Washington Administrative Code Title 460 - Financial Institutions, Department of (Securities Division)
Washington Administrative Code (WAC) Title 460
Department of Financial Institutions (Securities Division)
What is WAC Title 460?
WAC Title 460 contains the administrative rules that implement and enforce the Washington Securities Act (found in RCW Chapter 21.20). These rules cover:
How securities are registered or exempted in Washington.
Licensing and conduct of broker-dealers, salespersons, and investment advisers.
Anti-fraud provisions.
Filing requirements and disclosures.
Procedures for enforcement actions.
WAC 460 is important because it fills in the details left open by the statute (RCW 21.20), specifying practical and procedural requirements that market participants must follow.
Key Provisions of WAC Title 460
1. Definitions (WAC 460-10A)
Provides precise definitions of important terms like “security,” “issuer,” “accredited investor,” and others.
These definitions align with statutory terms but provide clarity on what counts as an investment contract or security.
2. Registration of Securities and Exemptions
WAC 460 sets out how securities must be registered before being sold in Washington unless an exemption applies.
There are exempt securities (e.g., certain government securities, bank securities) and exempt transactions (like limited offers to a small number of investors).
Exemptions require strict adherence to conditions.
3. Anti-Fraud Provisions (WAC 460-12A and RCW 21.20.010)
Prohibit deceit, misrepresentation, omission of material facts, or any fraudulent device in connection with securities sales.
These provisions apply regardless of whether the security or transaction is exempt from registration.
Enforcement can be civil or criminal.
4. Broker-Dealer and Investment Adviser Registration
Anyone acting as a broker-dealer or investment adviser in Washington must register with the Securities Division.
Rules cover conduct, disclosure, and recordkeeping.
5. Small Company Offering Registration (SCOR)
Special rules for smaller companies to raise capital with lighter requirements, but still subject to anti-fraud rules.
Interaction Between RCW 21.20 and WAC 460
RCW 21.20 is the foundational statute; it creates the Securities Act and authorizes the Department to adopt rules.
WAC 460 are the detailed rules implementing RCW 21.20.
The statute provides broad principles, while WAC provides the nuts and bolts.
Importantly, anti-fraud rules apply regardless of registration or exemption.
Case Law Related to WAC Title 460 and RCW 21.20
Here are some key Washington cases that explain how courts interpret these rules and statutes:
Case 1: Hines v. Data Line Systems, 114 Wn.2d 127 (1990)
Issue:
Whether investors must prove a loss in value caused by misrepresentations under RCW 21.20.010 to state a claim.
Holding:
The Washington Supreme Court held that a plaintiff does not need to prove a decline in value caused by fraud.
The mere fact that material misrepresentations or omissions were made in connection with the sale of securities suffices for liability under anti-fraud provisions.
This means that even if the investment has not yet decreased in value, fraud liability can attach.
Case 2: Aspelund v. Olerich, 56 Wn. App. 477 (1990)
Issue:
Does RCW 21.20.010 anti-fraud provision apply to private, non-public sales of stock?
Holding:
Yes. The court held that private sales between individuals are covered by the anti-fraud provisions.
The protections of the Securities Act extend beyond public offerings to protect investors in private transactions as well.
Case 3: First Maryland Leasecorp v. Rothstein, 72 Wn. App. 278 (1994)
Issue:
When does the statute of limitations for securities fraud under RCW 21.20.430 begin to run?
Holding:
The court ruled that the limitations period starts when the plaintiff knew or reasonably should have known of the facts constituting the violation.
This prevents plaintiffs from indefinitely delaying claims once they are aware (or should be aware) of the fraud.
Case 4: Kinney v. Cook, 157 Wn.2d 367 (2006)
Issue:
Interpretation of what constitutes a "security" and the scope of anti-fraud protections.
Holding:
The court adopted a broad interpretation of "security" consistent with the purpose of the statute to protect investors.
The decision reinforced that the anti-fraud provisions have wide scope and protect against all types of investment schemes, regardless of form.
Case 5: State v. Philips, 45 Wn. App. 321, 725 P.2d 627 (1986)
Issue:
Whether the question of whether an instrument is a “security” is a factual question for the jury.
Holding:
The appellate court ruled that determining if a financial instrument is a security under RCW 21.20 can be a question of fact for a jury, not just a legal question for a judge.
This emphasizes the fact-specific nature of securities regulation.
Practical Takeaways
Compliance with WAC 460 and RCW 21.20 is mandatory for anyone issuing or selling securities or acting as a broker or investment adviser in Washington.
Even if a security or transaction is exempt from registration, anti-fraud rules still apply and can lead to civil or criminal penalties.
Washington courts have interpreted these laws broadly to protect investors and have held that fraud claims can proceed even without proof of economic loss, and in private sales as well.
Statutes of limitations under the Securities Act require timely filing once fraud is discovered or should have been discovered.
Licensing and registration requirements are detailed and strictly enforced.
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