15 U.S.C. § 77q — Fraudulent interstate transactions

Page 153 TITLE 15—COMMERCE AND TRADE § 77q 1 See References in Text note below. 1 See References in Text note below. be maintained in State court pursuant to this subsection, the Federal court shall remand such action to such State court. (e) Preservation of State jurisdiction The securities commission (or any agency or office performing like functions) of any State shall retain jurisdiction under the laws of such State to investigate and bring enforcement ac- tions. (f) Definitions For purposes of this section, the following definitions shall apply: (1) Affiliate of the issuer The term ‘‘affiliate of the issuer’’ means a person that directly or indirectly, through one or more intermediaries, controls or is con- trolled by or is under common control with, the issuer. (2) Covered class action (A) In general The term ‘‘covered class action’’ means— (i) any single lawsuit in which— (I) damages are sought on behalf of more than 50 persons or prospective class members, and questions of law or fact common to those persons or members of the prospective class, without reference to issues of individualized reliance on an alleged misstatement or omission, pre- dominate over any questions affecting only individual persons or members; or (II) one or more named parties seek to recover damages on a representative basis on behalf of themselves and other unnamed parties similarly situated, and questions of law or fact common to those persons or members of the prospective class predominate over any questions af- fecting only individual persons or mem- bers; or (ii) any group of lawsuits filed in or pending in the same court and involving common questions of law or fact, in which— (I) damages are sought on behalf of more than 50 persons; and (II) the lawsuits are joined, consoli- dated, or otherwise proceed as a single action for any purpose. (B) Exception for derivative actions Notwithstanding subparagraph (A), the term ‘‘covered class action’’ does not include an exclusively derivative action brought by one or more shareholders on behalf of a cor- poration. (C) Counting of certain class members For purposes of this paragraph, a corpora- tion, investment company, pension plan, partnership, or other entity, shall be treated as one person or prospective class member, but only if the entity is not established for the purpose of participating in the action. (D) Rule of construction Nothing in this paragraph shall be con- strued to affect the discretion of a State court in determining whether actions filed in such court should be joined, consolidated, or otherwise allowed to proceed as a single action. (3) Covered security The term ‘‘covered security’’ means a secu- rity that satisfies the standards for a covered security specified in paragraph (1) or (2) of sec- tion 77r(b) of this title at the time during which it is alleged that the misrepresentation, omission, or manipulative or deceptive con- duct occurred, except that such term shall not include any debt security that is exempt from registration under this subchapter pursuant to rules issued by the Commission under section 77d(2) 1 of this title. (May 27, 1933, ch. 38, title I, § 16, 48 Stat. 84; Pub. L. 105–353, title I, § 101(a)(1), Nov. 3, 1998, 112 Stat. 3227.) Editorial Notes REFERENCES IN TEXT Section 77d(2) of this title, referred to in subsec. (f)(3), was redesignated section 77d(a)(2) of this title by Pub. L. 112–106, title II, § 201(b)(1), (c)(1), Apr. 5, 2012, 126 Stat. 314. AMENDMENTS 1998—Pub. L. 105–353 amended section catchline and text generally. Prior to amendment, text read as fol- lows: ‘‘The rights and remedies provided by this sub- chapter shall be in addition to any and all other rights and remedies that may exist at law or in equity.’’ Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1998 AMENDMENT Pub. L. 105–353, title I, § 101(c), Nov. 3, 1998, 112 Stat. 3233, provided that: ‘‘The amendments made by this section [amending this section and sections 77v, 77z–1, 78u–4, and 78bb of this title] shall not affect or apply to any action commenced before and pending on the date of enactment of this Act [Nov. 3, 1998].’’ § 77q. Fraudulent interstate transactions (a) Use of interstate commerce for purpose of fraud or deceit It shall be unlawful for any person in the offer or sale of any securities (including security- based swaps) or any security-based swap agree- ment (as defined in section 78c(a)(78) 1 of this title) by the use of any means or instruments of transportation or communication in interstate commerce or by use of the mails, directly or in- directly— (1) to employ any device, scheme, or artifice to defraud, or (2) to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact nec- essary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or (3) to engage in any transaction, practice, or course of business which operates or would op- erate as a fraud or deceit upon the purchaser. (b) Use of interstate commerce for purpose of of- fering for sale It shall be unlawful for any person, by the use of any means or instruments of transportation Page 154 TITLE 15—COMMERCE AND TRADE § 77r or communication in interstate commerce or by the use of the mails, to publish, give publicity to, or circulate any notice, circular, advertise- ment, newspaper, article, letter, investment service, or communication