denies to persons the right to purchase stocks, bonds, or other securities of an investment company when, in the opinion of the bank commissioner, such purchase would result in a loss to pur- chasers, certainly cannot affect the plaintiff, who does not engage in the purchase of stocks or bonds, and does not claim to be authorized to do so by its charter. Is the act violative of the commerce clause of the national Constitu- tion because it imposes a burden upon interstate commerce? Unless the business of the plaintiff, as set out in its complaint, shows that it is engaged in interstate commerce, it is, for the reason before stated, in no position to question the constitutionality of the act. The allega- tions in the bill, as set out in the statement of facts, show the com- plainant is not engaged in the sale of stocks, bonds, or other securities, as were the complainants in Alabama, etc.. Transportation Co. v. Doyle (D. C.) 210 Fed. 173 (Construing the Michigan "blue sky" statute), and in William. R. Compton Co. v. Allen, 216 Fed. 537, decided by the Dis- trict Court of the United States for the Southern District of Iowa (in- volving the Iowa statute). Therefore these cases are not applicable to the instant case. Is the plaintiff engaged in commerce? It offers- nothing for sale, but is purely an investment company. It undertakes to invest any moneys intrusted to -it, and the profits derived from the investment, after pay- ing the expenses of the plaintiff corporation, are, after 80 monthly pay- ments have been made, to be paid to the praty who made these payments. But these profits are not to exceed a certain sum mentioned in the contract. This is no more commerce than insurance, and that insurance is not commerce, within the meaning of the commerce clause of the STANDARD HOME CO. VS. DAVIS 1005 Constitution, is no longer an open question. This latest case on that subject is New York Life Insurance Co. v. Deer Lodge County, 231. U. S. 495, 34 Sup. Ct. 167, 58 L. ed. 332, where the former decisions of the court, holding that insurance is not commerce, were reaffirmed. Nor are loans of money made to clients for the purpose of enabling them to acquire homes commerce, within the meaning of the commerce clause of the Constitution. Nelms v. Mortgage Co., 92 Ala. 157, 9 Sputh. 141; Southern Bldg. & Loan Ass'n v. Norman, 98 Ky. 294, 32 S. W. 952, 31 L. R. A. 41, 56 Am. St. Rep. 367. Lending money is neitlitr a sale nor a purchase. Whether the provsiion of the act (section 4) which requires an officer of a foreign corporation to verify the statements necessary to obtain a license to do business in this state in the office of the bank com- missioner, while the officers of a domestic corporation may verify them in any part of the state of Arkansas, and before any officer of that state authorized to administer oaths, and send them- to the bank commissioner by mail, is such a discrimination as to vitiate the act, is also immaterial, so far as the plaintiff is concerned, as the complaint alleges that the verification was properly made in the manner prsecribed by the statute. But, assuming that it would be unlawful, it would not affect any other provisions of the act, as it is clearly separable. Besides, section 16 of the act provides that : "Should the courts declare any section of this act unconstitutional or unauthorized by law, or in conflict with any other section or provision of this act, then such decision shall affect only the section or provision so declared to be unconstitutional, and shall not affect the other sections or part of this act." The act is also attacked upon the ground that it authorizes the bank commissioner, his clerks, accountants, and examiners, to examine the business of such investment company, and may require it to divulge any and all facts in connection with said 'business, whether or not the same relates in any way. to securities proposed to be sold in Arkansas. The plaintiff is a corporation, and it is now well settled by the decisions of the Supreme Court of the United States that the rights to inquire into the condition of corporations exists, and, if necessary for the pur- pose of enforcing a law, to compel the production of all books, letters, and other records, without violating the provisions of the fourth and fifth amendments to the Constitution of the United States. Hale v. Henkel, 201 U. S. 43, 74, 75, 28 Sup. Ct. 870, 50 L. ed. 652 ; Consolidated ■Rendering Co. v. Vermont, 207 U. S. 541, 28 Sup. Ct. 178, 52 L. ed. 327, 12 Ann. Cas. 658; Hammond Packing Co. v. State of Arkansas, 212 U. S. 322, 348, 349, 29 Sup. Ct. 370, 53 L. ed. 530, 15 Ann. Cas. 645; Wilson v., United States, 221 U. S. 361, 383, 31 Sup. Ct. 538, 55 L. ed. 771, Ann. : Cas. .1912D, 558. 1006 DECISIONS Does the fact that this corporation had, before the enactment of this statute, obtained a license to do business in the state of Arkansas, by complying with the laws then in force, and had entered into a large number of contracts in the state, prevent the state from changing the former laws or placing additional burdens upon corporations, foreign and domestic? Section 11 of article 12 of the Constitution of Arkansas, in force at the time the plaintiff first came into the state, provides that foreign corporations shall, as to contracts or business done in this state, "be subject to the same regulations, limitations and liabilities as like corporations of this state, and shall exercise no other or greater powers, privileges or franchises than may be exercised by like corporations of this state." Section 6 of the same article provides: "The General Assembly shall have the power to alter, revoke or annul any charter of incorporation now existing and revocable at the adoption of this Constitution, or any that may hereafter be created, when- ever, in their opinioh, it may be injurious to the citizens of this state, in such a manner, however, that no injustice shall be done to the cor- pora,tors." When a corporation accepts a charter in a state whose Constitution or general statutes . contain such a provision, that provision becomes as much a part of the charter as if it were incorporated in it, and there- fore authorizes the state to make any changes it sees proper, provided they do not amount, to a confiscation of property or an impairment of the obligations of contracts. City of Owens:boro v. Cumberland Tel. & Tel. Co., 230 U. S. 58, 33 Sup. Ct. 988, 57 L. ed. 1389; Ozan Lumber Co. V. Biddie, 87 Ark. 587, 113 S. W. 796. As to contracts made by and with the plaintiff prior to the time this act went into effect, it is sufficient to say that there is nothing in the act which prohibits the remittances of the monthly installments by its clients, as they become due, or prevents the plaintiff from carrying out its contracts entered into before this statute became effective. All this act undertakes to prohibit is the entering into contracts thereafter, unless the association complies with the provisions of the act. The statute is prospective and not retroactive. It is also claimed that the act is violative of the Constitution of the United States, in that the powers and duties conferred upon the bank commissioner amount to a delegation of legislative powers to him. That there is nothing in the Constitution of the United States which prohibits a state from conferring on a commission such powers as are conferred by this act has been frequently decided by the Supreme Court of the United States. United States v. Grimaud, 220 U. S. 506, 517, 518, 31 Sup. Ct. 480, 55 L. ed. 563; Red C. Oil Mfg. Co. v. North Carolina Board, 222 U. S. 380, 395, 32 Sup. Ct. 152, 56 L. ed. 240. That it is not prohibited by the Constitution of the state of Arkansas has been de- termined by the Supreme Court of that state in Mechanics' Bldg. & STANDARD HOME CO. VS. DAVIS 1007 Loan Ass'n v. Coffman, 110 Ark. 26&, 162 S. W. 1090, involving this act. That there is no foundation for the contention that the act is violative of those constitutional provisions of the United States and the state of Arkansas which prohibit excessive fines and cruel and un- usual punishments requires no extended discussion. The punishment im- posed by the act is not so excessive as to warrant a court in declaring it cruel, or even unusual. That is a matter for the legislative depart- ment of the government to determine. In order to enforce obedience to the law it is necessary to impose such punishment as will deter parties from violating it. The punishment of corporations is a fine of not less than $100 nor more than $5,000. Of course, there can be no imprison- ment of a corporation ;' but even the imprisonment of individuals cannot exceed 90 days. In prosecutions for violations of this act the courts are given a great deal of latitude. A fine of $100 may a deter a cor- poration with small capital, while it would not deter a corporation' with millions of capital, from violating the law. The .fact (that many fines may be imposed for violations of the act, while an honest ' effort is being made to test the law, will justify a court of equity to interpose its aid, by granting a temporary injunction while the validity of the act is being tested in the courts; but it will not justify a court to declare the entire act unconstitutional upon that ground, especially if we consider that the fine imposed under this act may be as low as $100. The court is unable to find anything in the questions which ap- plicants for permission to do business in the state are required to an- swer, which are inquisitorial to the extent of making them so un- reasonable that the courts should set aside a statute solemnly enacted by the legislative department of the state, except one. The exception referred to is the requirement of the bank commissioner of a true and complete list of the holders of all the securities of the company. It' is no part of the statute, and is not authorized by the act. , If plaintiff had been denied the right to do business in this state for its refusal to com- ply with this requirement of the commissioner, his action would no doubt be unwarranted, and in an action by the plaintiff under section 6 of the act could be corrected. But there is nothing in the complaint to show that this was the case, nor is this a proceeding under section 6. The claim of plaintiff that the bank commissioner is vested with arbitrary power cannot be sustained, for section 6 of the act provides that: "Whenever a right of any investment company to do business in this state is refused or revoked as set out in this section, said company may; within twenty days after notification institute a suit in the chancery court in any county in this state where its principal office is maintained ,' i or its principal agent resides, asking that said refusal or revocation be /' annulled * * * If it be determined that the refusal or revocation was wrongful, the company shall be reinstated and the costs shall be paid in the same manner, and out of the same fund as the cost for main- tainnig this department" 1008 DECISIONS There is, therefore, ample provision for preventing the bank com- missioner from acting arbitrarily or unlawfully. Whether such a pro- ceeding can be maintained in a court of the United States or only in the chancery courts of the state is immaterial in this case, for, as be- fore stated, this is not a proceeding under that provision of the statute, but a direct proceeding to have the entire act, in so far as it affects the rights of this plaintiff, declared void as being in conflict with the Con- stitutions of the United States and the state of Arkansas. It is also claimed that the enforcement of the provisions of the act would amount to a deprivation of the right of freedom of contract. While freedom of contract is a right inherent in every person under the Constitution, of the United States, and that of the state of Arkansas, it is not an absolute, but a qualified, right, free from arbitrary restraint, but subject to reasonable regulations. This subject has been so fully discussed in Chicago, B. & Q. R. R. Co. v. McGuire, 319 U. S. 549, 566, 567, 568, 31' Sup. Ct. 259, 55 L. ed. 328, where the former rulings of that court are collated, that it is only necessary to refer to that case, which was reafifirmed since in Mutual Loan Co. v. Martell, 222 U. S. 225, 285, 32 Sup. Ct. 74, 56 L. ed. 175, Ann. Cas. 1913B, 529, Rosenthal v. New York, 226 U. S. 260, 270, 33 Sup. Ct. 27, 57 L. ed. 212, Ann. Cas. 1914B, 71, and Erie R. R. Co. v. Williams, 233 U. S. 685, 699, S4 Sup. Ct. 761, 58 L. ed. . The courts cannot review the economics or facts on which the Legislature of a state bases its conclusions that an existing evil should be remedied by an exercise of the police power. Central Lumber Co. V. South Dakota, 226 U. S. 157, 33 Sup. Ct. 66, 57 L. ed. 174. The re- quirements of the bank commissioner of a statement of the receipts and expenditures of the company, and a list of the officers of the company, with their holdings of stocks and bonds of the corporation, are not unreasonable. Experience has demonstrated the fact that some of the grossest frauds have been perpetrated on the public by investment com- panies by extravagant expenditures for salaries, agents' commissions, and other apparently legitimate purposes through officers who had prac- tically nothing invested in the association, and whose character and reputation stamped them as adventurers and cheats. Such regulations are proper and wholesome. The dockets of the national courts have been crowded for the last few years with criminal prosecutions of per- sons charged with the use of the mails of the United States in carrying out fraudulent schemes by so-called investment companies and persons offering allurements to get rich quick. But those courts are only clothed with jurisdiction to prosecute thosd who, in carrying out their fraudulent schemes, make use of the mails, and then only after the commission of the offense. This necessarily affects only a small portion of those en- gaged in such schemes, and can in no wise act as a preventative. The states alone can provide for the prevention and punishment of all who commit frauds, although the mails are not used for their accomplishment, STANDARD HOME CO. VS. DAVIS lOOt) and enact laws to prevent the commission of these crimes. Legislation to prevent crime is of greater benefit to society than the punishment of the offender after the crime has been committed and innocent persons have been made to suffer. Statutes enacted for such purposes ought not to be declared invalid by the courts upon slight grounds, even if extreme cases can be imagined where they may work an injustice. The granting of the privilege to do business of that nature in the state by a high official is, to a certain extent, an assurance to the public that the corpora- tion is properly managed. It is not only his privilege, but duty, to ex- ercise great caution to satisfy himself that not only the scheme, but the men administering the affairs of the company, are of such character and standing, and have such a financial interest in the success of the scheme, as to give reasonable assurance to investors that their money will not be dishonestly dissipated or misappropriated. Nor can there be a reasonable objection to the provision of the statute that this in- formation should be accessible to those who are inclined to invest their money in the securities of that association. There can be no better means of information than the sworn statements of the officers showing the condition of their corporation. National, as .well as state, banks and insurance companies are required to publish similar information in the public press, and fully as much in their reports to the officials charged with their supervision. The validity of these requirements has never been questioned. The claim that the provisions of the. act are not within the police power of the state, as they are not necessary to protect the health, safety, morals, and welfare of its people, cannot be sustained. Noble State Bank v. Haskell, 219 U. S. 104, 31 Sup. Ct. 186, 55 L. ed. 112, S2 L. R. A. (N. S.) 1062, Ann. Cas. 1912A, 487, and German Alliance Ins. Co. v. Kansas, 233 U. S. 389, 34 Sup. Ct. 612, 58 L. ed. , are