Amended in Assembly April 18, 2016

California Legislature—2015–16 Regular Session

Assembly BillNo. 2178


Introduced by Assembly Member Chiu

(Principal coauthor: Senator Allen)

February 18, 2016


An act to amend Sections 25102, 25104, 25110, 25501, 25503, and 25608 of, and to add Section 25113.1 to, the Corporations Code, relating to securities.

LEGISLATIVE COUNSEL’S DIGEST

AB 2178, as amended, Chiu. Securities transactions: qualifications by permit: liability.

Existing law, the Corporate Securities Law of 1968, requires securities offered or sold in this state in an issuer or nonissuer transaction to be qualified through an application filed with the Commissioner of Business Oversight, unless exempt from the qualification requirements. That law makes it unlawful, for a person in connection with the offer, sale, or purchase of a security, to engage in fraudulent or misleading acts or omissions.

This bill would authorize an applicant to file an application for qualification of the offer or sale of a security by crowdfunding permit if certain conditions are met, including that the total offering of securities by the applicant to be sold in a 12-month period, within or outside this state, is limited to $1,000,000, less a specified amount; the aggregate amount of securities sold to any investor, including any amount sold during the 12-month period preceding the date of the transaction, does not exceed the lesser of $5,000 or 10% of the net worth of that natural person;begin insert the transaction is conducted through an intermediary,end insert and the issuer will not, directly or indirectly, conduct any unsolicited telephone solicitation of the securities offered. This bill would impose a filing fee of $200 plus 15 of 2% of the aggregate value of the securities sought to be sold in this state.

Existing law provides that any person who violates a condition of qualification of the offer or sale of a security is liable to any person acquiring the security sold in violation, who may sue to recover the consideration paid for such security with interest thereon at the legal rate or for damages, as specified.

This bill would extend that provision to a violation of a condition of qualification by permit authorized by this bill. This bill would also require a court to award reasonable attorney’s fees and costs, and authorize the award of treble and punitive damages, to a prevailing purchaser in an action brought against any person who violates those conditions of qualification by permit authorized by this bill.

Existing law imposes liability on any person who engages in specified unlawful activity to the person who purchases a security from himbegin insert or herend insert or sells a security tobegin delete him,end deletebegin insert him or her,end insert and authorizes the purchaser or seller to sue either for rescission or for damages.

This bill would provide that the plaintiff is not required to plead or prove that the defendant acted with scienter.

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

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

P2    1

SECTION 1.  

Section 25102 of the Corporations Code is
2amended to read:

3

25102.  

The following transactions are exempted from the
4provisions of Section 25110:

5(a) Any offer (but not a sale) not involving any public offering
6and the execution and delivery of any agreement for the sale of
7securities pursuant to the offer if (1) the agreement contains
8substantially the following provision: “The sale of the securities
9that are the subject of this agreement has not been qualified with
10the Commissioner of Corporations of the State of California and
11the issuance of the securities or the payment or receipt of any part
12of the consideration therefor prior to the qualification is unlawful,
13unless the sale of securities is exempt from the qualification by
14Section 25100, 25102, or 25105 of the California Corporations
P3    1Code. The rights of all parties to this agreement are expressly
2 conditioned upon the qualification being obtained, unless the sale
3is so exempt”; and (2) no part of the purchase price is paid or
4received and none of the securities are issued until the sale of the
5securities is qualified under this law unless the sale of securities
6is exempt from the qualification by this section, Section 25100,
7or 25105.

8(b) Any offer (but not a sale) of a security for which (1) a
9registration statement has been filed under the Securities Act of
101933 but has not yet become effective, or for which an offering
11statement under Regulation A has been filed but has not yet been
12qualified, if no stop order or refusal order is in effect and (2) no
13public proceeding or examination looking towards an order is
14pending under Section 8 of the act and no order under Section
1525140 or subdivision (a) of Section 25143 is in effect under this
16law.

17(c) Any offer (but not a sale) and the execution and delivery of
18any agreement for the sale of securities pursuant to the offer as
19may be permitted by the commissioner upon application. Any
20negotiating permit under this subdivision shall be conditioned to
21the effect that none of the securities may be issued and none of
22the consideration therefor may be received or accepted until the
23sale of the securities is qualified under this law.

24(d) Any transaction or agreement between the issuer and an
25underwriter or among underwriters if the sale of the securities is
26qualified, or exempt from qualification, at the time of distribution
27thereof in this state, if any.

28(e) Any offer or sale of any evidence of indebtedness, whether
29secured or unsecured, and any guarantee thereof, in a transaction
30not involving any public offering.

31(f) Any offer or sale of any security in a transaction (other than
32an offer or sale to a pension or profit-sharing trust of the issuer)
33that meets each of the following criteria:

34(1) Sales of the security are not made to more than 35 persons,
35including persons not in this state.

36(2) All purchasers either have a preexisting personal or business
37relationship with the offeror or any of its partners, officers,
38directors or controlling persons, or managers (as appointed or
39elected by the members) if the offeror is a limited liability
40company, or by reason of their business or financial experience or
P4    1the business or financial experience of their professional advisers
2who are unaffiliated with and who are not compensated by the
3issuer or any affiliate or selling agent of the issuer, directly or
4indirectly, could be reasonably assumed to have the capacity to
5protect their own interests in connection with the transaction.

6(3) Each purchaser represents that the purchaser is purchasing
7for the purchaser’s own account (or a trust account if the purchaser
8is a trustee) and not with a view to or for sale in connection with
9any distribution of the security.

10(4) The offer and sale of the security is not accomplished by
11the publication of any advertisement. The number of purchasers
12referred to above is exclusive of any described in subdivision (i),
13any officer, director, or affiliate of the issuer, or manager (as
14appointed or elected by the members) if the issuer is a limited
15liability company, and any other purchaser who the commissioner
16designates by rule. For purposes of this section, a husband and
17wife (together with any custodian or trustee acting for the account
18of their minor children) are counted as one person and a
19partnership, corporation, or other organization that was not
20specifically formed for the purpose of purchasing the security
21offered in reliance upon this exemption, is counted as one person.
22The commissioner shall by rule require the issuer to file a notice
23of transactions under this subdivision.

24The failure to file the notice or the failure to file the notice within
25the time specified by the rule of the commissioner shall not affect
26the availability of the exemption. Any issuer that fails to file the
27notice as provided by rule of the commissioner shall, within 15
28business days after discovery of the failure to file the notice or
29after demand by the commissioner, whichever occurs first, file the
30notice and pay to the commissioner a fee equal to the fee payable
31had the transaction been qualified under Section 25110. Neither
32the filing of the notice nor the failure by the commissioner to
33comment thereon precludes the commissioner from taking any
34action that the commissioner deems necessary or appropriate under
35this division with respect to the offer and sale of the securities.

36(g) Any offer or sale of conditional sale agreements, equipment
37trust certificates, or certificates of interest or participation therein
38or partial assignments thereof, covering the purchase of railroad
39rolling stock or equipment or the purchase of motor vehicles,
P5    1aircraft, or parts thereof, in a transaction not involving any public
2offering.

