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Amendments to the Constitution and proposed statutes : with arguments ... online

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edness of any kind or character without exhibiting to the pros-
pective purchaser or prospective purchasers of such securities, or
any thereof, a copy of the certificate issued to such hivestment
company in accordance herewith. A corporation may without
applying for a certificate under the provisions of this act issue
to each of its directors one share of stock for the purpose of
qualifying as directors. The commissioner of corporations, if
satisfied that the investment company intends to do a fah*, just
and equitable business, may, forthwith upon the filing of the
statement and other papers required by section four of this act,
issue to said investment company, upon such conditions as he
may prescribe, a temporary permit to issue its securities pending
the examination of said statement and other papers, and may,
from time to time, for cause, rescind, alter or amend said tem-
porary permit.

Sec. 6. The provisions of sections four and five of this act.
In so far as applicable, shall apply to Investment brokers; pro-
vided, that the commissioner of corporations may, if he finds that
the applicant has a good business reputation and deals only in
good securities, issue to an investment broker a general permit
entitling such investment broker to sell securities within this
state, authorized by him, until the first of March following, when
it will be necessary to secure a new general permit. For each
such general permit the commissioner of corporations shall charge
the sum of five dollars. Such general permit, however, shall be

Thirty-nine



subjeet to reToeatlon by the commissloDer of corporations at any
time for cause appeartag to him sufficient l^e commissi<ma'
of corporations shall forthwith mall written notice of such
revocation to the investment iN^er.

Sec. 7. Any Investment company or Investment broker may
appoint one or more agents, but It shall be unlawful for any
such agent to do any business as spedfled in this act tmtil he
shall have secured fh>m the commissioner of corporations a eer-
tiflcate authorizing him to represent such investment company
or investment broker vrithln this state until the first of March
following, when it will be necessary to secure a new certificate.
For each certificate the commissioner of corporations shall charge
the sum of one dollar. Such certificate, however, shall be sub-
ject to revocation by the commissioner of corporations at any
time for cause appearing to him sufficient

Sec. 8. The commissioner of corporations shall have general
supervision and control, as provided in this act, over any and all
investment companies and investment brokers, and all such invest-
ment companies and investment brokers shall be subject to exam-
ination by the commissimer of corporations or a duly authorized
deputy at any time the commissioner of corporations may deem it
advisable to have such examination made to carry out any provi-
sion of this act, and in the same manner and with the same
powers as is now, or may hereafter be provided for the examina-
tion of state banks. Such investment company or investment
broker shall pay to the commissioner of corporations, for each
examination, a fee of ten dollars and traveling expenses for each
day or fraction thereof that he or his deputy shall necessarily be
absent from his office for the purpose of making such examina-
tion, and the failure or refusal of any investment company or in-
vestment broker to pay such fee upm the demand of the commis-
sioner of corporations shall work a forfeiture of its or his rights
to sell any further securities in this state until such fee shall
have been paid to the commissioner of corporations, with interest
at the rate of seven per cent from the time of the demand of the
commissioner of corpwations and an additional twenty-five per
cent of such fee by way of penalty.

Sec. 9. It shall be unlawful for any investment company, in-
vestment broker or agent to issue, circulate or deliver any adver-
tisement, pamphlet, prospectus, circular or statement or other
document in regard to securities which it desires to sell in this
state until after such investment company, investment broker or
agent shall have been licensed to sell such securities as provided
in this act. It shall be unlawful for any such licensed invest-
ment company, investment broker or agent to issue, circulate or
deliver any such advertisement, pamphlet, prospectus, circular,
statement or other document, unless the same shall be signed with
the name of the investment company or investment broker and
bear a serial number and a copy thereof shall first have been
filed with the commissioner of corporations. The commissioner of
corporations may fw cause object to any such advertisement,
pamphlet, prospectus, circular, statement or other document,
whereupon it shall be unlawful for such investment company, in-
vestment broker or agent to further issue, circulate or deliver such
advertisement, pamphlet, prospectus, circular, statement or other
document.

