Is the sale of a twenty tear old limited partnership interest a criminal and civil violation?
Full Question:
Answer:
It is possible that all these types of charges may apply. Is fraud is involved, fraud may be a civil or criminal charge. The answer will depend on all the circumstances involved. I suggest you contact a local attorney who can review all the facts and documents in your situation.
Section 101 of the Uniform Securities Act and section 17 of the federal Securities Act of 1933 provide that it is 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 statements made, in the light of the circumstances under 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.
Please see the article below for a discussion on whether a limited partnership interest is a security:
http://www.munsch.com/files/developments_securities_laws.pdf
Please see the following AL statutes:
§ 8-6-17. Prohibited acts regarding offer, sale, or purchase of
securities.
(a) It is unlawful for any person, in connection with the
offer, sale, or purchase of any security, directly or indirectly,
to:
(1) Employ any device, scheme, or artifice to defraud;
(2) Make any untrue statement of a material fact or to omit
to state a material fact necessary in order to make the
statements made, in the light of the circumstances under which
they are made, not misleading; or
(3) Engage in any act, practice or course of business which
operates or would operate as a fraud or deceit upon any person.
(b) It is unlawful for any person who receives, directly or
indirectly, any consideration from another person for advising
the other person as to the value of securities or their purchase
or sale, whether through the issuance of analyses or reports or
otherwise,
(1) to employ any device, scheme, or artifice to defraud the
other person,
(2) to engage in any act, practice, or course of business
which operates or would operate as a fraud or deceit upon the
other person,
(3) acting as principal for his own account, knowingly to
sell any security to or purchase any security from a client, or
acting as broker for a person other than such client, knowingly
to effect any sale or purchase of any security for the account
of such client, without disclosing to such client in writing
before the completion of such transaction the capacity in which
he is acting and obtaining the consent of the client to such
transaction. The prohibitions of this subdivision shall not
apply to any transaction with a customer of a dealer if such
dealer is not acting as an investment adviser in relation to
such transaction; or
(4) to engage in dishonest or unethical practices as the
commission may define by rule.
(c) In the solicitation of advisory clients, it is unlawful for
any person to make any untrue statement of a material fact, or
omit to state a material fact necessary in order to make the
statements made, in light of the circumstances under which they
are made, not misleading.
(d) Except as may be permitted by rule or order of the
commission, it is unlawful for any investment adviser to enter
into, extend, or renew any investment advisory contract unless it
provides in writing,
(1) that the investment adviser shall not be compensated on
the basis of a share of capital gains upon or capital
appreciation of the funds or any portion of the funds of the
client;
(2) that no assignment of the contract may be made by adviser
without the consent of the other party to the contract; and
(3) that the investment adviser, if a partnership, shall
notify the other party to the contract of any change in the
membership of the partnership within a reasonable time after
the change.
(e) Subdivision (d)(1) does not prohibit an investment advisory
contract which provides for compensation based upon the total
value of a fund averaged over a definite period, or as of
definite dates or taken as of a definite date. "Assignment," as
used in subdivision (d)(2), includes any direct or indirect
transfer or hypothecation of an investment advisory contract by
the assignor or of a controlling block of the assignor's
outstanding voting securities by a security holder of the
assignor; but, if the investment adviser is a partnership, no
assignment of an investment advisory contract is considered to
result from the death or withdrawal of a minority of the members
of the investment adviser having only a minority interest in the
business of the investment adviser, or from the admission to the
investment adviser of one or more members who, after admission,
will be only a minority of the members and will have only a
minority interest in the business.
(f) It is unlawful for any investment adviser to take or have
custody of any securities or funds of any client if,
(1) the commission by rule prohibits custody; or
(2) in the absence of rule, the investment adviser fails to
notify the commission that he has or may have custody.
(g) The commission may by rule or order adopt exemptions from
subdivision (b)(3) and subdivisions (d)(1), (d)(2) and (d)(3)
where such exemptions are consistent with the public interest and
within the purposes fairly intended by the policy and provisions
of this act.
