CHAPTER 548. INSURER INSIDER TRADING AND PROXY REGULATION - Texas Statutes

INSURANCE CODE

TITLE 5. PROTECTION OF CONSUMER INTERESTS

SUBTITLE C. DECEPTIVE, UNFAIR, AND PROHIBITED PRACTICES

CHAPTER 548. INSURER INSIDER TRADING AND PROXY REGULATION

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 548.001. PURPOSE. (a) The purpose of this chapter is to

provide for protection of the public interest, investors, and

shareholders of domestic stock insurers by:

(1) regulating proxy solicitation by domestic stock insurers;

(2) regulating transactions by officers, directors, and

principal equity security holders of domestic stock insurers; and

(3) requiring appropriate reporting of those solicitations and

transactions.

(b) To that end the misuse of information by certain insiders of

domestic stock insurers shall be prevented and a full and fair

disclosure of all material matters relevant to the exercise of

the corporate franchise of a shareholder of such an insurer will

be promoted and the free exercise of that franchise will be

assured.

(c) In exercising the authority granted by this chapter to adopt

rules, the commissioner shall promote the purposes of this

chapter to prevent misuse of information and to encourage good

faith dealing and full and fair disclosure.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Sec. 548.002. DEFINITIONS. In this chapter:

(1) "Domestic stock insurer" includes a domestic title insurance

company regulated by Title 11 and a stipulated premium company

regulated by Chapter 884.

(2) "Equity security" means:

(A) a stock or similar security;

(B) a security that:

(i) is convertible, with or without consideration, into an

equity security; or

(ii) carries a warrant or right to subscribe to or purchase an

equity security;

(C) a warrant or right to subscribe to or purchase an equity

security; or

(D) any other security defined as an equity security in

accordance with Section 548.004(a)(1).

(3) "Federal Securities Exchange Act" means the Securities

Exchange Act of 1934 (15 U.S.C. Section 77b et seq.), as amended.

(4) "Officer" means:

(A) a president, vice president, treasurer, actuary, secretary,

or controller of a domestic stock insurer; or

(B) any other person who performs for a domestic stock insurer

the functions of an officer described by Paragraph (A).

(5) "Person" means an individual, corporation, partnership,

association, joint-stock company, business trust, or

unincorporated organization.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Sec. 548.003. RULEMAKING AUTHORITY. The commissioner may:

(1) adopt rules necessary for the execution of the powers and

duties of the department or commissioner under this subchapter

and Subchapter B; and

(2) for that purpose classify domestic stock insurers,

securities, and other persons or matters under the jurisdiction

of the department or commissioner.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Sec. 548.004. RULES RELATING TO EQUITY SECURITIES AND EXEMPT

SECURITIES. (a) If the commissioner considers it necessary or

appropriate in the public interest or for the protection of

investors, the commissioner by rule may define:

(1) "equity security" to include a security that is similar in

nature to an equity security; and

(2) "exempt security" for purposes of this chapter.

(b) In adopting a rule under Subsection (a)(2), the commissioner

may define the term conditionally, on specified terms, or for a

stated period.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

SUBCHAPTER B. REQUIRED ACTS; PROHIBITIONS

Sec. 548.101. DEFINITION. In this subchapter, "insider" means a

person who:

(1) is directly or indirectly the beneficial owner of more than

10 percent of any class of an equity security of a domestic stock

insurer, other than an exempt security; or

(2) is a director or officer of a domestic stock insurer.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Sec. 548.102. STATEMENT OF BENEFICIAL OWNERSHIP OF EQUITY

SECURITIES. (a) Not later than the 10th day after the date a

person becomes an insider, the insider shall file with the

department a statement of the amount of all equity securities of

the insurer of which the insider is a beneficial owner.

(b) If in any month a change occurs in the amount of the equity

securities of which the insider is a beneficial owner, the

insider shall file with the department not later than the 10th

day of the following month a statement that indicates:

(1) the amount of all equity securities of which the insider is

a beneficial owner as of the end of that month; and

(2) the changes in the insider's ownership that occurred in that

month.

(c) A statement under this section must be in the form

prescribed by the department.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Sec. 548.103. RECOVERY OF CERTAIN PROFITS. (a) The purpose of

this section is to prevent the unfair use of information that may

be obtained by an insider because of the insider's relationship

with the domestic stock insurer.

(b) Any profit realized by the insider from the purchase and

sale or from the sale and purchase of an equity security of the

domestic stock insurer within a period of less than six months

inures to and is recoverable by the insurer.

(c) A suit to recover the profit must be brought not later than

the second anniversary of the date the profit is realized. The

suit may be instituted at law or in equity by:

(1) the domestic stock insurer; or

(2) the owner of any security of the domestic stock insurer, in

the name of and in behalf of the insurer, if the insurer does

not:

(A) bring suit not later than the 60th day after the date a

request is made; or

(B) diligently prosecute a suit that is timely brought by the

insurer.

(d) Subsection (b) applies regardless of whether:

(1) the insider intended to hold the equity security purchased

for longer than six months; or

(2) the insider did not intend to repurchase the sold equity

security during the six-month period following the date the

insider sold the equity security.