Sec. 10. (a) Every investment company, until it shall have
sold all the securities authorized by the commissioner of corpora-
tions and disposed of the proceeds thereof, shall file in the office
of the commissioner of corporations, under date of December 31st
and June 30th of each year, and within fifteen days after said
dates, and also at such other times as may be required by the
commissioner of corporations, a report setting forth in such fwm
as the commissioner of corporations may prescril)e, the securities
auth(»1zed by him and sold under the provisions of this act, the
proceeds derived therefrom, the disposition of such proceeds and
such other information concerning its affairs relating to the
subject matter of this act, as the commissioner of corporations
may require.

(b) Every investment broker shall when called upon by the
commissioner of corporations file in his office a report giving such
information as be may call for, relating to the securities, the sale
of which has been authorized under the provisions of this act

Sec. 11. All papers, documents, reports and other instru-
ments in writing filed with the commissioner of corporations under
this act shall be open to public inspection; provided, that if
in his judgment the public welfare or the welfare of any
investment company demands that any portion of such informa-
tion be not made public he may withhold such information from
Dublic inspection for such time as in bis judgment is necessary.
Forty



S«e. IS. An app^ may be taken tnm any dedsion of the
commiasioner of corporations under this act by fiUog with the
clerk of the superior court of the State of California, in and for
the dty and county of San BYaodsco, a certified transcript of all
papers in the office of the eommlsaioner of eorporatloos relating
to such de^sion. It shall be the duty of the eommissioner of
oorpffations to make and eorilfy to said transcript opon payment
to him of a fee of ten cents for each foUo and one dollar for the
eertifieation. The court shall upon such appeal be limited to a
consideration of the question vrhether there has been abuse of
discretion on the part of the commissioner of corporations In mak-
ing such decision.

Sec 13. Any person who shall knowingly or wilfully sub-
scribe to or make or cause to be made any false statement or
false entry in any book of any investment company or investment
broker, or exhibit any false paper with the Intention of deceiving
any person authorized to examine into its affairs, or who diaH
* make or publish any false or misleading statement of its financial
condition or concerning the securities by it offered for sale, shall
be guilty of a misdemeanor and shall be punishable by a fine not
exceeding one thoisand dollars or by imprisonment la a county
jail not exceedhig one year or by both such fine and imprisonment

Sec. 14. Any corporation, association, copartnership or com-
pany which violates or fails to comply with any of the provi-
sions of this act, or which fails, omits or neglects to obey, ob-
serve or comply with any order, decision, demand or requirement
or any part or provision thereof, of the commissiono' of corpora-
tions under the provisions of this act, is subject to a penalty of
not less than five hundred dollars nor more than two tbousand
dollars for each and every, offense, which penalty if unpaid after
demand by the commissioner of corporations shall be recovered
in an action brought in the name of the people of the State of
California by the attorney generaL

Sec. 15. Every person who violates or fails to comply with
any of the provisions of this act or who fails, omits or neglects
to obey, observe or comply with any order, decision, demand or
requirement, or any part or provision thereof, of the eommissioner
of corporations under the provisions of this act in any case in
which a different penalty is not specifically provided, is guilty of
a misdemeanor and is punishable by a fine of not exceeding one
thousand dollars, or by imiHisonment in a county jail not ex-
ceeding one year, or by both such fine and imprisonment.

Sec 16. There is hereby created a state corporation depart-
ment. The chief officer of such department shall be the commis-
sioner of corporations. He shall be appointed by the governor
and hold office at the pleasure of the governor. He shall receive
an annual salary of five thousand dollars, to be paid monthly
out of the state treasury upon a warrant of the controller. He
shall within fifteen days from the time of notice of his appoint-
ment take and subscribe to the constitutional oath of office and
file the same in the office of the secretary of state and execute to
the people of the state a bond in Uie penal sum ot ten thousand
dollars with corporate security or two or more sureties, to be ap-
proved by the governor of the state, for the faithful discharge of
the duties of his office.

