California Assembly Bill AB713 Amended / Bill

 BILL NUMBER: AB 713AMENDED BILL TEXT AMENDED IN ASSEMBLY JANUARY 14, 2014 AMENDED IN ASSEMBLY JANUARY 6, 2014 INTRODUCED BY Assembly Member Wagner FEBRUARY 21, 2013 An act to amend Section 25004 of the Corporations Code, relating to securities. LEGISLATIVE COUNSEL'S DIGEST AB 713, as amended, Wagner. Broker-dealers. Existing law, the Corporate Securities Law of 1968, defines a broker-dealer as, among other things, any person engaged in the business of effecting securities transactions in California for the account of others or his or her own account, and it specifies those persons or entities excluded from the definition. Pursuant to the Governor's Reorganization Plan No. 2 of 2012 (GRP 2), the regulation of corporations  by the Commissioner of Corporations effective July 1, 2013,  is transferred  , effective July 1, 2013, from the Commissioner of Corporations  to the Commissioner of Business Oversight. This bill would add to the persons  and entities  excluded from the definition of a broker-dealer an individual who is a finder, as defined,  that   who  satisfied specified requirements, including, among other things, filing an initial statement of information with the Department of Business Oversight and paying a filing fee. The bill also would make technical changes to conform with the GRP 2. Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 25004 of the Corporations Code is amended to read: 25004. (a) "Broker-dealer" means any person engaged in the business of effecting transactions in securities in this state for the account of others or for his or her  own account. "Broker-dealer" also includes a person engaged in the regular business of issuing or guaranteeing options with regard to securities not of his  or her  own issue. "Broker-dealer" does not include any of the following: (1) Any other issuer. (2) An agent, when an employee of a broker-dealer or issuer. (3) A bank, trust company, or savings and loan association. (4) Any person insofar as he  or she  buys or sells securities for his  or her  own account, either individually or in some fiduciary capacity, but not as part of a regular business. (5) A person who has no place of business in this state if he  or she  effects transactions in this state exclusively with (A) the issuers of the securities involved in the transactions or (B) other broker-dealers. (6) A broker licensed by the Real Estate Commissioner of this state when engaged in transactions in securities exempted by subdivision (f) or (p) of Section 25100 or in securities the issuance of which is subject to authorization by the Real Estate Commissioner of this state or in transactions exempted by subdivision (e) of Section 25102. (7) An exchange certified by the Commissioner of Business Oversight pursuant to this section when it is issuing or guaranteeing options. The commissioner may by order certify an exchange under this section upon any conditions as he or she by rule or order deems appropriate, and upon notice and opportunity to be heard he  or she  may suspend or revoke that certification, if he or she finds the certification, suspension, or revocation to be in the public interest and necessary and appropriate for the protection of investors. (8) (A) An individual who acts only as a finder  in this state  and who satisfies all of the conditions set forth in subparagraphs (B) to (G), inclusive. For purposes of this section, a "finder" is an individual who introduces or refers one or more accredited investors, as that term is defined in Rule 501(a) of Regulation D under the Securities Act of 1933 (17 C.F.R. 230.501(a)), to an issuer or an issuer to one or more accredited investors, solely for the purpose of a potential sale of securities of the issuer, and who does not (i) participate in negotiating any of the terms of the securities transaction; (ii) advise any party to the securities transaction regarding the merits of, or the advantages or disadvantages of entering into the securities transaction; or (iii) sell or intend to sell any securities of the issuer, which securities are owned, directly or indirectly, by the finder as  a  part of the securities transaction. An individual who fails to comply with the requirements of this paragraph shall not be entitled to rely on the exemption afforded hereunder. (B) The finder shall  have filed   file  with the Department of Business Oversight prior to engaging in any activities described in subparagraph (A), on a form prescribed by the commissioner, an initial statement of information that shall include both of the following: (i) the name and complete business or residential address of the finder and (ii) the mailing address of the finder, if different from the business or residential address. A filing fee of not more than twenty-five dollars ($25) may be required to be submitted, as determined by the commissioner by rule, to the Department of Business Oversight along with the initial statement of information required by this subparagraph.  (C) The finder shall have timely filed an annual report of activity with the Department of Business Oversight and paid any requisite filing fee, as determined by the commissioner by rule.   (D)   (C)  For each  securities  transaction or series of  securities  transactions, the finder shall  have filed   file  with the Department of Business Oversight, on a form  as  prescribed by the commissioner, a notice that shall include the following affirmative representations by the finder, that the finder (i) is acting only to introduce the issuer and the potential  purchaser   accredited investor  of an issuer's securities and will not effect any  securities  transaction in, advise or consult on, or induce or attempt to induce the purchase or sale of, any securities in this state; (ii) has not done any of the acts, satisfied any of the circumstances, or is subject to any order specified in Section 25212; (iii) will not receive, directly or indirectly, possession or custody of any funds related to the purchase and sale of the subject securities transactions; (iv) has not acted in violation of any provision of this section; and (v) has fully disclosed and obtained the informed written consent of the issuer and each potential  purchaser   accredited investor  introduced by the finder to the issuer regarding the material terms of the compensation arrangement between the issuer and the finder relating to the finder's services provided for the subject securities transaction. A separate notice shall be filed for each new  securities  transaction or series of  securities  transactions, no later than 20 business days following the first sale of securities in the offering. The commissioner may by rule require the finder to pay a filing fee in connection with the notice required in this subparagraph of not more than twenty-five dollars ($25). (E) Concurrently with each introduction  or referral  , the finder shall  have obtained   obtain  the informed, written consent of each potential  purchaser   accredited investor  introduced  or referred  by the finder to an issuer for the purchase and sale of securities of the issuer, in an agreement signed by the finder, the issuer, and the potential  purchaser   accredited investor  , disclosing the following: (i) the type and amount of compensation that will be paid to the finder in connection with the subject securities transactions and the conditions for payment of that compensation; (ii) that the finder shall neither recommend nor advise the potential  purchaser   accredited investor  with respect to the subject securities transaction; (iii) whether the finder is also an owner of the securities of the issuer, and (iv) any other actual and potential conflict of interest in connection with the finder's activities related to the subject securities transaction. Each potential  purchaser   accredited investor  shall represent in the written consent that the potential  purchaser   accredited investor  is an accredited investor, as that term is defined in Rule 501(a) of Regulation D under the Securities Exchange Act of 1933 (17 C.F.R. 230.501(a)), and that the potential  purchaser   accredited investor  knowingly consents to the payment of the compensation described therein. (F) The finder shall maintain and preserve, for a period of five years from the date of filing of the notice prescribed in subparagraph (D), a copy of the notice, the written consent required in subparagraph (E), and all other records relating to any securities transaction in connection with which the finder receives compensation, as the commissioner may by rule require. The finder, upon written request of the commissioner, shall furnish to the commissioner any records required to be maintained and preserved under this subparagraph. (G) The finder shall not engage in any of the following: (i) directly or indirectly take possession or custody of funds related to the purchase and sale of any subject securities transaction; (ii) knowingly participate in any unregistered offering not otherwise exempt from registration or qualification; (iii) fail to make the disclosures required by subparagraph (E); (iv) conduct due diligence on behalf of the issuer or the potential  purchaser   accredited investor  related to any subject securities transaction; (v) make any disclosures to potential  purchasers   accredited investors  other than disclosures expressly permitted or required under this subparagraph. Permitted disclosures are limited to the name, address, and telephone number of the issuer; the name, type, and price (if known) of any securities to be issued; the issuer's industry, location, and years in business; the type, number, and aggregate amount of securities being offered; and contact information regarding the potential  purchaser  accredited investor  . (b) For purposes of this section, an agent is an employee of a broker-dealer under paragraph (2) of subdivision (a) when the agent is employed by or associated with the broker-dealer under all of the following conditions: (1) The agent is subject to the supervision and control of the broker-dealer. (2) The agent performs under the name, authority, and marketing policies of the broker-dealer. (3) The agent discloses to investors the identity of the broker-dealer. (4) The agent is reported pursuant to subdivision (c) of Section 25210 and the rules adopted thereunder.