3(h) Any offer or sale of voting common stock by a corporation
4incorporated in any state if, immediately after the proposed sale
5and issuance, there will be only one class of stock of the
6corporation outstanding that is owned beneficially by no more than
735 persons, provided all of the following requirements have been
8met:

9(1) The offer and sale of the stock is not accompanied by the
10publication of any advertisement, and no selling expenses have
11been given, paid, or incurred in connection therewith.

12(2) The consideration to be received by the issuer for the stock
13to be issued consists of any of the following:

14(A) Only assets (which may include cash) of an existing business
15enterprise transferred to the issuer upon its initial organization, of
16which all of the persons who are to receive the stock to be issued
17pursuant to this exemption were owners during, and the enterprise
18was operated for, a period of not less than one year immediately
19preceding the proposed issuance, and the ownership of the
20enterprise immediately prior to the proposed issuance was in the
21same proportions as the shares of stock are to be issued.

22(B) Only cash or cancellation of indebtedness for money
23borrowed, or both, upon the initial organization of the issuer,
24provided all of the stock is issued for the same price per share.

25(C) Only cash, provided the sale is approved in writing by each
26of the existing shareholders and the purchaser or purchasers are
27existing shareholders.

28(D) In a case where after the proposed issuance there will be
29only one owner of the stock of the issuer, only any legal
30consideration.

31(3) No promotional consideration has been given, paid, or
32incurred in connection with the issuance. Promotional consideration
33means any consideration paid directly or indirectly to a person
34who, acting alone or in conjunction with one or more other persons,
35takes the initiative in founding and organizing the business or
36enterprise of an issuer for services rendered in connection with the
37founding or organizing.

38(4) A notice in a form prescribed by rule of the commissioner,
39signed by an active member of the State Bar of California, is filed
40with or mailed for filing to the commissioner not later than 10
P6    1business days after receipt of consideration for the securities by
2the issuer. That notice shall contain an opinion of the member of
3the State Bar of California that the exemption provided by this
4subdivision is available for the offer and sale of the securities. The
5failure to file the notice as required by this subdivision and the
6rules of the commissioner shall not affect the availability of this
7exemption. An issuer who fails to file the notice within the time
8specified by this subdivision shall, within 15 business days after
9discovery of the failure to file the notice or after demand by the
10 commissioner, whichever occurs first, file the notice and pay to
11the commissioner a fee equal to the fee payable had the transaction
12been qualified under Section 25110. The notice, except when filed
13on behalf of a California corporation, shall be accompanied by an
14irrevocable consent, in the form that the commissioner by rule
15prescribes, appointing the commissioner or his or her successor in
16office to be the issuer’s attorney to receive service of any lawful
17process in any noncriminal suit, action, or proceeding against it
18or its successor that arises under this law or any rule or order
19hereunder after the consent has been filed, with the same force and
20validity as if served personally on the issuer. An issuer on whose
21behalf a consent has been filed in connection with a previous
22qualification or exemption from qualification under this law (or
23application for a permit under any prior law if the application or
24notice under this law states that the consent is still effective) need
25not file another. Service may be made by leaving a copy of the
26process in the office of the commissioner, but it is not effective
27unless (A) the plaintiff, who may be the commissioner in a suit,
28action, or proceeding instituted by him or her, forthwith sends
29notice of the service and a copy of the process by registered or
30certified mail to the defendant or respondent at its last address on
31file with the commissioner, and (B) the plaintiff’s affidavit of
32compliance with this section is filed in the case on or before the
33return day of the process, if any, or within the further time as the
34court allows.

35(5) Each purchaser represents that the purchaser is purchasing
36for the purchaser’s own account, or a trust account if the purchaser
37is a trustee, and not with a view to or for sale in connection with
38any distribution of the stock.

39For the purposes of this subdivision, all securities held by a
40husband and wife, whether or not jointly, shall be considered to
P7    1be owned by one person, and all securities held by a corporation
2that has issued stock pursuant to this exemption shall be considered
3to be held by the shareholders to whom it has issued the stock.

4All stock issued by a corporation pursuant to this subdivision as
5it existed prior to the effective date of the amendments to this
6section made during the 1996 portion of the 1995-96 Regular
7Session that required the issuer to have stamped or printed
8prominently on the face of the stock certificate a legend in a form
9prescribed by rule of the commissioner restricting transfer of the
10stock in a manner provided for by that rule shall not be subject to
11the transfer restriction legend requirement and, by operation of
12law, the corporation is authorized to remove that transfer restriction
13legend from the certificates of those shares of stock issued by the
14corporation pursuant to this subdivision as it existed prior to the
15effective date of the amendments to this section made during the
161996 portion of the 1995-96 Regular Session.

17(i) Any offer or sale (1) to a bank, savings and loan association,
18trust company, insurance company, investment company registered
19under the Investment Company Act of 1940, pension or
20profit-sharing trust (other than a pension or profit-sharing trust of
21the issuer, a self-employed individual retirement plan, or individual
22retirement account), or other institutional investor or governmental
23agency or instrumentality that the commissioner may designate
24by rule, whether the purchaser is acting for itself or as trustee, or
25(2) to any corporation with outstanding securities registered under
26Section 12 of the Securities Exchange Act of 1934 or any wholly
27owned subsidiary of the corporation that after the offer and sale
28will own directly or indirectly 100 percent of the outstanding
29capital stock of the issuer, provided the purchaser represents that
30it is purchasing for its own account (or for the trust account) for
31investment and not with a view to or for sale in connection with
32any distribution of the security.

33(j) Any offer or sale of any certificate of interest or participation
34in an oil or gas title or lease (including subsurface gas storage and
35payments out of production) if either of the following apply:

36(1) All of the purchasers meet one of the following requirements:

37(A) Are and have been during the preceding two years engaged
38primarily in the business of drilling for, producing, or refining oil
39or gas (or whose corporate predecessor, in the case of a corporation,
40has been so engaged).

P8    1(B) Are persons described in paragraph (1) of subdivision (i).

2(C) Have been found by the commissioner upon written
3application to be substantially engaged in the business of drilling
4for, producing, or refining oil or gas so as not to require the
5protection provided by this law (which finding shall be effective
6until rescinded).

7(2) The security is concurrently hypothecated to a bank in the
8ordinary course of business to secure a loan made by the bank,
9provided that each purchaser represents that it is purchasing for
10its own account for investment and not with a view to or for sale
11in connection with any distribution of the security.

12(k) Any offer or sale of any security under, or pursuant to, a
13plan of reorganization under Chapter 11 of the federal bankruptcy
14law that has been confirmed or is subject to confirmation by the
15decree or order of a court of competent jurisdiction.

16(l) Any offer or sale of an option, warrant, put, call, or straddle,
17and any guarantee of any of these securities, by a person who is
18not the issuer of the security subject to the right, if the transaction,
19had it involved an offer or sale of the security subject to the right
20by the person, would not have violated Section 25110 or 25130.