the latest expressions of the Supreme Court on that subject, and leave nothing to be added. That the statute makes exceptions in favor of notes secured by mortgages on real estate lying in the state of Arkansas cannot be said to be so unfounded and unreasonable as to authorize the court to de- clare it void. When the lands mortgaged are lying in the state, where the investor resides, he can more easily satisfy himself as to the validity of the title and the value of the mortgaged premises than if they are in a foreign state. The courts cannot pass upon the wisdom of legisla- tion. As stated in Ozan Lumber Co. v. Union County Bank, 207 U. S. 251, 256, 28 Sup. Ct. 89, 91 (52 L. ed. 195) : "It is almost impossible, in some matters, to foresee and provide for every imaginable and exceptional case, and a Legislature ought not to be required to do so at the risk of having its legislation declared void, although appropriate and proper upon the general subject upon which such legislation is to act, so long as there is ho substantial and fair ground to say that the statute makes an unreasonable and unfounded 64 1010 DECISIONS general classification, and thereby denies to any person the equal pro- tection of tlje laws. In a classification for governmental purposes there cannot be an exact exclusion or inclusion of persons and things." The motion to dismiss the bill for failure to state a cause of action is sustained. EX PARTE TAYLOR 68 Fla. 61, 66 Southern 292 Chapter 6422, AT;ts of 1913, contemplates an adequate hearing and does not deprive a local corporation of its property rights without due process of law, nor does it arbitrarily discriminate against a local corpora- tion so as to deny it the equal protection of the laws. Original proceedings in habeas corpus by C. H. Taylor. Petitioner remanded. Thos. B. Adams and F. M. Ehirrance, both of Jacksonville, for peti- tioner. T. F. West, Atty. Gen., for the State. Per Curiam. The petitioner, C. H. Taylor, presented a petition to a justice of this court in which it is alleged "that he is unlawfully im- prisoned, detained, confined, and restrained of his liberty by" the sheriff of Leon county, Fla., under a warrant charging that petitioner "did at- tempt to sell and offer for sale two shares of the capital stock of a do- mestic corporation, to-wit. Exposition Motor Chair Company, a corpo- ration organized under the laws of the state of Florida to one G. S. Johnson, Jr., in Leon county, Fla., which is outside of Duval county, Fla., where said corporation has its principal office and place of business, which corporation is other than a municipal corporation, state bank, na- tional bank, trust company, public utility corporation, corporations under the jurisdiction of the railroad commissioners of the state of Florida, and which corporation is organized for profit, before said corporation had complied with the provisions of chapter 6422, Acts of 1913, Laws of Florida, contrary to the statute." The petition alleges that the de- tention is unlawful because the statute is unconstitutional in stated particulars. The judge of the circuit court for Leon county being ill, a writ of habeas corpus issued returnable before the Supreme Court. On the return made by the sheriff showing the detention as alleged, the petitioner moved to be discharged. Chapter 6422, Acts of 1913, asserted to be unconstitutional is as follows : EX PARTE TAYLOR 1011 "Chapter 6422— (No. 2). "An act to define domestic and foreign investment companies ; to pro- vide for the regulation and supervision of same; to provide condi- tions and terms under which corporations, foreign and domestic, can sell to persons in Florida stock and other securities ; to place such investment companies under the jurisdiction of the Comptroller and Attorney General, and to prescribe for the Comptroller and Attorney General certain duties and powers ; to provide for the service of process thereon ; to provide for the registration of agents selling securities of such investment comRanies, and to provide penalties for the violations of the terms of this act, and for other purposes. "Be it enacted by the Legislature of the state of Florida: "Section 1. That every corporation, other than municipal corpora- tions, state and national banks, trust companies, public utility corpora- tions, corporations under the jurisdiction of the Railroad Commission of the state of Florida, and corporations not organized for profit, which are now organized or which may be organized in this state, which shall offer for sale within the state of Florida, and outside of the county where such corporation has its principal office or place of business thrbugh any agency whatsoever, any of its stocks, bonds, debentures, certificates, ' policies or other securities of any kind or character shall be known for the purposes of this act as a domestic investment company. ' Any cor- poration organized under the laws of any other state, territory or country shall be known for the purposes of this act as a 'foreign investment company.' "Sec. 2.- Before attempting to sell or offernig for sale any stocks, bonds or other securities of any kind or character to any person or persons within this state, every such investment company, domestic or foreign, shall file in the office of the Comptroller of the state of Florida, together with a filing fee of five dollars, the following documents, to-wit: "A statement showing in full detail the plan upon which it proposes to transact business ; a copy of all contracts, bonds, stocks, or other in- struments which it proposes to make with or sell to its contractors; a statement which shall show the name and location of the investment company; an itemized account of its actual financial standing, showing the amount, character and location of its property and its liabilities ; and such other information touching its affairs as said Comptroller may require. It shall also file with the Comptroller a copy of its articles of incorporation, constitution and by-laws and all other papers pertaining to its organization, all of which above papers arid documents shall be verified by the oath of th-e president of such corporation, or by some duly authorized officer of same. "Sec. 3. Every such foreign investment company shall also file with the Comptroller its written consent, irrevocable, that actions may be commenced against it in the proper court of any county in this state in which a cause of action may arise, or in which the plaintiff may reside, by the service of process upon the comptroller and stipulating that such service of process shall be taken and held in all courts to be valid and binding as personal service upon the company itself. Such written con- sent given to the Comptroller by said companies shall be authenticated by the seal of said foreign investment company, and by the signatures of the president and secretary of the corporation, and shall be accom- panied by a duly certified copy of the order of resolution of the board of directors of the said corporation, authorizing the president and sec- 1012 DECISIONS retary to execute same. When service shall be perfected in such manner upon any such company, the same shall constitute due service of process upon such company, and binding and effective in all respects. "Sec. 4. It shall be the duty of the Comptroller, together with the Attorney General, to examine the statements and documents so filed, and if said Comptroller and Attorney General may deem it advisable, they shall make or have made a detailed examination of such investment company, and its affairs, which examination shall be at the expense of such investment company as hereinafter provided; and if he finds that such investment company is solvent, and that its articles of incorpora- tion and association, its constitution and by-laws, its proposed plan of business and its contracts, contain a fair, just and equitable plan for the transaction of business, they shall issue to such investment com- pany a statement reciting that such company has complied with the pro- visions of this act, that detailed information with regard to the com- pany and its securities is on file in the office of the Comptroller at Tallahassee, Florida, that such investment company is permitted to do business in this state, and that such statement shall also recite in bold type that the Comptroller is not required or permitted by law to recom- mend the securities offered for sale by such investment company. But if said Comptroller and Attorney General find that such articles of in- corporation or association, charter, constitution and by-laws, plan of business or proposed contract contain any provision that is unfair, unjust or inequitable or oppressive to any class of contractor, or if they decide from their examination of its affairs that said investment company is not solvent and does not intend in good faith to do a fair and honest business, then they shall notify said investment company in writing of their finding and it shall be unlawful for such company to sell or offer for sale any of its securities in this state until it shall so change its con- stitution and by-laws, articles of incorporation or association, its pro- posed plan of business and contract, and its general financial condition in such manner as to. satisfy the Comptroller and Attorney General that it is solvent, and its articles of incorporation or association, its consti- tution and by-laws its proposed plan of business and proposed contract provide for a fair, just and equitable plan for the transaction of busi- ness. Provided further that all expenses paid or incurred and all fees or charges received or collected for any examination made under these provisions of this section of this act shall be reported in detail to the comptroller, and a full report and record thereof made and kept. "Sec. 5. It shall not be lawful for any such investment company, or any agent thereof, or any person owning or controlling any of the securities of such company, to sell or offer for sale any of the said se- curities hereinbefore specified, except as provided in section one, within the state of Florida until it shall have complied in all respects with the terms of this act and obtained the certificate of the Comptroller and Attorney General as provided herein. "Sec. <6. Any investment company may appoint one or more agents, but no agent shall sell or offer for sale in this state, except as provided in section one of this act, the securities of any such investment company until he shall first register with the Comptroller as agent for such in- vestment company, and for each of such registrations there shall be paid to the Comptroller the sum of one dollar. Provided the Comptroller and Attorney General, at their discretion, shall require such agent or agents to give and file with the Comptroller bond in such sums and amounts as they may deem best to the best interests of the investing public, either in their own right or on the part of the investment com- pany whom he represents, payable to the Governor of the state of Florida, EX PARTE TAYLOR 1013 and conditioned that the securities he offers for sale are fair and just, and that he will save harmless, the purchaser or purchasers against any loss which may be occasioned by reason of the reliance of such purchaser or purchasers on any false or fraudulent representation made in the course of the sale of such securities. And it is hereby expressly pro- vided that any person or persons who may have sustained an injury covered by such bond, may, in addition to any other remedy that he may have, bring suit on such bond in the name of the Governor of the state of Slorida, for the use of such person or persons. Such registra- tion shall entitle such agent to represent such . investment company as its agent until the first day of January, following, unless such authority is sooner revoked by the Comptroller or the investment company, and such authority shall be subject to revocation at any time by the comp- troller and Attorney General for cause appearing to them sufficient. "Sec. 7. Every investment company, domestic or foreign, shall at such times as required by the Comptroller and Attorney General, file a statement verified by the oath of the person authorized to make the same, setting forth' in such forms as may be prescribed by the Comp- troller and Attorney General its financial condition and the amount of its assets and liabilities and furnish such other informatoin concerning its affairs as said Comptroller and Attorney General may require; such statement shall be accompanied by a filing fee of five dollars. Any in- vestment company failing to file its report within sixty days after the written request of the Comptroller and Attorney General shall forfeit its right to do business in this state. "Sec. 8. Whenever it shall appear to the Comptroller and Attorney General that the assets of an investment company doing business in the state are impaired to the extent that such assets do not equal its liabili- ties or that it is conducting its business in an unsafe, inequitahle, or un- authorized manner, or jeopardizing the interests of its stockholders and investors in stocks, bonds, or other securities by it offered for sale, or whenever any investment company shall fail to or refuse to file any papers, statements or documents, required by this act, without giving satisfactory reasons therefor, said Comptroller and Attorney General shall at once revoke the license of said investment company to do any further business in the state of Florida. "Sec. 9. Any person who shall knowingly subscribe to or make or cause to be made, any false statements or false entry in any book of such investment company or exhibit any false paper with the intention .of deceiving any person authorized to examine into the affairs of such investment company, or shall make, utter or publish any false statement of the financial condition of such investment company or the stock, bonds, or other securities by it offered for sale, shall be deemed guilty of a felony, and upon conviction thereof shall be fined not exceeding five thousand dollars or imprisoned in the state prison not exceeding five years, or either or both, in the discretion of the court. "Sec. 10. Any person or persons, agent or agents, who shall sell or attempt to sell .the stocks, bonds or other securities of any invest-' ment company, domestic or foreign, .when such investment company has not complied with the provisions of this act ; and any agent or agents who shall sell or attempt to sell any such securities of any investment company, domestic or foreign, in this state, which agent is not at the time fully registered and has not fully complied with the provisions of this aft, shall be deemed guilty of a misdemeanor, and upon conviction thereof, shall be punished by imprisonment in the county jail not exceed- ing one year or by fine not exceeding one thousand dollars, or by both such fine and imprisonment in the discretion of the court. 