(8) any transaction effected with existing employees, partners, or directors of the issuer if no commission or other remuneration is paid or given, directly or indirectly, for soliciting any person in the District.

(g) "Fraud," "deceit," and "defraud" shall not be limited to common law deceit.

(h) "Guaranteed" means guaranteed as to payment of principal, interest, or dividends.

(i) "Issuer" means any person who issues or proposes to issue any security, except that

(1) with respect to certificates of deposit, voting-trust certificates, or collateral-trust certificates, or with respect to certificates of interest or shares in an unincorporated investment trust not having a board of directors or persons performing similar functions, or of the fixed, restricted management, or unit type, the term "issuer" means the person or persons performing the acts and assuming the duties of depositor or manager pursuant to the provisions of the trust or other agreement or instrument under which the security is issued; and

(2) with respect to certificates of interest or participation in oil, gas, or mining titles or leases or in payments out of production under such titles or leases, there is not considered to be any "issuer."

(j) "Person" means an individual, a corporation, a partnership, an association, joint-stock company, a trust where the interests of the beneficiaries are evidenced by a security, an unincorporated organization, a government, or a political subdivision of a government.

(k) (1) "Sale" or "sell" includes every contract of sale of, contract to sell, or disposition of, a security or interest in a security for value.

(2) "Offer" or "offer to sell" includes every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security for value. (3) Any security given or delivered with, or as a bonus on account of, any purchase of securities or any other thing is considered to constitute part of the subject of the purchase and to have been offered and sold for value.

(4) A purported gift of assessable stock is considered to involve an offer and sale.

(5) Every sale or offer of a warrant or right to purchase or subscribe to another security of the same or another issuer, as well as every sale or offer of a security which gives the holder a present or future right or privilege to convert into another security of the same or another issuer, is considered to include an offer of the other security.

(6) The terms defined in this subsection do not include (A) any bona fide pledge or loan; (B) any stock dividend, whether the corporation distributing the dividend is the issuer of the stock or not, if nothing of value is given by stockholders for the dividend other than the surrender of a right to a cash, or property dividend when each stockholder may elect to take the dividend in cash or property or in stock; (C) any act incident to a class vote by stockholders, pursuant to the certificate of incorporation or the applicable corporation statute, on a merger, consolidation, reclassification of securities, or sale of corporate assets in consideration of the issuance of securities of another corporation; or (D) any act incident to a judicially approved reorganization in which a security is issued in exchange for one or more outstanding securities, claims, or property interests, or partly in such exchange and partly for cash.

(1) "Securities Exchange Act of 1934" and "Investment Company Act of 1940" mean the Federal statutes of those names as amended before or after the effective date of this Act.

(m) "Security" means any note; stock; Treasury stock; bond; debenture; evidence of indebtedness; certificate of interest or participation in any profitsharing agreement; collateral-trust certificate; preorganization certificate or subscription; transferable share; investment contract; voting-trust certificate; certificate of deposit for a security; certificate of interest or participation in an oil, gas, or mining title or lease or in payments out of production under such a title or lease; or, in general, any interest or instrument commonly known as a security, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing. "Security" does not include any insurance or endowment policy or annuity contract under which an insurance company promises to pay a fixed sum of money either in a lump sum or periodically for life or some other specified period, or any contract issued by an insurance company

pursuant to section 41 of chapter III of the Life Insurance Act, as added by Public Law 86-520 (sec. 35-541, D.C. Code).

(n) "State" means any State, Territory, or possession of the United States, and Puerto Rico, but not the District of Columbia.

(o) "Act" means the District of Columbia Securities Act.

FRAUD

SEC. 3. It shall be unlawful for any person, in connection with the offer, sale, or purchase of any security, directly or indirectly—

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

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

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

LICENSE REQUIREMENT

SEC. 4. (a) It shall be unlawful for any person to transact business in the District as a broker-dealer or agent unless he is effectively licensed under this Act.