21(m) Any offer or sale of a stock to a pension, profit-sharing,
22stock bonus, or employee stock ownership plan, provided that (1)
23the plan meets the requirements for qualification under Section
24401 of the Internal Revenue Code, and (2) the employees are not
25required or permitted individually to make any contributions to
26the plan. The exemption provided by this subdivision shall not be
27affected by whether the stock is contributed to the plan, purchased
28from the issuer with contributions by the issuer or an affiliate of
29the issuer, or purchased from the issuer with funds borrowed from
30the issuer, an affiliate of the issuer, or any other lender.

31(n) Any offer or sale of any security in a transaction, other than
32an offer or sale of a security in a rollup transaction, that meets all
33of the following criteria:

34(1) The issuer is (A) a California corporation or foreign
35corporation that, at the time of the filing of the notice required
36under this subdivision, is subject to Section 2115, or (B) any other
37form of business entity, including without limitation a partnership
38or trust organized under the laws of this state. The exemption
39provided by this subdivision is not available to a “blind pool”
40issuer, as that term is defined by the commissioner, or to an
P9    1investment company subject to the Investment Company Act of
21940.

3(2) Sales of securities are made only to qualified purchasers or
4other persons the issuer reasonably believes, after reasonable
5inquiry, to be qualified purchasers. A corporation, partnership, or
6other organization specifically formed for the purpose of acquiring
7the securities offered by the issuer in reliance upon this exemption
8may be a qualified purchaser if each of the equity owners of the
9corporation, partnership, or other organization is a qualified
10purchaser. Qualified purchasers include the following:

11(A) A person designated in Section 260.102.13 of Title 10 of
12the California Code of Regulations.

13(B) A person designated in subdivision (i) or any rule of the
14commissioner adopted thereunder.

15(C) A pension or profit-sharing trust of the issuer, a
16self-employed individual retirement plan, or an individual
17retirement account, if the investment decisions made on behalf of
18the trust, plan, or account are made solely by persons who are
19qualified purchasers.

20(D) An organization described in Section 501(c)(3) of the
21Internal Revenue Code, corporation, Massachusetts or similar
22business trust, or partnership, each with total assets in excess of
23five million dollars ($5,000,000) according to its most recent
24audited financial statements.

25(E) With respect to the offer and sale of one class of voting
26common stock of an issuer or of preferred stock of an issuer
27entitling the holder thereof to at least the same voting rights as the
28issuer’s one class of voting common stock, provided that the issuer
29has only one-class voting common stock outstanding upon
30consummation of the offer and sale, a natural person who, either
31individually or jointly with the person’s spouse, (i) has a minimum
32net worth of two hundred fifty thousand dollars ($250,000) and
33had, during the immediately preceding tax year, gross income in
34excess of one hundred thousand dollars ($100,000) and reasonably
35expects gross income in excess of one hundred thousand dollars
36($100,000) during the current tax year or (ii) has a minimum net
37worth of five hundred thousand dollars ($500,000). “Net worth”
38shall be determined exclusive of home, home furnishings, and
39automobiles. Other assets included in the computation of net worth
40may be valued at fair market value.

P10   1Each natural person specified above, by reason of his or her
2business or financial experience, or the business or financial
3experience of his or her professional adviser, who is unaffiliated
4with and who is not compensated, directly or indirectly, by the
5issuer or any affiliate or selling agent of the issuer, can be
6reasonably assumed to have the capacity to protect his or her
7interests in connection with the transaction. The amount of the
8investment of each natural person shall not exceed 10 percent of
9the net worth, as determined by this subparagraph, of that natural
10person.

11(F) Any other purchaser designated as qualified by rule of the
12commissioner.

13(3) Each purchaser represents that the purchaser is purchasing
14for the purchaser’s own account (or trust account, if the purchaser
15is a trustee) and not with a view to or for sale in connection with
16a distribution of the security.

17(4) Each natural person purchaser, including a corporation,
18partnership, or other organization specifically formed by natural
19persons for the purpose of acquiring the securities offered by the
20issuer, receives, at least five business days before securities are
21sold to, or a commitment to purchase is accepted from, the
22purchaser, a written offering disclosure statement that shall meet
23the disclosure requirements of Regulation D (17 C.F.R. 230.501
24et seq.), and any other information as may be prescribed by rule
25of the commissioner, provided that the issuer shall not be obligated
26pursuant to this paragraph to provide this disclosure statement to
27a natural person qualified under Section 260.102.13 of Title 10 of
28the California Code of Regulations. The offer or sale of securities
29pursuant to a disclosure statement required by this paragraph that
30is in violation of Section 25401, or that fails to meet the disclosure
31requirements of Regulation D (17 C.F.R. 230.501 et seq.), shall
32not render unavailable to the issuer the claim of an exemption from
33Section 25110 afforded by this subdivision. This paragraph does
34not impose, directly or indirectly, any additional disclosure
35obligation with respect to any other exemption from qualification
36available under any other provision of this section.

37(5) (A) A general announcement of proposed offering may be
38published by written document only, provided that the general
39announcement of proposed offering sets forth the following
40required information:

P11   1(i) The name of the issuer of the securities.

2(ii) The full title of the security to be issued.

3(iii) The anticipated suitability standards for prospective
4purchasers.

5(iv) A statement that (I) no money or other consideration is
6being solicited or will be accepted, (II) an indication of interest
7made by a prospective purchaser involves no obligation or
8commitment of any kind, and, if the issuer is required by paragraph
9(4) to deliver a disclosure statement to prospective purchasers,
10(III) no sales will be made or commitment to purchase accepted
11until five business days after delivery of a disclosure statement
12and subscription information to the prospective purchaser in
13accordance with the requirements of this subdivision.

14(v) Any other information required by rule of the commissioner.

15(vi) The following legend: “For more complete information
16about (Name of Issuer) and (Full Title of Security), send for
17additional information from (Name and Address) by sending this
18coupon or calling (Telephone Number).”

19(B) The general announcement of proposed offering referred
20to in subparagraph (A) may also set forth the following
21information:

22(i) A brief description of the business of the issuer.

23(ii) The geographic location of the issuer and its business.

24(iii) The price of the security to be issued, or, if the price is not
25known, the method of its determination or the probable price range
26as specified by the issuer, and the aggregate offering price.

27(C) The general announcement of proposed offering shall
28contain only the information that is set forth in this paragraph.

29(D) Dissemination of the general announcement of proposed
30offering to persons who are not qualified purchasers, without more,
31shall not disqualify the issuer from claiming the exemption under
32this subdivision.

33(6) No telephone solicitation shall be permitted until the issuer
34has determined that the prospective purchaser to be solicited is a
35qualified purchaser.

36(7) The issuer files a notice of transaction under this subdivision
37both (A) concurrent with the publication of a general announcement
38of proposed offering or at the time of the initial offer of the
39securities, whichever occurs first, accompanied by a filing fee, and
40(B) within 10 business days following the close or abandonment
P12   1of the offering, but in no case more than 210 days from the date
2of filing the first notice. The first notice of transaction under
3subparagraph (A) shall contain an undertaking, in a form acceptable
4to the commissioner, to deliver any disclosure statement required
5by paragraph (4) to be delivered to prospective purchasers, and
6any supplement thereto, to the commissioner within 10 days of
7the commissioner’s request for the information. The exemption
8from qualification afforded by this subdivision is unavailable if
9an issuer fails to file the first notice required under subparagraph
10(A) or to pay the filing fee. The commissioner has the authority
11to assess an administrative penalty of up to one thousand dollars
12($1,000) against an issuer that fails to deliver the disclosure
13statement required to be delivered to the commissioner upon the
14commissioner’s request within the time period set forth above.
15Neither the filing of the disclosure statement nor the failure by the
16commissioner to comment thereon precludes the commissioner
17from taking any action deemed necessary or appropriate under this
18division with respect to the offer and sale of the securities.