1014 DECISIONS Provided, that nothing in this act shall extend to any seller of stock, bond, or other security, who has purchased the same in good faith for value, and who is the bona fide owner of such stock, bond, or other security at the time of such sale. "Sec. 11. All fees herein provided for shall be collected by the Comptroller and shall by him be turned into the state treasury, and all such fees turned into the state treasury are hereby reapportioned to the Comptroller for the purpose of paying all salaries and expenses necessary for the carrying into effect of. this act, and the Comptroller is hereby authorized to appoint such clerks and deputies as are absolutely necessary to carry into full force and effect the provisions of this act. All money actually or necessarily paid out by the Comptroller to any clerk or deputy appointed under this act as salaries or compensation for services, or any money actually or necessarily paid out by the Comptroller, or by any clerk or deputy or employe appointed under this act, for traveling Or incidental-; expenses, shall be paid by the state treasurer out of such fees, upon warrants drawn by the Comptroller and approved by the Governor, containing an itemized account of such salaries or expenses. "Sec. 12. All laws and parts of laws in conflict herewith are hereby repealed. "Sec. 13. This act shall take effect and be in force from and after July first, 1&13. "Approved May 20, 1913." It is, in effect, contended that the statute violates organic law in : (1) That it was not legally enacted under the same title shown by ths act, and that the title is insufficient; (2) that it vests judicial powers in administrative officers; (8) that.it deprives petitioner of liberty and property without due process of law and denies the equal protection of the laws ; (4) that it violates the right to contract and the obligation of contracts; (5) that it unlawfully burdens interstate commerce. Unless the statute beyond all reasonable doubt violates some par- ticular provision of the state or federal Constitutions, it is the duty of the courts to enforce it. The leading purpose of the statute is to define "domestic and for- eign investment companies," and to regulate sales' by them of stock and other securities to persons in Florida. Such a regulation is clearly within the police power to protect the people of the state from imposition ; and if no provision of organic law is violated in the enactment or enforce- ment of the statute, the legislative will and intent should be made effective. As the title clearly indicates the true purpose\ of the act is to define domestic and foreign investment companies and to regulate sales by them of stock and other securities to persons in Florida, the title cannot be said to Ibe violative of the constitutional provision that ''each law en- acted in the Legislature shall embrace but one subject and matter prop- erly connected therewith, which subject shall be briefly expressed in the title." It does not clearly appear that the provision of the statute relative to the required agreements as to service of process on foreign corpora- tions that are affected' by the act is not germane to the subject expressed EX PARTE TAYLOR 1015 in the title or "matter properly connected therewith." The title is not misleading. The fact that during the progress of its consideration the title of the act contained, among its expressions, the phrase "to provide for a review of their decisions by the Railroad Commission of the State of Florida," which phrase does not appear in the title of the act as signed by the Governor, does not affect the validity of the act. Amend- ments are not required to be noted in the journals, and if the quote,d matter was at some time a part of the title, it is immaterial; particularly since no such provision appears in the body of the statute. The appear- ance of the quoted words in the title at any stage of the enactment could not reasonably have misled any one. Since the primary expression in the, title of the act is a purpose to define the "investment companies" to which the regulations were applicable, the title used is not a misnomer. The Constitution requires only that the subject of the act "shall be briefly expressed in the title." There is no clear violation of the con- stitutional provisions as to the title of the act, or as to its passage. See Butler V. Perry, 66 South. 150, decided at the last term. The statute defines the character of the corporations that "shall be known for the purposes of" the act as "investment companies;" requires statements to be filed with the State Comptroller showing the status and financial standing of such corporations affected by the act; and provides that if the Comptroller and Attorney General upon examination find that any such investment company "is solvent, and that its articles of incorporation and association, its constitution and by-laws, its proposed ' plan of business and its contracts, contain a fair, just and equitable plan for the transaction of business, they sJmll issue to such investment com- pany a statement reciting that such company has complied with the pro- visions of this act, that detailed information with regard to the com- pany and its securities is on file in ' the office of the Comptroller at Tallahassee, Florida, that such investment company is permitted to do business in this state, and that such statement shall also recite in bold type that the Comptroller is not required or permitted by law to recom- mend the securities offered for sale by such investment company. But if said Comptroller and Attorney General find that such articles of in- corporation or association, charter, constitution and by-laws, plan of business or proposed contract contain any provision that is unfair, un- just or inequitable or oppressive to any class of contractor, or if they decide from their examination of its affairs that said investment com- pany is not solvent and does not intend in good faith to do a fair and honest business, then they shall notify said investment company in writ- ing of their finding and it shall be unlawful for such company to sell or offer for sale any of its securities in this^ state until it shall so change its constitution and liy-laws, articles of incorporation or association, its proposed plan of business and contract, and its general financial condi- tion in such manner as to satisfy the Comptroller and Attorney General that it is solvent, and its articles of incorporation or association, its 1016 DECISIONS constitution and by-laws, its proposed plan of business and proposed contract provide for a fair, just and equitable plan for the transaction of, business." The examination and finding authorized to be made by the Comp- troller and Attorney General, are merely administrative in their nature; and every act of such administrative officers under the statute, whether in granting or in refusing to grant, or in revoking permits, is subject to judicial review whether so expressed in the statute or not. The action of such administrative officers is in no sense a judicial judgment or de- cree. In this case the petitioner is the agent of a domestic corporation ■ which was chartered by this state after the statute here assailed was enacted and in force; therefore, if the statute is valid, ho question of the violation of the obligation of charter rights, or of the right to con- tract, is involved here. As the offense charged is an attempt by an agent in violation of the statute to sell and offer to sell in Leon county, which is "outside of the county where such corporation has its principal office or place of business," shares of the capital stock of a domestic corporation that is within the statutory definition and regulation, no question of interstate commerce' is presented. Certainly it is within the power as it is clearly the duty of the state to limit and regulate the powers and operations of corporations which it brings into existence. This limitation and regulation may, in the legislative discretion, be accomplished by administrative action within the ultimate and reasonable bounds definitely fixed by the statute; every such administrative action being subject to judicial review. See State ex rel. v. Board Ins. Com'rs, 37 Fla. 564, 20 South. 772, 33 L. R. A. 288. It is manifestly competent for the lawmaking power to authorize an ad- ministrative finding whether the "proposed place of business and the contracts" of a domestic corporation "contain a fair, just and equitable plan for the transaction of business," which finding will warrant ad- ministrative action duly taken under a statutory police regulation in the interest of the pubHc welfare, unless restrained or controlled by ap- propriate judicial action. There is no ground whatever in this case to support a contention of taking property without due process of law. Even if the state has not provided along similar lines adequate protection of the public against firms and individuals, the petitioner here cannot complain of it if this statutory regulation is lawfully applied in this case. The statute contemplates an adequate hearing as to all rights involved. The petitioner is not denied the equal protection of the laws; since this statutory regulation has relation to the public welfare and is applicable alike to all corporations similarly conditioned with the domestic corpo- ration concerned here, of which the petitioner acted as agent in violating the statute. Such regulations as those prescribed are peculiarly appro- priate to corporations as classified in the statute. No arbitrary discrimina- tion appears. See Button Phosphate Co. v. Priest, 65 South. 282; Otis v. Parker, 187 U. S. 606, 23 Sup. Ct. 168, 47 L. ed. 323. COMPTON VS. ALLEN 1017 The necessity and adequacy of the regulation are determined by the enactment; and the organic rights of the petitioner (have not been invaded. The petitioner will be remanded. Shackleford, C. J., and Taylor^ Hocker, and Whitfield, JJ., concur. CocKRELL, J., absent. WILLIAM R. COMPTON CO. ET AL., vs. ALLEN ET AL. (Nickerson et al., Interveners) (District Court S. D. lovifa, Central Division). 216 Fed. 537 1. Stocks and bonds are the subject of interstate commerce and shipments and sales of them, between the states, are interstate commerce. 2. Acts 35th. Gen. Assembly of Iowa, Chap. 137, commonly known as the "Blue Sky Law" which provides for the regulation and supervision of investment companies cannot be justified as an inspection law, nor does it come within the police power of the State and such law is unconsti- tutional as imposing a burden on interstate commerce and imposing burdens upon and denying privileges to citizens of other ■ states, which are not imposed upon and which are granted to citizens of Iowa. In Equity. Suit by the William R. Compton Company, Breed, Elliott & Harrison, and McCoy & Co. against W. S. Allen, Secretary of State, and George Cosson, Attorney General of Iowa, with John Nicker- son, Jr., and Leach & Co. as interveners. On motion for preliminary injunction. Motion granted. Caldwell, Masslich & Reed, of New York City, Mayer, Meyer, Austrian & Piatt, and Charles L. Powell, all of Chicago, III., and Clark, Byers & Hutchinson, of Des Moines, Iowa, for complainants and in- terveners. George Cosson, Atty. Gen., of Des Moines, Iowa, for respondent. Before Smith, Circuit Judge, and McPheeson and Pollock, District Judges. Per Curiam. This suit is brought by plaintiffs, corporate citizens, respectively, of the states of Missouri, Indiana, and Maine, against de- fendants, respectively, the Secretary of State and the Attorney General of the state of Iowa, to restrain the enforcement of an act of the Gen- eral Assembly of that state, approved April 19, 1913 (Acts 35th Gen. Assem. c. 137), commonly termed the "Blue Sky Law," pf that state, which provides as follows : 1018 DECISIONS "An act to provide for the regulation and supervision of investment companies, and providing penalties for the violation thereof. [Addi- tional to chapter one (1) title nine (ix) of the Code relating to cor- porations for pecuniary profit] "Be it enacted by the General Assembly of the state of Iowa: "Section 1. Sale of Certairi Stocks and Bonds Prohibited — Permits Granted by Secretary of State. That it shall be unlawful for any in- vestment company or stockbroker or any representative thereof, either ■directly or indirectly, to sell or cause to be sold, offer for sale, take subscriotion for or negotiate for the sale in any manner whatsoever in this state, except as hereinafter provided, of any stocks, bonds or other securities of any kind or character, other than those expressly exempted from the provisions hereof, without a permit of the Secretary of State as hereinafter provided. But nothing in this act shall be construed to prohibit the sale of bonds of the United States, or of the state of Iowa, or of municipal, county, school or drainage bonds, or of certificates issued by authority of the laws of the state of Iowa, or to prohibit banks from dealing in the various classes of securities now or hereafter authorized by law or to prohibit the sale of stocks, bonds or other securities at judicial sale or by administrators or executors, or bonds or notes secured by mortgage on real estate, provided that the amount of such lien and of all superior liens upon said real estate shall not exceed three-fourths of the actual cash value thereof. "Sec. 2. Permits — How Obtained — Information — Documents — Fee. That before any investment company shall secure such permit, it shall be necessary for each .and every such investment company to file in the office of Secretary of State, together with a filing fee of ten dollars ($10), the following papers, documents, etc., together with such other information and documents as said Secretary of State shall deem necessary in each case to-wit : "1. A copy of its Constitution and by-laws, or articles of copartner- ship or association. "2. An itemized statement of its actual financial condition and the amount of its properties and liabilities. "3. A statement showing in full detail the plan upon which it pro- poses to transact business. "4. A copy of all contracts, bonds or other securities which it pro- poses to make with or sell to its contributors. "5. Sample copies of all literature or advertising matter used or to be used by such investment company. "6. If it shall be a foreign investment company, it shall file a copy of its charter which copy shall bear the certificate of the Secretary of State, or other state officer having custody of such records, that it is a true, complete and correct copy. "All the above described papers shall be verified by the oath of a duly authorized member of a copartnership or association, if it be a copartnership or association, and by the oath of the president and secre- tary, if it be incorporated, provided that the Secretary of State shall have the power to require such officers to make affidavit to such other reports or informationas he may call for. "Sec. 3. Foreign Corporation — Service of Notice on Secretary of State. Every foreign investment company shall, before receiving a certifi- cate as provided in section four (4) hereof, file in the office of the Secre- tary of State an agreement in writing (authenticated by the seal of said foreign investment company and by the signature of a member of a copartnership or company if it be a copartnership or company, or by COMPTON VS. ALLEN 1019 the signatures of the president and secretary of the incorporated or unin- corporated association, and shall be accompanied by a duly certified copy of the order or resolution of the board of directors, trustees or managers of the corporation, authorizing the said president and secretary to execute the same), that thereafter service of notice of any action or process of any kind against such foreign investment company, growing out of the transaction of any business of said company in this state, may be made on the Secretary of State, and when so made, such service of notice or process of any kind shall be valid, binding and effective for all purposes as if served upon the foreign investment company according to the laws of this or any other state, and waiving all claims or right of err6r by reason of such acknowledgment of service. Such notice or process with a copy thereof, may be mailed to the Secretary of State at Des Moines, Iowa, in a registered letter addressed to him by his official title, and he shall immediately upon its receipt acknowledge service thereof on behalf of the defendant foreign investment company by writing thereon, giving the date thereof, and shall immediately return such notice or process in a registered letter to the clerk of the court in which the suit is pending, addressed to him by his official title, and shall also forthwith mail such copy, with a copy of his acknowledgement of service written thereon, in a registered letter addressed to the person or corporation who shall be named or designated as such foreign investment company in such written instrument. "The above provisions for the service of notice or process of any kind are merely additions to the general provisions of law relating to the service of notice or process, and are not to be construed to be ex- clusive. "Sec. 4. Statement Filed — Examination — Permit. It shall be the duty of the Secretary of State to examine the statements and documents so filed and if he shall