California Legislature—2013–14 Regular Session

Assembly Bill No. 713

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 introduced, 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 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 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 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 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 buys or sells securities for his 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
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 begin delete Corporations end delete
begin insert Business Oversight end insert pursuant to this section when it is issuing or
guaranteeing options. The commissioner may by order certify an
exchange under this section upon begin delete such end delete begin insert any end insert conditions as he begin insert or she end insert
by rule or order deems appropriate, and upon notice and
opportunity to be heard he may suspend or revoke begin delete such end delete begin insert that end insert
certification, if he begin insert or she end insert finds begin delete such end delete begin insert the end insert certification, suspension,
or revocation to be in the public interest and necessary and
appropriate for the protection of investors.

begin insert

(8) (A) An individual who acts only as a finder and who satisfies
all of the conditions set forth in subparagraphs (B) to (H),
inclusive. For purposes of this section, a “finder” is a person who
introduces or refers one or more accredited investors to an issuer
or an issuer to one or more accredited investors, solely for the
purpose of a potential investment in the securities of the issuer,
and who does not (i) participate in negotiating any of the terms
of the investment; (ii) advise any party to the securities transaction
regarding the merits of, or the advantages or disadvantages of
entering into the investment; 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 investment. A person who
fails to comply with the requirements of this paragraph shall not
be entitled to rely on the exemption afforded hereunder.

end insert begin insert

(B) The finder shall have filed an initial statement of information
with the Department of Business Oversight, in a form as the
commissioner may prescribe by regulation, and has paid an initial
filing fee.

end insert begin insert

(C) The finder shall have timely filed any annual reports of
activity with the Department of Business Oversight, in a form as
the commissioner may prescribe by regulation, and has paid the
requisite filing fee.

end insert begin insert

(D) For each transaction or series of transactions, the finder
shall have filed a notice with the Department of Business Oversight,
to be made available to the public in a form as the commissioner
may prescribe by regulation, containing affirmative representations
by the finder that the finder (i) is acting only to introduce the
parties and will not effect any transaction in, advise or consult on,
or induce or attempt to induce the purchase or sale of, any security
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) has not engaged in any advertising or general
solicitation with respect to the offering, sale, or purchase of any
securities; (iv) will not receive, directly or indirectly, possession
or custody of any funds in connection with acting as a finder; (v)
has not acted in violation of any provision of this section; and (vi)
has fully disclosed and obtained the informed written consent of
the issuer and the potential investor regarding the material terms
of the compensation arrangement between the issuer and the finder
relating to the finder’s introduction of the investor. A separate
notice shall be filed for each new offering of securities, no later
than 30 calendar days following the first sale of securities in the
offering, unless the end of that period falls on a Saturday, Sunday
or holiday, in which case the due date shall be the next business
day. For each notice filing, the finder shall pay a filing fee, as set
from time to time by the Department of Business Oversight.

end insert begin insert

(E) Concurrently with each introduction, the finder shall have
obtained the informed, written consent of each person or entity
introduced by the finder to an issuer, in an agreement signed by
the finder, the issuer, and the investor, disclosing the following:
(i) the type and amount of compensation that will be paid to the
finder in connection with the investment and the conditions for
payment of that compensation; (ii) that the finder shall neither
recommend nor advise the investor with respect to the subject
securities transaction; (iii) whether the finder is also an owner of
the securities offered by the issuer, and (iv) any other actual and
potential conflict of interest in connection with the finder’s
activities. Each investor shall represent in the written consent that
the investor is an accredited investor, as that term is defined in
Regulation D under the Securities Exchange Act of 1933, as
amended, and that the investor knowingly consents to the payment
of the compensation described therein.

end insert begin insert

(F) The finder shall maintain and preserve, for a period of five
years from the date of filing of the notice prescribed in
subparagraph (B), a copy of the notice, the written consent
required in subparagraph (C), and all other records relating to
any investments 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.

end insert begin insert

(G) The finder shall not engage in any of the following: (i)
directly or indirectly taking possession or custody of investor funds;
(ii) knowingly participating in any unregistered offering not
otherwise exempt from registration or qualification; (iii) failing
to disclose the existence of a financial or pecuniary benefit to the
finder in connection with or relating to the finders’ introduction;
(iv) conducting due diligence on behalf of issuer or investor; (v)
soliciting, marketing, advertising, or holding himself, herself, or
itself out to the public in general as being in the business of making
introductions between accredited investors or issuers or seeking
business from accredited investors or issuers; (vi) or making any
disclosures to investors other than disclosures expressly permitted
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 investor.

end insert

(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.