19(o) An offer or sale of any security issued by a corporation or
20limited liability company pursuant to a purchase plan or agreement,
21or issued pursuant to an option plan or agreement, where the
22security at the time of issuance or grant is exempt from registration
23under the Securities Act of 1933, as amended, pursuant to Rule
24701 adopted pursuant to that act (17 C.F.R. 230.701), the provisions
25of which are hereby incorporated by reference into this section,
26provided that (1) the terms of any purchase plan or agreement shall
27comply with Sections 260.140.42, 260.140.45, and 260.140.46 of
28Title 10 of the California Code of Regulations, (2) the terms of
29any option plan or agreement shall comply with Sections
30260.140.41, 260.140.45, and 260.140.46 of Title 10 of the
31California Code of Regulations, and (3) the issuer files a notice of
32transaction in accordance with rules adopted by the commissioner
33no later than 30 days after the initial issuance of any security under
34that plan, accompanied by a filing fee as prescribed by subdivision
35(y) of Section 25608. The failure to file the notice of transaction
36within the time specified in this subdivision shall not affect the
37availability of this exemption. An issuer that fails to file the notice
38shall, within 15 business days after discovery of the failure to file
39the notice or after demand by the commissioner, whichever occurs
40first, file the notice and pay the commissioner a fee equal to the
P13   1maximum aggregate fee payable had the transaction been qualified
2under Section 25110.

3Offers and sales exempt pursuant to this subdivision shall be
4deemed to be part of a single, discrete offering and are not subject
5to integration with any other offering or sale, whether qualified
6under Chapter 2 (commencing with Section 25110), or otherwise
7exempt, or not subject to qualification.

8(p) An offer or sale of nonredeemable securities to accredited
9investors (Section 28031) by a person licensed under the Capital
10Access Company Law (Division 3 (commencing with Section
1128000) of Title 4), provided that all purchasers either (1) have a
12preexisting personal or business relationship with the offeror or
13any of its partners, officers, directors, controlling persons, or
14managers (as appointed or elected by the members), or (2) by
15reason of their business or financial experience or the business or
16financial experience of their professional advisers who are
17unaffiliated with and who are not compensated by the issuer or
18any affiliate or selling agent of the issuer, directly or indirectly,
19could be reasonably assumed to have the capacity to protect their
20own interests in connection with the transaction. All nonredeemable
21securities shall be evidenced by certificates that shall have stamped
22or printed prominently on their face a legend in a form to be
23prescribed by rule or order of the commissioner restricting transfer
24of the securities in the manner as the rule or order provides. The
25exemption under this subdivision shall not be available for any
26offering that is exempt or asserted to be exempt pursuant to Section
273(a)(11) of the Securities Act of 1933 (15 U.S.C. Sec. 77c(a)(11))
28or Rule 147 (17 C.F.R. 230.147) thereunder or otherwise is
29conducted by means of any form of general solicitation or general
30advertising.

31(q) Any offer or sale of any viatical or life settlement contract
32or fractionalized or pooled interest therein in a transaction that
33meets all of the following criteria:

34(1) Sales of securities described in this subdivision are made
35only to qualified purchasers or other persons the issuer reasonably
36believes, after reasonable inquiry, to be qualified purchasers. A
37corporation, partnership, or other organization specifically formed
38for the purpose of acquiring the securities offered by the issuer in
39reliance upon this exemption may be a qualified purchaser only if
40each of the equity owners of the corporation, partnership, or other
P14   1organization is a qualified purchaser. Qualified purchasers include
2the following:

3(A) A person designated in Section 260.102.13 of Title 10 of
4the California Code of Regulations.

5(B) A person designated in subdivision (i) or any rule of the
6commissioner adopted thereunder.

7(C) A pension or profit-sharing trust of the issuer, a
8self-employed individual retirement plan, or an individual
9retirement account, if the investment decisions made on behalf of
10the trust, plan, or account are made solely by persons who are
11qualified purchasers.

12(D) An organization described in Section 501(c)(3) of the
13Internal Revenue Code, corporation, Massachusetts or similar
14business trust, or partnership, each with total assets in excess of
15five million dollars ($5,000,000) according to its most recent
16audited financial statements.

17(E) A natural person who, either individually or jointly with the
18person’s spouse, (i) has a minimum net worth of one hundred fifty
19thousand dollars ($150,000) and had, during the immediately
20preceding tax year, gross income in excess of one hundred thousand
21dollars ($100,000) and reasonably expects gross income in excess
22of one hundred thousand dollars ($100,000) during the current tax
23year or (ii) has a minimum net worth of two hundred fifty thousand
24dollars ($250,000). “Net worth” shall be determined exclusive of
25home, home furnishings, and automobiles. Other assets included
26in the computation of net worth may be valued at fair market value.

27Each natural person specified above, by reason of his or her
28business or financial experience, or the business or financial
29experience of his or her professional adviser, who is unaffiliated
30with and who is not compensated, directly or indirectly, by the
31issuer or any affiliate or selling agent of the issuer, can be
32reasonably assumed to have the capacity to protect his or her
33interests in connection with the transaction.

34The amount of the investment of each natural person shall not
35exceed 10 percent of the net worth, as determined by this
36subdivision, of that natural person.

37(F) Any other purchaser designated as qualified by rule of the
38commissioner.

39(2) Each purchaser represents that the purchaser is purchasing
40for the purchaser’s own account (or trust account, if the purchaser
P15   1is a trustee) and not with a view to or for sale in connection with
2a distribution of the security.

3(3) Each natural person purchaser, including a corporation,
4partnership, or other organization specifically formed by natural
5persons for the purpose of acquiring the securities offered by the
6issuer, receives, at least five business days before securities
7described in this subdivision are sold to, or a commitment to
8purchase is accepted from, the purchaser, the following information
9in writing:

10(A) The name, principal business and mailing address, and
11telephone number of the issuer.

12(B) The suitability standards for prospective purchasers as set
13forth in paragraph (1) of this subdivision.

14(C) A description of the issuer’s type of business organization
15and the state in which the issuer is organized or incorporated.

16(D) A brief description of the business of the issuer.

17(E) If the issuer retains ownership or becomes the beneficiary
18of the insurance policy, an audit report of an independent certified
19public accountant together with a balance sheet and related
20statements of income, retained earnings, and cashflows that reflect
21the issuer’s financial position, the results of the issuer’s operations,
22and the issuer’s cashflows as of a date within 15 months before
23the date of the initial issuance of the securities described in this
24subdivision. The financial statements listed in this subparagraph
25shall be prepared in conformity with generally accepted accounting
26principles. If the date of the audit report is more than 120 days
27before the date of the initial issuance of the securities described
28in this subdivision, the issuer shall provide unaudited interim
29financial statements.

