What is important for those in the Commonwealth of Virginia attempting to raise money or obtain other property for investment purposes is that Virginia has similar securities laws.\u00a0 Virginia\u2019s Securities Act<\/a> is codified in Title 13.1, Chapter 5, of the Code of Virginia.\u00a0 As with that of the State of New York, the reach of Virginia\u2019s Securities Act differs from, and is more extensive than, that of the federal securities acts.<\/p>\n <\/p>\n Thus, when attempting to raise money or obtain other property for investment purposes \u00a0from whatever source in Virginia, including from family and friends, one should be thinking \u201csecurity\u201d and \u201csecurities legislation,\u201d state and federal.<\/p>\n A \u201csecurity\u201d includes a great deal more than you might think.\u00a0 Under both federal and state securities laws, the definition of a \u201csecurity\u201d includes \u201cinvestment contracts,\u201d in addition to those types of investment vehicles generally thought to be \u201csecurities,\u201d such as stocks and bonds.<\/p>\n Virginia\u2019s Securities Act defines a security, in pertinent part, as \u201cany note; stock; treasury stock; bond; debenture; evidence of indebtedness; certificate of interest or participation in any profit-sharing agreement; collateral trust certificate; pre-organization certificate of subscription; transferable share; investment contract<\/span><\/em>; voting-trust certificate; certificate of deposit for a security; oil, gas or other mineral lease, right or royalty, or any interest therein; or, in general, any interest or instrument commonly known as a “security,” or any certificate of interest or participation in, temporary or interim certificate for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.\u201d\u00a0 Emphasis added<\/span><\/em>.<\/p>\n An investment contract is a contract, transaction, or scheme whereby a person [1] invests his money<\/span> [2] in a common enterprise<\/span> and [3] is led to expect profits<\/span> [4] solely [or mostly] from the efforts of the promoter or a third party<\/span>.<\/p>\n As such, investments deemed to have been securities have included investments in scotch whiskey, self-improvement courses, condominiums, cosmetics, earthworms, beavers, muskrats, rabbits, chinchillas, fishing boats, vacuum cleaners, cemetery lots, cattle embryos, recording contracts, animal feeding programs, pooled funds and fruit trees, among others.<\/p>\n Fraud with respect to the purchase or sale of a security is prohibited and may result in both civil and criminal actions.\u00a0 Under the federal securities acts, fraud exists where a person or entity in connection with the purchase or sale of any security (a) employs any device, scheme, or artifice to defraud, (b) makes any untrue statement of a material fact, or omits to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or (c) engages in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.<\/p>\n For a civil remedy to exist for fraud under the federal securities acts there must have been a fraudulent statement knowingly made, the statement must have been relied upon by the investor, and the investor must have been damaged thereby.<\/p>\n Importantly, the requirements for a civil remedy for fraud under the Virginia Securities Act do not include a \u201cknowing\u201d fraudulent statement.\u00a0 Under the Virginia Securities Act, the burden is on the defendant (the alleged defrauder) to prove it did not know of the fraudulent nature of the statement (including both omissions of important facts and untruths) and in the exercise of reasonable care could not have known<\/em>.\u00a0 Also, to succeed in a claim for fraud under the Virginia Securities Act, it is not necessary for the plaintiff to prove reliance on the fraudulent statement or that the fraudulent statement or omission was the cause of the plaintiff\u2019s loss.<\/p>\n Thus, the only requirements for a civil action for fraud under the Virginia Securities Act are that the defendant made the statement, that the statement was false or insufficiently complete to make it not misleading, and that without reasonable diligence the defendant could not have determined that the statement was false or insufficiently complete.\u00a0 Section 13.1-522(A) imposes liability for damages, interest, and attorneys\u2019 fees on an unsuccessful defendant in a Securities Act action.\u00a0 Rescission of the transaction also may be a potential remedy.<\/p>\n In addition, before a security may be lawfully offered or sold in Virginia, an effective registration statement must be in place or an exemption from registration must be available.<\/p>\n The \u201ctake-away\u201d from the foregoing is that anyone raising money or obtaining other property for an investment of any kind from whatever source, perhaps especially from \u201cfamily and friends,\u201d should take care to obtain competent legal advice from an attorney well versed in securities law.<\/p>\n![\"\"](\"https:\/\/blog.tarleyrobinson.com\/wp-content\/uploads\/2011\/07\/AmericanFlag-150x150.jpg\")
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![\"Neal](\"https:\/\/blog.tarleyrobinson.com\/wp-content\/uploads\/2010\/06\/neal-photo-150x150.jpg\" "\\"Neal")
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