Fraud and Liabilities

V.S.A. tit. 9, ch. 150, subch. 5

in effect

9 V.S.A. § 5501 General fraud

5501. General fraud It is unlawful for a person, in connection with the offer to sell, the offer to purchase, the sale, or the 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 to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or (3) to engage in an act, practice, or course of business that operates or would operate as a fraud or deceit upon another person. Added 2005, No. 11, § 1, eff. July 1, 2006.

9 V.S.A. § 5502 Prohibited conduct in providing investment advice

5502. Prohibited conduct in providing investment advice (a) It is unlawful for a person that advises others for compensation, either directly or indirectly or through publications or writings, as to the value of securities or the advisability of investing in, purchasing, or selling securities or that, for compensation and as part of a regular business, issues or adopts analyses or reports relating to securities: (1) to employ a device, scheme, or artifice to defraud another person; (2) to make an untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or (3) to engage in an act, practice, or course of business that operates or would operate as a fraud or deceit upon another person. (b) A rule adopted under this chapter may define an act, practice, or course of business of an investment adviser or an investment adviser representative, other than a supervised person of a federal covered investment adviser, as fraudulent, deceptive, or manipulative, and prescribe means reasonably designed to prevent investment advisers and investment adviser representatives, other than supervised persons of a federal covered investment adviser, from engaging in acts, practices, and courses of business defined as fraudulent, deceptive, or manipulative. (c) A rule adopted under this chapter may specify the contents of an investment advisory contract entered into, extended, or renewed by an investment adviser. Added 2005, No. 11, § 1, eff. Jan. 1, 2006.

9 V.S.A. § 5503 Evidentiary burden

5503. Evidentiary burden (a) In a civil action or administrative proceeding under this chapter, 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 chapter, a person claiming an exemption, exception, preemption, or exclusion has the burden of going forward with evidence of the claim. Added 2005, No. 11, § 1, eff. July 1, 2006.

9 V.S.A. § 5504 Filing of sales and advertising literature

5504. Filing of sales and advertising literature (a) Except as otherwise provided in subsection (b) of this section, a rule adopted or order issued under this chapter may require the filing of a prospectus, pamphlet, circular, form letter, advertisement, sales literature, or other advertising record relating to a security or investment advice, addressed or intended for distribution to prospective investors, including clients or prospective clients of a person registered or required to be registered as an investment adviser under this chapter. (b) This section does not apply to sales and advertising literature specified in subsection (a) of this section that relates to a federal covered security, a federal covered investment adviser, or a security or transaction exempted by section 5201, 5202, or 5203 of this chapter except as required pursuant to subdivision 5201(7) of this chapter. Added 2005, No. 11, § 1, eff. July 1, 2006.

9 V.S.A. § 5505 Misleading filings

5505. Misleading filings It is unlawful for a person to make or cause to be made, in a record that is used in an action or proceeding or filed under this chapter, a statement that, at the time and in the light of the circumstances under which it is made, is false or misleading in a material respect, or, in connection with the statement, to omit to state a material fact necessary to make the statement made, in the light of the circumstances under which it was made, not false or misleading. Added 2005, No. 11, § 1, eff. July 1, 2006.

9 V.S.A. § 5506 Misrepresentations concerning registration or exemption

5506. Misrepresentations concerning registration or exemption The filing of an application for registration, a registration statement, a notice filing under this chapter, the registration of a person, the notice filing by a person, or the registration of a security under this chapter does not constitute a finding by the Commissioner that a record filed under this chapter is true, complete, and not misleading. The filing or registration or the availability of an exemption, exception, preemption, or exclusion for a security or a transaction does not mean that the Commissioner has passed upon the merits or qualifications of, or recommended or given approval to, a person, security, or transaction. It is unlawful to make, or cause to be made, to a purchaser, customer, client, or prospective customer or client a representation inconsistent with this section. Added 2005, No. 11, § 1, eff. July 1, 2006.

