CHAPTER 5. FRAUD AND LIABILITIES
IC 23-19-5
Chapter 5. Fraud and Liabilities
IC 23-19-5-1
Fraudulent or deceitful acts
Sec. 1. It is unlawful for a person, in connection with the offer,sale, or purchase of a security, directly or indirectly:
(1) to employ a device, scheme, or artifice to defraud;
(2) to make an untrue statement of a material fact or to omit tostate a material fact necessary in order to make the statementmade, in the light of the circumstances under which they weremade, not misleading; or
(3) to engage in an act, practice, or course of business thatoperates or would operate as a fraud or deceit upon anotherperson.
As added by P.L.27-2007, SEC.23.
IC 23-19-5-2
Unlawful practices; investment advisers and investment adviserrepresentatives; investment advisory contract
Sec. 2. (a) It is unlawful for a person that advises others forcompensation, either directly or indirectly or through publications orwritings, as to the value of securities or the advisability of investingin, purchasing, or selling securities or that, for compensation and aspart of a regular business, issues or promulgates analyses or reportsrelating to securities, or that receives compensation to solicit, offer,or negotiate for the sale of or for selling investment advice:
(1) to employ a device, scheme, or artifice to defraud anotherperson; or
(2) to engage in an act, practice, or course of business thatoperates or would operate as a fraud or deceit upon anotherperson.
(b) A rule adopted under this article may define an act, practice,or course of business of an investment adviser or an investmentadviser representative, other than a supervised person of a federalcovered investment adviser, as fraudulent, deceptive, ormanipulative, and prescribe means reasonably designed to preventinvestment advisers and investment adviser representatives, otherthan supervised persons of a federal covered investment adviser,from engaging in acts, practices, and courses of business defined asfraudulent, deceptive, or manipulative.
(c) A rule adopted under this article may specify the contents ofan investment advisory contract entered into, extended, or renewedby an investment adviser.
As added by P.L.27-2007, SEC.23.
IC 23-19-5-3
Evidentiary burden
Sec. 3. (a) In a civil action or administrative proceeding under thisarticle, a person claiming an exemption, exception, preemption, or
exclusion has the burden to prove the applicability of the claim.
(b) In a criminal proceeding under this article, a person claimingan exemption, exception, preemption, or exclusion has the burden ofgoing forward with evidence of the claim.
As added by P.L.27-2007, SEC.23.
IC 23-19-5-4
Sales and advertising literature filing
Sec. 4. (a) Except as otherwise provided in subsection (b), a ruleadopted or order issued under this article may require the filing of aprospectus, a pamphlet, a circular, a form letter, an advertisement,sales literature, or other advertising record relating to a security orinvestment advice, addressed or intended for distribution toprospective investors, including clients or prospective clients of aperson registered or required to be registered as an investmentadviser under this article.
(b) This section does not apply to sales and advertising literaturespecified in subsection (a) that relates to a federal covered security,a federal covered investment adviser, or a security or transactionexempted by IC 23-19-2-1, IC 23-19-2-2, or IC 23-19-2-3 except asrequired under IC 23-19-2-1(7).
As added by P.L.27-2007, SEC.23.
IC 23-19-5-5
Filing false or misleading statements
Sec. 5. It is unlawful for a person to make or cause to be made, ina record that is used in an action or proceeding or filed under thisarticle, a statement that, at the time and in the light of thecircumstances under which it is made, is false or misleading in amaterial respect, or, in connection with the statement, to omit to statea material fact necessary to make the statement made, in the light ofthe circumstances under which it was made, not false or misleading.
As added by P.L.27-2007, SEC.23.