30(F) The names of all directors, officers, partners, members, or
31trustees of the issuer.

32(G) A description of any order, judgment, or decree that is final
33as to the issuing entity of any state, federal, or foreign country
34governmental agency or administrator, or of any state, federal, or
35foreign country court of competent jurisdiction (i) revoking,
36suspending, denying, or censuring for cause any license, permit,
37or other authority of the issuer or of any director, officer, partner,
38 member, trustee, or person owning or controlling, directly or
39indirectly, 10 percent or more of the outstanding interest or equity
40securities of the issuer, to engage in the securities, commodities,
P16   1franchise, insurance, real estate, or lending business or in the offer
2or sale of securities, commodities, franchises, insurance, real estate,
3or loans, (ii) permanently restraining, enjoining, barring,
4suspending, or censuring any such person from engaging in or
5continuing any conduct, practice, or employment in connection
6with the offer or sale of securities, commodities, franchises,
7insurance, real estate, or loans, (iii) convicting any such person
8of, or pleading nolo contendere by any such person to, any felony
9or misdemeanor involving a security, commodity, franchise,
10insurance, real estate, or loan, or any aspect of the securities,
11commodities, franchise, insurance, real estate, or lending business,
12or involving dishonesty, fraud, deceit, embezzlement, fraudulent
13conversion, or misappropriation of property, or (iv) holding any
14such person liable in a civil action involving breach of a fiduciary
15duty, fraud, deceit, embezzlement, fraudulent conversion, or
16misappropriation of property. This subparagraph does not apply
17to any order, judgment, or decree that has been vacated, overturned,
18or is more than 10 years old.

19(H) Notice of the purchaser’s right to rescind or cancel the
20investment and receive a refund pursuant to Section 25508.5.

21(I) The name, address, and telephone number of the issuing
22insurance company, and the name, address, and telephone number
23of the state or foreign country regulator of the insurance company.

24(J) The total face value of the insurance policy and the
25percentage of the insurance policy the purchaser will own.

26(K) The insurance policy number, issue date, and type.

27(L) If a group insurance policy, the name, address, and telephone
28number of the group, and, if applicable, the material terms and
29conditions of converting the policy to an individual policy,
30including the amount of increased premiums.

31(M) If a term insurance policy, the term and the name, address,
32and telephone number of the person who will be responsible for
33renewing the policy if necessary.

34(N) That the insurance policy is beyond the state statute for
35contestability and the reason therefor.

36(O) The insurance policy premiums and terms of premium
37payments.

38(P) The amount of the purchaser’s moneys that will be set aside
39to pay premiums.

P17   1(Q) The name, address, and telephone number of the person
2who will be the insurance policy owner and the person who will
3be responsible for paying premiums.

4(R) The date on which the purchaser will be required to pay
5premiums and the amount of the premium, if known.

6(S) A statement to the effect that any projected rate of return to
7the purchaser from the purchase of a viatical or life settlement
8contract or a fractionalized or pooled interest therein is based on
9an estimated life expectancy for the person insured under the life
10insurance policy; that the return on the purchase may vary
11substantially from the expected rate of return based upon the actual
12life expectancy of the insured that may be less than, equal to, or
13may greatly exceed the estimated life expectancy; and that the rate
14of return would be higher if the actual life expectancy were less
15than, and lower if the actual life expectancy were greater than the
16estimated life expectancy of the insured at the time the viatical or
17life settlement contract was closed.

18(T) A statement that the purchaser should consult with his or
19her tax adviser regarding the tax consequences of the purchase of
20the viatical or life settlement contract or fractionalized or pooled
21interest therein and, if the purchaser is using retirement funds or
22accounts for that purchase, whether or not any adverse tax
23consequences might result from the use of those funds for the
24purchase of that investment.

25(U) Any other information as may be prescribed by rule of the
26commissioner.

27

SEC. 2.  

Section 25104 of the Corporations Code is amended
28to read:

29

25104.  

The following transactions are exempted from the
30provisions of Section 25130:

31(a) Any offer or sale of a security by the bona fide owner thereof
32for his or her own account if the sale (1) is not accompanied by
33the publication of any advertisement and (2) is not effected by or
34through a broker-dealer in a public offering.

35(b) Any offer or sale effected by or through a licensed
36broker-dealer pursuant to an unsolicited order or offer to buy. For
37the purpose of this subdivision, an inquiry regarding a written bid
38for a security or a written solicitation of an offer to sell a security
39made by another broker-dealer within the previous 60 days shall
40not be considered the solicitation of an order or offer to buy.

P18   1(c) Any offer or sale to a bank, savings and loan association,
2trust company, insurance company, investment company registered
3under the Investment Company Act of 1940, pension or
4profit-sharing trust (other than a pension or profit-sharing trust of
5the issuer, a self-employed individual retirement plan, or individual
6retirement account), or such other institutional investor or
7governmental agency or instrumentality as the commissioner may
8designate by rule, whether the purchaser is acting for itself or as
9trustee; provided the purchaser represents that it is purchasing for
10its own account (or for the trust account) for investment and not
11with a view to or for sale in connection with any distribution of
12the security.

13(d) Any transaction or agreement between a person on whose
14behalf an offering is made and an underwriter or among
15underwriters, if the sale of the securities is exempt from
16qualification at the time of or qualified prior to distribution in this
17state, if any.

18(e) Any offer or sale of any security by or for the account of a
19bona fide secured party selling the security in the ordinary course
20of business to liquidate a bona fide debt.

21(f) Any transaction by an executor, administrator, sheriff,
22marshal, receiver, trustee in bankruptcy, guardian, or conservator.

23(g) Any offer (but not a sale) of a security for which (1) a
24registration statement has been filed under the Securities Act of
251933 but has not yet become effective, or for which an offering
26statement under Regulation A has been filed but has not yet been
27qualified, if no stop order or refusal order is in effect and no public
28proceeding or examination looking toward such an order is pending
29under Section 8 of that act and (2) no order under Section 25140
30or subdivision (a) of Section 25143 is in effect under this division.

31(h) Any offer or sale of a security if a qualification under
32Chapter 2 (commencing with Section 25110) of this part for any
33securities of the same class has become effective within 18 months,
34or longer period as the commissioner may order provided that each
35consecutive order shall be for no more than six months, prior to
36the offer or sale or if a qualification under Chapter 3 (commencing
37with Section 25120) or Chapter 4 (commencing with Section
3825130) of this part for any securities of the same class has become
39effective within 12 months prior to that offer or sale, provided no
40order under Section 25140 or subdivision (a) of Section 25143 is
P19   1in effect under this division with respect to the qualification, and,
2provided further, that this exemption does not apply to securities
3offered pursuant to a registration under the Securities Act of 1933
4or pursuant to an exemption under Regulation A under that act if
5the aggregate offering price of the securities offered under such
6exemption exceeds fifty thousand dollars ($50,000). The
7commissioner may, by rule or order, withhold this exemption with
8respect to securities qualified only pursuant to a limited offering
9qualification.

10

SEC. 3.  