9 V.S.A. § 5507 Qualified immunity

5507. Qualified immunity A broker-dealer, agent, investment adviser, federal covered investment adviser, or investment adviser representative is not liable to another broker-dealer, agent, investment adviser, federal covered investment adviser, or investment adviser representative for defamation relating to a statement that is contained in a record required by the Commissioner, or designee of the Commissioner, the Securities and Exchange Commission, or a self-regulatory organization, unless the person knew, or should have known at the time that the statement was made, that it was false in a material respect or the person acted in reckless disregard of the statement’s truth or falsity. Added 2005, No. 11, § 1, eff. July 1, 2006.

9 V.S.A. § 5508 Criminal penalties

5508. Criminal penalties (a)(1) Upon conviction, any person shall be fined not more than $100,000.00 or imprisoned not more than five years, or both who: (A) willfully violates this chapter, or a rule adopted or order issued under this chapter, except section 5504 of this chapter or the notice filing requirements of section 5302 or 5405 of this chapter; or (B) willfully violates section 5505 of this chapter knowing the statement made to be false or misleading in a material respect. (2) An individual convicted of violating a rule or order under this chapter may be fined, but may not be imprisoned, if the individual did not have knowledge of the rule or order. (3) For purposes of subdivision (a)(1) of this subsection, the term “willfully” means purposely or willingly committing the act or making the omission and does not require an intent to violate the law or to injure another or to acquire any advantage. (b) The Attorney General with or without a reference from the Commissioner may institute criminal proceedings under this chapter. (c) This chapter does not limit the power of this State to punish a person for conduct that constitutes a crime under other laws of this State. Added 2005, No. 11, § 1, eff. July 1, 2006.

