6172-S.E

AN ACT Relating to securities; amending RCW 21.20.135 and 21.20.430; and adding new sections to chapter 21.20 RCW.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. (1) A broker-dealer or investment adviser may not fail to provide a customer with copies of the following documents within seven days of the execution of those documents:

(a) The customer's new account form;

(b) A contract between the broker-dealer or investment adviser and the customer; or

(c) Any other document describing the investment objectives, financial position, and financial needs of the individual customer prepared by the broker-dealer or investment adviser for use regarding investment recommendations for the customer.

(2) Except as provided under subsection (3) of this section, a broker-dealer, salesperson, investment adviser, or investment adviser salesperson may not:

(a) Charge a customer a fee based on the lack of or low number of transactions in a customer's account; or

(b) Charge a customer a fee for transferring securities or closing or transferring an account.

(3) A broker-dealer, salesperson, investment adviser, or investment adviser salesperson may impose a fee specified in subsection (2) of this section if the customer has previously signed a separate document that authorizes that fee, including the dollar amount, to be charged. The separate document must contain a disclosure in at least ten-point type that contains the following or similar language: "Your authorization is necessary for the following fees to be charged. If you do not sign this authorization, state law prohibits these fees."

Sec. 2. RCW 21.20.135 and 1979 ex.s. c 68 s 10 are each amended to read as follows:

(1) No suit or action shall be brought for the collection of a commission for the sale of a security, as defined within this chapter without alleging and proving that the plaintiff was a duly licensed salesperson for an issuer or a broker-dealer, or exempt under the provisions of RCW 21.20.040, or a duly licensed broker-dealer in this state or another state at the time the alleged cause of action arose.

(2) A broker-dealer or investment adviser may not bring an action against a customer for a fee charged the customer in violation of section 1 of this act.

NEW SECTION. Sec. 3. (1) A broker-dealer, salesperson, investment adviser, or investment adviser representative who violates:

(a) RCW 21.20.035, is liable to that customer, who may sue to recover:

(i) Damages, including, if appropriate, commissions, interest, losses suffered, and profit that would have been realized under proper management of the customer's account;

(ii) Costs; and

(iii) Attorneys' fees.

In addition, in an action for a violation of RCW 21.20.035, the court may award up to three times the damages sustained; or

(b) RCW 21.20.702 is liable to that customer, who may sue for:

(i) Damages, including, if appropriate, commissions, interest, losses suffered, and profit that would have been realized under proper management of the customer's account;

(ii) Costs; and

(iii) Attorneys' fees.

(2) A person who, directly or indirectly, controls a broker-dealer, salesperson, investment adviser, or investment adviser representative liable under subsection (1) of this section is also liable jointly and severally with and to the same extent as the broker-dealer, salesperson, investment adviser, or investment adviser representative to that customer if the person:

(a) Knew or should have known that the broker-dealer, salesperson, investment adviser, or investment adviser salesperson was engaging in the violation; or

(b) Failed to establish, maintain, or enforce compliance procedures reasonably designed to detect the violation and that failure contributed to the violation.

(3)(a) A cause of action under this section survives the death of a customer.

(b) A customer may not sue under this section more than three years after a violation of RCW 21.20.035 or 21.20.702 was discovered by the customer or would have been discovered by the customer in the exercise of reasonable care.

(4) Remedies provided under this section do not supplant other remedies available under the common law or another statute.

Sec. 4. RCW 21.20.430 and 1986 c 304 s 1 are each amended to read as follows:

(1) Any person, who offers or sells a security in violation of any provisions of RCW 21.20.010 or 21.20.140 through 21.20.230, is liable to the person buying the security from him or her, who may sue either at law or in equity to recover the consideration paid for the security, together with interest at eight percent per annum from the date of payment, costs, and reasonable attorneys' fees, less the amount of any income received on the security, upon the tender of the security, or for damages if he or she no longer owns the security. Damages are the amount that would be recoverable upon a tender less (a) the value of the security when the buyer disposed of it and (b) interest at eight percent per annum from the date of disposition.

(2) Any person who buys a security in violation of the provisions of RCW 21.20.010 is liable to the person selling the security to him or her, who may sue either at law or in equity to recover the security, together with any income received on the security, upon tender of the consideration received, costs, and reasonable attorneys' fees, or if the security cannot be recovered, for damages. Damages are the value of the security when the buyer disposed of it, and any income received on the security, less the consideration received for the security, plus interest at eight percent per annum from the date of disposition, costs, and reasonable attorneys' fees.

