Chapter 551

551.412(3) (3) Disciplinary penalties — registrants. If the administrator finds that the order is in the public interest and sub. (4) (a) to (f), (h), (i), (j), (L), (m), or (o) to (r) authorizes the action, an order under this chapter may censure, impose a bar, or impose a civil penalty in an amount not to exceed a maximum of $10,000 for a single violation or $100,000 for more than one violation, or in such amount as agreed to by the parties, on a registrant and, if the registrant is a broker-dealer or investment adviser, a partner, officer, director, person having a similar status or performing similar functions, or person directly or indirectly in control of the broker-dealer or investment adviser.

551.412(4) (4) Grounds for discipline. A person may be disciplined under subs. (1) to (3) if the person:

551.412(4)(a) (a) Has filed an application for registration in this state under this chapter or the predecessor act within the previous 10 years, which, as of the effective date of registration or as of any date after filing in the case of an order denying effectiveness, was incomplete in any material respect or contained a statement that, in light of the circumstances under which it was made, was false or misleading with respect to a material fact.

551.412(4)(b) (b) Willfully violated or willfully failed to comply with this chapter or the predecessor act or a rule adopted or order issued under this chapter or the predecessor act within the previous 10 years.

551.412(4)(c) (c) Has been convicted of a felony or within the previous 10 years has been convicted of a misdemeanor involving a security, a commodity future or option contract, or an aspect of a business involving securities, commodities, investments, franchises, insurance, banking, or finance.

551.412(4)(d) (d) Is enjoined or restrained by a court of competent jurisdiction in an action instituted by the administrator under this chapter or the predecessor act, a state, the Securities and Exchange Commission, or the United States from engaging in or continuing an act, practice, or course of business involving an aspect of a business involving securities, commodities, investments, franchises, insurance, banking, or finance.

551.412(4)(e) (e) Is the subject of an order, issued after notice and opportunity for hearing, by any of the following:

551.412(4)(e)1. 1. The securities or other financial services regulator of a state or the Securities and Exchange Commission or other federal agency denying, revoking, barring, or suspending registration as a broker-dealer, agent, investment adviser, federal covered investment adviser, or investment adviser representative.

551.412(4)(e)2. 2. The securities regulator of a state or the Securities and Exchange Commission against a broker-dealer, agent, investment adviser, investment adviser representative, or federal covered investment adviser.

551.412(4)(e)3. 3. The Securities and Exchange Commission or a self-regulatory organization suspending or expelling the registrant from membership in the self-regulatory organization.

551.412(4)(e)4. 4. A court adjudicating a United States Postal Service fraud order.

551.412(4)(e)5. 5. The insurance regulator of a state denying, suspending, or revoking registration as an insurance agent.

551.412(4)(e)6. 6. A depository institution or financial services regulator suspending or barring the person from the depository institution or other financial services business.

551.412(4)(f) (f) Is the subject of an adjudication or determination, after notice and opportunity for hearing, by the Securities and Exchange Commission; the Commodity Futures Trading Commission; the Federal Trade Commission; a federal depository institution regulator, or a depository institution, insurance, or other financial services regulator of a state that the person willfully violated the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Advisers Act of 1940, the Investment Company Act of 1940, or the Commodity Exchange Act, the securities or commodities law of a state, or a federal or state law under which a business involving investments, franchises, insurance, banking, or finance is regulated.

551.412(4)(g) (g) Is insolvent, either because the person’s liabilities exceed the person’s assets or because the person cannot meet the person’s obligations as they mature, but the administrator may not enter an order against an applicant or registrant under this paragraph without a finding of insolvency as to the applicant or registrant.

551.412(4)(h) (h) Refuses to allow or otherwise impedes the administrator from conducting an audit or inspection under s. 551.411 (4) or refuses access to a registrant’s office to conduct an audit or inspection under s. 551.411 (4).

551.412(4)(i) (i) Has failed to reasonably supervise an agent, investment adviser representative, or other individual, if the agent, investment adviser representative, or other individual was subject to the person’s supervision and committed a violation of this chapter or the predecessor act or a rule adopted or order issued under this chapter or the predecessor act within the previous 10 years.

551.412(4)(j) (j) Has not paid the proper filing fee within 30 days after having been notified by the administrator of a deficiency, but the administrator shall vacate an order under this paragraph when the deficiency is corrected.

551.412(4)(k) (k) After notice and opportunity for a hearing, has been found within the previous 10 years:

551.412(4)(k)1. 1. By a court of competent jurisdiction to have willfully violated the laws of a foreign jurisdiction under which the business of securities, commodities, investment, franchises, insurance, banking, or finance is regulated.