Sec. 17. !nie commissioner of c(HT)orations ^all employ sudi
cleits and deputies as he may need to discharge in proper man-
ner the duties imposed upon him by law. Neither the commis-
sioner of corporations nor any of his clerks or deputies shaU be
interested in any investment company, or investment brdia-, as
director, stockholder, officer, member, agent or employee. Sudi
clerks and deputies shall perform such duties as the commissioner
of corporations shall assign to them. He shall fix the compen-
sation of such clerks and deputies wtiich compensation shaU be
paid monthly on the certificate of the commissioner of corpora-
tions, and on the warrant of the controller out of the state
treasury; provided, however, that the total expenditures provided
for in this act shall not exceed fifty thousand dollars per annum.
Each deputy shall within fifteen dass after his appointment take
and subscribe to the constitutional oath of office and file the same
In the office of the secretary of state.

Sec 18. The commissioner of corporations shall have his
office in the city of Sacramento and be shall from time to time
obtain the necessary furniture, stationery, fuel, light and other
proper conveniences for the transaction of the business of the
state corporation department, the expenses of which shall be paid
out of the state treasury on the certificate of the commissioner
of corporations and the warrant of the controller.

Sec 19. A fund is hereby created to be known as the •'cor-
poration commission fund" and out of said fund shall De paid



the ezp§Q9e8 Incurred in and s^t (be conduct of the basi-
ls of the corporation dei;)artment« including the salary of the
nmissloner and his derlts and deputies, traveling expenses, f«r-
iiing rooms and rent All moneys collected or received by the
nmissionw of corporations under and by virtue of the provisions

this act shall be delivered by him to the treasurer of the
itej who shall deposit the same to the credit of said eorpora-
n eommission fund. And all such fund 90 deposited or such
rt thereof as may be necessary for the purposes of this aet are
"eby appropriated to the use of the corporation commission
id for the purposes of this act. It shall be the duty of the
nmissloner of corporations semi-annually to certify under oath
the state treasurer and secretary of state the total amount of
«ipts and expenditures of the state corporation department for
t six months preceding. All fees and payments of every de-
Iption required by this act to be paid to the commissioner of
rporations shall be paid by him to the state treasurer <m the
It day of each week following their receipt by the commissioner
corporations.

Sec. 20. The commissioner of corporations shall adopt a seal
th the words "Commissioner of Corporations, State of Califor-
I," and such other device as the commissioner of corporaticms
ly desire engraved thereon by which he shall authenticate the
oceedings of his office. Copies of all records and pi4)ers in the
ice of the corporation department shall be received hi evidence
all cases equally and with like effect as the originals.
Sec. 21. Every official report made by the commissioner of
rporations and every report, duly verified, of an examination
ide, shall be prima facie evidence of the facts therein stated for
I purposes In any action or proceedings wherein any Investment
mpany of Investment broker is a party.
Sec. 22. If any section, sub-section, sentence, clause or
fase of tills act is for any reason held to lie unconstitutional,
ch decision shall not affect the validity of the remaining por-
ms of this act. !nie legislature hereby declares Vast it would
ve passed this act, and each section, sub-section, sentence,
ause, and phrase thereof irrespective of the fact that any one

more other sections, sub-sections, sentences, clauses or phrases
J declared unconstitutional

Sec. 23. All acts and parts of acts inconsistent with the pro-
sions of tills act are hereby repealed.

Sec. 24. The sum of ten thousand dollars is hereby apinro-
iated out of any moneys in the state treasury not otherwise
ipropriated for the purpose of carrying this act into effect.

Sec. 25. This act shall take effect November 1. 1913.

And WREREAS, said regular session of the said
jgislature finally adjourned May 12, 1913, and
inety days havingr not expired since said final
djoumment ;

Now, therefore, sufllcient qualified electors of
he State of California have presented to the
ecretary of state their petitions asking that said
aw and act hereinbefore set forth, so passed by
he legislature and approved by the governor, as

ereinbefore stated, be submitted to the electors

f the State of California for their approval or
ejection.

VRGUMENT IN FAVOR OF INVESTMENT
COMPANIES ACT.