(3) Every person who directly or indirectly controls a seller or buyer liable under subsection (1) or (2) above, every partner, officer, director or person who occupies a similar status or performs a similar function of such seller or buyer, every employee of such a seller or buyer who materially aids in the transaction, and every broker-dealer, salesperson, or person exempt under the provisions of RCW 21.20.040 who materially aids in the transaction is also liable jointly and severally with and to the same extent as the seller or buyer, unless such person sustains the burden of proof that he or she did not know, and in the exercise of reasonable care could not have known, of the existence of the facts by reason of which the liability is alleged to exist. There is contribution as in cases of contract among the several persons so liable.

(4)(a) Every cause of action under this statute survives the death of any person who might have been a plaintiff or defendant.

(b) No person may sue under this section more than ((~~three~~)) five years after the contract of sale for any violation of the provisions of RCW 21.20.140 through 21.20.230, or more than ((~~three~~)) five years after a violation of the provisions of RCW 21.20.010, either was discovered by such person or would have been discovered by him or her in the exercise of reasonable care. No person may sue under this section if the buyer or seller receives a written rescission offer, which has been passed upon by the director before suit and at a time when he or she owned the security, to refund the consideration paid together with interest at eight percent per annum from the date of payment, less the amount of any income received on the security in the case of a buyer, or plus the amount of income received on the security in the case of a seller.

(5) No person who has made or engaged in the performance of any contract in violation of any provision of this chapter or any rule or order hereunder, or who has acquired any purported right under any such contract with knowledge of the facts by reason of which its making or performance was in violation, may base any suit on the contract. Any condition, stipulation, or provision binding any person acquiring any security to waive compliance with any provision of this chapter or any rule or order hereunder is void.

(6) Any tender specified in this section may be made at any time before entry of judgment.

(7) Notwithstanding subsections (1) through (6) of this section, if an initial offer or sale of securities that are exempt from registration under RCW 21.20.310 is made by this state or its agencies, political subdivisions, municipal or quasi-municipal corporations, or other instrumentality of one or more of the foregoing and is in violation of RCW 21.20.010(2), and any such issuer, member of the governing body, committee member, public officer, director, employee, or agent of such issuer acting on its behalf, or person in control of such issuer, member of the governing body, committee member, public officer, director, employee, or agent of such person acting on its behalf, materially aids in the offer or sale, such person is liable to the purchaser of the security only if the purchaser establishes scienter on the part of the defendant. The word "employee" or the word "agent," as such words are used in this subsection, do not include a bond counsel or an underwriter. Under no circumstances whatsoever shall this subsection be applied to require purchasers to establish scienter on the part of bond counsels or underwriters. The provisions of this subsection are retroactive and apply to any action commenced but not final before July 27, 1985. In addition, the provisions of this subsection apply to any action commenced on or after July 27, 1985.

NEW SECTION. Sec. 5. (1) A broker-dealer owes a fiduciary duty to a customer when:

(a) The broker-dealer has discretionary authority over the customer's account; or

(b) The broker-dealer has substantial control and influence over the exercise of investment decision making and judgment by the customer.

(2) An investment adviser owes a fiduciary duty to a customer when:

(a) The investment adviser has discretionary authority over the customer's account; or

(b) The investment adviser is providing individualized investment advice to the customer for which the customer has paid a fee.

(3) The fiduciary duty owed to customers under subsections (1) and (2) of this section includes the duty to act with loyalty, in good faith, and with a high degree of care.

(4) This section does not detract from any duties, fiduciary or otherwise, owed by broker-dealers or investment advisers to customers under other statutes or at common law.

NEW SECTION. Sec. 6. A new section is added to chapter 21.20 RCW to read as follows:

It is the fundamental policy of the state of Washington that any provision in an agreement between a broker-dealer and a customer that restricts venue in a judicial or arbitration proceeding to a place other than this state shall be of no force and effect.

NEW SECTION. Sec. 7. Sections 1, 3, and 5 of this act are each added to chapter 21.20 RCW.

NEW SECTION. Sec. 8. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.