§ 8-6-19. Civil liabilities of sellers, agents, etc.; remedies of
purchasers.
(a) Any person who:
(1) Sells or offers to sell a security in violation of any
provision of this article or of any rule or order imposed under
this article or of any condition imposed under this article, or
(2) Sells or offers to sell a security by means of any untrue
statement of a material fact or any omission to state a
material fact necessary in order to make the statements made,
in the light of the circumstances under which they are made,
not misleading, the buyer not knowing of the untruth or
omission, and who does not sustain the burden of proof that he
did not know and in the exercise of reasonable care could not
have known of the untruth or omission,
is liable to the person buying the security from him who may
bring an action to recover the consideration paid for the
security, together with interest at six percent per year from the
date of payment, court costs and reasonable attorneys' fees, less
the amount of any income received on the security, upon the
tender of the security, or for damages if he no longer owns the
security. Damages are the amount that would be recoverable upon
a tender less the value of the security when the buyer disposed
of it and interest at six percent per year from the date of
disposition.
(b)(1) Any person who engages in the business of advising
others, for compensation, either directly or through
publications or writings, as to the value of securities or as
to the advisability of investing in, purchasing, or selling
securities, or who, for compensation and as part of a regular
business, issues or promulgates analyses or reports concerning
securities in violation of subsection (b), (c), (d), (e), or
(f) of Section 8-6-17, subsection (b) or (c) of Section 8-6-3,
Section 8-6-14, is liable to that person, who may bring an
action to recover the consideration paid for such advice and
any loss due to such advice, together with interest at six
percent per year from the date of payment of the consideration
plus costs and reasonable attorney's fees, less the amount of
any income received from such advice.
No person may maintain an action hereunder pursuant to a
violation of subsection (c) of Section 8-6-3 based solely on the
fact that an investment adviser representative other than the one
from whom the person received advice is unregistered.
(2) Any person who receives, directly or indirectly, any
consideration from another person for advice as to the value of
securities or their purchase or sale, whether through the
issuance of analyses, reports, or otherwise and employs any
device, scheme, or artifice to defraud such other person or
engages in any act, practice, or course of business which
operates or would operate as a fraud or deceit on such other
person, is liable to that person, who may bring an action to
recover the consideration paid for such advice and any loss due
to such advice, together with interest at six percent per year
from the date of payment of the consideration plus costs and
reasonable attorney's fees, less the amount of any income
received from such advice.
An action based on a violation of subsection (c) of
Section 8-6-17 and this section may not prevail where the person accused
of the violation sustains the burden of proof that he did not
know, and in the exercise of reasonable care, could not have
known of the existence of the facts by reason of which the
liability is alleged to exist.
(c) Every person who directly or indirectly controls a person
liable under subsections (a) or (b) of this section, including
every partner, officer, or director of such a person, every
person occupying a similar status or performing similar
functions, every employee of such a person who materially aids in
the conduct giving rise to the liability, and every dealer or
agent who materially aids in such conduct is also liable jointly
and severally with and to the same extent as the person liable
under subsection (a) or (b), unless he is able to sustain the
burden of proof that he did not know, and in exercise of
reasonable care could not have known, of the existence of the
facts by reason of which the liability is alleged to exist.
(d) Any tender specified in this section may be made at any
time before entry of judgment.
(e) Every cause of action under this section survives the death
of any person who might have been a plaintiff or defendant.
(f) No person may obtain relief under this section in an action
involving the failure to register unless suit is brought within
two years from the date of sale. All other actions for relief
under this section must be brought within the earlier of two
years after discovery of the violation or two years after
discovery should have been made by the exercise of reasonable
care. No person may bring an action under subsection (a) of this
section:
(1) If the buyer received a written offer, before the action
and at a time when he owned the security, to refund the
consideration paid together with interest at six percent per
year from the date of payment, less the amount of any income
received on the security, and he failed to accept the offer
within 30 days of its receipt, or
(2) If the buyer received such an offer before the action and
at a time when he did not own the security, unless he rejected
the offer in writing within 30 days of its receipt.
