Securities Law - Illinois Securities Law

There has been much attention recently to the Securities Act of 1933 and the Securities Exchange Act of 1934. The actions and prosecution of Bernard Madoff increased interest.

The Illinois Securities Law (the “Act”) 815 ILCS 5, also merits attention because it is sometimes overlooked.

The Act is administered by the Secretary of State. It provides for remedies and attorneys’ fees for violations of the Act. Violations are set forth in Section 12 of the Act and remedies are described in Section 13. Section 13 also has to be followed carefully because it sets forth the procedures to pursue a remedy.
Section 12 provides generally that it is a violation of the Act to offer or sell a security except in accordance with the provisions of the Act. Violations include: (1) failure to deliver to a purchaser any security required to be registered without accompanying that security with a prospectus that meets the registration provisions; (2) failure to act as a dealer, sales person or investment advisor unless properly registered; (3) filing any document that is false or misleading, with respect to material fact, (4) engaging in any transaction which works or intends to work a fraud or deceit upon the purchaser or seller of a security; and (5) obtaining money through the sales of a security by means of an untrue statement of a material fact.
Section 13 of the Act provides that every sale in violation of the Act is voidable at the election of the purchaser. Persons who are liable are the insurer, controlling persons, underwriters, dealers or other persons who shall have participated or aided in the sale. Damages include the amount paid with interest from the date of payment. There must be a tender to the seller or tender to the Court of the securities sold. It the purchase prevails then the Court shall assess costs together with reasonable fees and expenses of the purchaser’s attorney.

There is a dual statute of limitations. First of all, a notice of election to rescind must be given within six months after the purchaser has knowledge that the sale is voidable. Notice is given served by registered or certified mail.

There is a three-year statue of limitations from the date of sale provided that if the person who brings the action knew or in the exercise of reasonable diligence should have known the violation. The three year period begins to run upon the earlier of (1) the date the person has actual knowledge, or (2) the date upon which the person bringing the action has notice of facts which in the exercise of reasonable diligence would lead to actual knowledge. The period is not extended in any event more than two years.

The Court also has the power on application by the Secretary of State when it learns that a person has engaged or is about to engaged in a violation to grant an injunction and if the proposed sale is determined to be unlawful the Court may assess costs against the defendant.

Therefore, although it is not widely understood, the Illinois Securities Law does provide several remedies including attorneys’ fees.

The Illinois Securities Law of 1953 was drafted by Samuel H. Young, former Republican Congressman for the Tenth Congressional District while he was acting as First Assistant Secretary of State. The Act of 1953 provided comprehensive investor protection including detailed provisions before securities could be offered or sold in Illinois.

During the reign of Jim Edgar as governor, the law was revised to remove many of the investor safeguards, particularly, in the area of the registration of securities. Mr. Young traveled to Springfield, Illinois at his own expense to testify before a House Committee to oppose the Edgar Amendments to the Illinois Securities Law. Unfortunately, he was not successful.

Edward X. Clinton, Sr.
Copyright 2010