(b) It shall be unlawful for any broker-dealer or issuer to employ an agent unless the agent is effectively licensed under this Act. The license of an agent shall not be effective during any period when he is not associated with a particular broker-dealer or a particular issuer. When an agent begins or terminates a connection with a broker-dealer or issuer, or begins or terminates those activities which make him an agent, the agent as well as the broker-dealer or issuer shall promptly notify the Commission.

(c) Every license and renewal license shall expire two years from its effective date, but in any case in which timely and sufficient application for a renewal license has been made in accordance with section 5(a) no license shall expire until final action of the Commission upon such pending application. The Commission may by rule or order fix a schedule for the first renewal of licenses so that subsequent renewals may be staggered over the two-year period. For this purpose the Commission shall reduce the license fee proportionately for any initial license which may expire before two years from its effective date.

LICENSE PROCEDURE

SEC. 5. (a) A broker-dealer or agent may obtain an initial or renewal license by filing with the Commission an application together with a consent to service of process pursuant to section 15 (f) of this Act. The application shall contain a statement of

(1) the applicant's form and place of organization;

(2) the applicant's proposed method of doing business;

(3) the qualifications and business history of the applicant and, in the case of a broker-dealer, of each partner, officer, or director, each person occupying a similar status or performing similar functions, and each person directly or indirectly controlling the broker-dealer;

(4) each injunction or administrative order or conviction of a misdemeanor involving a security or any aspect of the securities business and any conviction of a felony;

(5) each disciplinary action by a securities exchange or securities association;

(6) the applicant's financial condition and history; and

(7) such other matters as the Commission may by rule prescribe as being necessary or appropriate in the public interest or for the protection of investors.

The Commission may by rule or order require an applicant for an initial license to publish an announcement of the application in one or more specified newspapers published in the District. If no denial order is in effect and no proceeding is pending under section 10, a license shall become effective at noon of the thirtieth day after an application is filed. The Commission may by rule or order specify an earlier effective date, and it may by order defer the effective date until noon of the thirtieth day after the filing of any amendment to an application. A license of a broker-dealer shall be deemed to constitute a

license of any agent who is a partner, officer, or director, or a person occupying a similar status or performing similar functions.

(b) An applicant for an initial or renewal license shall pay a filing fee. The filing fee for a broker-dealer shall be $100 plus $10 for each partner, officer, and director, and each person occupying a similar status or performing similar functions, who transacts business in the District. The filing fee for an agent shall be $25. When a license is denied or an application therefor withdrawn, the Commission is authorized to refund one-half of the fee and such refunds shall be made in the same manner as other refunds are made by the District. (c) A licensed broker-dealer may file an application for a license of a successor, whether or not the successor is then in existence, for the unexpired portion of the period during which the license of such broker-dealer is effective. There shall be no filing fee.

(d) Each broker-dealer licensed in the District shall have and maintain a minimum capital of $15,000, except that the Commission may, by rule, fix a minimum capital in lesser amounts for any class of broker-dealers if the Commission determines that broker-dealers of that class

(1) are engaged in a limited phase of the securities business not involving the incurring of material financial obligations to the public; and

(2) a lesser minimum capital for such class of broker-dealers is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes of this Act.

The Commission may by rule prescribe a ratio between net capital and aggregate indebtedness.

(e) The Commission may by rule require licensed broker-dealers and agents to post surety bonds in such amounts up to $50,000 and on such conditions as the Commission may determine to be necessary or appropriate in the public interest or for the protection of investors. Every bond shall provide for suit thereon by any person who may have a cause of action arising under section 14 of this Act, and, if the Commission by rule or order requires, by any person who may have a cause of action not arising under this Act. Every bond shall provide that no suit may be maintained to enforce any liability on the bond unless brought within two years after the sale or other act upon which such liability is based.

UNLAWFUL REPRESENTATION CONCERNING LICENSING

SEC. 6. (a) Neither the fact that an application for a license has been filed nor the fact that a person is effectively licensed shall constitute a finding by the Commission that any document filed under this Act, or that any statement made therein, is true, complete, and not misleading. Neither any such fact nor the fact that an exemption is available for any person, security, or transaction shall mean that the Commission has passed in any way upon the merits or qualifications of, or recommended or given approval to, any person, security or transaction.

