This case presents the court with the issue of whether R.C. 1707.01(J) gives intrastate securities dealers adequate notice that fedéral case law may be applied to calculate the current mаrket price of over-the-counter stock to determine if the conduct of a dealer is fraudulent. For the following reasons, we answer that question in the affirmative.
R.C. 1707.44(G), at the time relevant herеin, provided that “[n]o person in selling securities shall knowingly engage in any act or practice which is, in sections 1707.01 to 1707.45 of the Revised Code, declared illegal, defined as fraudulent, or prohibited.” The definition for “fraud” as used in the Act is found in R.C. 1707.01(J), which provides:
“ ‘Fraud,’ ‘fraudulent acts,’ ‘fraudulent practices,’ or ‘fraudulent transactions’ means anything recognized on or after July 22, 1929, as such in courts of law or equity; any device, scheme, or artifice to defraud or to obtain money or property by means of any false pretense, representation, or promise; any fictitious or pretended purchase or sale of securities; and any act, practiсe, transaction, or course of business relating to the sale of securities which is fraudulent or which has operated or would operate as a fraud upon the purchaser.” (Emphasis addеd.)
The court of appeals below held R.C. 1707.01(J) to be unconstitutionally void for vagueness. The court determined that Skyline had inadequate notice that federal securities law standards used in calсulating current market price could be applied in enforcing Ohio securities law. Moreover, it held that “[a] general rule stating that federal securities law applies to Ohio intrastate sеcurities trading would be insufficient as it would be impossible for anyone to know what standard
It is well established that all legislative enactments enjoy a strong presumption of constitutionality, and that any assertion of unconstitutionality must be proved beyond a reasonable doubt by the challenging party. State v. Collier (1991),
The Ohio Securities Act, generally referred to as Ohio Blue Sky Law, was adopted on July 22, 1929 to prevent the fraudulent exploitation of the investing public through the sale of securities. United States v. Tehan (C.A.6, 1966),
The plain language of R.C. 1707.01(J) defines “fraud,” in part, as “anything recognized * * * as such in courts of law or equity.” We acknowledge that R.C. 1707.01(J) does not state the precise method to use to calculate current market price of securities sold in Ohio. The statute does, however, clearly indicate that the definition of fraud is to be dеrived from case law deciding this issue. Moreover, the General Assembly did not limit the source of the definition solely to courts of Ohio, or even to state courts generally, as it easily could have dоne. Rather, the legislature broadly drafted R.C. 1707.01(J) to draw from all securities case law defining fraudulent conduct in both state and federal courts. Interpreting R.C. 1707.01(J) as not including federal securities law as a defining source for “fraud” would require us to modify the statute by inserting the word “Ohio” or “state” before the phrase “courts of law or equity.” We refuse to do so, for when construing a statute “it is the duty of this court to give effect to the words used, not to delete words used or to insert words not used.” Cleveland Elec. Illum. Co. v. Cleveland (1988),
Second, federal standards for determining CMP are mоre well developed than state standards. Federal courts and administrative tribunals like the Securities and Exchange Commission have a greater experience with, and a more continuous exposure to, the complicated field of securities fraud cases and, consequently, provide a more extensive body of law to draw from in defining fraud. Therefore, we hold that R.C. 1707.01(J) provides constitutionally adequate notice that federal law may be applied to the conduct of licensed intrastate securities dealers for the purpose of calculating the currеnt market price of over-the-counter securities and determining fraudulent conduct.
Furthermore, we disagree with the suggestion that R.C. 1707.01(J) states a standard that is “impossible” for a reasonable securitiеs dealer to discern. Many federal securities cases exist that provide a clear and workable method of calculating CMP, and set the standard for what constitutes an excessive priсe markup amounting to fraudulent conduct. See, e.g., Charles Hughes & Co. v. SEC (C.A.2, 1943),
In addition to clearly identifying the method for calculating current market price, federal securities case law also establishes the acceptable standard for a dealer markup. Typically, a dealer -will purchase a security through a dealer-to-dеaler transaction and then sell the security to a retail security investor at the current market price of that security plus a commission. This markup, or “spread,” is the profit realized by the deаler from the trading of the security. See Bank of Lexington & Trust Co. v. Vining-Sparks Securities, Inc. (C.A.6, 1992),
The record indicates that by calculating the current market price of FiberCorp over-the-counter stock based on dealer-to-dealer transactions, either under the contemporaneous sales method or the contemporaneous costs method, Skyline sold FiberCorp securities to Ohiо retail investors at a price of 300 percent to 567 percent over the current market price for the stock and failed to disclose to its investors either the current market price of the FiberCorp stock or the exorbitant markup. Skyline contends that the CMP of an over-the-counter stock should be determined by whatever price the dealer is able to sell the security to the investing public. This concept ignores the central objective of all securities legislation of providing protection for those unfamiliar with market conditions from the dishonesty of those whо do. “ ‘The best element of business has long since decided that honesty should govern competitive enterprises, and that the rule of caveat emptor should not be relied upon to reward fraud and deception.’ ” Charles Hughes & Co. at 437, citing FTC v. Std. Edn. Soc. (1937),
The judgment of the court of appeals is reversed, and the trial court’s judgment is reinstated.
Judgment reversed.
Notes
. Although the Act and the Ohio Administrative Code do not define “market maker,” it is widely accepted that a market maker is a dealer who holds itself out to the public as willing to buy and sell securities as a principal, risking its own capital, and is willing to sell to both the public and other dealers.
The trial court assumed arguendo that Skyline was a market maker. Due tо the egregiously excessive markup of FiberCorp stock by Skyline, however, the trial court suggested that under any method of calculation, Skyline would be considered to have sold securities at a price not reasonably related to the market price.