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Ramifications of Selling Unregistered Securities in Florida

Posted February 21, 2015 in Florida Securities Litigation

Florida Securities Litigation Blog

Suing a Broker in Florida for Selling an Unregistered Security


Most people are aware that there are federal laws that govern securities. But, many don’t realize that Florida also has securities laws.

In Florida, the securities laws, known as the Florida Securities Investor Protection Act (FSIPA) and sometimes referred to as Florida’s “blue sky laws” are administered by the Florida Department of Banking and Finance and can be found in Florida Statutes Chapter 517.  The purpose of the FSIPA is to protect potential investors from fraudulent and deceptive practices.

One of the most basic requirements is that a security must be registered. It is unlawful for a broker to sell a security unless the security is properly registered or meets one of the exempt securities. Registration allows a potential investor to gather enough information to protect themselves.

The statute provides as follows:

517.07. Registration of Securities

(1) It is unlawful and a violation of this chapter for any person to sell or offer to sell a security within this state unless the security is exempt under s. 517.051, is sold in a transaction exempt under s. 517.061, is a federal covered security, or is registered pursuant to this chapter.

(2) No securities that are required to be registered under this chapter shall be sold or offered for sale within this state unless such securities have been registered pursuant to this chapter and unless prior to each sale the purchaser is furnished with a prospectus meeting the requirements of rules adopted by the commission.

(3) The office shall issue a permit when registration has been granted by the office. A permit to sell securities is effective for 1 year from the date it was granted. Registration of securities shall be deemed to include the registration of rights to subscribe to such securities if the application under s. 517.081 or s. 517.082 for registration of such securities includes a statement that such rights are to be issued.

(4) A record of the registration of securities shall be kept by the office, in which register of securities shall also be recorded any orders entered by the office with respect to such securities. Such register, and all information with respect to the securities registered therein, shall be open to public inspection.

(5) Notwithstanding any other provision of this section, offers of securities required to be registered by this section may be made in this state before the registration of such securities if the offers are made in conformity with rules adopted by the commission.

§ 517.07, Fla. Stat. (2014).

In other words, it is unlawful for a person to sell or offer to sell an unregistered security unless it is exempt, sold in an exempt transaction, or is a federal covered security.

The list of exempt securities can be quite complicated. If you would like to review all of the securities that are exempt from registration, read Florida Statutes Section 517.051, which can be located by clicking here.

What is required to prove that a broker sold an unregistered security?

On the surface, the basic requirements for proving this cause of action seem relatively simple. An investor only needs to show that the broker:

(1) sold or offered to sell a security;

(2) in Florida;

(3) that the security was not registered under the law; and

(4) the security was not exempt from registration.

Let’s break down these terms:

The word “sale” appears self-explanatory, but Florida has a very specific definition for the term. That definition is as follows:

“Sale” or “sell” means any contract of sale or disposition of any investment, security, or interest in a security, for value. With respect to a security or interest in a security, the term defined in this subsection does not include preliminary negotiations or agreements between an issuer or any person on whose behalf an offering is to be made and any underwriter or among underwriters who are or are to be in privity of contract with an issuer. Any security given or delivered with, or as a bonus on account of, any purchase of securities or any other thing shall be conclusively presumed to constitute a part of the subject of such purchase and to have been offered and sold for value. Every sale or offer of a warrant or right to purchase or subscribe to another security of the same or another issuer, as well as every sale or offer of a security which gives the holder a present or future right or privilege to convert into another security or another issuer, is considered to include an offer of the other security.

§ 517.021(20), Fla. Stat. (2014).

The term “offer to sell” is defined as follows:

“Offer to sell,” “offer for sale,” or “offer” means any attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security, or an investment or interest in an investment, for value.

§ 517.021(15), Fla. Stat. (2014).

 “Security” includes any of the following:

(a) A note.

(b) A stock.

(c) A treasury stock.

(d) A bond.

(e) A debenture.

(f) An evidence of indebtedness.

(g) A certificate of deposit.

(h) A certificate of deposit for a security.

(i) A certificate of interest or participation.

(j) A whiskey warehouse receipt or other commodity warehouse receipt.

(k) A certificate of interest in a profit-sharing agreement or the right to participate therein.

(l) A certificate of interest in an oil, gas, petroleum, mineral, or mining title or lease or the right to participate therein.

(m) A collateral trust certificate.

(n) A reorganization certificate.

(o) A preorganization subscription.

(p) Any transferable share.

(q) An investment contract.

(r) A beneficial interest in title to property, profits, or earnings.

(s) An interest in or under a profit-sharing or participation agreement or scheme.

(t) Any option contract which entitles the holder to purchase or sell a given amount of the underlying security at a fixed price within a specified period of time.

(u) Any other instrument commonly known as a security, including an interim or temporary bond, debenture, note, or certificate.

(v) Any receipt for a security, or for subscription to a security, or any right to subscribe to or purchase any security.

(w) A viatical settlement investment.

§ 517.021(21), Fla. Stat. (2014).

Who must prove that the security is exempt?

The Plaintiff does not shoulder this burden. Instead, the broker, or entity, claiming exemption, must establish the right to any exemption. § 517.171 Fla. Stat. (2014).

What happens if someone sold me an unregistered security?

Florida allows for a civil remedy if an unregistered security is sold. The short answer is that you can return the security (if you still own it) or get money damages (if you have already sold it).

Rescission: If you still have the security, Florida allows you to return it for a full refund, just like that ugly sweater you received over the holidays.  This includes the interest that accumulated while the broker held onto your money. Of course, if the security generated income for you, that amount is deducted from the damage calculation. And, once the seller returns the money, the seller gets the security back. See § 517.211(3), Fla. Stat. (2014).

Damages: If you have already sold the security, you are entitled to money damages. The amount of damages you are entitled to is calculated by taking the amount of money you paid including interest, minus the value of the security when you sold it, including any income received by you. § 517.211(4), Fla. Stat. (2014).

 Can I get my attorney’s fees reimbursed if the broker sold an unregistered security to me?

Yes. A violation of Florida’s securities laws allows the prevailing party to receive reasonable attorney’s fees unless the court finds that the award of such fees would be unjust. § 517.211(6), Fla. Stat. (2014).


Contact Us:

Persante Zuroweste brings actions against brokers and broker-dealers. If you believe that you may need legal assistance regarding a Florida securities litigation matter, please contact us at (727) 796-7666.

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