deem it advisable, he shall require such investment company to furnish him with further and more detailed information re- garding the affairs of such investment company, and .if he finds that such investment company is solvent; that its articles of incorporation or asso- ciation, its constitution and by-laws, its proposed plan of business, arid proposed contracts contain and provide for a fair, just and equitable plan for the transaction of business, he shall issue to such investment company a statement reciting that such company has complied with the provisions of this act and that such investment company is permitted to do business in this state. In no case shall the Secretary of State issue to such investment company or to its stockbrokers or agent thereof a permit to do business in this state unless, in his judgment, said invest- ment company meets the requirements of this act. "Sec. 5. Amendment of Charter, Articles of Incorporation, Con- stitution or By-laws Filed with Secretary of State. That no amendment of the charter, articles of incorporation, constitution or by-laws of any such investment company shall become operative until a copy of the same has been filed with the Secretary of State as provided in regard to the original filing of such papers, nor shall it be lawful for any such investment company to transact business on any other plan than that set forth in the statement required to be filed in section two (2) of this act, or to make any contract other than that shown in the copy of the proposed contract required to be filed by the provisions of said section, until a written statement showing in full detail the proposed new plan of transacting business and a copy of the proposed new contract shall have been filed with the Secretary of State in like manner as provided in regard to the original plan of business and proposed contract, and 1020 DECISIONS the consent of the Secretary of State obtained as to making such proposed new plan of transacting business and proposed new contract. "Sec. 6. Certified Financial Statement — Failure to Report — Forfeit, That at the close of business of December 31st of each year, and at such other times as the Secretary of State may require, every investment com- pany, domestic and foreign, shall file with the Secretary of State a statement properly verified by the officers of said company, which statement shall set forth its financial condition and the amount of it assets and liabilities and such other information concerning its financial affairs as the Secretary of State may require; said statement being for the information of the Secretary of State, and it shall not be open to public inspection, neither shall it be published, or used for private purposes. Each annual statement shall be accompanied by a filing fee of two dollars ($2.00). Any investment company failing to file said statement for the preceding year by the first day of February of each year, or failing, to file any other or special report herein required within thirty (30) days after receipt of request therefor, shall forfeit to the state of Iowa the sum of five dollars ($5.00) per day until said statement is filed, or until its right to do business in this state is canceled; and unless said reports are filed within thirty (30) days from the time they are due the Secretary of State may cancel the right of said company to do business in this state. "Sec. 7. General Accounts — How Kept — Open to Inspection. The general accounts of every such investment company, domestic or foreign, shall be kept in a businesslike and intelligent manner and in sufficient detail that the Secretary of State can ascertain at any time its financial condition ; and such books of account shall at all times during business hours, except- on Sundays and legal holidays, be open to stockholders and investors in said companies and to the Secretary of State or his duly authorized representatives. "Sec. 8. General Supervision — Secretary of State — Powers Examination Fee — Examiner's Expenses — Permit Canceled. The Secretary of State shall have general supervision and control as provided by this act over any and all investment companies, domestic and foreign, doing business in this state and not expressly exempted, and all such investment companies shall be subject to examination by the Secretary of State or his duly authorized representative at any time the Secretary of State may deem it necessary. The right, powers and privileges of the Secretary of State in connection with such examination shall be the same as is now provided with reference to examination of state banks ; and such investment companies shall pay a fee for each of such examinations of not to exceed six dollars ($6.00) for each day or fraction thereof spent by the said Secretary of State or his duly authorized representative while absent from the capitol in making such examination, and also the actual traveling and hotel expenses of said examiner and upon failure or refusal of any such investment company to pay such fees upon the demand of the Secretary of State or his duly authorized representative, the Secretary of State may cancel its right to do business in this stiate until such fee is paid. "Sec. 9. Assets Impaired — Permit Canceled. Whenever it shall appear to the Secretary of State that the assets of any investment com- pany doing business in this state are impaired to the extent that such assets do not equal its liabilities or that it is conducting its business in an unsafe, unfair, inequitable or unauthorized manner, or is jeopardiz- ing the interests of its stockholders or investors in stocks, bonds or other securities by it offered for sale in this state, or whenever any in- vestment company shall fail or refuse for a period of thirty days to file COMPTON VS. ALLEN 1021 any papers, statements or documents required by this act without giving reasons therefor satisfactory to the Secretary of State, he shall at once cancel the right of said investment company to continue to do business in this state. "Sec. 10. False Statements — Fraudulent Advertisements — Penalty. Any investment company or person who shall knowingly and willfully subscribe to or cause to be made any false statement or false entry^ in any book of such investment company, or exhibit any false paper with the intention of .deceiving any person authorized to examine the affairs of such investment company, or shall knowingly or willfully make or publish any false statement of the financial condition of such investment company, or the stocks, bonds or other securities by it oiifered for sale shall be deemed guilty of a felony ; and upon the conviction of any such investment company of such felony it shall be fined not less than one hundred dollars ($100) nor more than ten thousand dollars ($10,000), and the Secretary of State may forthwith cancel the right of said in- vestment company to transact business in this state; and upon the con- viction of a person of such felony he shall be fined not less thaii one hundred dollars |$100) nor more than ten thousand dollars ($10,000), and he may be imprisoned for not more than ten years, or by both such fine and imprisonment in the discretion of the court. "Sec. 11. Persons Failing to Comply — Penalty. Any stockbroker, agent or other persbn,^unless expressly exempted from the provisions of this act, who shall sell or attempt to sell the stocks, bonds or other se- curities of any investment company (domestic or foreign), which has not complied wkh the provisions of this act, or whose permit has been canceled under the provisions of this act or who shall do or attempt to do business for any such investment company, which has not cortiplied with the provisions of this act, or who shall upon demand refuse to exhibit his duly registered certificate of registration received from the Secretary of State, or who shall violate any of the other provisions of this act, shall be deemed guilty of a misdemeanor, and upon conviction thereof shall be fined for each of such offenses not less than one hundred dollars ($100) nor more than five thousand dollars ($5000), or by im- prisonment in the county jail of not more than ninety (90) days, or by both such fine and imprisonment iri the discretion of the court. "Sec. 12.. Collection of Fees — Record of Receipts and Expendi- ures — Clerks, Deputies — How Appointed — Salaries — How Paid. All fees herein provided for shall be collected by the Secretary of State and by him turned into the state treasurer on the first secular day of each month ; and the Secretary of State shall keep a record of the receipts and expenditures incurred in carrying out the provisions of this act. The Secretary of State is hereby authorized to appoint such clerks and deputies as the executive council deem actually necessary to carry this act into full force, and effect; but none of whom shall be related by blood or marriage to such Secretary of State. The compensation of such clerks and deputies shall be' fixed by the executive council. Before the salary and expenses of any such clerk or deputy shall be paid, a de- tailed and itemized statement of account shall be prepared by sudi claim- ant and duly verified, which verification shall aver that such claim is just, reasonable and wholly unpaid and that the amount therein stated has been expended by such claimant. When said claim has been approved by the Secretary of State and audited and allowed by the executive council, it shall be paid by a warrant drawn by the auditor of state upon the state treasurer, and there is hereby appropriated out of any money of the state treasury, and not otherwise appropriated, an amcmnt sufficient to meet said salaries and expenses, 1022 nECisiONS "Sec. 13. Appeal from Decision of Secretary of State — Time — How Made. Any investment company, domestic or foreign, or any stock- broker, which Sihall be denied a certificate to transact its business in this state or whose certificate shall be revoked by the Secretary of State in pursuance of this act, or any interested citizen of this state, shall have the right to appeal to the executive council of this state from any decision of the Secretary of State relating to the provisions of this act, within, twenty 20 days from the entry of such decision by serving notice of such appeal upon the secretary of the executive council, and such appeal shall be heard and determined by the executive council under such rules and regulations as they may prescribe. "Sec. 14. Agents — When — How Appointed — Expiration and Re- vocation of Permit — Fee — Standard Securities. Any investment com- pany which' has complied with the provisions of this act and received from the Secretary of State a certificate authorizing it to oifer its se- curities for sale in this state may appoint one or more stockbrokers or agents to act for it; but no such stockbroker, except under the provisions of the next section, or agent, or any other person, shall directly or in- directly, do any business for said investment company in this state until he shall first register with the Secretary of State and file with such officer his written appointment and authority from said investment company to act as its stockbroker or agent and receive from him a certificate showing that such investment company has complied with the provisions of the law and that such person is authorized to act for it. All such ■certificates shall be subject to revocation by the Secretary of State, and unless so revoked shall expire on the first day of July each year. A chargp of one dollar ($1.00) shall be made by the Secretary of State for each certificate issued to each stockbroker or agent. "Sec. 1.5. Stockbroker — Permit — Standard Securities — • Lists — Semi-monthly Report — Investigation of Stockbroker and Stocks — Ex- penses — Fee — Bond^ — Forfeiture. The Secretary of State may issue to any stockbroker who has been a resident of the state during the last preceding six (6) months an annual permit, which permit shall entitle such stockbroker to handle such stocks, bonds or other securities in the state of Iowa as are known to be standard, or are well known to be safe and legitimate investments, or such as are found by investigation of the Secretary of State to be safe and legitimate stocks, bonds or other securities; provided, however, su,ch stockbroker shall file on the first and fifteenth day of each month a detailed list of the stocks, bonds or , other securities on hand for sale and also all of those sold by him dur- ing the preceding half month and not previously reported; provided further that said Secretary of State shall have authority to prohibit a stockbroker from handling any of .such issues at any time or to cancel said stockbroker's permit at any time he decides that said broker is not handling such securities as he deems safe and legitimate investments. But the Secretary of State shall not issue such annual permit to any stockbroker until he has fiirst satisfied himself by special investigation as to the character and responsibility of such stockbroker and as to the character of the class of stocks, bonds and other securities handled by" such stockbroker ; and also as to his reputation for handling such stocks, bonds and other securities as the Secretary of State shall deem to 'be safe and legitimate investments. In the event the Secretary of State shall make any investigation provided for under the provisions of this section the expense incurred thereby shall be born (borne) by the stock- broker so investigated. He shall also pay a fee of fifty dollars ($50) to the Secretary of State for each of said annual permits, which permit, unless sooner revoked by the Secretary of State shall expire on the COMPTON VS. ALLEN 1023 first secular day of July of each year. If said permit is issued after the first of January of any year, the fee shall be reduced one-half. Be- fore being granted such permit by the Secretary of State the stockbroker shall give a bond in the penal sun (sura) of five thousand dollars ($5000) to the state of Iowa, conditioned upon a strict compliance with this act, which bond shall be approved by the executive council and filed with the Secretary of State. Said bond shall be forfeited by a violation of the terms or conditions of this act, or by a conviction for such violation, and the Attorney General of this state may institute suit in the name of the state of Iowa in any court of competent jurisdiction for a for- feiture thereof at any time within two years from the time the cause of action accrues ; provided that if it appears such violation was not in- centional and no fraud was shown only so much of said bond shall be forfeited which shall be equal to the amount of damages sustained. "Sec. 16. Bona Fide Owner Resident of State — Disposing of Se- curities — Registration of Securities — Fee. Nothing in this act shall be so construed as to prohibit the bona fide owner of any stocks, bonds or other securities, who is at the time a resident of this state, from selling, exchanging or otherwise disposing of the same when not made in the course of continuing or repeated transactions- of a similar nature, or when the said securities, including negotiable promissory notes, have been issued or given for goods,- wares or merchandise purchased or dealt in by the issuer in the ordinary course of his iDUsiness, or when sold, exchanged or otherwise disposed of to a bank, trust company, in- surance company, building and loan association, or to a stockbroker duly authorized to transact business within this state, provided that the same are sold by said owner in good faith and not for the purpose of evading the provisions of this act; and the Secretary of State may authorize in writing anv such bona fide owner of any stocks, bonds or other se- curities to sell in this state any other securities not included in the pro- visions set forth in the preceding portion of this section ; provided, how- ever, that it shall be made to appear to the satisfaction of the Secretary of State that such stocks, bonds or other securities are safe and legitimate investments, and that they were acquired and held by the owner in good faith, and not for the purpose of evading the provisions of this act, and that said owner