(g) No person who has made or engaged in the performance of any
contract in violation of any provision of this article or any
rule or order hereunder or who has acquired any purported right
under any such contract with knowledge of the facts by reason of
which its making or performance was in violation, may base any
action on the contract.
(h) Any condition, stipulation, or provision binding any person
acquiring any security or receiving any investment advice to
waive compliance with any provision of this article or any rule
or order hereunder is void.
(i) The rights and remedies provided by this article are in
addition to any other rights or remedies that may exist.
(j)(1) The commission may by order, if it finds such order to
be in the public interest, impose an administrative assessment
upon any person who violates any provision of this article or
any rule or order issued under this article.
(2) Any administrative assessment imposed under this
section shall not exceed $5,000 for each act or omission that
constitutes the basis for an order issued under this section,
except that the amount of the administrative assessment may not
exceed $50,000 for any person subject to the order.
(3) For the purposes of determining the amount or extent of
an administrative assessment, if any, to be imposed under this
section, the commission shall consider among other factors, the
frequency, persistence, and willfulness of the conduct
constituting a violation of any provision of this article or
any rule or order issued under this article, and the number of
persons adversely affected by the conduct.
(4) The administrative assessment under this section is in
addition to any other penalty, remedy, or sanction that may be
imposed under this article.
(5) All assessments collected under this subsection (j) of
Section 8-6-19 shall be deposited in the general fund of the
state.
(k)(1) The commission may charge, in addition to any
administrative assessment, fine, penalty, remedy, or sanction
imposed under this article, the actual cost of any
investigation resulting from any violation of any provision of
this article or any violation of any rule or order issued under
this article or the actual cost of any examination made by the
commission pursuant to this article, to the party or parties
subject to such investigation or examination. Such charge may
include, but is not limited to, a per diem prorated upon the
salary cost of any employee of the commission together with
actual travel, housing and any and all other reasonable
expenses incurred as a result of such investigation or
examination.
(2) All charges assessed for costs involved pursuant to
subdivision (1) of subsection (k) of Section 8-6-19 shall be
deposited in the Alabama Securities Commission Fund in the
state treasury to be drawn upon by the commission for its use
in the administration of this article.
§ 8-6-18. Criminal penalties for violations of article;
enforcement; scienter.
(a) A person who willfully violates Section 8-6-3 or
Section 8-6-4, upon conviction, shall be guilty of a Class C
felony. A person that willfully violates subsection (a),
(b), or (c) of Section 8-6-17, upon conviction, shall be
guilty of a Class B felony. No prosecution may be commenced
under this article more than five years after the alleged
violation.
(b) A person who willfully violates any provision of this
chapter, other than those noted in subsection (a), or a
rule adopted or order issued under this chapter, upon
conviction, shall be guilty of a Class A misdemeanor.
(c) The enforcement of the provisions of this article shall
be vested in the commission. It shall be the duty of the
commission to see that its provisions are at all times
obeyed and to take such measures and to make such
investigations as will prevent or detect the violation of
any provision thereof. The commission shall at once lay
before the district attorney of the proper county any
evidence which shall come to its knowledge of criminality
under this article. In the event of the neglect or refusal
of the district attorney to institute and prosecute such
violation, the commission shall be authorized to proceed
therein with all the rights, privileges, and powers
conferred by law upon district or court attorneys including
the power to appear before grand juries and to interrogate
witnesses before such grand juries.
(d) Nothing in this article limits the power of the state to
punish any person for any conduct which constitutes a crime
by statute or at common law.
(e) In any proceeding under this article, scienter need not
be alleged and proved in prosecutions involving the sale of
unregistered securities or in the failure to register as a
dealer, agent, investment adviser, or investment adviser
representative under this article.
§ 8-6-2. Definitions.
When used in this article, unless the context otherwise
requires, the following terms shall have the meanings
respectively ascribed to them by this section:
(1) COMMISSION or SECURITIES COMMISSION. The securities
commission.
