BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 667 (Wagner) - Broker-dealers: exemptions: finders
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|Version: July 8, 2015 |Policy Vote: B. & F.I. 7 - 0 |
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|Urgency: No |Mandate: No |
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|Hearing Date: August 17, 2015 |Consultant: Jolie Onodera |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: AB 667 would establish a new regulatory framework to
govern the activities and accountability of "finders," as
defined, and exempt a finder from the requirement to be licensed
as a broker-dealer, as specified.
Fiscal
Impact:
One-time moderate costs of $50,000 to $100,000 (Special Fund*)
to the Department of Business Oversight (DBO) to promulgate
regulations.
Potentially significant ongoing costs in the range of $155,000
to $300,000 (Special Fund*), partially offset by fee revenue,
to register and renew finders. At the specified registration
fee of $300 per finder, estimated revenues will not cover
ongoing costs based on an estimated 80-150 finders to be
registered and examined annually. First-year revenue would be
$24,000 to $45,000, and annual ongoing offsetting fee revenue
would be $22,000 to $41,250.
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*State Corporations Fund
Background: Existing law defines a "broker-dealer" as any person engaged
in the business of effecting transactions in securities in
California 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. (Corporations Code
(CC) § 25004.)
Under existing law, no broker-dealer, unless otherwise exempt,
may affect any transaction in the purchase or sale of any
security in California unless that broker-dealer has first
applied for and secured from the DBO Commissioner a certificate
authorizing that person to act in that capacity. (CC § 25210.)
Existing state law provides for several exemptions from the
requirement to hold a certificate as a broker-dealer, including
persons without a physical location in California, who sell only
to specified persons in California and only under specified
circumstances, real estate brokers and financial institutions,
under certain circumstances, and persons licensed under the
Capital Access Company Law. (CC §§ 25200, 25206-25208.)
Under federal law, Section 29 of the Securities Exchange Act
requires that offers and sales of securities in the U.S. must be
made by a registered broker-dealer or appropriately licensed
individuals associated with a registered broker-dealer. An
exemption often relied upon by many in the securities industry
is the so-called "finders" exemption. If a "finder" assists in
negotiations, participates in structuring the transaction,
pricing the security or any other activity in the transaction
other than introducing the parties, the finder may be deemed to
be acting as a broker-dealer. When looking for additional
capital, many companies consider working with finders who offer
to find investors and to serve as an intermediary between the
company as an issuer of securities and potential investors.
Proposed Law:
This bill would establish a new regulatory framework to govern
the activities and accountability of "finders," as defined, and
exempt a finder from the requirement to be licensed as a
AB 667 (Wagner) Page 2 of
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broker-dealer, as specified. This bill:
Defines a "finder" is a natural person who, for direct
or indirect compensation, introduces or refers one or more
accredited investors, as defined in federal law, 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:
§ 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 $15 million in the aggregate.
§ Participate in negotiating any of the terms of the
offer or sale of the securities.
§ Advise any party to the transaction regarding the
value of the securities or the advisability of investing
in, purchasing, or selling the securities.
§ Conduct any due diligence on the part of any party
to the transaction.
§ 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.
§ Receive, directly or indirectly, possession or
custody of any funds in connection with the issuer
transaction.
§ 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.
§ Make any disclosure to a potential purchaser other
than the following:
o The name, address, and contact information
of the issuer.
o The name, type, price, and aggregate
amount of any securities being offered in the issuer
transaction.
o The issuer's industry, location, and years
in business.
Provides that a finder who satisfies all of the
following conditions is exempt from licensure as a
broker-dealer.
o Requires the finder to file with the
commissioner before engaging in any activities, as
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specified, on a form prescribed by the commissioner,
an initial statement of information that shall
include specified information.
o A filing fee of $300 submitted to the DBO
along with the initial statement of information
required.
Requires the finder to file with the commissioner
within 30 days of the anniversary of the finder's initial
statement of information, and annually thereafter, on a
form prescribed by the commissioner, a renewal statement
of information that includes specified information and a
filing fee of $275 to accompany each renewal statement of
information.
Concurrently with each introduction, requires the
finder to 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:
o 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.
o 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.
o Whether the finder is also an owner,
directly or indirectly, of the securities being
offered or sold.
o Any actual and potential conflict of
interest in connection with the finder's activities
related to the issuer transaction.
o 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.
Requires the agreement to also include a
representation by the person introduced or referred by
the finder to the issuer that the person is an accredited
investor, as defined, and that the person knowingly
consents to the payment of the compensation described
therein.
Requires the finder to maintain and preserve, for a
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period of five years from the date of filing of the
notice as prescribed, a copy of the notice, the written
agreement, 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.
Provides that 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 the bill.
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.
Authorizes the DBO commissioner to periodically
make, amend, and rescind such rules, forms, and orders as
are necessary to carry out the provisions of this
section, including rules and forms governing applications
and reports, and defining any terms, whether or not used
in this law, insofar as the definitions are not
inconsistent with the provisions of this law. For the
purpose of rules and forms, the commissioner may classify
securities, persons, and matters within his or her
jurisdiction, and may prescribe different requirements
for different classes.
Related
Legislation: AB 713 (Wagner) 2014 was substantially similar to
this measure. This bill was held on the Suspense File of this
Committee.
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