This is the "Blue Sky Law," so-called.

Its purpose is to provide for the protection of
nvestors in stocks and bonds of corporations:

First — By preventing the sale, or offering for
ale, by a corporation of stocks or bonds until
luch corporation has submitted to the commis-
iioner of corporations (an officer created by the
let) its plan of business, place of business,
imount of stock or bonds to be issued, author-
zed capital stock, its property or assets, etc.,
md shall have obtained from such commissioner
I license or permit to sell Its stocks or bonds.

Second — By preventing the false or fraudulent
idvertising of such stocks or bonds, by requiring
juch corporation to submit all such advertising
:o such commissioner of corporations, who shall
lave power to prohibit any false or misleading
Idvertising.

Third — By providing for the appointment of a
joramissioner of corporations with powers and
iuties very similar to those of the superintendent
Df banks. In fact, the statement of the duties
ind poWfefS is largely copied from the Bank Act ;
md the commissioner of corporations is to exer-
lise toward corporations in general, duties similar
to those exercised toward banks by the superin-
tendent of banks ; those exercised toward insur-



ance corporations by the insyrcince commissioner ;
those exercised toward public utilities by the rail-
road commission ; and those exercised toward the
building and loan corporations by the building
and loan comviissioner.

The act is Intended to protect the investing
public against the purohase of worthless or fraud-
ulently Issued stocks and bonds, by providing a
supervision of the corporations offering such
stocks and bonds for sale and by compelling such
corporations to show that the plan tinder which
they propose to operate is measurably, at least,
businesslike, with reasonable prospect of success ;
and by preventing the issuance of false, decep-
tive and misleading representations with respect
to such stocks and bonds. It is intended to fur-
nish protection to the credulous Investor, usually
the poor investor, who has no means at his own
command to make such an investigation as is
necessary to insure him protection in his invest-
ments. The necessity for the act grew out of the
many swindling sales of stocks and bonds by
vicious or irresponsible corporations having no
tangible or sufficient assets or honest or rational
plan of business. It is believed to be as fairly safe-
guarded as is possible for the protection of the
public, and at the same time sufficiently flexible
to allow legitimate business to continue without
unnecessary interference. Lee C. Gates,

State Senator Thirty-fourth District.

ARGUMENT AGAINST INVESTMENT COM-
PANIES ACT.

If this bill would prevent fraudulent transac-
tions in securities without interfering with legiti-
mate development, it should receive favorable
consideration. This act provides that one man
will determine whether or not a given plan of
business is fair, just, or equitable, and will then
authorize the sale of securities by issuing a cer-
tificate reciting in bold type that its issuance is
permissive only and does not constitute a recom-
mendation or endorsement of the securities.

It is not within the range of possibility that
any one man can Individually determine whether
the multitude of plans of business that will be
submitted to him are fair, just, or equitable. It
is not possible within the range of reasonable
economy for this to be done by the employment
of assistants. Based upon actual experience of
the failure of seemingly good plans, the com-
missioner may refuse certificates in almost ninety
per cent of the applications. It is the intent to
protect against fraud, yet many enterprises may
be denied development by reason of a considera-
tion of such failures, and the development which
comes from the legitimate speculative tendency
of the small investor, by reason of which tendency
great development has been made possible, would
be greatly retarded. Initiative and development
being then dependent upon the banking interests
must largely cease and the business of the state
will stagnate.

The act also provides for the regulation of all
corporations, firms or co-partnerships engaged in
miscellaneous business which may desire to issue
any form of acknowledgment of indebtedness
(excepting notes not offered for public sale), and
such regulation is open to the objection that it
is not practicable, for the same reasons — one man
can not do it, and a corps of assistants necessary
for the purpose would involve the state in enor-
mous expense, out of proportion with the good to
be accomplished. Legitimate business in the
state by virtue of investigations provided may be
subjected to unnecessary expense and annoyance.

It opens an avenue for vicious corruption.