551.412(4)(k)2. 2. To have been the subject of an order of a securities regulator of a foreign jurisdiction denying, revoking, or suspending the right to engage in the business of securities as a broker-dealer, agent, investment adviser, investment adviser representative, or similar person.

551.412(4)(k)3. 3. To have been suspended or expelled from membership by or participation in a securities exchange or securities association operating under the securities laws of a foreign jurisdiction.

551.412(4)(L) (L) Is the subject of a cease and desist order issued by the Securities and Exchange Commission or issued under the securities, commodities, investment, franchise, banking, finance, or insurance laws of a state.

551.412(4)(m) (m) Has engaged in dishonest or unethical practices in the securities, commodities, investment, franchise, banking, finance, or insurance business within the previous 10 years.

551.412(4)(n) (n) Is not qualified on the basis of factors such as training, experience, and knowledge of the securities business. However, in the case of an application by an agent for a broker-dealer that is a member of a self-regulatory organization or by an individual for registration as an investment adviser representative, a denial order may not be based on this paragraph if the individual has successfully completed all examinations required by sub. (5). The administrator may require an applicant for registration under s. 551.402 or 551.404 who has not been registered in a state within the 2 years preceding the filing of an application in this state to successfully complete an examination.

551.412(4)(o) (o) Is the subject of an order of the administrator denying an application or suspending or revoking a registration as a broker-dealer, agent, or investment adviser.

551.412(4)(p) (p) Is selling or has sold, or is offering or has offered for sale, in the state securities through any unlicensed agent or for any broker-dealer or issuer with knowledge that the broker-dealer or issuer has not complied with this chapter.

551.412(4)(q) (q) Has made any material misrepresentation to or withheld or concealed any material fact from the administrator, or has refused to furnish information reasonably requested by the administrator.

551.412(4)(r) (r) Has not complied with the conditions or limitations of a registration issued under this chapter.

551.412(4g) (4g) Additional grounds for denial of application.

551.412(4g)(a) (a) The administrator shall deny an application for the issuance or renewal of a registration if any of the following applies:

551.412(4g)(a)1. 1. The applicant fails to provide any information required under s. 551.406 (6) (a) 1., 1m., or 2.

551.412(4g)(a)2. 2. The department of revenue certifies under s. 73.0301 that the applicant is liable for delinquent taxes. An applicant whose application for the issuance or renewal of a registration is denied under this subdivision for delinquent taxes is entitled to a notice under s. 73.0301 (2) (b) 1. b. and hearing under s. 73.0301 (5) (a), but is not entitled to any other notice, hearing, or review under this subchapter.

551.412(4g)(a)2m. 2m. The department of workforce development certifies under s. 108.227 that the applicant is liable for delinquent unemployment insurance contributions. An applicant whose application for the issuance or renewal of a registration is denied under this subdivision for delinquent unemployment insurance contributions is entitled to a notice under s. 108.227 (2) (b) 1. b. and hearing under s. 108.227 (5) (a), but is not entitled to any other notice, hearing, or review under this subchapter.

551.412(4g)(a)3. 3. The applicant is an individual who fails to comply, after appropriate notice, with a subpoena or warrant issued by the department of children and families or a county child support agency under s. 59.53 (5) and related to paternity or child support proceedings or who is delinquent in making court-ordered payments of child or family support, maintenance, birth expenses, medical expenses or other expenses related to the support of a child or former spouse, as provided in a memorandum of understanding entered under s. 49.857. An applicant whose application is denied under this subdivision for delinquent payments is entitled to a notice and hearing under s. 49.857 but is not entitled to any other notice or hearing under this subchapter.

551.412(4g)(b) (b) Unless s. 551.406 (6) (b) applies to the registrant, the administrator shall restrict or suspend a registration under this subchapter if the registrant is an individual who fails to provide his or her social security number. The administrator shall restrict or suspend a registration under this subchapter if the registrant is an individual who fails to comply, after appropriate notice, with a subpoena or warrant issued by the department of children and families or a county child support agency under s. 59.53 (5) and related to paternity or child support proceedings or who is delinquent in making court-ordered payments of child or family support, maintenance, birth expenses, medical expenses or other expenses related to the support of a child or former spouse, as provided in a memorandum of understanding entered into under s. 49.857. A registrant whose registration is restricted or suspended under this paragraph is entitled to a notice and hearing under s. 49.857 but is not entitled to any other notice or hearing under this subchapter.

551.412(4g)(c) (c) The administrator shall revoke a registration if the department of revenue certifies under s. 73.0301 that the registrant is liable for delinquent taxes. A registrant whose registration is revoked under this paragraph for delinquent taxes is entitled to a notice under s. 73.0301 (2) (b) 1. b. and hearing under s. 73.0301 (5) (a) but is not entitled to any other notice, hearing, or review under this subchapter.