(b) It shall be unlawful for any broker-dealer or agent to make, or cause to be made, to any prospective purchaser, customer, or client any representation inconsistent with subsection (a).

RECORDS AND REPORTS

SEC. 7. (a) Every licensed broker-dealer and agent shall make, keep, and preserve for such periods, such accounts, correspondence, memorandums, papers, books, and other records, and make such reports, as the Commission by rules shall prescribe as necessary or appropriate in the public interest or for the protection of investors.

(b) All the records and reports referred to in subsection (a) shall be subject at any time or from time to time to such reasonable periodic, special, or other examinations by the Commission, within or without the District, as the Commission may deem necessary or appropriate in the public interest or for the protection of investors. For the purpose of avoiding unnecessary duplication of examinations, the Commission, insofar as it may deem it practicable in administering this subsection, may cooperate with the securities administrator of any State, the Securities and Exchange Commission, and any national securities exchange or national securities association registered under the Securities Exchange Act of 1934.

FILING OF SALES AND ADVERTISING LITERATURE

SEC. 8. The Commission may by rule or order require any broker-dealer or agent to file with the Commission any prospectus, pamphlet, circular, form letter, advertisement, or other sales literature or advertising communication addressed or intended for distribution to prospective investors.

MISLEADING FILINGS

SEC. 9. It shall be unlawful for any person to make or cause to be made, in any document filed with the Commission or in any proceeding under this Act, any statement which is, at the time and in the light of the circumstances in which it is made, false or misleading in any material respect.

DENIAL, REVOCATION, SUSPENSION, CANCELLATION, AND WITHDRAWAL OF LICENSES

SEC. 10. (a) The Commission may be order deny, suspend, or revoke any license if it finds that the order is in the public interest and that the applicant or licensee or, in the case of a broker-dealer, any partner, officer, or director, any person occupying a similar status or performing similar functions, or any person directly or indirectly controlling the broker-dealer

(1) has filed an application for a license which as of its effective date, or as of any date after filing in the case of an order denying effectiveness, was incomplete in any material respect or contained any statement which was, in light of the circumstances under which it was made, false or misleading with respect to any material fact;

(2) has wilfully violated or wilfully failed to comply with any provision of this Act or any rule or order under this Act, or has violated or failed to comply with the minimum capital requirement of section 5(d) or any ratio rule prescribed thereunder;

(3) has been convicted, within the past ten years, of any misdemeanor involving a fiduciary relationship or a security or any aspect of the securities business, or of any felony, or has been acquitted of any such offense within the same period solely on the ground that he was insane at the time of its commission;

(4) is permanently or temporarily enjoined by any court of competent jurisdiction from engaging in or continuing any conduct or practice involving any aspect of the securities business;

(5) is the subject of an order of the Commission denying, suspending, or revoking a license as a broker-dealer or agent;

(6) is the subject of an order entered within the past five years by the securities administrator of any State or by the Securities and Exchange Commission denying or revoking a license or registration as a broker-dealer or agent, or the substantial equivalent of those terms as defined in this Act, or is the subject of an order of the Securities and Exchange Commission, suspending or expelling him from a national securities exchange or national securities association, or is the subject of a United States Post Office fraud order; but (i) the Commission may not institute a revocation or suspension proceeding under clause (6) more than two years from the date of the order or action relied on, and (ii) it may not enter an order under clause (6) on the basis of an order under a State Act unless that order was based on facts which would currently constitute a ground for an order under this section;

(7) has engaged in fraudulent practices in the securities business or while acting in any fiduciary capacity;

(8) is insolvent, either in the sense that his liabilities exceed his assets or in the sense that he cannot meet his obligations as they mature; but the Commission may not enter an order against a broker-dealer under this clause without a finding of insolvency as to the broker-dealer; or

(9) is not qualified on the basis of such factors as training, experience, and knowledge of the securities business, except as otherwise provided in subsection (b).

