California Legislature—2015–16 Regular Session

Assembly BillNo. 667


Introduced by Assembly Member Wagner

February 24, 2015


An act to amend Section 25004 of the Corporations Code, relating to securities.

LEGISLATIVE COUNSEL’S DIGEST

AB 667, as introduced, Wagner. Broker-dealers: finders.

Under existing law, the Corporate Securities Law of 1968, the Commissioner of Business Oversight regulates the activities of a broker-dealer which is defined 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.

This bill would add to the persons excluded from the definition of a broker-dealer an individual who is a finder, as defined, 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.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

P1    1

SECTION 1.  

Section 25004 of the Corporations Code is
2amended to read:

3

25004.  

(a) “Broker-dealer” means any person engaged in the
4business of effecting transactions in securities in this state for the
P2    1account of others or for hisbegin insert or herend insert own account. “Broker-dealer”
2also includes a person engaged in the regular business of issuing
3or guaranteeing options with regard to securities not of hisbegin insert or herend insert
4 own issue. “Broker-dealer” does not include any of the following:

5(1) Any other issuer.

6(2) An agent, when an employee of a broker-dealer or issuer.

7(3) A bank, trust company, or savings and loan association.

8(4) Any person insofar as hebegin insert or sheend insert buys or sells securities for
9hisbegin insert or herend insert own account, either individually or in some fiduciary
10capacity, but not as part of a regular business.

11(5) A person who has no place of business in this state if hebegin insert or
12sheend insert
effects transactions in this state exclusively with (A) the issuers
13of the securities involved in the transactions or (B) other
14broker-dealers.

15(6) A broker licensed by the Real Estate Commissioner of this
16state when engaged in transactions in securities exempted by
17subdivision (f) or (p) of Section 25100 or in securities the issuance
18of which is subject to authorization by the Real Estate
19Commissioner of this state or in transactions exempted by
20subdivision (e) of Section 25102.

21(7) An exchange certified by thebegin delete Commissioner ofend deletebegin delete Corporationsend delete
22begin insert Commissionerend insert pursuant to this section when it is issuing or
23guaranteeing options. The commissioner may by order certify an
24exchange under this section uponbegin delete suchend deletebegin insert anyend insert conditions as hebegin insert or sheend insert
25 by rule or order deems appropriate, and upon notice and
26opportunity to be heard hebegin insert or sheend insert may suspend or revokebegin delete suchend deletebegin insert thatend insert
27 certification, if hebegin insert or sheend insert findsbegin delete suchend deletebegin insert theend insert certification, suspension,
28or revocation to be in the public interest and necessary and
29appropriate for the protection of investors.

begin insert

30(8) (A) Any finder who satisfies all of the conditions set forth
31in subparagraphs (B) to (E), inclusive. For purposes of this section,
32a “finder” is a natural person who, for direct or indirect
33compensation, introduces or refers one or more accredited
34investors, as that term is defined in Rule 501(a) of Regulation D
35under the Securities Act of 1933 (17 C.F.R. 230.501(a)), to an
36issuer or an issuer to one or more accredited investors, solely for
37the purpose of a potential offer or sale of securities of the issuer
38in an issuer transaction in this state, and who does not do any of
39the following:

end insert
begin insert

P3    1(i) Provide services to an issuer for a transaction or a series of
2related transactions for the offer or sale of securities of the issuer
3that exceeds a securities purchase price of twenty-five million
4dollars ($25,000,000) in the aggregate.

end insert
begin insert

5(ii) Participate in negotiating any of the terms of the offer or
6sale of the securities.

end insert
begin insert

7(iii) Advise any party to the transaction regarding the value of
8the securities or the advisability of investing in, purchasing, or
9selling the securities.

end insert
begin insert

10(iv) Conduct any due diligence on the part of any party to the
11transaction.

end insert
begin insert

12(v) Sell or offer for sale in connection with the issuer transaction
13any securities of the issuer that are owned, directly or indirectly,
14by the finder.

end insert
begin insert

15(vi) Receive, directly or indirectly, possession or custody of any
16funds in connection with the issuer transaction.

end insert
begin insert

17(vii) Knowingly receive compensation in connection with any
18offer or sale of securities unless the sale is qualified under this
19division or unless the security or the transaction is exempt or not
20otherwise subject to qualification.

end insert
begin insert

21(viii) Make any disclosure to a potential purchaser other than
22the following:

end insert
begin insert

23(I) The name, address, and contact information of the issuer.

end insert
begin insert

24(II) The name, type, price, and aggregate amount of any
25securities being offered in the issuer transaction.

end insert
begin insert

26(III) The issuer’s industry, location, and years in business.

