Amended in Assembly April 6, 2015

California Legislature—2015–16 Regular Session

Assembly Bill No. 667

Introduced by Assembly Member Wagner

February 24, 2015

An act to begin delete amend Section 25004 of end delete begin insert add Section 25206.1 to end insert the Corporations Code, relating to securities.

LEGISLATIVE COUNSEL’S DIGEST

AB 667, as amended, Wagner. Broker-dealers: begin insert exemptions: end insert 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. begin insert Existing law requires, among other things, that a broker-dealer apply for and secure a certificate authorizing that person to act in that capacity, unless the person is exempted from this requirement, as prescribed. Existing law prohibits a person acting on behalf of a licensed broker-dealer or an issuer, from effecting any transaction in, or inducing or attempting to induce the purchase or sale of, any security in this state unless the broker-dealer and agent have complied with certain rules. end insert

begin insert

This bill would exempt from those provisions an individual who is a finder, as defined, who satisfies specified requirements, including, among other things, filing an initial statement of information with the Commissioner of Business Oversight and paying a filing fee.

end insert begin delete

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.

end delete

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

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

begin insert

begin insert SECTION 1. end insert   

end insert

begin insert Section 25206.1 is added to the end insert begin insert Corporations
Code end insert begin insert , to read: end insert

begin insert

begin insert 25206.1. end insert   

(a) For purposes of this section, a “finder” is a
natural person who, for direct or indirect compensation, 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 offer or
sale of securities of the issuer in an issuer transaction in this state,
and who does not do any of the following:

(1) Provide services to an issuer for a transaction or a series
of related transactions for the offer or sale of securities of the
issuer that exceeds a securities purchase price of fifteen million
dollars ($15,000,000) in the aggregate.

(2) Participate in negotiating any of the terms of the offer or
sale of the securities.

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

(4) Conduct any due diligence on the part of any party to the
transaction.

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

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

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

(8) Make any disclosure to a potential purchaser other than the
following:

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

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

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

(b) A finder who satisfies all of the conditions set forth in
subdivisions (c) to (f), inclusive, shall be exempt from the
provisions of Section 25210.

(c) (1) The finder shall file with the commissioner before
engaging in any activities described in subdivision (a), on a form
prescribed by the commissioner, an initial statement of information
that shall include both of the following:

(A) The name and complete business or residential address of
the finder.

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

(2) A filing fee of three hundred dollars ($300) shall be
submitted to the Department of Business Oversight along with the
initial statement of information required by this subdivision.

(d) (1) In addition, the finder shall file with the commissioner
within 30 days of the anniversary of the finder’s initial statement
of information required by subdivision (c), and annually thereafter,
on a form prescribed by the commissioner, a renewal statement
of information that includes all of the following:

(A) The following affirmative representations by the finder:

(i) The finder has complied and will continue to comply with
the conditions of subdivision (a).

(ii) The finder has not performed any acts or satisfied any
circumstances prohibited by Section 25212 or by Rule 506(d) of
Regulation D under the Securities Act of 1933 (17 C.F.R.
230.506(d)), and the finder has not been sanctioned by the
commissioner pursuant to Section 25212.

(iii) The finder has obtained the written agreement described
in subdivision (e) with respect to each transaction in which the
finder has participated in the prior 12 months.

(B) An indication by the finder as to whether the finder has
received transaction-based compensation that is subject to the
actual sale of securities by the issuer in any transaction in which
the finder has participated in the prior 12 months.

(2) A filing fee in the amount of two hundred seventy-five dollars
($275) shall accompany each renewal statement of information.

(e) (1) Concurrently with each introduction, the finder shall
obtain the informed, written consent of each person introduced or
referred by the finder to an issuer, in a written agreement signed
by the finder, the issuer, and the person introduced or referred,
disclosing the following:

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

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

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

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

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

(2) To satisfy the requirements of this subdivision, the agreement
shall also include a representation by the person introduced or
referred by the finder to the issuer that the person 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 person 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 subdivision
(d), a copy of the notice, the written agreement required in
subdivision (e), and all other records relating to any offer or sale
of securities 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 subdivision.

(g) (1) A natural person who is engaged in the business of
effecting transactions in securities and is not otherwise exempt
from Section 25210 shall be subject to the requirements of Section
25210, if the individual fails to meet the definition of “finder” set
forth in subdivision (a), or does not satisfy all the conditions set
forth in subdivisions (c) to (f), inclusive.

(2) In the event a natural person does not meet the definition
of “finder” set forth in subdivision (a) or does not satisfy all the
conditions set forth in subdivisions (c) to (f), inclusive, any person
introduced or referred by that natural person to an issuer, who
purchases securities of that issuer in an issuer transaction
following that introduction or referral, shall have the right to
pursue any applicable remedy afforded under state law, including,
without limitation, any applicable remedies pursuant to Section
25501.5.

end insert

begin delete

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 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) Any finder who satisfies all of the conditions set forth
in subparagraphs (B) to (E), inclusive. For purposes of this section,
a “finder” is a natural person who, for direct or indirect
compensation, 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 offer or sale of securities of the issuer
in an issuer transaction in this state, and who does not do any of
the following:

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

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

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

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

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

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

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

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

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

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

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

(B) (i) The finder shall file with the Department of Business
Oversight before 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.

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

(ii) A filing fee of not more than three hundred dollars ($300)
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) (i) For each issuer transaction, the finder shall file with the
Department of Business Oversight, on a form prescribed by the
commissioner, a notice that shall include all of the following:

(I) The following affirmative representations by the finder:

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

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

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

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

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

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

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

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

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

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

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

(ii) To satisfy the requirements of this subparagraph, the
agreement shall also include a representation by the person
introduced or referred by the finder to the issuer that the person 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 person knowingly consents to the payment
of the compensation described therein.

(E) The finder shall maintain and preserve, for a period of five
years from the date of filing of the notice prescribed in
subparagraph (C), a copy of the notice, the written agreement
required in subparagraph (D), and all other records relating to any
offer or sale of securities 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.

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

(ii) In the event a natural person does not meet the definition of
“finder” set forth in subparagraph (A) and does not satisfy all the
conditions set forth in subparagraphs (B) to (E), inclusive, any
person introduced or referred by that natural person to an issuer,
who purchases securities of that issuer in an issuer transaction
following that introduction or referral, shall have the right to pursue
any applicable remedy afforded under state law, including, without
limitation, any applicable remedies pursuant to Section 25501.5.

(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.

end delete