IC 23-19-5-6
Filings related to fact of registration; unlawful act
Sec. 6. The filing of an application for registration, a registrationstatement, a notice filing under this article, the registration of aperson, the notice filing by a person, or the registration of a securityunder this article does not constitute a finding by the commissionerthat a record filed under this article is true, complete, and notmisleading. The filing or registration or the availability of anexemption, exception, preemption, or exclusion for a security or atransaction does not mean that the commissioner has passed upon themerits or qualifications of, or recommended or given approval to, aperson, security, or transaction. It is unlawful to make, or cause to bemade, to a purchaser, customer, client, or prospective purchaser,customer, or client a representation inconsistent with this section.
As added by P.L.27-2007, SEC.23.
IC 23-19-5-7
Qualified immunity
Sec. 7. A broker-dealer, agent, investment adviser, federal coveredinvestment adviser, or investment adviser representative is not liableto another broker-dealer, agent, investment adviser, federal coveredinvestment adviser, or investment adviser representative fordefamation relating to a statement that is contained in a recordrequired by the commissioner or designee of the commissioner, theSecurities and Exchange Commission, or a self-regulatoryorganization, unless the person knew, or should have known at thetime that the statement was made, that it was false in a materialrespect or the person acted in reckless disregard of the statement'struth or falsity.
As added by P.L.27-2007, SEC.23.
IC 23-19-5-8
Violations; felony; assistance in prosecution
Sec. 8. (a) A person who knowingly violates this article, or a ruleadopted under this article, except section 4 of this chapter or thenotice filing requirements of IC 23-19-3-2 or IC 23-19-4-5, commitsa Class C felony.
(b) A person who knowingly violates section 1 of this chaptercommits a Class B felony if the person harmed, defrauded, misled,or deceived by the violation is at least sixty (60) years of age.
(c) A person who knowingly violates section 1 of this chapter:
(1) while using or taking advantage of; or
(2) in connection with;
a relationship that is based on religious affiliation or worshipcommits a Class B felony.
(d) It is the duty of a prosecuting attorney, as well as of theattorney general, to assist the commissioner upon the commissioner'srequest in the prosecution to final judgment of a violation of thepenal provisions of this article. If the commissioner determines thatan action based on the securities division's investigations ismeritorious:
(1) the commissioner or a designee empowered by thecommissioner shall refer the facts drawn from the investigationto the prosecuting attorney of the judicial circuit in which thecrime may have been committed;
(2) the commissioner and the securities division shall assist theprosecuting attorney in prosecuting an action under this section,which may include a securities division attorney serving as aspecial deputy prosecutor appointed by the prosecutingattorney;
(3) a prosecuting attorney to whom facts concerning fraud arereferred under subdivision (1) may refer the matter to theattorney general;
(4) if a matter has been referred to the attorney general undersubdivision (3), the attorney general may:
(A) file an information in a court with jurisdiction over the
matter in the county in which the offense is alleged to havebeen committed; and
(B) prosecute the alleged offense; and
(5) if a matter has been referred to the attorney general undersubdivision (3), the commissioner and the securities divisionshall assist the attorney general in prosecuting an action underthis section, which may include a securities division attorneyserving as a special deputy attorney general appointed by theattorney general.
(e) This article does not limit the power of this state to punish aperson for conduct that constitutes a crime under other laws of thisstate.
As added by P.L.27-2007, SEC.23. Amended by P.L.156-2009,SEC.23.
IC 23-19-5-9
Civil liability; defense; rights and remedies; joint and severalliability; right of contribution; statute of limitations; contractualwaivers void
Sec. 9. (a) A person is liable to the purchaser if the person sells asecurity in violation of this article, including a violation ofIC 23-19-4-12(d)(9) or IC 23-19-4-12(d)(13). It is a defense if theperson selling the security sustains the burden of proof that either theperson did not know, and in the exercise of reasonable care could nothave known, of the violation or the purchaser knowingly participatedin the violation. An action under this subsection is governed by thefollowing:
(1) The purchaser may maintain an action to recover theconsideration paid for the security, less the amount of anyincome received on the security, and interest at the greater ofeight percent (8%) per annum or the rate provided for in thesecurity from the date of the purchase, costs, and reasonableattorney's fees determined by the court or arbitrator, upon thetender of the security, or for actual damages as provided insubdivision (3).
