AB 667, as amended, Wagner. Broker-dealers: exemptions: 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. 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.
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.
Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.
The people of the State of California do enact as follows:
Section 25206.1 is added to the Corporations
2Code, to read:
(a) For purposes of this section, a “finder” is a natural
4person who, for direct or indirect compensation, introduces or
5refers one or more accredited investors, as that term is defined in
6Rule 501(a) of Regulation D under the Securities Act of 1933 (17
7C.F.R. 230.501(a)), to an issuer or an issuer to one or more
8accredited investors, solely for the purpose of a potential offer or
9sale of securities of the issuer in an issuer transaction in this state,
10and who does not do any of the following:
11(1) Provide services to an issuer for a transaction or a series of
12related transactions for the offer or sale of securities of the issuer
13that exceeds a
securities purchase price of fifteen million dollars
14($15,000,000) in the aggregate.
15(2) Participate in negotiating any of the terms of the offer or
16sale of the securities.
17(3) Advise any party to the transaction regarding the value of
18the securities or the advisability of investing in, purchasing, or
19selling the securities.
20(4) Conduct any due diligence on the part of any party to the
21transaction.
22(5) Sell or offer for sale in connection with the issuer transaction
23any securities of the issuer that are owned, directly or indirectly,
24by the finder.
25(6) Receive, directly or indirectly, possession or custody of any
26funds in connection with the issuer transaction.
27(7) Knowingly receive compensation in connection with any
28offer or sale of securities unless the sale is qualified under this
29division or unless the security or the transaction is exempt or not
30otherwise subject to qualification.
31(8) Make any disclosure to a potential purchaser other than the
32following:
33(A) The name, address, and contact information of the issuer.
34(B) The name, type, price, and
aggregate amount of any
35securities being offered in the issuer transaction.
P3 1(C) The issuer’s industry, location, and years in business.
2(b) A finder who satisfies all of the conditions set forth in
3subdivisions (c) to (f), inclusive, shall be exempt from the
4provisions of Section 25210.
5(c) (1) The finder shall file with the commissioner before
6engaging in any activities described in subdivision (a), on a form
7prescribed by the commissioner, an initial statement of information
8that shall include both of the following:
9(A) The name and complete business or
residential address of
10the finder.
11(B) The mailing address of the finder, if different from the
12business or residential address.
13(2) A filing fee of three hundred dollars ($300) shall be
14submitted to the Department of Business Oversight along with the
15initial statement of information required by this subdivision.
16(d) (1) In addition, the finder shall file with the commissioner
17within 30 days of the anniversary of the finder’s initial statement
18of information required by subdivision (c), and annually thereafter,
19on a form prescribed by the commissioner, a renewal statement of
20information that includes all of the following:
21(A) The following affirmative representations by the finder:
22(i) The finder has complied and will continue to comply with
23the conditions of subdivision (a).
24(ii) The finder has not performed any acts or satisfied any
25circumstances prohibited by Section 25212 or by Rule 506(d) of
26Regulation D under the Securities Act of 1933 (17 C.F.R.
27230.506(d)), and the finder has not been sanctioned by the
28commissioner pursuant to Section 25212.
29(iii) The finder has obtained the written agreement described in
30subdivision (e) with respect to each transaction in which the finder
31has participated in the prior 12
months.
32(B) An indication by the finder as to whether the finder has
33received transaction-based compensation that is subject to the
34actual sale of securities by the issuer in any transaction in which
35the finder has participated in the prior 12 months.
36(2) A filing fee in the amount of two hundred seventy-five
37dollars
($275) shall accompany each renewal statement of
38information.
39(e) (1) Concurrently with each introduction, the finder shall
40obtain the informed, written consent of each person introduced or
P4 1referred by the finder to an issuer, in a written agreement signed
2by the finder, the issuer, and the person introduced or referred,
3disclosing the following:
4(A) The type and amount of compensation that has been or will
5be paid to the finder in connection with the introduction or referral
6and the conditions for payment of that compensation.
7(B) That the finder is not providing advice to the issuer or any
8person introduced or referred by the
finder to an issuer as to the
9value of the securities or as to the advisability of investing in,
10
purchasing, or selling the securities.
11(C) Whether the finder is also an owner, directly or indirectly,
12of the securities being offered or sold.
13(D) Any actual and potential conflict of interest in connection
14with the finder’s activities related to the issuer transaction.
15(E) That the parties to the agreement shall have the right to
16pursue any available remedies at law or otherwise for any breach
17of the agreement.
18(2) To satisfy the requirements of this subdivision, the agreement
19shall also include a representation by the person introduced or
20referred by the
finder to the issuer that the person is an accredited
21investor, as that term is defined in Rule 501(a) of Regulation D
22under the Securities Exchange Act of 1933 (17 C.F.R. 230.501(a)),
23and that the person knowingly consents to the payment of the
24compensation described therein.
25(f) The finder shall maintain and preserve, for a period of five
26years from the date of filing of the notice prescribed in subdivision
27(d), a copy of the notice, the written agreement required in
28subdivision (e), and all other records relating to any offer or sale
29of securities in connection with which the finder receives
30compensation, as the commissioner may by rule require. The finder,
31upon written request of the commissioner, shall furnish to the
32commissioner any records required to be maintained and preserved
33under this subdivision.
34(g) (1) A natural person who is engaged in the business of
35effecting transactions in securities and is not otherwise exempt
36from Section 25210 shall be subject to the requirements of Section
3725210, if the individual fails to meet the definition of “finder” set
38forth in subdivision (a), or does not satisfy all the conditions set
39forth in subdivisions (c) to (f), inclusive.
P5 1(2) In the event a natural person does not meet the definition of
2“finder” set forth in subdivision (a) or does not satisfy all the
3conditions set forth in subdivisions (c) to (f), inclusive, any person
4introduced or referred by that natural person to an issuer, who
5purchases securities of that issuer in an issuer transaction following
6that introduction or referral, shall have
the right to pursue any
7applicable remedy afforded under state law, including, without
8limitation, any applicable remedies pursuant to Section 25501.5.
9(h) The commissioner may from time to time make, amend, and
10rescind such rules, forms, and orders as are necessary to carry
11out the provisions of this section, including rules and forms
12governing applications and reports, and defining any terms,
13whether or not used in this law, insofar as the definitions are not
14inconsistent with the provisions of this law. For the purpose of
15rules and forms, the commissioner may classify securities, persons,
16and matters within his or her jurisdiction, and may prescribe
17different requirements for different classes.
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