9 V.S.A. § 5509 Civil liability

5509. Civil liability (a) Enforcement of civil liability under this section is subject to the Securities Litigation Uniform Standards Act of 1998. (b) A person is liable to the purchaser if the person sells a security in violation of sections 5301, 5501, or 5502 of this chapter, the purchaser not knowing the untruth or omission or deceptive nature of the conduct and the seller not sustaining the burden of proof that the seller did not know and, in the exercise of reasonable care, could not have known of the untruth or omission or deceptive nature of the conduct. An action under this subsection is governed by the following: (1) The purchaser may maintain an action to recover the consideration paid for the security, less the amount of any income received on the security, and interest at the legal rate of interest from the date of the purchase, costs, and reasonable attorney’s fees determined by the court, upon the tender of the security, or for actual damages as provided in subdivision (3) of this subsection. (2) The tender referred to in subdivision (1) of this subsection may be made any time before entry of judgment. Tender requires only notice in a record of ownership of the security and willingness to exchange the security for the amount specified. A purchaser that no longer owns the security may recover actual damages as provided in subdivision (3) of this subsection. (3) Actual damages in an action arising under this subsection are the amount that would be recoverable upon a tender less the value of the security when the purchaser disposed of it, and interest at the legal rate of interest from the date of the purchase, costs, and reasonable attorney’s fees determined by the court. (c) A person is liable to the seller if the person buys a security in violation of section 5501 or 5502 of this chapter, the seller not knowing of the untruth or omission or deceptive nature of the conduct, and the purchaser not sustaining the burden of proof that the purchaser did not know, and in the exercise of reasonable care could not have known, of the untruth or omission or deceptive nature of the conduct. An action under this subsection is governed by the following: (1) The seller may maintain an action to recover the security, and any income received on the security, costs, and reasonable attorney’s fees determined by the court, upon the tender of the purchase price, or for actual damages as provided in subdivision (3) of this subsection. (2) The tender referred to in subdivision (1) of this subsection may be made any time before entry of judgment. Tender requires only notice in a record of the present ability to pay the amount tendered and willingness to take delivery of the security for the amount specified. If the purchaser no longer owns the security, the seller may recover actual damages as provided in subdivision (3) of this subsection. (3) Actual damages in an action arising under this subsection are the difference between the price at which the security was sold and the value the security would have had at the time of the sale in the absence of the purchaser’s conduct causing liability, the interest at the legal rate of interest from the date of the sale of the security, the costs, and the reasonable attorney’s fees determined by the court. (d) A person acting as a broker-dealer or agent that sells or buys a security in violation of subsection 5401(a) or 5402(a) or section 5506 of this chapter is liable to the customer. The customer, if a purchaser, may maintain an action for recovery of actual damages as specified in subdivisions (b)(1) through (3) of this section, or, if a seller, for a remedy as specified in subdivisions (c)(1) through (3) of this section. (e) A person acting as an investment adviser or investment adviser representative that provides investment advice for compensation in violation of subsection 5403(a) or 5404(a) or section 5506 of this chapter is liable to the client. The client may maintain an action to recover the consideration paid for the advice, interest at the legal rate of interest from the date of payment, costs, and reasonable attorney’s fees determined by the court. (f) A person that receives directly or indirectly any consideration for providing investment advice to another person and that employs a device, scheme, or artifice to defraud the other person or engages in an act, practice, or course of business that operates or would operate as a fraud or deceit on the other person or otherwise violates section 5502 of this chapter is liable to the other person. An action under this subsection is governed by the following: (1) The person wronged may maintain an action to recover the consideration paid for the advice and the amount of any actual damages caused by the fraudulent conduct, interest at the legal rate of interest from the date of the fraudulent conduct, costs, and reasonable attorney’s fees determined by the court, less the amount of any income received as a result of the fraudulent conduct. (2) This subsection does not apply to a broker-dealer or its agents if the investment advice provided is solely incidental to transacting business as a broker-dealer and no special compensation is received for the investment advice. (g) The following persons are liable jointly and severally with and to the same extent as persons liable under subsections (b) through (f) of this section: (1) a person that directly or indirectly controls a person liable under subsections (b) through (f) of this section, unless the controlling person sustains the burden of proof that the person did not know, and in the exercise of reasonable care could not have known, of the existence of conduct by reason of which the liability is alleged to exist; (2) an individual who is a managing partner, executive officer, or director of a person liable under subsections (b) through (f) of this section, including an individual having a similar status or performing similar functions, unless the individual sustains the burden of proof that the individual did not know and, in the exercise of reasonable care could not have known, of the existence of conduct by reason of which the liability is alleged to exist; (3) an individual who is an employee of or associated with a person liable under subsections (b) through (f) of this section and who materially aids the conduct giving rise to the liability, unless the individual sustains the burden of proof that the individual did not know and, in the exercise of reasonable care could not have known, of the existence of conduct by reason of which the liability is alleged to exist; and (4) a person that is a broker-dealer, agent, investment adviser, or investment adviser representative that materially aids the conduct giving rise to the liability under subsections (b) through (f) of this section, unless the person sustains the burden of proof that the person did not know and, in the exercise of reasonable care could not have known, of the existence of conduct by reason of which liability is alleged to exist. (h) A person liable under this section has a right of contribution as in cases of contract against any other person liable under this section for the same conduct. (i) A cause of action under this section survives the death of an individual who might have been a plaintiff or defendant. (j) A person may not obtain relief: (1) under subsection (b) of this section for violation of section 5301 of this chapter, or under subsection (d) or (e) of this section, unless the action is instituted within one year after the violation occurred; or (2) under subsection (b) of this section, other than for violation of section 5301 of this chapter, or under subsection (c) or (f) of this section, unless the action is instituted within the earlier of two years after discovery of the facts constituting the violation or five years after the violation. (k) A person that has made, or has engaged in the performance of, a contract in violation of this chapter or a rule adopted or order issued under this chapter, or that has acquired a purported right under the contract with knowledge of conduct by reason of which its making or performance was in violation of this chapter, may not base an action on the contract. (l) A condition, stipulation, or provision binding a person purchasing or selling a security or receiving investment advice to waive compliance with this chapter or a rule adopted or order issued under this chapter is void. (m) The rights and remedies provided by this chapter are in addition to any other rights or remedies that may exist, but this chapter does not create a cause of action not specified in this section or subsection 5411(e) of this chapter. Added 2005, No. 11, § 1, eff. July 1, 2006.