desires in good faith to dispose of said securities ; but before such authorization shall issue the owner of such securi+ies shall register, in a book kept for that purpose by the Secretary of State, the stocks, bonds and other securities desired to be sold, giving the character of the security, the par value thereof, the date of issue, and any other data concerning the same which the Secretary of State may require. A certificate fee of one dollar ($1.00) shall be charged for each such au- thorization. "Sec. 17. Permit — Bold Type — Securities Not Recommended by Secretary of State — Advertisement. That each and every certificate or permit granted by the Secretary of State under the provisions of this act to any investment company or to any stockbroker, agent or repre- sentative thereof or to any other person, shall have printed across its face in bold type the statement: 'The Secretary of State in no wise recommends the stocks, bonds or other securities offered for sale by this (investment company, stockbroker, agent, representative or person, as the case may be)'; and any investment company or any stockbroker, agent or representative thereof or any person who shall refer to such certificate or permit in any advertisement or printed matter of any kind shall also print in said advertisement or printed matter, with equal prom- inence, the statement : 'The Secretary of State in no wise recommends the stocks, bonds, or other securities herein referred to.' 1024 DECISIONS "Sec. 18. Terms Defined. In the construction of this act the fol- lowing definitions shall be followed, unless such construction would be inconsistent with the manifest intent or repugnant to the context of the statute: "1. That the name 'investment company' as used in this act shall include every corporation or concern, however constituted, now or here- after organized, which shall sell or cause to be sold or offered for sale, take subscriptions for, or negotiate for the sale of any stocks, bonds or other securities of any kind or character to any person or persons in the state of Iowa. But nothing in this act shall be construed to make the provisions thereof apply to state, savings, private or national banks, loan and trust companies, local building and loan associations, or to the sale of real estate under bond or contract where the actual transfer of title thereto is contingent upon the future payment or considerations, or corporations not organized for profit. "2. The name 'domestic' as used in this act shall apply to those corporations or concerns incorporated or organized under the laws of Iowa or having their principal place of business in the state of Iowa ; and the word 'foreign' shall apply to those corporations or concerns organized under the laws of another state or having their principal place of business outside the state of Iowa. "3. The name 'stockbroker' as used in this act shall include every person, set of pensons, association, company, copartnership or corpora- tion, who shall deal in stocks, bonds or other securities covered by this act, or who shall sell, offer or negotiate for the sale, in the state of Iowa, of any stocks, bonds or other securities covered by this act, or who shall, underwrite or purchase such securities and resell them to any person or persons in the state of Iowa at a commission or profit. "4. The name 'agent' as used in this act shall include any persons who shall act for any investment company or stockbroker, offering for sale, taking subscriptions for, or negotiating for the sale of, or selling any securities for any investment company or stockbroker, either as an employe on a salary basis or for a commission or who shall execute, issue, sell, offer or negotiate for sale, any contract, bond or other instru- ment, by the terms of which title to real estate located outside the state of Iowa is to be transferred upon the completion of certain payments or the performance of certain conditions therein specified; provided that if it appears such violation was not intentional and no fraud was shown only so much of said bond shall be forfeited which shall be equal to the amount of damages sustained. "Sec. 19. Acts in Conflict Repealed. All acts and parts of acts in so far as they are in conflict with this act are hereby repealed. "Approved April 19, A. D. 1913.". In this suit, by leave of court, John Nickersqn, Jr., a natural citizen of the state of Missouri, and A. B. Leach & Co., a copartnership, with its principal place of business in the city of New York, composed of Arthur B. Leach and James B. Campbell, citizens of the state of New York, and Ferry W. Leaoh and George C. Olmstead, citizens of the state of Illinois, have intervened, praying the same relief. A restrain- ing order was granted by the presiding judge of the court, and, this suit being one in which the injunctive relief sought is the life of the case and against the legislative action of a state, the application for an inter- locutory injunction pendente lite was submitted to and stands for decision COMPTON VS. ALLEN 1025 in accordance with the provisions of section 266 of the Judicial Code. Act March 3, 1911, c. 231, 36 Stat. 1162 (U. S. Comp. St. Supp. 1911, p. 236). The grounds of attack made against the constitutional validity of the act may be briefly summarized, as is done by defendants, as follows : (a) The act offends against the fourteenth amendment by depriving persons of property without due process, and denies the equal protection of the laws and abridges the privileges and immunities of citizens of the United States ; (b) that it offends against the commerce clause of the federal Constitution ; (c) that it grants privileges and immunities to citizens of Iowa denied to citizens of other states ; (d) that it is a delegation of legislative and judicial power; (e) that the act was not regularly passed. While courts of justice may not concern themselves with the wis- dom or policy of a law the validity of which is challenged on consti- tutional grounds, such consideration being alone addressed to the law- making power, yet, it may safely be observed in this case, the purpose of the act under consideration as declared by the Attorney General of the state, namely, to protect the humble, honest citizens of the state, un- learned in the intricacy of business affairs as conducted at this day from being plundered and despoiled of their small earnings and property, acquired through years of patient toil, by the alluring machinations and the deceptive, misleading, and fraudulent devices which the unscrupulous, cunning, and deceitful "Get-Rich-Quick-Wallingfords" of our day prac- tice, is a most laudable obligation and important duty of the state. And if this state, in its attempted compliance with such just obligation to its citizenship, be not found, by a careful study and analysis of the act in question and a reasonable and rational comparison of its provisions when ascertalined and understood with the organic law of the nation or state, to have clearly and certainly violated some fundamental principle thereof established by the people for their mutual protection from invasion by the lawmaking power, it is the clearly defined and well-recognized duty of this court to uphold the act and allow the people, in the manner au- thorized by the organic law of the state, to modify or repeal it, if on fair trial it be found vicious or harmful in actual operation. Viewed in this light, and as the case as now presented arises only on an application for a temporary order restraining the enforcement of the act until final decree on full hearing, many grounds of invalidity are presented which need not be fully considered or ruled. Concerning the power of the state to regulate or control by its laws the operations and dealings of "investment companies," as that term is usually em- ployed and understood, whether such companies are created under tha laws of this state, or are created under the laws of foreign states, and make application for the privilege of engaging in business within this state, little of doubt arises and nothing need be said. 65 1026 DECISIONS Again, as to the manner of the passage, of the act of which com- plaint is made, whether the enrolled bill shall be held as final and con- clusive evidence of its contents will not be considered -or ruled x>n this hearing. Such subject-matter is so entirely a matter of state policy and concern in the enactment of its laws, an orderly course of judicial procedure in the administration of justice dictates the wisdom, where possible, as in this case, of leaving that question to the determination of the highest judicial tribunal of the state, which is in the end the final arbiter, untrammeled and untouched by any opinion of this court, for, as we are advised, this identical question is pending therein for decision. Coming now to a consideration of the act for the purpose of de- termining whether it does in express terms and undoubted meaning and intent contravene any provision of the organic law of the nation or this state, it is seen to undoubtedly prohibit any person or citizen, natural or corporate, of any foreign state, from selling or offering for sale, in person or through another, in any manner or way whatever, any stocks, bonds, or other securities or obligations, of every kind and nature, to any person within this state, unless the provisions of the act are first complied with, under heavy penalties. That is to say, by its express terms the act prohibits a citizen of a sister state of this country, owning and having stocks, bonds, certificates, or securities, although the same are listed on the exchanges of the country and have a well-established actual and salable value, from either bringing or sending the same into this state for sale unless he first meets the exactions of this law, or by so doing subjects himself to its penalties. Nor may he enter upon and conduct negotiations looking to or consummating a sale of his property by correspondence through the mails of the country, either personally or through his agent, without compliance with the provisions of the act or abiding its penalties. Can it be a state of this Union, under our Constitution, possesses the power to punish the doing of such customary, everyday transactions unless the conditions, exactions, regulations, and restrictions imposed by this law be first met and performed? That the act in express terms and by inclusive definitions employed therein does so ordain cannot be gainsaid or denied. That such is the effect and purpose of the act in controversy was not disputed by the able Attorney General of the state on the argument of this cause. That the transportation of such articles of personal property from one state to another for the purpose of barter, sale, and delivery constitutes not only commerce among the states of this country, but a very large and important element of such commerce in the magnitude of business transacted and the amounts of money in- volved, is self-evident. The District Court for the Eastern District -of Michigan, ruling this identical question in Alabama & N. O. Transp. Co. V. Doyle (D. C.) 210 Fed. 173, said: "We cannot doubt that stocks and bonds are now the subject of interstate commerce, and that shipments and sales of them, between the COMPTON VS. ALLEN 1027 states, are interstate commerce. We do not find that this has been ex- pressly held in any authoritative decision, but, in the present develop- ment of commerce, it would be regarded as obvious, save for the argu- ment based upon Nathan v. Louisiana, 8 How. 73, 12 L. ed. 992 (involv- ing foreign bills of exchange), and Paul v. Virgmia, 8 Wall. 168, 19 L. ed. 357 (involving insurance contracts)." In the Lottery Cases, 188 U. S. 321, 23 Sup. Ct. 321, 47 L. ed. 492, it was held by a divided court even lottery tickets, which have no ab- solute value whatever, either in form or fact, but have merely a con- tingent, speculative, and gambling value, were held to be the subject of interstate commerce when, transported from one state into another. While the soundness of this view was assailed by vigorous dissent on the part of almost one-half the court, ^yet as shown by the review of authorities made in the dissenting opinion, no reason is left for doubt but that negotiable securities, corporate shares, promissory notes, cor- porate and municipal bonds, absolute in form, are the subjects of inter- state commerce, and would have been so declared by the members of the court joining in the dissent. In the opinion, in that case, Mr. Justice Harlan said : "What is the import of the word 'commerce' as used in the Con- stitution? It is not defined by that instrument. Undoubtedly the carry- ing from one state to another bj independent carriers of things or com- modities that are ordinary subjects of traffic; and which have in them- selves a recognized value in money, constitutes interstate commerce." Under the many decisions from the Supreme Court since that of Nathan v. Louisiana, supra, holding foreign bills of exchange and Paul v. Virginia, supra, holding insurance policies, not subjects of interstate commerce, we have no doubt but that court, when presented with the question, will declare such securities and property rights, nego- tiable and otherwise, as are sought to be regulated by the act in question, are proper subjects of interstate commerce. That the act in question, in prescribing the only terms and condi- tions on which complainants and interveners, citizens of foreign states, may transact the business of disposing of their property within the borders of this state, does impose a burden on interstate commerce needs no comment further than a reading of the act itself, for, by the law, it is placed within the power of officers of the state to absolutely prohibit such business transactions. And it would further seem, from the briefs and arguments for defendants in the case, in thus far there is no sub- stantial disagreement with the view taken, for the insistence made by defendants is not that the act in question does not impose a burden on those dealing in securities in this state, but rather that the burden so imposed is of such nature the state may lawfully prescribe it under its reserve powers even on interstate commerce; that is to say, under its police power, to enact inspection or license laws for the purpose of 1028 DECISIONS • preventing the imposition of fraudulent practices on its citizens. A read- ing of the act in question will disclose its requirements, exactions, pro- hibitions, and penalties are leveled against all persons, corporations, and aggregations of individuals, by whatever name or nature known (except a few favored citizens of the state), who, by definitions made a part of the act itself, are gathered into two general classes under the name of "investment companies" and "stockbrokers," and the power to regulate the 'business of all by definition so classified in their business dealings in stocks, bonds, certificates, securities, etc., within the state, extends even to absolute prohibition thereof, unless compliance with the requirements of the act be made to the satisfaction of officials of the state charged with the enforcement of the law. With the power of the state to so classify by definition all individuals, whether natural or artificial, and all aggregations of individuals by whatever name known, we are not con- cerned at this time. The question here presented is, Does the power of the state extend to the regulation, control, and prohibition of inter- state commerce in such subjects as are involved in this act under its re- served right to inspect for the public good? While the act is neither in form nor title styled an inspection act, the title thereto being merely, '"An act to provide for the regulation and supervision of investment companies and providing penalties for the violation thereof," such fact is thought to be of no great moment, for the power to enact the law rhust be determined from that which is sought thereby to be ordained or accomplished, and not from the title it bears. Henderson et al. v. Mayor of N. Y. et al., 98 U. S. 259, 23 L. ed. 543; Minnesota v. Barber, 136 U. S. 313, 10 Sup. Ct. 862, 34 L. ed. 855 ; Stand- ard