UNOFFICIAL COPY 23 RS SB 109/GA
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AN ACT relating to investment advisers. 1
Be it enacted by the General Assembly of the Commonwealth of Kentucky: 2
Section 1. KRS 292.330 is amended to read as follows: 3
(1) It is unlawful for any person to transact business in this state as a broker-dealer 4
unless the person is registered under this chapter as a broker-dealer or is exempt 5
from registration under subsection (2) of this section. 6
(2) The following persons are exempt from the registration requirement of subsection 7
(1) of this section: 8
(a) A broker-dealer that effects transactions in this state exclusively in securities 9
exempted by KRS 292.400(15); 10
(b) A broker-dealer that has no place of business in this state and that effects 11
transactions in this state exclusively with or through the issuers of the 12
securities involved in the transactions, other broker-dealers, or banks, savings 13
institutions, trust companies, insurance companies, or investment companies 14
as defined in the Investment Company Act of 1940, 15 U.S.C. secs. 80a-1 et 15
seq., pension or profit-sharing trusts, or other financial institutions or 16
institutional buyers, whether acting for themselves or as trustees; 17
(c) A broker-dealer with no place of business in this state that during any period 18
of twelve (12) consecutive months does not direct more than fifteen (15) 19
offers to sell or to buy into this state in any manner to persons other than those 20
specified in paragraph (b) of this subsection; and 21
(d) Any other person exempted from registration by administrative regulation or 22
order under this chapter. 23
(3) It is unlawful for an individual to transact business in this state as an agent unless 24
the individual is registered under this chapter as an agent or is exempt from 25
registration under subsection (4) of this section. 26
(4) The following agents are exempt from the registration requirement of subsection (3) 27 UNOFFICIAL COPY 23 RS SB 109/GA
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of this section: 1
(a) An agent who represents a broker-dealer that is exempt from registration 2
under this chapter; 3
(b) An agent who represents a broker-dealer in effecting transactions described in 4
Section 15(h)(2) of the Securities Exchange Act of 1934, 15 U.S.C. sec. 5
78o(h)(2); and 6
(c) An agent who represents an issuer in: 7
1. Effecting a transaction in a security that is exempted by KRS 8
292.400(1), (2), (3), (10), or (11); 9
2. Effecting a transaction in a security that is exempted by KRS 10
292.400(5), (9), or (12) if the agent does not receive a commission or 11
other remuneration based, directly or indirectly, on the transaction; 12
3. Effecting a transaction in a security that is exempted by KRS 13
292.400(15), provided that the agent offers or sells no other securities 14
exempted by KRS 292.400(15); 15
4. Effecting a transaction in a security that is exempted by KRS 292.410 16
unless registration as an agent is required elsewhere in this chapter or by 17
administrative regulation or order under this chapter; 18
5. Effecting a transaction in a security that is a covered security, except 19
that an agent who represents an issuer in effecting a transaction in a 20
security that is a covered security under Section 18(b)(3) or 18(b)(4)(d) 21
of the Securities Exchange Act of 1933, 15 U.S.C. sec. 77r(b)(3) or 22
77r(b)(f)(D), is not exempt if the agent receives a commission or other 23
remuneration based, directly or indirectly, on the transaction; 24
6. Effecting a transaction with existing employees, partners, or directors of 25
the issuer if the agent does not receive a commission or other 26
remuneration based, directly or indirectly, on the transaction; 27 UNOFFICIAL COPY 23 RS SB 109/GA
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7. Effecting other transactions if the agent primarily performs, or is 1
intended to primarily perform upon completion of an offering of the 2
issuer's own securities, substantial duties for or on behalf of the issuer 3
otherwise than in connection with transactions in the issuer's own 4
securities and the agent's compensation is not based, directly or 5
indirectly, on the transactions; and 6
8. Any other person exempted from registration by administrative 7
regulation or order under this chapter. 8
(5) The registration of an agent is effective only while the agent is employed by or 9
associated with a broker-dealer registered under this chapter or an issuer offering, 10
selling, or purchasing its securities in this state. 11
(6) An individual may not act as an agent for more than one (1) broker-dealer or one 12
(1) issuer at a time unless authorized by rule or order under this chapter. 13
(7) It is unlawful for a broker-dealer or an issuer to employ or associate with an agent 14
unless the agent is registered under this chapter or exempt from registration. 15
(8) It is unlawful for any person to transact business in this state as an investment 16
adviser unless the person is registered under this chapter as an investment adviser or 17
is exempt from registration under subsection (9) of this section. 18
(9) The following investment advisers are exempt from the registration requirement of 19
subsection (8) of this section: 20
(a) An investment adviser who has no place of business in this state if his or her 21
only clients in this state are other investment advisers, covered advisers, 22
broker-dealers, banks, savings institutions, trust companies, insurance 23
companies, pension or profit-sharing trusts, or other financial institutions or 24
institutional buyers, whether acting for themselves or as trustees; 25
(b) An investment adviser that:[who] 26
1. Has no place of business in this state if, during any period of twelve (12) 27 UNOFFICIAL COPY 23 RS SB 109/GA
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consecutive months, the investment adviser[he or she] does not have 1
more than five (5) clients, other than those specified in paragraph (a) of 2
this subsection; or 3
2. During any period of twelve (12) consecutive months, does not have 4
more than five (5) clients, other than those specified in paragraph (a) 5
of this subsection, whose principal residence or principal place of 6
business is in this state; 7
(c) An investment adviser who is approved, and remains approved, by the 8
Kentucky Economic Development Finance Authority as an investment fund 9
manager pursuant to KRS 154.20-256; 10