Prevision made for the certificate that the
securities may be oftered for sale, and which
may be issued as a result of the plausible show-
ing of those most gifted in the art of deception,
would offer to the swindler the most telling de-
vice for deceiving the Ignorant

The measure is wrong in principle. It will
not be efltective and Its drastic application to
legitimate enterprise will inflict more damage
than the good it will accomplish.

Frakcis V. Kebsling.



WATER COMMISSION ACT.

Submitted to electors by referendum.

Creates state water commission for control of appropriation and use of waters; defines right
in riparian and unappropriated waters ; prescribes procedure for investigation of waters and wate
rights, appropriation thereof, apportionment of same between claimants, issuance of licenses, am
revocation thereof; declares present rights of municipal corporations unaffected.

Whereas, the legislature of the State of Cali-
fornia, in regular session in May, 1913, passed,

and the governor of the State of California, on

the 16th day of June, 1913, approved a certain

law and act, which law and act, together with

its title, is in the words and figures following,

to wit:

An act to regulate the use of water which Is sub-
ject to such control by the State of California,
and in that behalf creating a state water
commission ; specifying and providing for the
appointment of the members of said commis-
sion ; fixing the terms of office and compensa-
tion of the members of said commission; fix-
ing the powers, duties and authority of said
commission and its members; providing for
the filling of vacancies in the membership of
said commission; providing for the removal
from office of the appointed members of said
commission ; providing for the co-operation
of courts with said commission ; providing
that certain courts shall take judicial notice
of certain acts of the state water commis-
sion ; specifying the duties of all persons
summoned as witnesses before said commis-
sion or any of its members; appropriating
money for carrying out the provisions of this
act; providing for the payment of the indebt-
edness and expenses of said commission, its
members and employees; declaring what
water is unappropriated; providing for the
utilization of water and the works necessary
to such utilization to the full capacity of
streams or of such portion or portions of
such capacity as the public good may re-
• quire ; declaring what water may be appro-
priated; declaring that the non-application for
ten consecutive years of any portion of the
waters of any stream to lands riparian to
such stream shall be conclusive presmnption
that the use of such non-applied water is not
needed on said riparian lands for a useful or
beneficial purpose; declaring that such non-
applied water shall be deemed to be in the
use of the state and subject to appropriation ;
declaring the duties of those who desire to
appropriate water; declaring the periods for
which water may be appropriated and the
conditions under which water may be appro-
priated; providing for the payment of fees
and charges by the applicants for permission
to appropriate water and by the appropria-
tors of water; providing for the ascertain-
ment and adjudication of water rights; pro-
viding for the bringing of actions by certain
persons, or, upon the direction of the state
water commission, by the attorney general,
for the quieting of title to water rights;
specifying certain duties of the claimants,
possessors or users of water or water rights ;
declaring water rights forfeited under certain
conditions; regulating th« appropriation of
water ; excepting cities, cities and counties,
municipal water districts, irrigation districts
and lighting districts from certain provisions
of this act; defining certain words and terms
used in this act; repealing all acts or parts
of acts in conflict with this act; declaring
how this act shall be known; making legis-
lative declaration concerning those parts of
this act which may not be declared uncon-
stitutional.

The people of the State of California do enact
as follows:
Section 1. For the purpose of carrying out the

provisions of this act a state water commission

consisting of five persons is hereby treated and

established. Two members of said eommission

shall be, ex officio, the governor of the state and
I^orty-two



the state engineer, respectively. Three member
of said commission shall be appointed by th
governor for the term of four years ; provide!
however, that of the members first appoints
one shall be appointed to hold office until t^
first day in January, nineteen hundred and fom
teen, one until the first day in January, nini
teen hundred and fifteen, and one until tJ
first day in January, nineteen hundred aa
sixteen. Such appointive commissioners sha
be men of practical knowledge or experiem
in the application and use of waters for irrigi
tion, mining and municipal purposes, and sha
be so appointed that at least one thereof shsl



Online LibraryCalifornia Legislative Counsel Bureau California. Secretary of StateAmendments to the Constitution and proposed statutes : with arguments ... → online text (page 13 of 36)