§ 1.2 ARIZONA'S UNIQUELY NON-FEDERAL SECURITIES LAWS

• Jurisdiction: Arizona

§ 1.2 Arizona's Uniquely Non-Federal Securities Laws

Arizona's securities statutes evolved over nearly a century, dating from 1909.²⁰ Their growth has been influenced by developments in other state and federal statutes. But as they exist today, Arizona's securities laws do not track the laws of any state or federal statutory scheme, and even decisions of the U.S. Supreme Court interpreting analogous federal statutes do not provide controlling precedent.²¹ Comparisons to the law of other jurisdictions are, therefore, frequently misplaced.²²

Securities-law precedent in Arizona and other state courts is not well developed. During the last 30 years, the Arizona Supreme Court has published only two decisions on civil liability under the securities statutes.²³ And historically, opinions by Arizona's appellate courts have often relied on federal decisions interpreting statutes with differences that went unnoticed in the Arizona decisions.²⁴

Adding to the confusion, many federal cases are decided through judicial heuristics;²⁵ that is, decision-making shortcuts like the puffery, sounds-in- fraud, fraud-by-hindsight, and bespeaks-caution doctrines.²⁶ These heuristics, while simplifying decision making, are empirically unproven assumptions about investor and market behavior.²⁷ Their prevalence in federal case law is another reason for caution when state judges look to federal precedent for guidance.²⁸

Additional complexity exists because remedies under Arizona's Securities Act (ASA)²⁹ do not exclude overlapping liability theories. The ASA contains a savings clause that preserves other statutory and common-law rights.³⁰ As a result, attorneys commonly plead statutory securities-fraud claims with other theories of recovery.³¹ When different theories meld into a single case, analysis may become murky. The legal standards that govern a nonstatutory claim like common-law fraud may be inappropriate when applied to statutory-securities fraud. For example, nonstatutory common-law defenses may be inconsistent with a claim for damages under Arizona's securities laws.³² Similarly, because of the statutory language, and the legislature's recognition of the vulnerability of investors in securities transactions, proof of common-law reliance is not required under § 44-1991(A).³³ Nor is the intent required for common-law fraud the same in an action under the ASA.³⁴

This book collects the many strands of Arizona law that collectively represent the state's securities-law precedent. It analyzes the intricacies of Arizona's securities statutes and places them in the broader framework of related common law and state statutory law. Where applicable, differences between Arizona law and federal securities law are identified and discussed.

Chapter Two recounts the history of Arizona's securities laws from territorial days forward. This historical information is not available in any standard reference book. It is presented here for multiple reasons. For one, it is an important part of the history of Arizona's economic development in the twentieth century. Arizona's economic history, particularly during the twentieth century, has been little studied.³⁵ No one has attempted to describe the history of the state's securities laws. For another, the frauds, swindlers, and lawmakers who produced Arizona's securities laws are interesting in their own right and create context for the laws. A third is to prompt others to undertake research that will expand what is begun here. Finally, the historical background to Arizona's statutes provides insights on the meaning of today's laws.³⁶

An example is provided by § 44-2003(A). Section 44-2003(A), along with §§ 44-1991(A) and 44-2001(A), provides the framework for civil liability under Arizona's Securities Act. Section 44-2003(A) has neither a federal nor state counterpart. But it does have historical antecedents. Section 44-2003(A)'s participant-liability provision can be traced to a line of similar state statutes that originated with a civil-liability provision in Utah's 1919 Securities Act.³⁷ And while the inducement-liability prong of § 44-2003(A) is not typical of state securities laws,³⁸ it has a statutory antecedent in Arizona's 1921 Securities-Dealer Act.³⁹ The 1921 Act included a criminal statute that made it a crime for any person...