(d) A private fund adviser in accordance with Section 2 of this Act; and 11
(e)[(d)] Any other investment adviser exempted from registration by 12
administrative regulation or order under this chapter. 13
(10) It is unlawful for an investment adviser to employ or associate with an investment 14
adviser representative unless the representative is registered under this chapter or 15
exempt from registration. 16
(11) It is unlawful for an individual to transact business in this state as an investment 17
adviser representative unless the individual is registered under this chapter as an 18
investment adviser representative or is exempt from registration under subsection 19
(12) of this section. 20
(12) The following investment adviser representatives are exempt from the registration 21
requirement of subsection (11) of this section: 22
(a) An investment adviser representative who is employed by or associated with 23
an investment adviser that is exempt from registration under this chapter or a 24
federal covered adviser that is excluded from the notice filing requirements 25
under this chapter; and 26
(b) Any other investment adviser representative exempted from registration by 27 UNOFFICIAL COPY 23 RS SB 109/GA
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rule or order under this chapter. 1
(13) The registration of an investment adviser representative is effective only while the 2
investment adviser representative is employed by or associated with an investment 3
adviser registered under this chapter or with a covered adviser that has made a 4
notice filing under this chapter. 5
(14) An individual may not act as an investment adviser representative for more than 6
one (1) investment adviser or covered adviser at a time unless authorized by 7
administrative regulation or order under this chapter. 8
SECTION 2. A NEW SECTION OF KRS CHAPTER 292 IS CREATED TO 9
READ AS FOLLOWS: 10
(1) As used in this section: 11
(a) "3(c)(1) fund" means a qualifying private fund that is eligible for the 12
exclusion from the definition of an investment company under Section 13
(3)(c)(1) of the Investment Company Act of 1940, 15 U.S.C. sec. 80a-3(c)(1), 14
as amended; 15
(b) "Private fund adviser" means an investment adviser who provides advice 16
solely to one (1) or more qualifying private funds; 17
(c) "Qualifying private fund" means a private fund that meets the definition of 18
a qualifying private fund under 17 C.F.R. sec. 275.203(m)-1, as amended; 19
and 20
(d) "Venture capital fund" means a private fund that meets the definition of a 21
venture capital fund under 17 C.F.R. sec. 275.203(l)-1, as amended. 22
(2) Except as otherwise provided in this section, a private fund adviser shall be 23
exempt from the registration requirement of subsection (8) of Section 1 of this 24
Act if: 25
(a) Neither the private fund adviser nor any of its advisory affiliates are subject 26
to an event that would disqualify an issuer under Rule 506(d) of the 27 UNOFFICIAL COPY 23 RS SB 109/GA
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Securities and Exchange Commission's Regulation D, 17 C.F.R. sec. 1
230.506(d), as amended; 2
(b) The private fund adviser: 3
1. Files with the state each report and amendment thereto that an exempt 4
reporting adviser is required to file with the Securities and Exchange 5
Commission under Rule 204-4, 17 C.F.R. sec. 275.204-4, as amended; 6
and 7
2. Pays the fees established by the commissioner; and 8
(c) For a private fund adviser that advises one (1) or more 3(c)(1) funds that 9
are not venture capital funds: 10
1. The private fund adviser advises only those 3(c)(1) funds, other than 11
venture capital funds, that satisfy at least one (1) of the following 12
requirements: 13
a. The fund's outstanding securities, other than short-term paper, 14
are beneficially owned entirely by persons who are accredited 15
investors, as defined in Rule 501 of the Securities and Exchange 16
Commission's Regulation D, 17 C.F.R. sec. 230.501, as 17
amended, at the time the securities are purchased from the 18
issuer; or 19
b. If the fund has one (1) or more beneficial owners who do not 20
meet the requirements of subdivision a. of this subparagraph: 21
i. The fund existed prior to the effective date of this Act; and 22
ii. As of the effective date of this Act, the fund ceases to accept 23
beneficial owners who do not meet the requirements of 24
subdivision a. of this subparagraph; 25
2. At the time of purchase, the private fund adviser discloses the 26
following in writing to each beneficial owner of a 3(c)(1) fund that is 27 UNOFFICIAL COPY 23 RS SB 109/GA
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not a venture capital fund: 1
a. All services, if any, to be provided to individual beneficial 2
owners; 3
b. All duties, if any, the private fund adviser owes to beneficial 4
owners; and 5
c. Any other material information affecting the rights or 6
responsibilities of the beneficial owners; and 7
3. As of the effective date of this Act, the private fund adviser: 8
a. Obtains on an annual basis audited financial statements of each 9
3(c)(1) fund that is not a venture capital fund; and 10
b. Delivers a copy of the statements obtained under subdivision a. 11
of this subparagraph to each beneficial owner of each 3(c)(1) 12
fund that is not a venture capital fund. 13
(3) A filing required under subsection (2)(b) of this section shall be: 14
(a) Made electronically through the Investment Adviser Registration 15
Depository; and 16
(b) Deemed filed when the filing and fee required under subsection (2)(b) of 17
this section is accepted by the Investment Adviser Registration Depository 18
on the state's behalf. 19
(4) An investment adviser who becomes ineligible for an exemption provided under 20
this section shall comply with all applicable laws, administrative regulations, and 21
orders requiring registration or notice filing within ninety (90) days from the date 22
the adviser's eligibility ceases. 23
(5) (a) The commissioner may waive compliance with subsection (2)(a) of this 24
section if: 25
1. The private fund adviser makes a showing of good cause; and 26
2. The commissioner determines that it is not necessary under the 27 UNOFFICIAL COPY 23 RS SB 109/GA
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circumstances to deny an exemption under this section to the private 1
fund adviser. 2
(b) A waiver under this subsection shall be without prejudice to any other 3
action of the commissioner. 4