(2) The tender referred to in subdivision (1) may be made anytime before entry of judgment. Tender requires only notice in arecord of ownership of the security and willingness to exchangethe security for the amount specified. A purchaser that nolonger owns the security may recover actual damages asprovided in subdivision (3).
(3) Actual damages in an action arising under this subsectionare the amount that would be recoverable upon a tender less thevalue of the security when the purchaser disposed of it, andinterest at the greater of eight percent (8%) per annum or therate provided for in the security from the date of the purchase,costs, and reasonable attorneys' fees determined by the court orarbitrator.
(b) A person is liable to the seller if the person buys a security inviolation of this article, including a violation of IC 23-19-4-12(d)(9)
or IC 23-19-4-12(d)(13). It is a defense if the person purchasing thesecurity sustains the burden of proof that either the person did notknow, and in the exercise of reasonable care could not have known,of the conduct constituting the violation or the seller knowinglyparticipated in the violation. An action under this subsection isgoverned by the following:
(1) The seller may maintain an action to recover the security,and any income received on the security, costs, and reasonableattorney's fees determined by the court or arbitrator, upon thetender of the purchase price, or for actual damages as providedin subdivision (3).
(2) The tender referred to in subdivision (1) may be made anytime before entry of judgment. Tender requires only notice in arecord of the present ability to pay the amount tendered andwillingness to take delivery of the security for the amountspecified. If the purchaser no longer owns the security, theseller may recover actual damages as provided in subdivision(3).
(3) Actual damages in an action arising under this subsectionare the difference between the price at which the security wassold and the value the security would have had at the time of thesale in the absence of the purchaser's conduct causing liability,and interest at the greater of eight percent (8%) per annum orthe rate provided for in the security from the date of the sale ofthe security, costs, and reasonable attorney's fees determined bythe court or arbitrator.
(c) A person acting as an investment adviser or investment adviserrepresentative that provides investment advice for compensation inviolation of this article is liable to the client. An action under thissubsection shall be governed by the following:
(1) For a violation of section 1 or 2 of this chapter, the clientmay maintain an action to recover the consideration paid for theadvice and the amount of any actual damages caused by thefraudulent conduct, interest at the greater of eight percent (8%)per annum or the rate provided for in the security from the dateof the fraudulent conduct, costs, and reasonable attorney's feesdetermined by the court less the amount of any income receivedas a result of the fraudulent conduct.
(2) For a violation of any other section of this article, the clientmay maintain an action to recover the consideration paid for theadvice, interest at the greater of eight percent (8%) per annumor the rate provided for in the security from the date ofpayment, costs, and reasonable attorney's fees determined bythe court or arbitrator.
(3) This subsection does not apply to a broker-dealer or itsagents if the investment advice provided is solely incidental totransacting business as a broker-dealer and no specialcompensation is received for the investment advice.
(d) The following persons are liable jointly and severally with andto the same extent as persons liable under subsections (a) through
(c):
(1) A person that directly or indirectly controls a person liableunder subsections (a) and (b), unless the controlling personsustains the burden of proof that the controlling person did notknow, and in the exercise of reasonable care could not haveknown, of the existence of the conduct by reason of which theliability is alleged to exist.
(2) An individual who is a managing partner, executive officer,or director of a person liable under subsections (a) through (c),including an individual having a similar status or performingsimilar functions, unless the individual sustains the burden ofproof that the individual did not know, and in the exercise ofreasonable care could not have known, of the existence ofconduct by reason of which the liability is alleged to exist.
(3) An individual who is an employee of or associated with aperson liable under subsections (a) through (c) and whomaterially aids the conduct giving rise to the liability, unless theindividual sustains the burden of proof that the individual didnot know, and in the exercise of reasonable care could not haveknown, of the existence of conduct by reason of which theliability is alleged to exist.