Section 25110 of the Corporations Code is amended
11to read:

12

25110.  

It is unlawful for any person to offer or sell in this state
13any security in an issuer transaction (other than in a transaction
14subject to Section 25120), whether or not by or through
15underwriters, unless such sale has been qualified under Section
1625111, 25112, 25113, or 25113.1 (and no order under Section
1725140 or subdivision (a) of Section 25143 is in effect with respect
18to such qualification) or unless such security or transaction is
19exempted or not subject to qualification under Chapter 1
20(commencing with Section 25100) of this part. The offer or sale
21of such a security in a manner that varies or differs from, exceeds
22the scope of, or fails to conform with either a material term or
23material condition of qualification of the offering as set forth in
24the permit or qualification order, or a material representation as
25to the manner of offering which is set forth in the application for
26qualification, shall be an unqualified offer or sale.

27

SEC. 4.  

Section 25113.1 is added to the Corporations Code,
28to read:

29

25113.1.  

(a) Any offer or sale of any security that meets all
30of the conditions in subdivision (b) may be qualified by permit
31under this section.

32(b) (1) An application for a crowdfunding permit under this
33section shall contain any information and be accompanied by any
34documents as shall be required by rule of the commissioner, in
35addition to the information specified in Section 25160 and the
36consent to service of process required by Section 25165. For this
37purpose, the commissioner may classify issuers and types of
38securities.

39(2) An applicant may file an application for a crowdfunding
40permit under this section if it meets all of the following conditions:

P20   1(A) The applicant is: (i) a California corporation or a foreign
2corporation, which at the time of filing an application under this
3subdivision is subject to Section 2115, and neither corporation is
4a “blind pool” company, as that term is defined by the
5commissioner; (ii) not issuing fractional undivided interests in oil
6or gas rights, or a similar interest in other mineral rights; (iii) not
7an investment company subject to the Investment Company Act
8of 1940; and (iv) not subject to the reporting requirements of
9Section 13 or 15(d) of the Securities Exchange Act of 1934.

10(B) The total offering of securities by the applicant to be sold
11in a 12-month period, within or outside this state, is limited to one
12million dollars ($1,000,000), less the aggregate offering price for
13all securities sold (within the 12 months before the start, and during
14the offering, of the securities) under Rule 504 (17 C.F.R. 230.504)
15under the Securities Act of 1933 or in violation of subdivision (a)
16of Section 5 of that act.

17(C) Offers and sales made in reliance on this section will not
18be integrated with: (i) prior offers or sales of securities or (ii)
19subsequent offers or sales of securities that are (I) registered under
20the Securities Act of 1933; (II) made pursuant to Rule 701 (17
21C.F.R. 230.701) under that act; (III) made pursuant to an employee
22benefit plan; (IV) made pursuant to Regulation S (17 C.F.R.
23230.901-905) under that act; (V) made in reliance on begin delete a federal rule
24in substantially the same form as the rule proposed by the Securities
25Exchange Commission to govern the offer and sale of securities
26under Section 4 (a)(6) of the Securities Act of 1933, referred to as
27Regulation Crowdfunding, proposed 17 C.F.R. Parts 200, 227,
28232, 239, 240, and 249 [Release Nos. 33-9470; 34-70741; File
29Nos. 7-09-13];end delete
begin insert Regulation CF (17 C.F.R. 227.100-503);end insert or (VI)
30made more than six months after the completion of the offering
31in reliance on this section.

32(D) The aggregate amount of securities sold to any investor in
33reliance on this section, including any amount sold during the
3412-month period preceding the date of the transaction, does not
35exceed the lesser of five thousand dollars ($5,000) or 10 percent
36of the net worth of that natural person, or such amount as the
37commissioner may provide by rule or order. “Net worth” shall be
38determined exclusive of home, home furnishings, and automobiles.
39Other assets included in the computation of net worth may be
40valued at fair market value.

P21   1(E) The applicant has taken reasonable steps to ensure that each
2investor who is a natural person who is not an accredited investor
3as defined in Rule 501 (17 C.F.R. 230.501) under the Securities
4Act of 1933 either alone or with his or her purchaser representative
5or representatives has such knowledge and experience in financial
6and business matters that he or she is capable of evaluating the
7merits and risks of the prospective investment.

8(F) The applicant files with the commissioner, provides to
9investors, and makes available tobegin delete potentialend deletebegin insert prospectiveend insert investors:
10(i)begin delete a disclosure document meeting the requirements of Section
11260.113.1 of Title 10 of the California Code of Regulations; and
12(ii)end delete
a Small Company Offering Registration disclosure document
13on Form U-7, as adopted by the North American Securities
14Administratorsbegin delete Association, no less than 10 business days prior to
15the commencement of the offering of securities.end delete
begin insert Association; and
16(ii) any other disclosures and documents deemed necessary or
17desirable by the commissioner.end insert

18(G) begin deleteThe end deletebegin insertFor any end insertofferingbegin delete isend delete made pursuant to this section,begin insert the
19applicant shall provide to a prospective investorend insert
a disclosure
20document meeting the requirements of Section 260.113.1 of Title
2110 of the California Code of Regulations, a permit application
22disclosure document based on the Form U-7, as adopted by the
23North Americanbegin delete Securityend deletebegin insert Securitiesend insert Administrators Association,
24and any additional requirements as the commissioner shall
25prescribe, that may include, but not be limited to, investor
26suitability and due diligence investigation requirements.

27(H) The investor shall have a three-day right to rescind any
28investment made in any security offered under this section. The
29three-day period shall end at 11:59 p.m. Pacific standard time on
30the third business day after the date on which the issuer’s
31confirmation of its acceptance of the investor’s investment is
32communicated in writing and received by the investor.

33(I) The applicant sets aside in a separate third-party escrow
34account all funds raised as part of the offering, to be held in escrow
35until the time that the minimum offering amount is reached. If the
36minimum offering amount is not reached within one year of the
37effective date of the offering, the applicant shall return all funds
38to investors.

39(J) The applicant shall not,begin delete directly or indirectly,end deletebegin insert itself or through
40any third party,end insert
conduct any direct solicitation of the securities
P22   1offered by this section. For purposes of this subparagraph, “direct
2solicitation” means and includes the following: any in-person or
3face-to-face conversation between the applicant or any of its
4founders, promoters, officers, directors, controlling persons, agents,
5or other persons acting directly or indirectly on behalf of the
6applicant and any investor or prospective investor or any person
7acting directly or indirectly on behalf of, or in regular
8communication with, thebegin delete investor.end delete

9begin delete(K)end deletebegin deleteend deletebegin insertinvestor. end insertThe applicant shall not,begin delete directly or indirectly,end deletebegin insert itself
10or through any third party,end insert
conduct any unsolicited telephone
11solicitation of the securities offered by this section.

begin insert

12
(K) Each sales transaction shall meet the following
13requirements:

end insert
begin insert

14
(i) The transaction is conducted through an intermediary that
15complies with the requirements in Section 4A(a) of the Securities
16Act (15 U.S.C. 77d-1(a)).

end insert
begin insert

17
(ii) The transaction is conducted exclusively through the
18intermediary’s platform.

