Ariz. Admin. Code § 14-4-308

Current through Register Vol. 30, No. 23, June 7, 2024

Section R14-4-308 - Rescission and Restitution

A. When a person or persons have violated the Securities Act or the IM Act, or any rule or order of the Commission, the Commission may require the person or persons to make rescission and/or restitution as provided herein.

B. If a rescission offer is ordered by the Commission,

1. The respondent shall submit the following materials to the Division and, upon approval from the Director, distribute the materials to the purchasers:

a. A written offer to repurchase stating in reasonable detail the facts out of which liability arose and, in the event of a violation of A.R.S. §§ 44-1991, 44-1992, or 44-3241, the correct, true, or omitted facts. An offer to repurchase the security shall include an offer of:

i. Cash equal to the fair market value of the consideration paid, determined as of the date such payment was originally paid by the buyer; together with

ii. Interest at a rate pursuant to A.R.S. § 44-1201 for the period from the date of the purchase payment to the date of repayment; less

iii. The amount of any principal, interest, or other distributions received on the security for the period from the date of purchase payment to the date of repayment.

b. The offer to repurchase shall be accompanied by a prospectus and other documents making full written disclosure about the financial and business condition of the issuer and the financial and business risks associated with the retention of the securities.

c. The offer to repurchase shall state that such offer may be accepted by the purchaser at any time within a specified period of not less than 30 days after the date of receipt thereof.

2. The offer and any other materials required to be presented to the purchaser shall be made within a period specified by the Commission.

3. Financial statements prepared in accordance with R14-4-120, A.R.S. § 44-3159, or other documents relating to the business of the respondent as requested by the Director or the Commission, shall be provided to the Director. If a respondent demonstrates that it cannot obtain audited financial statements without unreasonable effort or expense, then the respondent shall provide to the Director a notarized statement of financial condition. The financial statements or documentation shall demonstrate that the person or persons funding the rescission offer has or have adequate funds to pay the amount ordered pursuant to subsection (B)(1)(a) to all purchasers of the securities who are eligible to accept the rescission offer. The seller, issuer, or other third party may fund the rescission offer.

4. The Commission may order that funds be deposited in escrow.

5. When the rescission offer has been completed and the appropriate funds paid, the person funding the rescission offer shall verify to the Director that the rescission offer was made in accordance with this rule. The verification may be performed by an independent third party, such as an accountant or escrow agent, by providing the pertinent records documenting the rescission offer to the Director. All of the following information must be included:

a. Names, addresses, and telephone numbers of all securities holders of the issuer who had a right to receive the rescission offer, the amount and purchase dates of securities held by such securities holders, and the amount of principal, interest, or other distributions on all securities held by such securities holders.

b. Names, addresses, and telephone numbers of all securities holders of the issuer who did not receive the rescission offer and the reason why they did not receive the rescission offer, the amount and purchase dates of securities held by such securities holders, and the amount of principal, interest, or other distributions on all securities held by such securities holders.

c. Verification of receipt of the rescission offer by all securities holders who had a right to and did receive the rescission offer.

d. A list of securities holders who accepted the rescission offer and those who did not accept.

e. Verification of payment of principal and interest ordered to be paid to all such securities holders who accepted the rescission offer.

6. Based on the circumstances of the respondent and the purchasers, if necessary or appropriate to the public interest and consistent with the protection of the investors, the Commission may prescribe by order alternative rescission offer terms, including:

a. The offer of other identified assets in lieu of cash if the respondent lacks sufficient cash to offer the amount required under subsection (B)(1)(a).

b. The offer of a specified lesser amount than the amount required under subsection (B)(1)(a) if the respondent lacks sufficient assets to offer the amount required under subsection (B)(1)(a).

c. The inclusion in the repurchase offer of information material to an understanding of the issuer, in addition to that required by subsection (B)(1)(b), if such information would be required if the securities were being registered.

d. A shorter period of time during which the offer to repurchase may be accepted.

e. Waiver of specified information required by subsection (B)(5) if the Commission determines that producing such information will be unduly burdensome.

C. If restitution is ordered by the Commission,

1. The amount payable as damages to each purchaser shall include:

a. Cash equal to the fair market value of the consideration paid, determined as of the date such payment was originally paid by the buyer; together with

b. Interest at a rate pursuant to A.R.S. § 44-1201 for the period from the date of the purchase payment to the date of repayment; less

c. The amount of any principal, interest, or other distributions received on the security for the period from the date of purchase payment to the date of repayment.

2. Financial statements prepared in accordance with R14-4-120, A.R.S. § 44-3159, or other documents relating to the business of the respondent as requested by the Director or the Commission, shall be provided to the Director. If a respondent demonstrates that it cannot obtain audited financial statements without unreasonable effort or expense, then the respondent shall provide to the Director a notarized statement of financial condition. The financial statements or documentation shall demonstrate that the person paying restitution has adequate funds to pay all purchasers the amount computed in subsection (C)(1).

3. The Commission may order that funds be deposited in escrow.

4. The Commission may order the respondent to provide the following information to the Division:

a. Names, addresses, and telephone numbers of all securities purchasers who had a right to receive restitution under the Commission's order; amount and purchase dates of securities purchased by such purchasers; fair market value of any non-cash consideration received by respondent from each purchaser of such securities; and any payment of principal, interest, or any other distribution on such security.

b. Verification of payment of principal and interest ordered to be paid to all such purchasers.

5. Based on the circumstances of the respondent and the purchasers, if necessary or appropriate to the public interest and consistent with the protection of the investors, the Commission may prescribe by order alternative restitution terms, including:

a. The payment of other identified assets in lieu of cash if the respondent lacks sufficient cash to pay the amount required under subsection (C)(1).

b. The payment of a specified lesser amount than required under subsection (C)(1) if the respondent lacks sufficient assets to meet the subsection (C)(1) requirement.

Ariz. Admin. Code § R14-4-308

Adopted effective November 19, 1987 (Supp. 87-4). Amended effective December 21, 1995, under an exemption from the Attorney General approval requirements of the Arizona Administrative Procedure Act (Supp. 95-4). Amended by final rulemaking at 8 A.A.R. 3729, effective August 6, 2002 (Supp. 02-3). At the request of the Corporation Commission, the preceding entry in this Historical Note is amended: the Commission intended the rulemaking action to reflect that the Section was repealed and a new Section was made at 8 A.A.R. 3729, effective August 6, 2002 (Supp. 02-4).