"BLUE SKY LAWS" ‑- FRAUD ‑- MISREPRESENTATION

"BLUE SKY LAWS" ‑- FRAUD ‑- MISREPRESENTATION

Under existing laws, common laws as well as statutory, the attorney general does not have any power or duties independent of other branches or departments of government to protect the public against fraud and/or misrepresentation in the sale of securities.  In the event the securities division of the state license department has granted a certificate or permit to sell stock to the public of this state imprudently, improperly, or as the result of misrepresentation, the license department, county prosecutor and attorney general have certain duties set out in the opinion.

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                                                                   March 5, 1957

Honorable Patrick D. Sutherland
State Senator
Legislative Building
Olympia, Washington                                                                                                                Cite as:  AGO 57-58 No. 29

Dear Sir:

            You requested the opinion of this office on certain questions which we paraphrase as follows:

            (1) Under existing laws, common law as well as statutory, what powers and what duties does the attorney general have, independent of other branches or departments of government, to protect the public against (a) fraud, and/or (b) misrepresentation in the sale of securities?

            (2) In the event the securities division of the state license department has granted a certificate or permit to sell stock to the public of this state either (a) imprudently, (b) improperly, or (c) as a result of misrepresentation, what are the duties of the license department, the county prosecutor and the attorney general?

             [[Orig. Op. Page 2]]

            In answer to your first question, the attorney general has no duties, independent of other branches or departments of government, to protect the public against fraud and/or misrepresentations in the sale of securities.

            We refer you to the body of the opinion for answers to your second question.

                                                                     ANALYSIS

            State regulations governing the sale of securities commonly referred to as "Blue Sky Laws" are contained in three RCW chapters.  Chapter 21.08 RCW governs the sale of metalliferous mining securities; chapter 21.12 RCW refers specifically to oil, gas and mining leases; and chapter 21.04 RCW applies to securities that do not fall within the provisions of the aforementioned chapters.

            The questions herein presented will be answered with reference to security transactions under all three chapters.

            Our court in the very early case of   State ex rel. Attorney General v. Seattle Gas Co., 28 Wash. 488, expressed itself upon the powers of the attorney general with particular reference to common law powers.  The court stated at page 495:

            "The appellant assumes that the attorney general of this state, by virtue of his office, is, like the attorney general of England, clothed with common-law power to institute this suit, as it was the duty of the attorney general under the common law to represent the crown in such actions as this, and that therefore the attorney general of this state on his own motion can institute this suit.  Political power in this state inheres in the people, and by constitutional or statutory authority the exercise of his power in behalf of the people is delegated to certain officers.  In the exercise of power the officer is controlled by the law theretofore declared.  The attorney general of the state, although bearing the same title as the attorney general of England, is not a common-law officer.  There is nothing in a mere name.  Because the particular office filled by the relator is called the office of 'attorney general,' it does not follow therefrom that he has the same powers as the  [[Orig. Op. Page 3]] attorney general of England under the common law.  Every office under our system of government, from the governor down, is one of delegated powers.

            "'It is a well-settled doctrine that officers of the state exercise but delegated power, and this is particularly true of the attorney general.  His office is created by statute, and he, as such officer, can only exercise such power as is delegated to him by statute.'  Julian v. State, 122 Ind. 68, 72 (23 N.E. 691).

            "It is true that the office of attorney general of this state is created by the constitution; but the principles announced in the Indiana case are none the less applicable.  The constitution and statutes of this state define his power.  To the constitution, therefore, and the laws enacted in pursuance thereof, we must look for these powers, and not to the common law . . .

            "The legislation of the state shows that the legislature has not considered that the attorney general is clothed with any other power than that conferred upon him by the constitution or by express legislative enactment.  Where it has been deemed necessary for the attorney general to appear and represent the state, authority for that purpose has been given to him by express enactment. . . ."

            It is clear from the aforementioned judicial statement that powers with which the attorney general was clothed at common law do not inhere in the office of attorney general of this state unless they have been expressly granted by statute.  An exhaustive search of statutory authority has failed to disclose any statute directly imposing powers or duties upon the attorney general to protect the public against fraud or misrepresentations in the sale of securities.

            The authority vested in the license department as to remedial measures against the holder of a security permit or certificate are specifically set out in RCW 21.04.080, 21.04.120, 21.08.062 and 21.12.050.

            RCW 21.04.080 refers to permits issued under chapter 21.04 while each of the other statutes refers to certificates issued under its respective  [[Orig. Op. Page 4]] chapter.  The aforementioned statutes contain essentially the same provisions, to-wit:  The director on satisfactory proof that the holder of the certificate is guilty of fraud or fraudulent misrepresentation in the sale of a security, may revoke the certificate.  He may for good cause shown, change, amend, or temporarily suspend any rights granted thereunder.

            It is clear from the broad language of the remedial provisions of the respective acts that it was the intention of the legislature that the director of licenses was to have liberal discretionary powers in the regulation of permits and certificates theretofore issued by him.  The words "imprudently" and "improperly" mentioned in the second question are susceptible of varied definitions, but as used in the second question, the most reasonable interpretation to be given them would be that they refer to facts or events that were not known to the director at the time of issuing a license, but might have been made known to him through additional effort or by another manner of investigation on his part, and that if it had been known, would probably have made a difference in his issuing a license or permit.  The phrase "for good cause shown" in the respective remedial acts constitutes authority for the director to "change, amend or temporarily suspend" a permit or certificate that was issued in contravention of any one of the three conditions set out in the second question.

            Therefore, it is our conclusion that the director of licenses may act pursuant to the powers vested in him under the aforementioned remedial statutes when a certificate or permit has been issued either imprudently, improperly, or as a result of misrepresentation.

            All three chapters provide that a violation of any provision of their respective chapters constitutes a gross misdemeanor, and our court inState v. St. Clair, 21 Wn. (2d) 407, has interpreted RCW 36.27.020 as making it the duty of the prosecuting attorneys to prosecute all criminal actions to which the state or his county may be a party.  Therefore, it is the opinion of this office that a misrepresentation by any person or corporation of a fact in the applications required by statute prior to obtaining a certificate or permit would constitute the commission of a gross misdemeanor and subject such person or corporation to possible prosecution by the prosecutor of the proper county.

            The sole duty of the attorney general under the second question is that of legal adviser to the director of licenses in all matters of a legal or  [[Orig. Op. Page 5]] quasi-legal nature which might arise through action by the director as heretofore mentioned.  This duty to advise is based upon the provisions of RCW 43.10.040.

            We hope this opinion will be of assistance to you.

Very truly yours,

JOHN J. O'CONNELL
Attorney General

DOUGLAS HARTWICH
Assistant Attorney General