Stock Food Co. v. Wright, 225 U. S. 540, 82 Sup. Ct. 784, 56 L. ed. 1197. While under authority of the foregoing cases, and many others, such as Plumley v. Mass., 155 U. S. 462, 15 Sup. Ct. 154, 39- L. ed. 223; Grossman v. Lurman, 192 U. S. 189, 24 Sup. Ct. 234, 48 L. ed. 401; McLean v. Denver & Rio Grande R. R. Co., 203 U. S. 38, 27 Sup. Ct. 1, 51 L. ed. 78; Delamater v. South Dakota, 205 U. S. 93, 27 Sup. Ct. 447, 51 L. ed. 724, 10 Ann. Cas. 733; and Savage v. Jones, 225 U. S. 501, 82 Sup. Ct. 715, 56 L. ed. 1182, the power of the state to provide for the inspection of legitimate subjects of interstate commerce moving as such, to charge a reasonable fee therefor, and to even prohibit the importation of such articles, commodities, and products as do not conform to the test applied is undoubted, yet it must be held the scope of such inspec- tion laws is not without its limitation as applied to the nature of the person, article, or thing designed by the law to be inspected and the manner and method of the inspection to be employed. In People v. Compagnie Gen. Transatlantique, 107 U. S. 59, 2 Sup. Ct. 87, 27 L. ed. 383, the state of New York attempted by legislation to provide for the inspection of immigrants coming from foreign countries into the ports of that state. There was no doubt but that such inspection was reason- ably necessary and -was promotive of great public good in preventing the COMPTON VS. ALLEN 1029 spread of both physical ailments and moral diseases. The question pre- sented was the power of the state to provide such inspection by its law. Mr. Justice Miller, delivering the opinion of the court, said: "In addition to what is said above it is apparent that the object of these New York enactments goes far beyond any correct view of the purposes of inspection law. The commissioners are 'to inspect all per- sons arriving from any foreign country to' ascertain who among them are habitual criminals, or pauper lunatics, idiots, or imbeciles, * * * or orphan persons, without means or capacity to support themselves and subject to become a public charge.' It may safely be said that these are matters incapabla of being satisfactorily ascertained by inspection. What is an inspection? Something which can be accomplished by looking at or weighing or measuring the thing to be inspected, or applying to it at once some crucial test. When testimony or evidence is to be taken and examined, it is not inspection in any sense whatever." Conceding, therefore, to the fullest extent, the reserve power of the state to provide for the inspection of all such articles and commodi- ties as foodstuffs for man or beast, drugs, medicines, products, com- pounds, and the like, moving in interstate commerce where inspection thereof is not already provided by national laws, and when, as stated by Mr. Justice Miller, some crucial test is established and may be ap- plied, such as weighing, measuring, analyzing,, and the like, it is apparent no 5uch standard or test is or can be established under the act in ques- tion, but the test to be applied thereunder must and does rest upon evidence taken, examined, and weighed. It must be held the subjects of interstate commerce therein sought to be regulated and controlled are not only burdened by the act, but are directly burdened thereby, and that such articles are not the subject of state inspection laws. As bear- ing on this question see Alabama & N. O. Transp. Co. v. Doyle, supra; International Text-Book Co. v. Pigg, 217 U. S. 91, 30 Sup. Ct. 481, 54 L. ed. 678, 27 L. R. A. (N. S.) 493, 18 Ann. Cas. 1103; Crutcher v. Ken- tucky, 141 U. S. 47, 11 Sup. Ct. 851, S5 L. .ed. 649; Butler Bros. Shoe Co. v. United States Rubber Co., 156 Fed. 1, 84 C. C. A. 167. Again the citizenship of this country is dual in its nature. We owe allegiance to two sovereigns, our country and our state. In turn' we are entitled to that measure of protection which each under its Constitu- tion and laws may afford us. Our national Constitution prohibits any state from granting immunity from punishment and regulation by law to its citizens which it denies to citizens of other states. The mere read- ing of the act in question makes entirely clear the contention of com- plainants and interveners that it does impose burdens upon and denies privileges to citizens of other states which are not imposed upon and which ar» granted to citizens of Iowa. That such favoritism of the law of a state to its citizen subjects as this act grants cannot be successfully defended, no matter how laudable the purpose sought to be accomplished thereby may be thought to be, would appear settled by numerous authori- 1030 DECISIONS tative decisions. St. L. & San Francisco Railway v. Gill', 166 U. S. 649, 15 Sup. Ct. 484, 39 L. ed. 567; Covington & L. Turnpike Road Co. v. Sandford, 164 U. S. 578, 17 Sup. Ct. 198, 41 L. ed. 560; Cotting v. Kansas City Stockyards Co., etc., 183 U. S. 79, 22 Sup. Ct. 30, 46 L. ed. 92; Chicago, M. & St. P. Ry. Co. v. Westby, 178 Fed. 619, 102 C. C. A. 65, 47 L. R. A. (N. S.) 97; Butler Bros. Shoe Go. v. United States Rubber Co., supra. The view taken, as heretofore expressed, renders any lengthy dis- cussion of this important question, or any discussion whatever of other objection made by complainants and interveners to the validity of the act, on this application for a mere temporary order, unnecessary. Such matters can be thoroughly considered and ruled on final decree. Mean- while the temporary order applied for must be granted, on such terms as to form and bond required to be given, and on such orders as to an ap- peal, if one shall be prayed, as the presiding judge of this court may be advised are proper. It is so ordered. INDEX REFERENCES ARE TO PAGES. Alabama — Dealers — Stocks and Bonds, 43 Fees, 45 Laws, 45 License Tax, 45 Arbitrary Powers, 23 Arizona — Agents, 50 Agents — Investment Company must register, 50 Applicants, Suggestions for, 56 Blue Sky Laws, 46, 53 Books — Examination of, 51 Broker, License, Fee, Bond, 54 Bucketing, 53, 55 Commodities, 53 Corporation Commission, General Order No. 61, 57-59 Jurisdiction of, 51 . Corporation, Fees of, 61 Fees, 49, 61, 62 Forms, 59-62 Investment Companies, Annual report, 50, 58 , Domestic, 57 Foreign, 57 Forms, 59 Investment Company Laws, 46, 53 Jurisdiction, Corporation Com- mission, 51 Laws, 46, 53 National banks, 46 Regulation — General accounts — Investment Companies, 51 Reports of Brokers, 54 Securities defined, 53 State Bank Examiner, 55 State Banks, 46 Arkansas — Bank Commissioner, Fees of, 71 Blue Sky Laws, 63 Forms, 73-82 Investment Companies, Domestic, 64 Foreign, 64 General Accounts, 69 Statement, form of, 73 Statement of, 72 Laws, 63 Securities, 66 State Bank Commissioner, 64, 66 Attorney General — Report concerning fraudulent sales of securities, 3 Business Reputation, 25 C California - Administration of the Law, 105 Agent, 85, 98 Blue Sky Laws, 105 Broker, 85 Commissioner of Corporations, Duty of, 86, 99, 103 ' Office of, 92 Power of, 92 Company acting as agent or broker, 87 Corporate Securities Act, 83 (1081) 1032 INDEX Ckefeeences are to pages) .California — Continued. Corporation Commission Fund, 94 Corporations, Commissioner of, 91 Federal Capital Issues Commit- tee, 108 Fees, 93 Forms, 112-125 Investment brdker, 98-102 Investment Companies Act, 97 Liberty Bond campaigns, 106 Person acting as agent or broker, 87, 98 Persons licensed as brokers or agents, 107 "Sale" defined, 98 Securities, Application to sell, 85 Securities issued without permit, 89 "Security" defined, 98 State corporation department, 91- 103 Suggestions for applicants, 112 Worthless securities eliminated, 109 Chiaracter and Reputation, 25 Classification, Exceptions, 30 Classification; Legislative, 17 Colorado — Agents licensed to sell stock, 127 Foreign Companies' agents, 127 Insurance companies. Sale of se- curities of, 126 Laws, 126 License to sell Stock, 127 New Companies, Formation of, 126 Penalty for selling without Li- cense, 127 Selling Stock without License, 127 Commerce, Interstate, 13 Congress, Commerce, 15 Connecticut — Blue Sky Laws, 130 Choses in action, how far taxable, 130 Choses not sold without certifi- cate, 130 • Corporation negotiating its own choses, 134 Investment broker, 131 Investment broker. Illegal sale by, 132 Investment companies. Board to correct returns of, 133 Investment coiftpanies. Reports of, 129 Investment companies. Returns by, 131 Investment companies. Taxes on, 131 Laws, 130 Mining and oil companies. Re- turns filed by, 130 Penalties for failure to make re- turns and payments, 133 Repeals, inconsistent laws, 183 Securities, Sale of, 128 Shares or certificates of stock, 128 Returns and payments. Penalties for failure to make, 133 Taxes on Investment Companies, 131 Treasurer's certificate to sell choses, 130 Constitutionality, 8 Construction of Law, 11 Contract, Freedom op, 28 Courts, Duty of in Construing Law, 11 D Dealer, Defineu), 6 Definitions — Disposal, 5 Dealer, 6 Market value, 6 INDEX 1033 (PEFERENCES ARE TO PAGES) DEai-iNiTiONS — Continued. Sale, 6 Quasi-public corporation, 6 Loan, 7 Investment, 7 Security, 7 Delaware — Corporation created by laws of other States or of United States, 135 Foreign corporation engaging in business, 136 Laws, 135 Prothonotary, Duty of, 135 Secretary of State, Duty of, 135 Disposal, Defined, 5 Dispose of. Defined, 5 Due Process, 27 Equal Protection of the Laws, 21 Exceptions — General, 10, 30 Standard manuals, 18 Members of stock exchange, 18 Individual sales, 19 Florida — Agents appointed by Investment Companies, 139 Annotations, 141 Applicants, Suggestions for, 141 Blue Sky Laws, 137 Comptroller, Duty of, 138 Documents examined by Comp- troller and Attorney General, 188 Documents filed in oiBce of Comp- troller, 137 Domestic Investment Company, 137 False statements or entries, pun- ishment for, 140 Fees, 141 Foreign Investment Company, 137 Forms, 142 Investment Companies, Agents ap- pointed by, 139 Investment Companies, Law re- lating to, 137 Investment Company, Assets of, 140 Investment Company, Domestic or Foreign, filing of docu- ments by, 137 Laws, 137 Freedom of Contract, 28 Georgia — Advertisements, 145-146 Blue Sky Laws, 144-151 "Dealer" defined, 145 Dealers, orders to, 145 Exemptions, 146 Fees, 146 Investment companies, 147 Investment Companies, Annual statement, 148 Bonds of officers, 150 Expert Accountant, 149 Fees, 149 Interest on securities, 149 Investments, 149 License, renewal, etc., 148 Loans, 149 Non-resident companies, 150 Penalties, 151 Redemption fund, 147 Statements, 148 Invite offers, etc., 147 Penalty, 146 Power of attorney, 144 Service of summons, 144 Statement, 144 Laws, 144-151 Government, Duty of, 1 1034 INDEX (references are to pages) Idaho — Accounts, how kept, 156 Agents, 155 Bank Commissioner, duties, 153 Blue Sky Laws, 152-160 Comparative legislation, 159 Documents, filing requisite for transaction of business, 154 Documents to be filed, fee, 152 Examination by bank commis- sioner, 156 . False statement, penalty, 157 Fees, paid into state treasury, 157 Foreign investment company, con- sent to be sued, 153 Investment companies, . defined, 152 Laws, 152-160 Mining report, penalty for false report, 159 Mining report, penalty for not filing, 159 Penalty for selling stock without compliance to act, 157 Receiver, appointment of, 156 Report of mining corporations, where made, 158 Reports, 155 Illinois — Acts repealed, effect, 175 Additional copies of statements to be submitted on request of Secretary of State, 172 Advertisements of securities in Class "D" to bear caption, 170 Blue Sky Laws, 161-218 Circuit Court of Sangamon County may review action of Secretary of State, 169 Copies of summary of Class "D" securities to b& deposited with Secretary of State, 168 Corporations must make reports as required under other ex- isting laws, 178 Division and classification of se- curities, 162 Documents filed with Secretary of State open to inspection of the public, 171 False statements, misdemeanor, penalty, 173 Fees for filing statements, 171 Foreign corporations must com- ply with the law, 174 Forms and schedules, 188-218 Injunction, grounds for, 171 Instructions for preparing state- ments, 175-188 Invalidity of one section does not affect remainder of act, 174 Inventory and appraisement, qualification of appraisers, 167 Irrevocable consent to service of process, 168 Issuer, when guilty of a misde- meanor, penalty, 172 Laws, 161-218 Name of law, 162 New statements filed every six months, 170 Oath administered by an officer of the State of Illinois, 172 Person or corporation, when guilty of a misdemeanor, pen- alty, 172 Prosecutions under Act to be brought within five years, 174 Qualification and experience of dealer in Qass "D" securities, 168 Records may be examined by cer- tified public accountant, desig- nated by Secretary of State, 167 INDEX 1035 (references Illinois — Continued. Right of injunction, causes there- for, 171 Sale of securities, evidence of fraud, 174 Sale of securities, when guilty of embezzlement, penalty, 173 Sale or contract for sale, when void, 174 Secretary of State may prescribe and furnish forms, 171 Securities in Class "A" exempt, 163 Securities in Class "B" exempt, on condition, 164 Securities in Class "C" defined, 164 Solicitor, agent or broker, when guilty of misdemeanor, penalty, 172 Solicitors, agents or brokers, qualification of, 167 Statements ' examined by Secre- tary of State, 169 Statements to be filed relative to Qass "D" securities, 165 Statement to be filed with Sec- retary of State, nature of re- lating to Class "C" securities, 165 Stock issued for intangible prop- erty placed in escrow, 167 Words and phrases defined, 162 Inquiries, invitation of offers, Geor- gia, 147 Inspection Laws, 17, 18 Intention, Legislative, 11 Interpretation op U. S. Supreme Court Decision, 34 Interstate Commerce, 13 Investment, Defined, 7 ARE TO PAGES) loWA — Agents, license, 232 Annotations, 235 Appeal, 233-234 Blue Sky Law, 224-248 Bona fide owner may sell, 231 Brokers, fees, bond, 232 Court decision, effect, 235 Exemptions, 225 False statement, 235 Fees, 225-226-230 Forms, 240-248 Investment Companies, Annotations, 239 Certificates, 236 ' Deposit of securities, 237 Examinations, 238 Executive approval, 237 Fee for annual certificate, 238 Penalties, 238 Reports, 237 Investment Company Law, 236 Definitions, 236 Penalty, false statement, 234 Penalty, Sale without permit, 234 Permit, cancellation, 230 Permit, form of, 231 Plan of business, change of, etc., 228 Publication clause, 235 Records, how kept, fees, 229 Repeals, 225 Reports, annual, 229 Reports, penalty, 229 Secretary of State, duties, 225 Service of process, 227 K Kansas — Advertising, etc., penalty, 255 Amendments, 256 Application for license, 250 Applicants, instructions to, 262 1036 INDEX (references are to pages) Kansas — Continued. Bank Commissioner, duties, 251 Blue Sky Laws, 249-273 Charter Board, duties, 252 Definitions, 249 Exemptions, 253 Fees, collection of, 255 Fees, filing, 251 Forms, 264-273 Instructions to applicants, 262 Owner's exemption, 255 Penalties, 254-255 Records, how made, etc., 253 Service of summons, 251 KhNTUCKY — Interest on and exchange of se- curities, 275 Investment Companies, Deposit and redemption fund, 274 Examination of, 277 Fees, 276 Foreign, 277 Investments, 276 Laws, 274-278 License, statement, 275 Loans, how secured, 275 Penalties, 278 Regulations, 274 Reserve fund, 276 Legislative Classification, 17 • Legislature, Intention of, 11 Legislature, Judge of Necessity of Enactments, 29 Liberty, Defined, 28 License, Constitutionality of, 26 Loan, Defined; 7 Losses by Fraud, 1 Louisiana — Administration, 280 Blue Sky Laws, 279-280 Fees, 279 Forms, 281-282 Penalties, 280 Maine — Administration, 291 Agent's registration may be re- voked, 286 Amendments, 288 Appeal, proceedings on, 287 Application for registration, 283 Certificate, changes in, 283 Certificate, issue of,' 283 Certificate, shown to purchasers, 285 Commissioner may require listing of securities, 286 Dealer, definition of, 285 Dealers in securities, registration of, 283 Dealers, publication of list, 285 Expiration of registrations, 285 Forms, 291-295 Listing of securities, 286 Non-resident dealers must file power of attorney, 283 Notice and proceedings on appli- cation, 288 Notice, service of, 287 Penalties, 287 Power of attorney to be filed by non-resident dealers, 283 Publication of -list of dealers, 285 Registration may be revoked, 286 Registration of dealers in securi- ties, 283 Registration of salesmen, 283-284 Renewal of registration. 