end insert
begin insert

27(B) (i) The finder shall file with the Department of Business
28Oversight before engaging in any activities described in
29subparagraph (A), on a form prescribed by the commissioner, an
30initial statement of information that shall include both of the
31following:

end insert
begin insert

32(I) The name and complete business or residential address of
33the finder.

end insert
begin insert

34(II) The mailing address of the finder, if different from the
35business or residential address.

end insert
begin insert

36(ii) A filing fee of not more than three hundred dollars ($300)
37may be required to be submitted, as determined by the
38commissioner by rule, to the Department of Business Oversight
39along with the initial statement of information required by this
40subparagraph.

end insert
begin insert

P4    1(C) (i) For each issuer transaction, the finder shall file with
2the Department of Business Oversight, on a form prescribed by
3the commissioner, a notice that shall include all of the following:

end insert
begin insert

4(I) The following affirmative representations by the finder:

end insert
begin insert

5(ia) The finder has complied and will continue to comply with
6the provisions of subparagraph (A).

end insert
begin insert

7(ib) The finder has not performed any acts or satisfied any
8circumstances prohibited by Section 25212, nor been sanctioned
9by the commissioner pursuant to Section 25212.

end insert
begin insert

10(ic) The finder has obtained the written agreement described
11in subparagraph (D).

end insert
begin insert

12(II) An indication by the finder as to whether the finder is
13receiving transaction-based compensation that is subject to the
14actual sale of securities by the issuer in the transaction.

end insert
begin insert

15(ii) A separate notice shall be filed for each new issuer
16transaction, no later than 20 business days following the first sale
17of securities. The commissioner may by rule require the finder to
18pay a filing fee in connection with the notice required in this
19subparagraph of up to fifty dollars ($50).

end insert
begin insert

20(D) (i) Concurrently with each introduction, the finder shall
21obtain the informed, written consent of each person introduced or
22referred by the finder to an issuer, in a written agreement signed
23by the finder, the issuer, and the person introduced or referred,
24disclosing the following:

end insert
begin insert

25(I) The type and amount of compensation that has been or will
26be paid to the finder in connection with the introduction or referral
27and the conditions for payment of that compensation.

end insert
begin insert

28(II) That the finder is not providing advice to the issuer or any
29person introduced or referred by the finder to an issuer as to the
30value of the securities or as to the advisability of investing in,
31purchasing, or selling the securities.

end insert
begin insert

32(III) Whether the finder is also an owner, directly or indirectly,
33of the securities being offered or sold.

end insert
begin insert

34(IV) Any actual and potential conflict of interest in connection
35with the finder’s activities related to the issuer transaction.

end insert
begin insert

36(V) That the parties to the agreement shall have the right to
37pursue any available remedies at law or otherwise for any breach
38of the agreement.

end insert
begin insert

39(ii) To satisfy the requirements of this subparagraph, the
40 agreement shall also include a representation by the person
P5    1introduced or referred by the finder to the issuer that the person
2is an accredited investor, as that term is defined in Rule 501(a) of
3Regulation D under the Securities Exchange Act of 1933 (17 C.F.R.
4230.501(a)), and that the person knowingly consents to the payment
5of the compensation described therein.

end insert
begin insert

6(E) The finder shall maintain and preserve, for a period of five
7years from the date of filing of the notice prescribed in
8subparagraph (C), a copy of the notice, the written agreement
9required in subparagraph (D), and all other records relating to
10any offer or sale of securities in connection with which the finder
11receives compensation, as the commissioner may by rule require.
12The finder, upon written request of the commissioner, shall furnish
13to the commissioner any records required to be maintained and
14preserved under this subparagraph.

end insert
begin insert

15(F) (i) A natural person who does not meet the definition of
16“finder” set forth in subparagraph (A) and does not satisfy all the
17conditions set forth in subparagraphs (B) to (E), inclusive, may
18be determined to be a broker-dealer by the commissioner.

end insert
begin insert

19(ii) In the event a natural person does not meet the definition
20of “finder” set forth in subparagraph (A) and does not satisfy all
21the conditions set forth in subparagraphs (B) to (E), inclusive, any
22person introduced or referred by that natural person to an issuer,
23who purchases securities of that issuer in an issuer transaction
24 following that introduction or referral, shall have the right to
25pursue any applicable remedy afforded under state law, including,
26without limitation, any applicable remedies pursuant to Section
2725501.5.

end insert

28(b) For purposes of this section, an agent is an employee of a
29broker-dealer under paragraph (2) of subdivision (a) when the
30agent is employed by or associated with the broker-dealer under
31all of the following conditions:

32(1) The agent is subject to the supervision and control of the
33broker-dealer.

34(2) The agent performs under the name, authority, and marketing
35policies of the broker-dealer.

36(3) The agent discloses to investors the identity of the
37broker-dealer.

P6    1(4) The agent is reported pursuant to subdivision (c) of Section
225210 and the rules adopted thereunder.



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