(4) A person that is a broker-dealer, agent, investment adviser,or investment adviser representative that materially aids theconduct giving rise to the liability under subsections (a) through(c), unless the person sustains the burden of proof that theperson did not know, and in the exercise of reasonable carecould not have known, of the existence of conduct by reason ofwhich liability is alleged to exist.
(e) A person liable under this section has a right of contributionas in cases of contract against any other person liable under thissection for the same conduct.
(f) A cause of action under this section survives the death of anindividual who might have been a plaintiff or defendant.
(g) Action under this section shall be commenced within three (3)years after discovery by the person bringing the action of a violationof this article, and not afterwards.
(h) A person that has made, or has engaged in the performance of,a contract in violation of this article or a rule adopted or order issuedunder this article, or that has acquired a purported right under thecontract with knowledge of conduct by reason of which its makingor performance was in violation of this article, may not base anaction on the contract.
(i) A condition, stipulation, or provision binding a personpurchasing or selling a security or receiving investment advice towaive compliance with this article or a rule adopted or order issuedunder this article is void.
(j) The rights and remedies provided by this article are in additionto any other rights or remedies that may exist.
As added by P.L.27-2007, SEC.23.
IC 23-19-5-10
Rescission offers
Sec. 10. A purchaser, seller, or recipient of investment advice maynot maintain an action under section 9 of this chapter if:
(1) the purchaser, seller, or recipient of investment advicereceives in a record, before the action is instituted:
(A) an offer stating the respect in which liability undersection 9 of this chapter may have arisen and fairly advisingthe purchaser, seller, or recipient of investment advice ofthat person's rights in connection with the offer, and anyfinancial or other information necessary to correct allmaterial misrepresentations or omissions in the informationthat was required by this article to be furnished to thatperson at the time of the purchase, sale, or investmentadvice;
(B) if the basis for relief under this section may have been aviolation described in section 9(a) of this chapter, an offer torepurchase the security for cash, payable on delivery of thesecurity, equal to the consideration paid, and interest at therate of eight percent (8%) per annum from the date of thepurchase, less the amount of any income received on thesecurity, or, if the purchaser no longer owns the security, anoffer to pay the purchaser upon acceptance of the offerdamages in an amount that would be recoverable upon atender, less the value of the security when the purchaserdisposed of it, and interest at the rate of eight percent (8%)per annum from the date of the purchase in cash equal to thedamages computed in the manner provided in this clause;
(C) if the basis for relief under this section may have been aviolation described in section 9(b) of this chapter, an offer totender the security, on payment by the seller of an amountequal to the purchase price paid, less income received on thesecurity by the purchaser and interest from the date of thesale, or if the purchaser no longer owns the security, an offerto pay the seller upon acceptance of the offer, in cash,damages in the amount of the difference between the priceat which the security was purchased and the value thesecurity would have had at the time of the purchase in theabsence of the purchaser's conduct that may have causedliability, and interest at the rate of eight percent (8%) perannum from the date of the sale; or
(D) if the basis for relief under this section may have been aviolation described in section 9(c) of this chapter, an offer toreimburse in cash the consideration paid for the advice andinterest from the date of payment;
(2) the offer under subdivision (1) states that it must beaccepted by the purchaser, seller, or recipient of investmentadvice within thirty (30) days after the date of its receipt by thepurchaser, seller, or recipient of investment advice or anyshorter period, of not less than three (3) days, that the
commissioner, by order, specifies;
(3) the offeror has the present ability to pay the amount offeredor to tender the security under subdivision (1);
(4) the offer under subdivision (1) is delivered to the purchaser,seller, or recipient of investment advice, or sent in a manner thatensures receipt by the purchaser, seller, or recipient ofinvestment advice; and
(5) the purchaser, seller, or recipient of investment advice thataccepts the offer under subdivision (1) in a record within theperiod specified under subdivision (2) is paid in accordancewith the terms of the offer.
As added by P.L.27-2007, SEC.23.