285 Revocation of agent's registration, 286 Salesmen, registration of, 283-284 Securities, definition of, 285 Securities, listing of, 286 Statement of assets and earnings, 286 INDEX 1037 (references are to pages) M Maryland — Investment Company Law, 296 Salesman shall be licensed, 296 Market Reports^ 30 Market Value, Defined, 6 Massachuseits — Annual statement of Company, 298 Certificate of Authority, 298 Commissioners may examine books of company, 298 Corporations, Act applicable to what, 300 D.eposit with State treasurer, 297 Foreign Company, suspension of Certificate of, 299 Investment Company law, 297 Investment Companies, require- ments of, 297 Penalty for false statement as to Mining Stock, 298, 300 Penalty when statement not filed, 298 Penalty for selling without au- thority, 299 Provisions of bond, certificate or contract, 299 Stock in Mining Corporations, advertising of, 300 Stock in Mining Corporations, listing of, 30O Treasurer's trust, termination of, 297 Michigan — Acts repealed, 315 Administration, 318 Advertising of Securities, 328 Agents, licensing of, 308, 330 Annotations, 317 Annual examination, ; 314, 316 Annual report, 314 Application of act, 315 Blue Sky Law, 302-311 Books, Access to, 316 Certificate of authority, 313, 315 Certificate, Revocation of, 314 Companies subject to ?ct, 317 Complaints and prosecutions, 329 Dealers, licensing of, 308, 330 Deposits, Who* responsible for, 313 Examination after approval, 326 Examination of investment com- panies, 324 Examiner, Powers of, 314 Fees, 315 Forms, 832-355 Hearings on application, 325 Instructions to applicants, 331 Investment Company Law, 312- 317 Issue of certificate, 316 Licensing of dealers and agents, 308, 330 Membership and organization, 322 Penalty for selling certain con- tracts, 316 Penalty for unlawfully transact- ing business, 314 Procedure by department, 324 Procedure to be followed, 323 Procedure to secure certificate, 315 Registration of dealers and agents, 330 Renewal of Certificate, 313 Report of Securities Commission, 322 Revocation of Certificate, 314 Rules and Regulations of Securi- ties Commission, 318 Securities approved and disap- proved, 327 Securities escrowed with the treas- urer, 327 Securities, When may be sold, 313 Special examiner, appointment of, 317 Unlawful to sell certain contracts, 316 1038 INDEX (references are to pages) Minnesota — Administration, 373 Advertisement, copy to be filed with commissioner, 368 Advertisement to bear serial num- ber, 368 Agents and dealers, 380 Amendments recommended, 390 Articles may be changed on ap- proval of commissioner, 370 Blue Sky Law, 356-365 ' Burden of proof, 365 Commissioner as process agent, 368 ' Commissioner may examine com- panies — Fees, 370 Commissioner may revoke license, 371 Commission may limit price, 361 Commission may limit promotion expense, 361 Companies subject to insurance ■ ■ law, 367 Contempt, punishment for, 363 Contract, interest of person mak- ing sale must appear in, 369 Contract of subscription to be in writing, 369 Dealers and agents, 380 Defrauding, a gross misdemeanor; 363 . Effect of the law, 389 Effect of unconstitutionality, 365 Experts, employment of, 383 False statements, a gross misde- meanor, 363 False statements prohibited, 371 Fee of commissioner, 368 Fee of insurance commissioner, 367 Fees for license, 358 Fees to be paid into treasury, 360, 371 • Forms, 391-404 General review, 376 History of the law, 373 Information classified and pub- lished, 363 Information to be furnished ap- plicants, 364 Institutions applicable to, 357 Investigations to be made by com- mission, 361 Investment companies, 378 Investment companies, control of, 365 Investment company defined, 358 Law enforcement, 887 Law of investment companies, 365- 366 Law relating to organization of banks, 372, 373 Law of insurance companies, 367- 371 License, commissioner may re- voke, 371 License, conditions in granting, 361 License must issue before sale of stock, 371 License of investment compa- nies — ^Fees, 358 License, request for, 368 License to sell stock, 370 Misrepresentation, arrests and prosecution for, 362 Orders reviewed by supreme court 365 Penalty for. violation, 365, 371 Permit issued by superintendent, 366 Plans to be submitted to superin- tendent, 366 Powers of superintendent, Exer- cise of, 366 Price, power to limit, 361 Procedure and practice, 381 Promotion of securities, 360 Promotion stock and commissions, 382 INDEX 1039 (references Minnesota — Continued. Purpose of the law, 375 Receipts and disbursements, 386 Report of Securities Commission, 873-391 Reports of investment companies, 385 Sale prohibited before license is issued, 371 Seals and records, 364 Securities commission of state, 356 Securities, escrow of, 384 Securities, request for license to sell, 368 Soliciting business without au- thority—Penalty, 366 State banks not affected by the act, 364 Statements to be filed with insur- ance commissioner, 367 Statement to be filed annually, 370 Statutes, Blue Sky Law, 356-365 Stock, request for license to sell, 368 Superintendent, fees of and pow- ers of, 366 Use of funds of insurance com- panies, 369 Mississippi — Administration, 412 Blue Sky Laws, 405-412 Commission fee, 408 Exemptions, 410, 411 Fees, 406 Foreign corporations, 410 Laws, 405, 412 Mining, oil or gas corporation, increasing stock, 405 Mining, oil or gas corporation, selling stock, 405 Private corporation organized for profit, 405 Regulating and supervising sale and purchase of stocks, 405 ARE TO PAGES) Sale of stock, suit for misrepre-> sentation in, 409 Secretary of State, powers and au- thority, 406, 408 .Stocks, regulating and supervis- ing sale and purchase of, 405 Suit -for misrepresentation in sale of stock, 409 Missouri — Agents of investment companies to register with bank commis- sioner — Fees, Authority, how revoked, 417 Annotations, 421 Bank commissioner authorized to collect fees, 419 Bank commissioner, duties of, 415 Bank commissioner to supervise and control investment com- panies, 418 Blue Sky Laws, 413-421 Books of investment companies, ' ■ how kept, 418 Documents to be filed, 414 Documents to be verified, how, 415 Domestic and foreign investment companies defined, 413 Domestic and foreign investment companies to file documents, 414 Forms, 422-428 Investment companies may trans- act business, when, 416 Investment companies, require- ments of, 415 Investment companies to furnish statements to bank commis- sioner, 417 Laws, 413, 421 Penalties for false statements by investment companies, 419 Penalty for non-compliance with act, 419 1040 INDEX (references are to pages) Mississippi — Continued. Receivers, when and how ap- pointed, 418 Regulation of bond investment companies in sale of stock, etc., on installment plan, 420 Sale of stocks, bonds, etd, on in- stallment plan, 420 Service on foreign and domestic investment companies, how made, 415 Montana — Agents, defined, 430 Annotation, 437 Blue Sky Laws, 429-437 Domestic corporation, defined, 430 Forms, 440-454 Instructions to applicants, 438 Investment commissioner, duty of, 432 Investment commissioner, powers of, 429 Investment commissioner, rulings of, 439 Investment companies, documents filed in office of investment commissioner, 430, 431 ' Investment company defined, 429 Investment company, general ac- counts of, 434 Laws, 429-437 Powers of investment commis- sioner in relatiofi to invest- ment companies, 429 Stock brokers, 432 Municipal Bonds, Exception of, 12 N National Banks, 10 National Banks, Exception of, 12 Nebraska — Accounts, how kept, 463 Administration, 465 Agent doing business illegally, penalty, 464 Agents to be approved, 458 Annotation, 465 Appeals to District Court, 458 Application for permit, 456 Application to be examined by banking board, 462 Articles to be changed only on approval of commission, 458 Assets impaired — Receiver, 464 Assistants, commission may em- ploy, 459 Attorney in each county, 461 Attorney in fact of applicant, 458 Banking board, control of, 460 Blue Sky Law, 455-460 Business in other lines unlawful, 462 Commission defined, 456 Commission may issue subpoenas, 457 Commission may require that offi- cers be bonded, 458 Commission to prescribe forms, 457 Dividends must be earned, 459 Examination of applicant, 457 Examination of company, 463 Examination of records, 458 False statement, penalty, 464 Fees, 457 Forms, 467-475 Forms, commission to prescribe, 457 Hearing an application, 457 Installment investment companies, name, 460-464 Issuance of stock, control of, 459 Papers to be filed, 461 Penalties, 459 Penalty for disobeying subpoena, 457 INDEX 1041 (kepehences are to pages) Nebras ka. — Continued. Percentage for marketing, 458 Permit, application for, 456 Permit for one year, 457 Permit provided for, 456 Person defined, 456 Provisions of act not applicable to certain stocks, etc, 456 Remedies of commission, 459 Securities, defined, 455 Statements, annual, 463 Statements to be filed annually, 462 State Trade Commission created, 455 State Trade Commission, duty of, 455 Stock defined, 456 Subpoenas, commission may issue, 457 New Hampshire — Administration, 480 Application for registration, 476 Banks not subject to act, when, 480 Blue Sky Law, 476-480 Certificate of registration, 478 Dealer defined, 476 Fees, 478 Forms, 481-487 Notice, how to be sent, 480 Papers to be filed with applica- tion, 477 Penalty, 480 Registratiqn, 476 Registration for one year, 478 Registration may be revoked, 479 Salaries; 480 Securities defined, 476 Securities, list of, to be filed, 478 Nkw Jersey — Laws, 488 New York — Advertising matter subject to ap- proval of superintendent, 491 Advertisement as to securities, 501 Annotations, 501 Application certificate, contents of, 497 Assessments against investment companies, 497 Bookkeeping of investment com- panies, 495 Certificate, application for, 490 Certificate, contents of, 492 Certificate of authority, 489 Certificate of investment company, 492 Certificate, renewal of, 491 Communication from superinten- dent, 496 Company shall not make loans to ofiicers, 497 Definition of terms, 489 Deposit of foreign corporation, 4.98 Deposit of investment company, 493 Failure to report — Penalty, 496 Forms, 506-526 Insurance companies, promotion of, 489 Insurance law, 48.9-491 Laws of investment companies, 492-501 License of foreign corporation, 498 License, revocation of, 499 Officers not to make loans, 497 Place of business, change of, 495 Powers of investment companies, -493 Powers not to be exercised by in- vestment companies, 494 Procedure of corfjoration, 499 Publication of fictitious trans- • actions., SOO 1042 INDEX (references are to pages) New York — Continued. Records, preservation of, 497 Report of fictitious transactions, 500 Reports to superintendent, 496 Representatives of company, 497 Requirements of investment com- panies, 498 Statement as to securities, 501 Terms defined, 489 Taxation of investment companies, 501 Verified statement of foreign corporation, 499 North Carolina — Advertisements, etc., 529 Agent, 527 Agents, licensed, 530 Blue Sky Law, 528-531 Bond investment companies, 527 Capital, 527 Change in organization, etc., 530 Commissions limited, 529 Contract of sale, 529 Documents to be filed, 528-529 Examination of company, 530 Fees, 530 Forms, 534-535 Funds deposited, 529 "Holding corporation" defined, 531 Insurance corporation law, 531- 533 Liability to purchaser, 529 License, 527,. 531-533 License revoked, 630 Penalty, 527, 531 "Promoting Corporation" defined, 531 "Securities" defined, 528 Secdrities, sale of, 531 Statement to be filed, 530 Supervision, 527, 528 North Dakota — Accounts subject to examination, 540 Action in court to set aside find- ings, 539 Act not applicable to certain se- curities, 540 Administration, 548 Amendment of charter, 539 Appeals to the supreme court, 539 Attorney for service of process, 543 Banking board may take charge, when, 545 Banking cortipanies not subject to, 546 Blue Sky Law, 536, 544 Bookkeeping of companies, 540 Building and Loan Companies not subject to, 545 Charters, record of, 543 Contracts void if law not com- plied with, 544 Docket in office of secretary of state, 647 Examination of affairs of com- pany, 538 False report, penalty for, 545 False statements, penalty for, 542 Fees, 540 Fee to be turned into treasury, 542 Financial condition, examination of, 545 Findings, action in court to set aside, 539 Findings, notice of, 539 Findings of state board, 638 Foreign corporations may do busi- ness, when, 643 Forms, 549-567 Hindering examiner, penalty for, 545 Investiation of mining and oil companies, 642 INDEX 1043 (references are to pages) North Dakota — Continued. Investigation — Special, 541 Liability of officers of company, 544 Mining companies, investigation of, 542 Mining corporations must file statement, .546 Oil and gas companies, investiga- tion of, 542 Penalties, 541, 545 Persons not subject to act, 542 Process, service 'upon attorney, 543 Record of charters, 543 Reports of companies, 544 Securities defined, 536 Service of process on foreign corporation, 538 Speculative enterprise defined, 537 Speculative enterprise, hearing on, 589 Speculative securities defined, 536 Statement of mining company, form of, 546 Statements in application, 537 Statements shall be, made quar- terly, 540 Subpoenas, power to issue, 541 Unconstitutionality, effect of, 543 Violations by mining companies. Penalties, 548 O Ohio — Administration, 584-594 Advertisements, copies of to be filed, 563 Annotations, 568 Appeal, 561 Attorney General, opinions, 622 Bank, trust companies, 559 Blue Sky Laws, 558-568 Bond investment companies, 580- 583 Certificate of authority, 566 "Commissioner" defined, 559 "Company'' defined, 559 Consent irrevocable, 560 "Dealer" defined, 558 Digest of laws, 568 "Dispose of" defined, 559 ' Examination, by "commissioner," 566 Examination, expenses of, 566 Exemptions, 558 Fee, agents, 560-561 Fee, annual, 560 Fee, dealers, 560 Fees, filing, 559, 564 Foreign corporation, 560 Forms, 594 Insurance companies, sale of stock, 563 "Issue" defined, 559 License, application for, 560 License, renewal, 560 License, statement to be filed by, 562 Opinions of Attorney General, 622 Penalties, 567-568 Publication of application, 560 Public Service Commission, ap- proved by, 564 Real Estate not located in Ohio, 565 Revocation of license, 561 "Securities" defined, 558 Service of summons, 560 Statement, to be dispensed with, when, 562 Superintendent of Insurance, 567 "Whoever" defined, 559 Oklahoma — Blue Sky Law, 718-724 Bond, 718 Examinations, 719 Exemptions, 721 Fees, filing, 717 1044 INDEX Oklahoma — Continued. Foreign corporations, 719 License, application for, 717 Owner exempt, 723 Penalties, 722 :,'. Records, 722 "Securities," defined, 716 ' "Speculative Enterprise", defined, 717 "Speculative Securities," defined, 716 Service of summons, 71fl Opinion, Attorney General of Ohio OF Purpose of Law, 4 Opinions of Courts — Ala. & N. O. Trans. Co. v. Doyle (Fed.; Mich.) 937 Bracey v. Darst, Aud. (Fed.; W. Va.) 971 Caldwell v. S. F. Stock Yards Co. (U. S.) 924 Compton Co. v. Allen (Fed.; la.) 1017 Edward v. loor (Mich.) 952 Ex parte Taylor (Fed.; Fla.) 1010 Hall v. Geiger-Jones Co. (U. S.) 913 McKinney v. Watson (Ore.) 969 Merrick v. Halsey & Co. (U. S.) 929 Nat. Mer. Co. v. Keating (Fed.; Mont.) 958 Nat. Mer. Co, v. Watson (Fed.; Ore.) 966 Standard Home Co. v. Davis (Fed.; Ark.) 993 State v. Agey (N. C.) 960 Oregon — Advertisements, regulation, 729 Agents, 729 Annotations, 734 Appeal, 728 (lEEEHENCES ARE TO PAGES) Attorney General, duties, 730 Blue Sky, Law, 725-734 "Dealer" defined, 725 Examinations, 730 Fees, 732 Foreign corporations, 733 Forms, 735 Notice of change, etc., 729 Penalties, 731 ' Permits, dealers', 728 Preliminary statement, 726 Statements, 730 Peddlers, License of, 16 Pennsylvania — Advertising matter shall contain serial number, etc., 748 -Advertising matter to be sub- mitted to cominissioner, 748 Commissioner to approve adver- tising