end insert
begin insert

19
(L) The applicant shall not conduct an offering or concurrent
20offerings in reliance on this section using more than one
21intermediary.

end insert
begin insert

22
(M) The applicant shall comply with the following requirements
23regarding its advertisements, as that term is defined in Section
2425002, including, but not limited to, advertisement that is published
25by electronic means:

end insert
begin insert

26
(i) No applicant shall publish any advertisement in this state
27concerning any security sold or offered for sale in this state unless
28a true copy of the advertisement has first been filed in the office
29of the commissioner at least three business days prior to the
30publication or such shorter period as the commissioner may by
31rule or order allow.

end insert
begin insert

32
(ii) No applicant shall advertise, print, display, publish,
33 distribute, or broadcast, or cause or permit to be advertised,
34printed, displayed, published, distributed, or broadcast, in any
35manner, any statement or representation with regard to the
36business subject to the provisions of this section, including the
37rates, terms, or conditions for an offering or transaction that is
38false, misleading, or deceptive, or that omits any statement
39necessary in order to make the statement made, in the light of the
40circumstances under which they were made, not misleading.

end insert
begin insert

P23   1
(iii) No applicant shall place an advertisement disseminated
2primarily in this state unless the applicant discloses in the printed
3text of the advertisement, or the oral text in the case of a radio or
4television advertisement, that the applicant has a permit issued by
5the department pursuant to this section.

end insert
begin insert

6
(iv) The commissioner may require that rates of charges or fees,
7if stated by the applicant, be stated fully and clearly in the manner
8that the commissioner deems necessary to give adequate
9information to, or to prevent misunderstanding by, prospective
10investors.

end insert
begin insert

11
(v) No advertisement shall be used after its use has been
12disapproved by the commissioner and the applicant is notified in
13writing of the disapproval. Such notification may be given
14summarily without notice or hearing. At any time after the issuance
15of a notification under this section, the person desiring to use the
16advertisement may in writing request that the order be rescinded.
17Upon the receipt of such a written request, the matter shall be set
18down for hearing to commence within 15 business days after such
19receipt unless the person making the request consents to a later
20date. After such hearing, which shall be conducted in accordance
21with the provisions of the Administrative Procedure Act (Chapter
225 (commencing with Section 11500) of Part 1 of Division 3 of Title
232 of the Government Code) the commissioner shall determine
24whether to affirm and continue or to rescind such order, and the
25commissioner shall have all the powers granted under such act.

end insert
begin insert

26
(vi) The commissioner may require applicants to maintain a
27file of all advertisements for a period of three years from the date
28of their use, unless by regulation, the commissioner specifies a
29different period of time for retaining such advertisements. The file
30shall be available to the commissioner upon request.

end insert
begin delete

31(L)

end delete

32begin insert(N)end insert The applicant or any person or entity selling an investment
33to an investor pursuant to this section, including without limitation,
34any issuer, securities broker-dealer, agent, or officer, director,
35founder, promoter, controlling person, or other persons acting
36directly or indirectly on behalf of the applicant shall have a
37fiduciary obligation to any investor or prospective investor.

begin delete

38(M)

end delete

39begin insert(O)end insert The applicant, a predecessor of the applicant, an affiliated
40applicant, a director, executive officer, or other officer participating
P24   1in the offering, a general partner or managing member of the
2applicant, a beneficial owner of 20 percent or more of the
3applicant’s outstanding voting equity securities, calculated on the
4basis of voting power, a promoter connected with the issuer in any
5capacity at the time of the sale, an investment manager of an
6applicant that is a pooled investment fund, a person that has been
7or will be paid, directly or indirectly, remuneration for solicitation
8of purchasers in connection with the sale of securities, a general
9partner or managing member of the investment manager or
10solicitor, or any director, executive officer, or other officer
11participating in the offering of the investment manager or solicitor
12or general partner or managing member of the investment manager
13or solicitor shall not be disqualified as a “bad actor” under Rule
14506(d) (17 C.F.R. 230.506(d)) under the Securities Act of 1933.

begin delete

15(N)

end delete

16begin insert(P)end insert The applicant undertakes that there will be no stock splits,
17stock dividends, spinoffs, or mergers for a period of two years
18from the close of the offering.

begin delete

19(O)

end delete

20begin insert(Q)end insert Any other requirement set forth by rule adopted by the
21commissioner.

22(c) The Department of Business Oversight shall either issue or
23deny the permit within 60 days of the receipt of the application.
24If the Department of Business Oversight fails to either issue or
25deny the permit within 60 days, the applicant may demand a
26hearing with the Department of Businessbegin delete Oversight for an
27explanation as to why the permit has not been granted.end delete
begin insert Oversight.
28Upon the receipt of such a written request, the matter shall be set
29down for hearing to commence within 15 business days after such
30receipt unless the person making the request consents to a later
31date. After such hearing, which shall be conducted in accordance
32with the provisions of the Administrative Procedure Act (Chapter
335 (commencing with Section 11500) of Part 1 of Division 3 of Title
342 of the Government Code) the commissioner shall determine
35whether to affirm and continue or to rescind such order denying
36the permit, and the commissioner shall have all the powers granted
37under such act.end insert

38

SEC. 5.  

Section 25501 of the Corporations Code is amended
39to read:

P25   1

25501.  

Any person who violates Section 25401 shall be liable
2to the person who purchases a security from him or her or sells a
3security to him or her, who may sue either for rescission or for
4damages (if the plaintiff or the defendant, as the case may be, no
5longer owns the security), unless the defendant proves that the
6plaintiff knew the facts concerning the untruth or omission or that
7the defendant exercised reasonable care and did not know (or if
8hebegin insert or sheend insert had exercised reasonable care would not have known)
9of the untruth or omission. The plaintiff shall not be required to
10plead or prove that the defendant acted with scienter. Upon
11rescission, a purchaserbegin delete mayend deletebegin insert shallend insert recover the consideration paid
12for the security, plus interest at the legal rate, less the amount of
13any income received on the security, upon tender of the security.
14Upon rescission, a sellerbegin delete mayend deletebegin insert shallend insert recover the security, upon
15tender of the consideration paid for the security plus interest at the
16legal rate, less the amount of any income received by the defendant
17on the security. Damages recoverable under this section by a
18purchaser shall be an amount equal to the difference between (a)
19the price at which the security was bought plus interest at the legal
20rate from the date of purchase and (b) the value of the security at
21the time it was disposed of by the plaintiff plus the amount of any
22 income received on the security by the plaintiff. Damages
23recoverable under this section by a seller shall be an amount equal
24to the difference between (1) the value of the security at the time
25of the filing of the complaint plus the amount of any income
26received by the defendant on the security and (2) the price at which
27the security was sold plus interest at the legal rate from the date
28of sale. Any tender specified in this section may be made at any
29time before entry of judgment.

30

SEC. 6.  

Section 25503 of the Corporations Code is amended
31to read:

32

25503.  

