NCJ Number
52001
Date Published
1978
Length
48 pages
Annotation
THE PURPOSE OF THIS GUIDE IS TO SHOW THAT STATE SECURITIES LAWS PROVIDE A VIABLE ALTERNATIVE FOR CONTROLLING VARIOUS TYPES OF SCHEMES WHICH ARE DIFFICULT TO CONTROL THROUGH USE OF TRADITIONAL STATUTES.
Abstract
THIS PAPER ATTEMPTS TO DISPEL THE MYTH THAT STATE SECURITIES LAWS ARE DIFFICULT AND CUMBERSOME ENFORCEMENT TOOLS. SUCH STATUTES CAN BE USED EFFECTIVELY AGAINST BUSINESS FRAUD BECAUSE, UNLIKE FEDERAL STATUTES, THEY DO NOT FOCUS ON NATIONALLY MARKETED SECURITIES. INSTEAD, THEY FOCUS ON IRREGULAR SECURITIES OR THOSE OF THE NEWLY FORMED COMPANY. THE STATE SECURITIES LAWS HAVE COME TO HAVE A WIDE RANGE OF APPLICABILITY TO BUSINESS OPPORTUNITY FRAUDS, INVESTMENT FRAUDS, AND GET-RICH-QUICK SCHEMES. MOST STATES EMPLOY THE DEFINITION OF SECURITY FOUND IN THE UNIFORM SECURITIES ACT OR THAT FOUND IN THE FEDERAL SECURITIES ACT OF 1933. THERE ARE THREE RECOGNIZED TESTS FOR THE DETERMINATION OF AN INVESTMENT CONTRACT--THE HOWEY TEST, THE RISK-CAPITAL TEST, AND THE COMBINED RISK-CAPITAL-HOWEY TEST. STATE SECURITIES LAWS ALLOW FOR PROSECUTION FOR FAILURE TO REGISTER SECURITIES, FOR FAILURE TO REGISTER AS AN AGENT OR DEALER, AND FOR SECURITIES-FRAUD VIOLATIONS. PROSECUTORS CAN USE THESE PROVISIONS IN VARIOUS WAYS, AND ILLUSTRATIONS ARE PROVIDED FROM VARIOUS STATES. CASE STUDIES DESCRIBE THE PROSECUTION OF A PYRAMID SALES SCHEME, A BUSINESS OPPORTUNITY SCHEME, AND AN ADVANCED-FEE SCHEME. THROUGHOUT THE DISCUSSION, STATE COURT DECISIONS AFFECTING VARIOUS ASPECTS OF SUCH PROSECUTIONS ARE CITED. APPENDIXES CONTAIN PHRASES AND DEFINITIONS FROM THE UNIFORM SECURITIES ACT, THE FULL TEXT OF THE NORTH DAKOTA FRANCHISE INVESTMENT ACT, THE CALIFORNIA GENERAL FALSE ADVERTISING STATUTE, AND A BIBLIOGRAPHY.