which, though not purporting to offer a security for sale, describes such security for a consideration received or to be received, directly or indirectly, from an issuer, underwriter, or dealer, without fully dis- closing the receipt, whether past or prospective, of such consideration and the amount thereof. (c) Exemptions of section 77c not applicable to this section The exemptions provided in section 77c of this title shall not apply to the provisions of this section. (d) Authority with respect to security-based swap agreements The authority of the Commission under this section with respect to security-based swap agreements (as defined in section 78c(a)(78) of this title) shall be subject to the restrictions and limitations of section 77b–1(b) of this title. (May 27, 1933, ch. 38, title I, § 17, 48 Stat. 84; Aug. 10, 1954, ch. 667, title I, § 10, 68 Stat. 686; Pub. L. 106–554, § 1(a)(5) [title III, § 302(b), (c)], Dec. 21, 2000, 114 Stat. 2763, 2763A–452; Pub. L. 111–203, title VII, § 762(c)(2), July 21, 2010, 124 Stat. 1759.) Editorial Notes REFERENCES IN TEXT Section 78c(a)(78) of this title, referred to in subsec. (a), was in the original ‘‘section 3(a)(78) of the Securi- ties Exchange Act’’, and was translated as meaning sec- tion 3(a)(78) of act June 6, 1934, ch. 404, to reflect the probable intent of Congress. AMENDMENTS 2010—Subsec. (a). Pub. L. 111–203, § 762(c)(2)(A), in in- troductory provisions, inserted ‘‘(including security- based swaps)’’ after ‘‘securities’’ and substituted ‘‘(as defined in section 78c(a)(78) of this title)’’ for ‘‘(as de- fined in section 206B of the Gramm-Leach-Bliley Act)’’. Subsec. (d). Pub. L. 111–203, § 762(c)(2)(B), substituted ‘‘78c(a)(78) of this title’’ for ‘‘206B of the Gramm-Leach- Bliley Act’’. 2000—Subsec. (a). Pub. L. 106–554, § 1(a)(5) [title III, § 302(b)], amended subsec. (a) generally. Prior to amend- ment, subsec. (a) read as follows: ‘‘It shall be unlawful for any person in the offer or sale of any securities by the use of any means or instruments of transportation or communication in interstate commerce or by the use of the mails, directly or indirectly— ‘‘(1) to employ any device, scheme, or artifice to de- fraud, or ‘‘(2) to obtain money or property 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 cir- cumstances under which they were made, not mis- leading, or ‘‘(3) to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser.’’ Subsec. (d). Pub. L. 106–554, § 1(a)(5) [title III, § 302(c)], added subsec. (d). 1954—Subsec. (a). Act Aug. 10, 1954, inserted ‘‘offer or’’ before ‘‘sale’’ in introductory text. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2010 AMENDMENT Amendment by Pub. L. 111–203 effective on the later of 360 days after July 21, 2010, or, to the extent a provi- sion of subtitle B (§§ 761–774) of title VII of Pub. L. 111–203 requires a rulemaking, not less than 60 days after publication of the final rule or regulation imple- menting such provision of subtitle B, see section 774 of Pub. L. 111–203, set out as a note under section 77b of this title. EFFECTIVE DATE OF 1954 AMENDMENT Amendment by act Aug. 10, 1954, effective 60 days after Aug. 10, 1954, see note under section 77b of this title. § 77r. Exemption from State regulation of securi- ties offerings (a) Scope of exemption Except as otherwise provided in this section, no law, rule, regulation, or order, or other ad- ministrative action of any State or any political subdivision thereof— (1) requiring, or with respect to, registration or qualification of securities, or registration or qualification of securities transactions, shall directly or indirectly apply to a security that— (A) is a covered security; or (B) will be a covered security upon comple- tion of the transaction; (2) shall directly or indirectly prohibit, limit, or impose any conditions upon the use of— (A) with respect to a covered security de- scribed in subsection (b), any offering docu- ment that is prepared by or on behalf of the issuer; or (B) any proxy statement, report to share- holders, or other disclosure document relat- ing to a covered security or the issuer there- of that is required to be and is filed with the Commission or any national securities orga- nization registered under section 78o–3 of this title, except that this subparagraph does not apply to the laws, rules, regula- tions, or orders, or other administrative ac- tions of the State of incorporation of the issuer; or (3) shall directly or indirectly prohibit, limit, or impose conditions, based on the mer- its of such offering or issuer, upon the offer or sale of any security described in paragraph (1). (b) Covered securities For purposes of this section, the following are covered securities: (1) Exclusive Federal registration of nationally traded securities A security is a covered security if such secu- rity is— (A) a security designated as qualified for trading in the national market system pur- suant to section 78k–1(a)(2) of this title that is listed, or authorized for listing, on a na- tional securities exchange (or tier or seg- ment thereof); or (B) a security of the same issuer that is equal in seniority or that is a senior security to a security described in subparagraph (A). (2) Exclusive Federal registration of invest- ment companies A security is a covered security if such secu- rity is a security issued by an investment