551.412(4g)(d) (d) The administrator shall revoke a registration if the department of workforce development certifies under s. 108.227 that the registrant is liable for delinquent unemployment insurance contributions. A registrant whose registration is revoked under this paragraph for delinquent unemployment insurance contributions is entitled to a notice under s. 108.227 (2) (b) 1. b. and hearing under s. 108.227 (5) (a) but is not entitled to any other notice, hearing, or review under this subchapter.

551.412(4r) (4r) Enumeration of clauses not exclusive. The enumeration of the causes stated in sub. (4) shall not be exclusive and the administrator may deny an application or suspend or revoke any registrant or censure any registrant for any cause whether similar to or different from these causes when necessary or appropriate in public interest or for the protection of investors.

551.412(5) (5) Examinations. A rule adopted or order issued under this chapter may require that an examination, including an examination developed or approved by an organization of securities regulators, be successfully completed by a class of individuals or all individuals. An order issued under this chapter may waive, in whole or in part, an examination as to an individual and a rule adopted under this chapter may waive, in whole or in part, an examination as to a class of individuals if the administrator determines that the examination is not necessary or appropriate in the public interest and for the protection of investors.

551.412(6) (6) Summary process. The administrator may suspend or deny an application summarily; restrict, condition, limit, or suspend a registration; or censure, bar, or impose a civil penalty on a registrant before final determination of an administrative proceeding. Upon the issuance of an order, the administrator shall promptly notify each person subject to the order that the order has been issued, the reasons for the action, and that within 15 days after the receipt of a request in a record from the person the matter will be scheduled for a hearing. If a hearing is not requested and none is ordered by the administrator within 30 days after the date of service of the order, the order becomes final by operation of law. If a hearing is requested or ordered, the administrator, after notice of and opportunity for hearing to each person subject to the order, may modify or vacate the order or extend the order until final determination.

551.412(7) (7) Procedural requirements. An order issued may not be issued under this section, except under sub. (6), without all of the following:

551.412(7)(a) (a) Appropriate notice to the applicant or registrant.

551.412(7)(b) (b) Opportunity for hearing.

551.412(7)(c) (c) Findings of fact and conclusions of law in a record in accordance with ch. 227.

551.412(8) (8) Control person liability. A person that controls, directly or indirectly, a person not in compliance with this section may be disciplined by order of the administrator under subs. (1) to (3) to the same extent as the noncomplying person, unless the controlling person did not know, and in the exercise of reasonable care could not have known, of the existence of conduct that is a ground for discipline under this section.

551.412(9) (9) Limit on investigation or proceeding. The administrator may not institute a proceeding under sub. (1), (2), or (3) based solely on material facts actually known by the administrator unless an investigation or the proceeding is instituted within one year after the administrator actually acquires knowledge of the material facts.

551.412 History History: 2007 a. 196; 2013 a. 36.

subch. V of ch. 551 SUBCHAPTER V

FRAUD AND LIABILITIES

551.501 551.501 General fraud. It is unlawful for a person, in connection with the offer, sale, or purchase of a security, directly or indirectly, to do any of the following:

551.501(1) (1) To employ a device, scheme, or artifice to defraud.

551.501(2) (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.

551.501(3) (3) To engage in an act, practice, or course of business that operates or would operate as a fraud or deceit upon another person.

551.501 History History: 2007 a. 196.

551.501 Annotation Intent to defraud is not a necessary element under s. 551.41 (2). State v. Temby, 108 Wis. 2d 521, 322 N.W.2d 522 (Ct. App. 1982).

551.501 Annotation Lack of reliance is a defense to all claims based on a misrepresentation theory. The application of s. 551.59 (1) (b) does not restrict the defense to claims under s. 551.41 (2). Carney v. Mantuano, 204 Wis. 2d 527, 554 N.W.2d 854 (Ct. App. 1996), 95-2529.

551.501 Annotation Whether a representation is material under s. 551.41 (2) is determined based on the objective standard of whether the omitted or misrepresented fact would have made a difference to a reasonable investor’s decision to invest. State v. Johnson, 2002 WI App 224, 257 Wis. 2d 736, 652 N.W.2d 642, 01-1092.

551.501 Annotation An investment contract is any investment in a common enterprise with the expectation of profit to be derived through the essential managerial efforts of someone other than the investor. An investor may have a role in the managerial efforts of an investment contract, so long as the investor does not provide the essential managerial efforts for the investment contract. State v. LaCount, 2008 WI 59, 310 Wis. 2d 85, 750 N.W.2d 780, 06-0672.