(2) AGENT. Any individual other than a dealer who represents
a dealer or issuer in effecting or attempting to effect sales
of securities, but such term does not include an individual who
represents an issuer in:
a. Effecting a transaction in a security exempted by
subdivisions (1), (2), (3), (4), (9) or (10) of
Section 8-6-10;
b. Effecting transactions exempted by Section 8-6-11; or
c. Effecting transactions 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 this state.
A partner, officer, or director of a dealer or issuer is an
agent if he otherwise comes within this definition.
(3) DEALER. Any person engaged in the business of effecting
transactions in securities for the account of others or for his
own account. Such term does not include:
a. An agent, issuer, bank, savings institution, savings and
loan association, credit union, or trust company, or
b. A person who has no place of business in this state if
he effects transactions in this state exclusively with or
through the issuers of the securities involved in the
transactions and other dealers.
(4) GUARANTEED. Guaranteed as to payment of principal,
interest, or dividends.
(5) ISSUER. Every person who proposes to issue, has issued,
or shall hereafter issue any security. Any person who acts for
a compensation or a consideration as a promoter for or on
behalf of a corporation, trust, unincorporated association, or
partnership of any kind to be formed shall be deemed to be an
issuer.
(6) NONISSUER. Not directly or indirectly for the benefit of
the issuer.
(7) PERSON. Such term shall include a natural person, a
corporation created under the laws of this or any other state,
country, sovereignty, or political subdivision thereof, a
partnership, an association, a joint-stock company, a trust,
and any unincorporated organization. As used herein the term
"trust" shall not include a trust created or appointed under or
by virtue of a last will and testament, by instrument of
declaration or appointment by any person for the benefit of
himself, relatives, friends, servants, or employees, by a court
or any public charitable trust.
(8) SALE, SELL, OFFER and OFFER TO SELL. "Sale" and "sell"
includes every contract of sale of, contract to sell, or
disposition of a security or interest in a security for value.
"Offer" or "offer to sell" includes every attempt to offer or
dispose of, or solicitation of an offer to buy, a security or
interest in a security for value. 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. A purported gift of assessable stock is
considered to involve an offer and sale. 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.
(9) SECURITIES ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934,
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935, INVESTMENT COMPANY
ACT OF 1940, and INVESTMENT ADVISERS ACT OF 1940. The federal
statutes of those names as amended at any time.
(10) SECURITY. Any note, stock, treasury stock, bond,
debenture, evidence of indebtedness, certificate of interest or
participation in any profit-sharing 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, annuity contract unless issued by an insurance company,
bankers' shares, trustees' shares, investment participating
bonds, investment trust debentures, units, shares, bonds and
certificates in, for, respecting, or based upon any form of
securities or collateral, subscriptions and contracts covering
or pertaining to the sale or purchase on the installment plan
of any security as herein defined, or subscription or contracts
covering or pertaining to the sale or purchase of beneficial
interest in title to property, profits or earnings, or any
right to subscribe to any of the foregoing, or any instrument
of any kind commonly known as a security.
(11) STATE. Any state, territory, or possession of the United
States, as well as the District of Columbia and Puerto Rico.
(12) UNDERWRITER. A person who agrees to take or contracts to
dispose of a stipulated amount of securities, or a portion
thereof, at a fixed price.
(13) BROKER. A dealer, as hereinabove defined.
(14) SUSPEND. When used in relation to the registration of
either a security, a dealer, an investment adviser, an agent,
or an investment adviser representative, such term shall mean
the temporary cessation or inoperativeness of such
registration, whether by reason of operation of law or by
reason of an order of the securities commission.
(15) REVOKE. To vacate the registration of either a security,
a dealer, an investment adviser, an agent, or an investment
adviser representative for cause by order of the securities
commission.