matter, 748 Contracts shall show interest of agent, 748 Contracts — what they shall con- tain, 747 Effect of violation of act, 748 Funds, deposit of, 748 Insurance corporation defined, 747 Insurance law, 747-749 Interest of agent shall appear in contract, 748 Investment law, 747-749 Law, 747-749 Penalties for violation, 748-749 "Stock" defined, 747 Stock selling prohibited without complying with act, 747 Police Power, 19 PosTMASTfiR General, Report of, 2 Powers, Arbitrary of Commissioner, 23 Presumption of Good Character, 26 INDEX 1045 (references Process, Due, 27 Protection of the Laws, Equal, 21 Purpose of Blue Sky Law, 1 Q Quasi-public Corporation Defined, 6 R Reputation of Dealer, 24 Reputation of Business, 25 Rhode Island — Accounts, examination of, 760 Application for receiver, 751 Blue Sky Law, 750-751 Corporations not subject to act, 750 Examination, effect of refusal of, 751 Examination, expense of, 751 Examination of books, 750 Financial condition, statement of, 750 Penalty for failure, 750 Receiver, appointment of, 751 Statement of financial condition, 750 "Sale," Defined, 6 Sales, Fraudulent, 3 Sales, Individual, 19 Sales, Unfair, 3 "Security,"' Defined, 7 South Carolina — Advertisement, regulated, 758 Agent, registration of, 756 Agents' fee, 757 Annotations, 760 Applicants, instructions to, 761 Blue Sky Law, 752-760 Certificate, 755 Commissioner, expense of, 759 ARE TO pages) Commissioner to furnish infor- mation, 759 Commissioner to investigate plan of business, 755 "Dealer," defined, 756 Dealer, registration of, 756 Fees, 759 Filing fee, 753 Forms, 761-765 Information for benefit of public, 759 ■ Instructions to applicants, 761 Insurance commissioner, duty of, in case of fraud, 755 Insurance commissioner, power of 752, 754 Insurance commissioner, process served on, 754 Insurance commissioner, state- ment filed with, 753 Investment companies to file state- ment of condition, 760 Investment company, accounts ofj 757 Investment company, domestic, 752 Investment company, foreign, 752 Misdemeanor to make false state- ment, 759 Misdemeanor to violate act, 760 Sale of securities without certifi- cate, 758 Securities, sale of without certifi- cate, 758 State bank examiner, 7S9 Stocks, sale of, 755 Verification and certification of papers filed, 754 South Dakota — Accounts, company to keep, 773 Act not to affect banking law, 775 Act not to affect insurance law, 775 1046 INDEX (references South Dakota — Continued. Administration, 777 Agent's fee, 772 Annotations, 776 Applicants, instructions to, 784 Assistants, power to employ, 766 Banking law not affected by act, 775 Blue Sky Law, 766-776 Certificate of permission, form of, ' 771 Certificate, suspension of, 771 Commission, duties of, 770 .Commission, hearing by, 769 Commission may demand further information, 769 Commission may impose condi- tions of sale, 771 Commission, report of, 766, 777-8 Commission, rules and require- ments of, 781-784 Commission, seal of, 775 Company to keep accounts, 773 Conditions of sale, commission may impose, 771 Dealer not to sell, when, 774 Dealer required to comply with law, 771 Dealer to "register, 772 Duties of commission, 770 Examination of accounts, 773 False entry, penalty for, 775 False statement, penalty for, 775 Fee of agent, 772 Forms, 785-795 Hearing by commission, 769 Information, commission may de- mand further, 769 Information to be furnished to public, 775 Instructions to applicants, 784 Insurance law not affected by act, 775 Investment companies defined, 767 License, withholding of, 770 ARE TO pages) Order may be reviewed by fu- preme court, 776 Penalties for violation, 776 Permit, forfeiture of, 776 Permits granted under law of 1913, 767 Process, consent to service of, 769 Public may ask for information, 775 Records are public, 774 Registration of dealer, 772 Report of commission, 766, 777-8 Report of secretary, 779-780 Review of order by supreme court, 776 Rules and requirements of com- missioner, 781-784 Sale without certificate unlawful, 774 Seal of commission, 775 Secretary must qualify, 766 Secretary, powers of, 766 Secretary, report of, 779-790 Secretary, salary of, 766 Securities, act not applicable to, 767 Securities commission, member- ship of, 766 Statement, company must file, 768 Statements, annual, 775 Statement shall contain, what, 768 Statements to be verified, 768 Supreme court may review order, 776 Violations, penalty for, 776 Standard Manuals, 18 Stock Exchanges, 18 Stock ExchangeSj Sale by, 30 Tennessee — Agents, appointment of, 799 Blue Sky Laws, 796-801 False entries, punishment for, 800 Fees, 801 INDEX 1047 (references are Tennessee — Continued. Forms, 802-805 Investment company, accounts of, 799 Investment company, appointment of agent, 799 Investment company, assets of, 800 Investment company, duty to file statement, 799 Investment company, foreign, duty of, 796 Investment company, regulation and supervision of, 796 Penalties, 796 Secretary of state, duty of, 797 Secretary of state, supervision of, 799 Texas — Accounts to be open for inspec- tion, 811 Act cumulative of other laws, 813 Act not to affect prior contracts, 809 Agents and officers — List of, 811 Appeal or refusal of permit, 810 Applicants, instructions to, 815 Blue Sky Law, 806-814 Bond Investment Companies: Charter, forfeiture of, in de- fault of deposit, 814 Deposit, charter to be forfeited in default of, 814 Deposits with state treasurer, 814 Law, 814-815 Receiver, duties of, 814-815 Receivership — when, 814 Suit by attorney general, 814 -Treasury, the depository, 814 Bond, recoveries on, 810 Bond required, 809 Bond — second one may be re- quired,' 810 TO pages) Bond, suit upon, 810 * Bookkeeping of companies, 811 Capital paid in, percentage of, 812 Charter — Copy to be filed, 807 Commissioner, defined, 814 Companies not subject 'to act, 813 Companies subject to act, 806 Contracts made prior to law not affected, 809 Corporations exempted from act, 813 Corporations (foreign) attorney of, 812 Definitions, 814 Deposit, interchange of cash and securities in, 815 Deposit of funds, 811 Deposit of funds in general fund, 814 Deposit, return of — when, 815 Deposit, use of, 815 Examination, expense of — paid how, 814 Exemption of certain corpora- tions, 813 Expense of examinations, by whom paid, 814 Experts, secretary may employ, -808 Fees for filing statement, 807 Fees of promoter, payable when, 809 Forms, 816 Funds of state to be deposited quarterly, 814 Funds shall be deposited, 811 Gas companies, act applies to, 806 Gas companies, financial statement of, 808 Instructions to applicants, 815 List of officers and agents to be filed, 811 Mining companies, act applies to, 806 1048 INDEX (references Texas — Continued,. Mining companies, financial state- ment of, 808 Officers and agents — list- of, 811 Oil companies, act applies to, 806 Oil companies, iinancial statement of, 808 Organizers to keep accounts, 811 Penalties, 812 Percentage of paid-in capital, 812 Permit, cancellation of, 810-811 Permit, grant or refusal of, 809 Permit of townsite companies, 808 Pemit refused — appeal, 810 Permit, requirements for, 809 Permit, suit to re-instate, 811 Power of attorney of foreign corporations, 812 Promoter's fees, payable when, 809 Receiver, appointment of, 815 Requirements for issue of permit, , 809 Sale may begin — when, 807 Secretary, acceptance of service by, 812 "Secretary," defined, 814 Secretary may employ experts, 808 Secretary to deposit funds, 814 Service accepted by secretary, 812 Statement, contents of, 807 Statement of expense of organiza- tion, 808 Statement to be filed, before sale, 807 Subscriptions to be refunded — when, 813 Suit to re-instate permit, 811 S-uit upon bond, 810 Townsite companies, act applies to, 806 Townsite companies — filing of statements, 808 Townsite companies, financial statement of, 808 ARE TO pages) Treasurer depository of state ^ funds, 814 Treasurer to pay out on requisi- tion, 815 Violation, penalty for, 8l2 Trade Journals, 30 Utah — Account-books, dealers to keep, 842 Act not to apply to certain securi- ties, 839 Agency, renewal of, 841 Application by dealers, 842 Appointment of process agents, ir- revocable, 841 Blue Sky Law, 838-845 Book-accounts — form prescribed by commission, 842 Book of accounts, dealers to keep, 842 Bucketing contract — felony, 844 Bucketing contract, statements in aid of prohibited, 845 Customers, statements furnished, 843 Dealers, application by, 842 Dealers, bonds of, 842 Dealers, fees of, 842 Dealers, statements by, 842 Dealers to keep accounts, 842 Deposit of funds of commission, 844 Deposits by company, 840 Examinatipn of accounts, etc., 843 Expenses of commission, 844 Fees of agents, when due, 841 Fees of commisgion, 844 Form of book accounts, prescribed by commission, 842 Funds of commission, deposit of, 844 Investigations made by commis- sion, 839 Investment companies bucketing, defined; 840 INDEX 1049 (references Utah — Continued. Investment companies, dealer, de- fined, 839 Investment companies, definitions, 839 Liability of company to purchas- ers, 845 License, display of, 842 License, duration of, 841 License, expiration of, 842 License, issue of, 842 License, renewal of, 842 License, (suspension of, 841, 843 Penalty for false publication, 843 Process agents — appointment ir- revocable, 841 Publications, penalty for falsity, 843 Purchaser, liability of company to, 845 Records shall be kept, 838 Registration of companies, 840 Regulation of transactions, 843 Renewal of agency, 841 Report of commission, 838 Reports by investment companies — contents, 843 Sales before compliance prohib- ited, 845 Secretary to be employed — bond, 838 Securities. — Act not to apply to certain, 839 Securities, commission does not recommend, 843 Securities commission, creation of, 838 Securities commission, duties of, 838 Securities commission, meetings of, 838 Securities issued permissively, 843 Statements by dealers, 842 ARE TO pages) Statements furnished customers, 843 Statements of companies — con- tents of, 840 Subpoenas, commission may issue, 839 Supervision by commission, 843 Transactions, regulation of, 843 Unconstitutionality, effeict of, 845 Violations, penalties for, 845 Unfair Sales, 3 United States Bonds, Exception of^ 12 V Value, Market, Defined, 6 Vermont — ; Action may be brought in any county, 847 Administration, 862.. Agents, to be registered, 849 Assistants to be appointed by bank commissioner, 851 Bank commissioner, powers of, 850 Bank commissioner to appoint as- sistants, 851 Bank commissioner to collect fees, 851 Blue Sky Law; 846-851 Charter, amendment of, "849 Documents to be filed by company, 847 Domestic investment company, de- fined, 846 Examination of statements and documents, 848 False entries, penalty for, 851 False statement, penalty for, 851 Fees to be collected by bank com- missioner, 851 Fees to be deposited in treasury, 851 Financial condition of company, 848 1050 INDEX (references are Vermont — Continued. Findings of commission, 848 Foreign investment company de- fined, 846 Investment companies, 852 Investment company defined, 846 License, revocation of, 850 Penalties for falsity, 851 Powers of bank commissioner, 850 Receiver, appointment of, 850 Registration of agents, 849 Revocation of registration, 849 Sales prohibited until compliance — penalty,' 851 Sales prohibited until statements filed, 849 Securities not subject to act, 846 Service of process on secretary of state, 848 Statements, examination of, 848 Statements of company to be ver- ified, 849 ■Statements to be filed, before sales, 849 Statements to be filed by company, 847 Unconstitutionality, effect of, 851 Verified statements to be filed — fee, '849 Virginia — Adverse finding of commission, effect of, 857 Adverse finding of commission, notice of, 857 Appeals from decisions of com- mission, 858 Blue Sky Laws, 854-863 Commission, appeals from deci- sions of, 858 Commission, investigations by, 857 Commission, powers of, 858 TO pages) Conditions precedent for sale, 855 Contract used by promoter, 859 False statement or entry, punish- ment for, 860 Fees, disposition of, 860 Foreign promoter, duty of, 856 Insurance companies, provisions for selling stock, 862 Investigation by commission, ef- fects, 858 Investigation by commission, findings, 857, 858 Investigation by commission, mail- ing of notices, 858 Promoter, contract used by, 859 Promoter, defined, 854 Promoters, information and fees required of, 855 Promoter's failure to comply with orders of commission, effect of, 862 Promotion fees, amount of, 861 Promotion fees, powers of com- mission, 861 Promotion securities, powers of commission, 861 Provisions of selling stock in in- surance companies, 862 Provisions for selling stock, pen- alty for violation of, 862 Sale, conditions precedent for, 855 Secretary of commonwealth, ap- pointment of, 856 Securities, defined, 854 Securities, exempt, 858 Securities placed in escrow, 861 Speculative enterprise, defined, 854 Speculative securities, defined, 854 Successive sales evidence of fraud, 860 Violation of provisions, punish- ment for, 860 INDEX 1051 (keferences w West Virginia — Agents, appointment of, 868 Agents to register, 868 Annotations, 871 Annual statements to be filed, 869 Appeal to any court, 867 Attorney general to prosecute, 868 Attorney general to sue to protec* interests of stock and bond holders, and creditors, 869-870 Attorney-in-fact, services of no- tices and processes, 865-866 Auditor of state, attorney-in-fact, 865 Auditor to have general super- vision and control, 869 Blue Sky Law, 864-870 Escrow, stocks and securities, 866- 867 Examinations, 867-869 False statement, etc, penalty for, 868 Fees, 870 Financial statement, 869 Forms, 871-884 Fraud, penalty for, 867-868 Penalty for violation of act, 870 Penalty for false statement, 868 "Person or persons", defined, 870 Processes, service of, 865-866 Promotion expense limited, 866- 867 Prosecution for violation, 868 Records and accounts to be kept, 869 Registration fee, 868 Registration of agents, 868-869 Section declared unconstitutional, effect of, 870 Securities to be listed, 866 "Speculative securities", defined, 866 ARE TO pages) Statement of company, contents of, 864 Statements to be filed, 868-869 Subscription blank to be filed, 866 Supervision and control, 869 Supplemental statement, 868 Violation of act, 867 Violation of act, penalty, 870 Wisconsin — Application to secure permit, 888 Blue Sky Laws, 885-896 Commission, duty of, 890 Conditions necessary to issuance of securities, 889 Corporation applying for certifi- cate, 890 Definitions, 885, 886 Fees, 895 Forms, 897-906 Permit authorizing sale, 888 Person acting as broker, require- ments of, 890 Securities issued by co-operative associations, 887 Wyoming — Accounts — how to be kept, 910 Accounts subject to examinatjon, 910 Action to set aside finding, 909 Act not applicable to certain own- ers, 912 Amendment of charters to be filed with examiner, 910 Appeals to supreme court, 909 Appraisal of property, 909 Assistant to be appointed by ex- aminer, 912 Blue Sky Law, 907-912 Charter amendments to be filed' with examiner, 910 Documents to be filed by pro- moter, 908 1052 INDEX (references are to pages) Wyoming — Continued. Examination of statement of com- pany, 909 Examiner, power of, 911 Failure to file statements, penalty, 911 False entry, penalty for, 912 False statement, penalty for, 912 Fee to be paid, 908 Fees to be paid into treasury, 913 Findings of examiner, 909 Gas securities, investigation by ex- perts, 912 Hearing, procedure in, 909 Investigation of affairs of com- pany, 909 Land securities, investigation by experts, 912 Mining securities, investigation by experts, 912 Notice, how served, 911 Oath may be administered, by ex- aminer,. 911 Oil securities, investigation by ex- perts, 912 Penalties for disobeying subpoena, 911 Permit, contents of, 909 Promoter, must show permit, 909 Property, appraisal of, 909 Sale before compliance unlawful, 907 "Securities," defined, 907 Securities not subject to act, 910 Securities, defined, 907 Special investigation by examiner, 911 "Speculative enterprise," defined, 907 "Speculative securities," defined, 907 Subpoenas, issue of, 911 Suits may be brought in any county, 908 Supreme court, appeals to, 909 Verified statements of financial condition, 911