October 20, 2021

Volume XI, Number 293

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The Illinois Securities Law: The Remedy Is Rescission

When most people think securities regulation, they think federal jurisdiction. After all, the early 2000s saw several corporations thrust into the national spotlight as they dealt with securities improprieties and related investigations by the Securities and Exchange Commission. However, as a disgruntled holder of a security in Illinois, you may be able to find relief closer to home under a state act known as the Illinois Securities Law of 1953.

The purpose of this so-called blue sky law (a state regulation designed to protect investors against fraudulent sales practices and activities) is to "protect innocent persons who might be induced to invest their money in speculative enterprises over which they have little control."

How Does the Act Protect Purchasers?

Among other actions, the Illinois Securities Law makes it a violation for any person to offer to sell any security except in accordance with the act, to sell securities when not registered, to make any false or misleading material statements in any reports filed under the act, to obtain money or property through the sale of securities by means of an untrue statement, and to circulate a prospectus while knowing that a material representation contained in the prospectus is untrue. In addition, Illinois' blue sky law protects sellers of securities by making it a violation to "engage in any transaction, practice or course of business in connection with the sale or purchase of securities which tends to work a fraud or deceit upon the purchaser or seller thereof"or to "employ any device, scheme or artifice to defraud in connection with a sale or purchase of any security, directly or indirectly."

How Can a Disgruntled Purchaser Obtain Relief under the Act?

Under the Illinois Securities Law, the only private remedy for a violation of the act by a disgruntled purchaser is rescission. In essence, the seller must take back the security and refund the purchaser what was originally paid for it. Therefore, a disgruntled purchaser may void the sale, at his or her election. First, however, the purchaser must provide notice of the election to void the sale within six months after he or she has knowledge that the sale is voidable (i.e., that the seller violated the Illinois Securities Law). The purchaser must give notice to each individual against whom recovery is sought, by registered or certified mail, addressed to the person to be notified at his or her last known address.

Each individual involved in the sale will be jointly and severally liable to the purchaser for the full amount paid for the security, with interest, minus any income or other amounts received by the purchaser on the security. If the purchaser no longer owns the security, he or she will be paid the difference between the cost of the security at the time of the original purchase minus the amount received when he or she subsequently sold the security.

Can the Act Also Help a Disgruntled Seller?

Under Section 13(G) of Illinois' blue sky law, "a seller can conceivably seek a remedy. That section allows "any party in interest" to bring an action for prospective relief against any person who "has engaged or is about to engage in any act or practice constituting a violation" of the act. Therefore, if you are a disgruntled seller, and you are aware that a party has violated or is going to violate the Illinois Securities Law, you can ask the court to enjoin that party from violating the act in the future. However, the act does not provide disgruntled sellers with relief for harm that has already been done, only for prospective relief.

© 2021 Much Shelist, P.C.National Law Review, Volume I, Number 57
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About this Author

Gregg M. Simon, Wealth Transfer Lawyer, Succession Planning Attorney, Much Shelist Law Firm
Principal

Gregg is a respected authority on estate and trust matters with more than 30 years of experience in taxation and wealth preservation strategies. Chair of the firm’s Wealth Transfer & Succession Planning group, Gregg represents individuals, families and  fiduciaries on estate planning, federal estate and gift taxation, generation-skipping transfer taxes, probate and trust administration.

Gregg also advises business owners on effective succession planning and tax structures. He knows that the goals of individual family members are sometimes...

312-521-2605
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