(16) CANCEL. To terminate the registration of either a
security, a dealer, an investment adviser, an agent, or an
investment adviser representative upon application filed
therefor as follows:
a. In the case of a security, upon application therefor
filed by the issuer thereof or the person who secured the
registration of said security;
b. In the case of a dealer, upon the application therefor
filed by such dealer;
c. In the case of an investment adviser, upon the
application therefor filed by such investment adviser;
d. In the case of an agent, upon the application therefor
filed by either the issuer or dealer employing such agent;
and
e. In the case of an investment adviser representative,
upon application therefor filed by the investment adviser
employing such investment adviser representative.
(17) FRAUD, DECEIT and DEFRAUD. These terms are not limited
to common-law deceit.
(18) INVESTMENT ADVISER. Any person, who, for compensation,
engages in the business of advising others, either directly or
through publications or writings, as to the value of securities
or as to the advisability of investing in, purchasing, or
selling securities, or who, for compensation and as a part of
a regular business, issues or promulgates analyses or reports
concerning securities. "Investment adviser" also includes
financial planners and other persons who, as an integral
component of other financially related services, provide the
foregoing investment advisory services to others for
compensation and as part of a business or who hold themselves
out as providing the foregoing investment advisory services to
others for compensation. "Investment adviser" does not include:
a. An investment adviser representative;
b. A depository institution, which term includes a person
organized, chartered, or holding an authorization certificate
under the laws of this state or the United States which
authorizes the person to receive deposits including a
savings, share, certificate, or deposit account, and which is
supervised and examined for the protection of depositors by
an official or agency of this state or the United States; and
a trust company or other institution authorized by federal or
Alabama law to exercise fiduciary powers of the type a
national bank is permitted to exercise under the authority of
the Comptroller of the Currency and is supervised and
examined by an official or agency of this state or the United
States; but which does not include an insurance company or
other organization primarily engaged in the insurance
business, or a Morris Plan bank, industrial loan company, or
a similar bank or company unless its deposits are insured by
a federal agency;
c. A lawyer, accountant, engineer, or teacher whose
performance of investment advisory services is solely
incidental to the practice of that person's profession;
d. A broker-dealer or its agent whose performance of
investment advisory services is solely incidental to the
conduct of its business as a broker-dealer and who receives
no special compensation for the investment advisory services;
e. A publisher, employee, or columnist of a newspaper, news
magazine, or business or financial publication, or an owner,
operator, producer, or employee of a cable, radio or
television network, station, or production facility if the
financial or business news published or disseminated is made
available to the general public and the content does not
consist of rendering advice on the basis of the specific
investment situation of each client;
f. An insurance company, its employees, or agents who are
engaged exclusively in the sale or distribution of life,
health, or casualty insurance or insurance related products.
(19) INVESTMENT ADVISER REPRESENTATIVE. Any partner, officer,
director of (or a person occupying a similar status or
performing similar functions) or other individual employed by
or associated with an investment adviser, except clerical or
ministerial personnel, who:
a. Makes any recommendation or otherwise renders advice
regarding securities,
b. Manages accounts or portfolios of clients,
c. Determines which recommendation or advice regarding
securities should be given,
d. Solicits, offers, or negotiates for the sale of or sells
investment advisory services, unless the solicitation,
offering, or selling activities are solely incidental to his
or her profession and such person is a dealer or salesman
registered under Section 8-6-3 and the person would not be an
investment adviser representative except for the performance
of activities described in subdivision (18)d. of this
section, or
e. Supervises employees who perform any of the foregoing.
(20) OFFICER. A president, vice-president, treasurer,
secretary, comptroller, or any other person performing similar
functions with respect to any organization whether incorporated
or unincorporated.
(21) APPLICANT. A person, natural or otherwise, executing or
submitting an application for registration.
(22) REGISTRANT. An applicant for whom a registration has
been declared effective by the commission.
(23) AFFILIATE. A person that directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or
is under common control with, an applicant or registrant.
(24) CONTROLLING PERSON, CONTROL, CONTROLLING, CONTROLLED BY,
UNDER COMMON CONTROL WITH. The possession, directly, or
indirectly, or the power to direct or cause the direction of
the management and policies of a person, whether through the
ownership of voting securities, by contract or otherwise.
(25) SALESMAN. An agent, as hereinabove defined.