9 V.S.A. § 5510 Rescission offers

5510. Rescission offers (a) Unless a purchaser, seller, or recipient of investment advice provides written notice of a dispute to the seller, purchaser, or provider of investment advice in conformity to subsection (b) of this section, such purchaser, seller, or recipient of investment advice may not maintain an action under section 5509 of this chapter if: (1) The purchaser, seller, or recipient of investment advice receives in a record, before the action is instituted: (A) an offer stating the respect in which liability under section 5509 of this chapter may have arisen and fairly advising the purchaser, seller, or recipient of investment advice of that person’s rights in connection with the offer, and any financial or other information necessary to correct all material misrepresentations or omissions in the information that was required by this chapter to be furnished to that person at the time of the purchase, sale, or investment advice; (B) if the basis for relief under this section may have been a violation of subsection 5509(b) of this chapter, an offer to repurchase the security for cash, payable on delivery of the security, equal to the consideration paid, and interest at the legal rate of interest from the date of the purchase, less the amount of any income received on the security, or, if the purchaser no longer owns the security, an offer to pay the purchaser upon acceptance of the offer damages in an amount that would be recoverable upon a tender, less the value of the security when the purchaser disposed of it, and interest at the legal rate of interest from the date of the purchase in cash equal to the damages computed in the manner provided in this subsection; (C) if the basis for relief under this section may have been a violation of subsection 5509(c) of this chapter, an offer to tender the security, on payment by the seller of an amount equal to the purchase price paid, less income received on the security by the purchaser and interest at the legal rate of interest from the date of the sale; or if the purchaser no longer owns the security, an offer to pay the seller upon acceptance of the offer, in cash, damages in the amount of the difference between the price at which the security was purchased and the value the security would have had at the time of the purchase in the absence of the purchaser’s conduct that may have caused liability and interest at the legal rate of interest from the date of the sale; (D) if the basis for relief under this section may have been a violation of subsection 5509(d) of this chapter; and if the customer is a purchaser, an offer to pay as specified in subdivision (B) of this subdivision (1); or, if the customer is a seller, an offer to tender or to pay as specified in subdivision (C) of this subdivision (1); (E) if the basis for relief under this section may have been a violation of subsection 5509(e) of this chapter, an offer to reimburse in cash the consideration paid for the advice and interest at the legal rate of interest from the date of payment; or (F) if the basis for relief under this section may have been a violation of subsection 5509(f) of this chapter, an offer to reimburse in cash the consideration paid for the advice, the amount of any actual damages that may have been caused by the conduct, and interest at the legal rate of interest from the date of the violation causing the loss; (2) the offer under subdivision (1) of this subsection states that it must be accepted by the purchaser, seller, or recipient of investment advice within 30 days after the date of its receipt by the purchaser, seller, or recipient of investment advice or any shorter period, of not less than three days, that the Commissioner, by order, specifies; (3) the offeror has the present ability to pay the amount offered or to tender the security under subdivision (1) of this subsection; (4) the offer under subdivision (1) of this subsection is delivered to the purchaser, seller, or recipient of investment advice, or sent in a manner that ensures receipt by the purchaser, seller, or recipient of investment advice; and (5) the purchaser, seller, or recipient of investment advice that accepts the offer under subdivision (1) of this subsection in a record within the period specified under subdivision (2) of this subsection is paid in accordance with the terms of the offer. (b) When a purchaser, seller, or recipient of investment advice provides written notice of a dispute containing a description of the nature of the dispute, the dates on which it occurred, a listing of the persons or entities involved to the seller, purchaser, or provider of investment advice, the person receiving such notice shall have 90 days to resolve the dispute within the terms of subsection (a) of this section. After the expiration of 90 days from the receipt of such notice, the terms of subsection (a) shall not apply to prohibit the pursuit of relief by such purchaser, seller, or recipient of investment advice under section 5509 of this chapter unless the terms of subsection (a) have been satisfied. Such notice shall be sent via certified mail, return receipt requested, or via a national courier service to the principal office and contact person of the purchaser, seller, or provider of investment advice, which: (1) in the case of a broker-dealer firm or its agent, shall be the principal office and contact person for the firm as set forth in such firm’s form B-D registration on file with the Commissioner (or any similar registration form adopted by the Commissioner hereafter); and (2) in the case of an investment adviser firm or its representative, shall be the principal office and contact person for the firm as set forth in such firm’s form ADV registration or notice filing on file with the Commissioner (or any similar registration or notification form adopted by the Commissioner hereafter). Added 2005, No. 11, § 1, eff. July 1, 2006.

Source: Vermont General Assembly (legislature.vermont.gov)URL: https://legislature.vermont.gov/statutes/chapter/09/150Fetched: 10/21/2026