(e) Subsection (b) does not apply to:

(1) a transaction in which an equity security was acquired in

good faith in connection with a previously contracted debt;

(2) a transaction in which the beneficial owner of an equity

security was not the beneficial owner at both the time of the

purchase and the time of the sale, or the sale and purchase, of

the security involved;

(3) a transaction involving an exempt security;

(4) a transaction that the commissioner by rule exempts from

this section because it is beyond the scope of the purpose of

this section; or

(5) a transaction involving an equity security of a domestic

stock insurer that is not held by a dealer in an investment

account if the transaction:

(A) is in the ordinary course of the dealer's business; and

(B) is incident to the establishment or maintenance by the

dealer of a primary or secondary market, other than on an

exchange, as defined by the federal Securities Exchange Act, for

the security.

(f) The commissioner may adopt rules the commissioner considers

necessary or appropriate in the public interest to define and

prescribe terms and conditions with respect to a security held in

an investment account and a transaction made in the ordinary

course of business and incident to the establishment or

maintenance of a primary or secondary market.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Sec. 548.104. SALE OR NONDELIVERY OF CERTAIN EQUITY SECURITIES

PROHIBITED. (a) An insider may not directly or indirectly sell

an equity security of the domestic stock insurer if the insider

selling the security or the insider's principal:

(1) does not own the security; or

(2) owns the security, but does not:

(A) deliver the security before the 21st day after the date of

the sale; or

(B) deposit the security in the mail or another usual channel of

transportation before the sixth day after the date of the sale.

(b) An insider is not considered to have violated Subsection

(a)(2) if the insider proves that:

(1) notwithstanding the exercise of good faith, the insider was

unable to make a timely delivery or deposit; or

(2) to make a timely delivery or deposit would cause undue

inconvenience or expense.

(c) Subsection (a) does not apply to the sale of:

(1) an exempt security; or

(2) an equity security of a domestic stock insurer that is not

held by a dealer in an investment account if the sale:

(A) is in the ordinary course of the dealer's business; and

(B) is incident to the establishment or maintenance by the

dealer of a primary or secondary market, other than on an

exchange, as defined by the federal Securities Exchange Act, for

the security.

(d) The commissioner may adopt rules implementing Subsection (c)

in the manner prescribed by Section 548.103(f).

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Sec. 548.105. CERTAIN SOLICITATIONS PROHIBITED; DISCLOSURE BY

INSURER. (a) A person, in violation of any rule adopted by the

commissioner under this section, may not solicit or permit the

use of the person's name to solicit a proxy, consent, or

authorization with respect to an equity security, other than an

exempt security, of a domestic stock insurer that is not listed

on a national securities exchange registered as such under the

federal Securities Exchange Act.

(b) Unless before an annual or other meeting a proxy, consent,

or authorization with respect to a security of a domestic stock

insurer covered by Subsection (a) is solicited by or on behalf of

the management of the insurer from a holder of record of the

security in compliance with rules adopted by the commissioner

under this section, the insurer shall, in accordance with rules

adopted by the commissioner, file with the department information

substantially equivalent to the information that would be

required to be sent if a solicitation were made. The insurer

shall send the information to each holder of record of the

security.

(c) The commissioner may adopt rules to implement this section

that the commissioner considers necessary or appropriate in the

public interest or for the protection of investors.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Sec. 548.106. NONAPPLICABILITY OF SUBCHAPTER. (a) This

subchapter does not apply to an equity security of a domestic

stock insurer if:

(1) the security is or is required to be registered under

Section 12 of the federal Securities Exchange Act; or

(2) the insurer does not have any class of its equity securities

held of record by 100 or more persons on the last business day of

the year preceding the year in which the equity security would

otherwise be subject to this subchapter.

(b) Sections 548.101-548.104 do not apply to a foreign or

domestic arbitrage transaction unless the transaction is made in

violation of a rule adopted by the commissioner to accomplish the

purposes of this chapter.

(c) A provision of this subchapter that imposes liability does

not apply to an act or omission made in good faith in conformity

with a rule adopted by the commissioner. This subsection applies

regardless of whether the rule is subsequently amended,

rescinded, or determined by judicial or other authority to be

invalid for any reason.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

SUBCHAPTER C. ENFORCEMENT

Sec. 548.201. OFFENSES; CRIMINAL PENALTY. (a) A person commits

an offense if the person intentionally:

(1) violates this chapter or a rule adopted under this chapter;

or

(2) makes or causes to be made a statement that is false or

misleading with respect to a material fact in a document required

to be filed by this chapter or a rule adopted under this chapter.

(b) Except as provided by Subsection (c), an offense under this

section is punishable by:

(1) a fine not to exceed $10,000;

(2) imprisonment for not more than two years; or

(3) both the fine and imprisonment.

(c) A person may not be punished by imprisonment for violating a

rule as prescribed by this section if the person proves that the

person had no knowledge of the rule.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Sec. 548.202. CIVIL PENALTY. (a) A person who wilfully

violates this chapter or a rule adopted under this chapter is

liable for a civil penalty of not less than $100 or more than

$1,000 for:

(1) each act of violation; and

(2) each day of violation.

(b) The attorney general, at the request of the commissioner,

shall bring a suit in the name of the state to recover the civil

penalty. The suit must be brought:

(1) in Travis County or the county in which the person resides;

(2) if more than one person commits the violation, in the county

in which any of the persons resides; or

(3) in the county in which the violation allegedly occurred.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Sec. 548.203. INJUNCTIVE ACTION. A suit to enjoin a violation

or a threatened violation of this chapter may be brought in any

district court in which an action for a civil penalty under

Section 548.202 may be brought.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.