551.501 Annotation The plaintiff in an omissions case was not required to prove reliance as an element of a s. 551.41 (2) claim, as reliance may be presumed in an omissions case. Indeed, positive proof of reliance in such a case is unnecessary. Cuene v. Hilliard, 2008 WI App 85, 312 Wis. 2d 506, 754 N.W.2d 509, 07-0124.

551.501 Annotation In a classic misrepresentation case, a plaintiff must be able to show the requisite causal connection between a defendant’s misrepresentation and a plaintiff’s injury. In Wisconsin the causal connection is defined by statute: a person who offers or sells a security in violation of s. 551.41 is liable to the purchaser. The causal connection is established when a statutory violation is established. Cuene v. Hilliard, 2008 WI App 85, 312 Wis. 2d 506, 754 N.W.2d 509, 07-0124.

551.501 Annotation The legislature clearly envisioned that some facts, even material and relevant ones, would not always need to be disclosed. Materiality is measured by an objective standard; a fact finder assesses whether the omitted fact would have made a difference to a reasonable investor’s decision to invest. If the established omissions are so obviously important to an investor that reasonable minds cannot differ on the question of materiality, materiality may be resolved on summary judgment as a matter of law. Cuene v. Hilliard, 2008 WI App 85, 312 Wis. 2d 506, 754 N.W.2d 509, 07-0124.

551.501 Annotation Section 551.41 does not create a private right of action. Section 551.59 (1) contains a civil remedy for a violation of s. 551.41 (2), and the limitation period in s. 551.59 (5) applies. Colonial Bank & Trust Co. v. American Bankshares, 478 F. Supp. 1186 (1979).

551.501 Annotation Proof that the defendant entered into investment contracts with a purpose or intent to defraud investors is not required for a violation of s. 551.41 (3). The state need only prove that the accused willfully engaged in conduct that operates or would operate as a fraud or deceit upon a person. The nature of the act is dispositive, not the actor’s state of mind. Van Duyse v. Israel, 486 F. Supp. 1382 (1980).

551.501 Note NOTE: The above annotations refer to ch. 551 as it existed prior to its repeal and recreation by 2007 Wis. Act 196.

551.502 551.502 Prohibited conduct in providing investment advice.

551.502(1) (1) Fraud in providing investment advice. 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 promulgates analyses or reports relating to securities, to do any of the following:

551.502(1)(a) (a) To employ a device, scheme, or artifice to defraud another person.

551.502(1)(b) (b) To engage in an act, practice, or course of business that operates or would operate as a fraud or deceit upon another person.

551.502(2) (2) Rules defining fraud. 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, as defined in section 202 (a) (25) of the Investment Advisers Act of 1940 (15 USC 80b-2 (a) (25)), 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, as defined in section 202 (a) (25) of the Investment Advisers Act of 1940 (15 USC 80b-2 (a) (25)), of a federal covered investment adviser, from engaging in acts, practices, and courses of business defined as fraudulent, deceptive, or manipulative.

551.502(3) (3) Rules specifying contents of advisory contract. A rule adopted under this chapter may specify the contents of an investment advisory contract entered into, extended, or renewed by an investment adviser.

551.502 History History: 2007 a. 196.

551.503 551.503 Evidentiary burden.

551.503(1) (1) Civil. 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.

551.503(2) (2) Criminal. 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.

551.503 History History: 2007 a. 196.

551.504 551.504 Filing of sales and advertising literature.

551.504(1) (1) Filing requirement. Except as otherwise provided in sub. (2), 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.

551.504(2) (2) Excluded communications. This section does not apply to sales and advertising literature specified in sub. (1) which relates to a federal covered security, a federal covered investment adviser, or a security or transaction exempted by s. 551.201, 551.202, or 551.203 except as required pursuant to s. 551.201 (7).

551.504 History History: 2007 a. 196.

551.505 551.505 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.

551.505 History History: 2007 a. 196.

551.506 551.506 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 administrator 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 administrator 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.

551.506 History History: 2007 a. 196.

551.507 551.507 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 administrator, or designee of the administrator, 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.

551.507 History History: 2007 a. 196.

551.508 551.508 Criminal penalties.

551.508(1) (1) Criminal penalties. A person that willfully violates this chapter, or a rule adopted or order issued under this chapter, except s. 551.504 or the notice filing requirements of s. 551.302 or 551.405, or that willfully violates s. 551.505 knowing the statement made to be false or misleading in a material respect, upon conviction, shall be guilty of a Class H felony. 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. Each of the acts specified shall constitute a separate offense and a prosecution or conviction for any one of such offenses shall not bar prosecution or conviction for any other offense.

551.508(1m) (1m) Enhancement of penalties.