The Commission may by order deny, suspend, or revoke any license if it finds that the order is in the public interest and that the applicant or licensee

or

(10) has failed reasonably to supervise his agents if he is a broker-dealer;

(11) has failed to pay the proper filing fee; but the Commission may enter only a denial order under this clause, and it shall vacate any such order when the deficiency has been corrected.

The Commission may not institute a suspension or revocation proceeding solely on the basis of a fact or transaction known to it when the license became effective unless the proceeding is instituted within the next thirty days.

(b) The following provisions shall govern the application of section 10(a) (9): (1) The Commission may not enter an order against a broker-dealer on the basis of the lack of qualification of any person other than (A) the broker-dealer himself if he is an individual or (B) an agent of the broker-dealer.

(2) The Commission may not enter an order solely on the basis of lack of experience if the applicant or licensee is qualified by training or knowledge or both.

(3) The Commission shall consider that an agent who will work under the supervision of a licensed broker-dealer need not have the same qualifications as a broker-dealer.

(4) The Commission shall by rule provide for an examination, which may be written or oral or both, to be taken by any class of, or all, applicants.

(c) The Commission may by order summarily postpone issuance of a license or suspend an effective license pending determination of any proceeding under this section. Upon the entry of the order, the Commission shall promptly notify the applicant or licensee, as well as the employer or prospective employer if the applicant or licensee, is an agent, that it has been entered and of the reasons therefor and that within fifteen days after the receipt of a written request the matter will be set down for hearing. If no hearing is requested and none is ordered by the Commission, the order will remain in effect until it is modified or vacated by the Commission. If hearing is requested or ordered, the Commission, after notice of and opportunity for hearing, may modify or vacate the order or extend it until final determination.

(d) If the Commission finds that any licensee or applicant for a license is no longer in existence, or has ceased to do business as a broker-dealer or agent, or has been adjudicated to be of unsound mind or is subject to the control of a committee, conservator, or guardian, or cannot be located after reasonable search, the Commission may by order cancel the license or application.

(e) Withdrawal of a license of a broker-dealer or agent shall become effective thirty days after receipt of an application to withdraw or within such shorter period of time as the Commission may determine, unless a revocation or suspension proceeding is pending when the application is filed or a proceeding to revoke or suspend or to impose conditions upon the withdrawal is instituted within thirty days after the application is filed. If a proceeding is pending or instituted, withdrawal shall become effective at such time and upon such conditions as the Commission shall by order determine. If no proceeding is pending or instituted and withdrawal automatically becomes effective, the Commission may nevertheless institute a revocation or suspension proceeding under section 10(a) (2) within one year after withdrawal became effective and enter a revocation or suspension order as of the last date on which the license was effective.

(f) No order may be entered under any part of this section except the first sentence of subsection (c) without (1) appropriate prior notice to the applicant or licensee (as well as the employer or prospective employer if the applicant or licensee is an agent), (2) opportunity for hearing, and (3) findings and conclusions, as well as the reasons or basis therefor, upon all the material issues of fact, law, or discretion presented on the record.

INVESTIGATIONS AND SUBPENAS

SEC. 11. (a) The Commission in its discretion (1) may make such public or private investigations within or without the District as it deems necessary to determine whether any person has violated or is about to violate any provision of this Act or any rule or order hereunder, or to aid in the enforcement of this Act or in the prescribing of rules and forms hereunder, (2) may require or permit any person to file a statement in writing, under oath or otherwise as the Commission may determine, as to all the facts and circumstances concerning the matter to be investigated, and (3) may publish information concerning any violation of this Act or any rule or order hereunder.

(b) For the purpose of any investigation or proceeding under this Act, the Commission may administer oaths and affirmations, subpena witnesses, compel their attendance, take evidence, and require the production of any books, papers, correspondence, memorandums, agreements, or other documents or records which it deems relevant or material to the inquiry.