Any person who violates Section 25110,begin delete 25130end deletebegin insert 25130,end insert
33 or 25133, or a condition of qualification under Chapter 2
34(commencing with Section 25110) of this part, imposed pursuant
35to Section 25141, or an order suspending trading issued pursuant
36to Section 25219, shall be liable to any person acquiring from him
37begin insert or herend insert the security sold in violation of such section, who may sue
38to recover the consideration hebegin insert or sheend insert paid for such security with
39interest thereon at the legal rate, less the amount of any income
40received therefrom, upon the tender of such security, or for
P26   1damages, if hebegin insert or sheend insert no longer owns the security, or if the
2consideration given for the security is not capable of being
3returned. Damages, if the plaintiff no longer owns the security,
4shall be equal to the difference between (a) hisbegin insert or herend insert purchase
5price plus interest at the legal rate from the date of purchase and
6(b) the value of the security at the time it was disposed of by the
7plaintiff plus the amount of any income received therefrom by the
8plaintiff.

9Damages, if the consideration given for the security is not
10capable of being returned, shall be equal to the value of that
11consideration plus interest at the legal rate from the date of
12purchase, provided the security is tendered; and if the plaintiff no
13longer owns the security, damages in such case shall be equal to
14the difference between (a) the value of the consideration given for
15the security plus interest at the legal rate from the date of purchase
16and (b) the value of the security at the time it was disposed of by
17the plaintiff plus the amount of any income received therefrom by
18the plaintiff. Any person who violates Section 25120 or a condition
19of qualification under Chapter 3 (commencing with Section 25120)
20of this part imposed pursuant to Section 25141, shall be liable to
21any person acquiring from himbegin insert or herend insert the security sold in violation
22of such section who may sue to recover the difference between (a)
23the value of the consideration received by the seller and (b) the
24value of the security at the time it was received by the buyer, with
25interest thereon at the legal rate from the date of purchase. Any
26person on whose behalf an offering is made and any underwriter
27of the offering, whether on a best efforts or a firm commitment
28basis, shall be jointly and severally liable under this section, but
29in no event shall any underwriter (unless such underwriterbegin delete shall
30haveend delete
knowingly received from the issuer for acting as an
31underwriter some benefit, directly or indirectly, in which all other
32underwriters similarly situated did not share in proportion to their
33respective interest in the underwriting) be liable in any suit or suits
34authorized under this section for damages in excess of the total
35price at which the securities underwritten by himbegin insert or herend insert and
36distributed to the public were offered to the public. Any tender
37specified in this section may be made at any time before entry of
38judgment. No person shall be liable under this section for violation
39of Section 25110, 25120, or 25130 if the sale of the security is
40qualified prior to the payment or receipt of any part of the
P27   1consideration for the security sold, even though an offer to sell or
2a contract of sale may have been made or entered into without
3qualification. The court shall award reasonable attorney’s fees and
4costs, and, in its discretion, may award treble and punitive damages,
5to a prevailing purchaser in an action brought against any person
6who violates Section 25110 in any offering qualified under Section
725113.1.

8

SEC. 7.  

Section 25608 of the Corporations Code is amended
9to read:

10

25608.  

(a) The commissioner shall charge and collect the fees
11fixed in this section and Section 25608.1. All fees charged and
12collected under this section and Section 25608.1 shall be
13transmitted to the Treasurer at least weekly, accompanied by a
14detailed statement thereof and shall be credited to the State
15Corporations Fund.

16(b) The fee for filing an application for a negotiating permit
17under subdivision (c) of Section 25102 is fifty dollars ($50).

18(c) The fee for filing a notice pursuant to paragraph (5) of
19subdivision (h) of Section 25102 and the fee for filing a notice
20pursuant to paragraph (4) of subdivision (f) of Section 25102, in
21addition to the fee prescribed in those paragraphs, if applicable,
22shall be determined based on the value of the securities proposed
23to be sold in the transaction for which the notice is filed and in
24accordance with subdivision (g), and shall be as follows:


25

 

Value of Securities
Proposed to be Sold

Filing Fee

 $25,000 or less

$ 25

 $25,001 to $100,000

$ 35

 $100,001 to $500,000

$ 50

 $500,001 to $1,000,000

$150

 Over $1,000,000

$300

P27  33

 

34(d) The fee for filing an application for designation of an issuer
35pursuant to subdivision (k) of Section 25100 is fifty dollars ($50).

36(e) The fee for filing an application for qualification of the sale
37of securities by notification under Section 25112 or by permit
38under paragraph (1) of subdivision (b) of Section 25113 (except
39applications for qualification by permit of the sale of any guarantee
40of any security, the fees for which applications are fixed in
P28   1subdivision (k)) is two hundred dollars ($200) plus one-fifth of 1
2percent of the aggregate value of the securities sought to be sold
3in this state up to a maximum aggregate fee of two thousand five
4hundred dollars ($2,500).

5The fee for filing a small company application for qualification
6of the sale of securities by permit under paragraph (2) of
7subdivision (b) of Section 25113 is two thousand five hundred
8dollars ($2,500). In the case where the costs of processing a small
9company application exceed the filing fee, an additional fee shall
10be charged, not to exceed one thousand dollars ($1,000), over and
11above the filing fee based on the costs of the salary or other
12compensation paid to persons processing the application plus
13overhead costs reasonably incurred in the performance of the work.
14In determining the costs, the commissioner may use the estimated
15average hourly cost for all persons processing applications for the
16fiscal year.

17The fee for filing a crowdfunding application for qualification
18of the sale of securities by permit under Section 25113.1 is two
19hundred dollars ($200) plus one-fifth of 2 percent of the aggregate
20value of the securities sought to be sold in this state.

21(f) The fee for filing an application for qualification of the sale
22of securities by coordination under Section 25111 or a notice of
23intention to sell under subdivision (t) of Section 25100 is two
24hundred dollars ($200) plus one-fifth of 1 percent of the aggregate
25value of the securities sought to be sold in this state up to a
26maximum aggregate fee of two thousand five hundred dollars
27($2,500).

28(g) For the purpose of determining the fees fixed in subdivisions
29(e) and (f):

30(1) The value of the securities shall be the price at which the
31company proposes to sell the securities, or the value, as alleged in
32the application, or the actual value, as determined by the
33commissioner, of the consideration (if other than money) to be
34received in exchange therefor, or of the securities when sold,
35whichever is greater.

36(2) Interim or voting trust certificates shall have a value equal
37to the aggregate value of the securities to be represented by the
38interim or voting trust certificates.

39(3) The value of a warrant or right to purchase or subscribe to
40another security of the same or another issuer shall be an amount
P29   1equal to the consideration to be paid for that warrant or right plus
2an amount equal to the consideration to be paid upon purchase of
3the additional securities, provided that if the latter amount is not
4determinable at the time of qualification, that amount shall then
5be the value of the additional securities as determined by the
6commissioner.

7(4) In the case of a share dividend where the shareholders are
8given an option to accept either cash or additional shares of
9common stock, the value of the securities to be sold shall be the
10maximum amount of cash that would be payable in the event that
11all shareholders elected to accept cash.

12(h) The fee for filing an application for qualification of the sale
13of securities by permit under Section 25121 is:

14(1) Two hundred dollars ($200) in connection with any change
15(including any stock split or reverse stock split or stock dividend,
16except a stock dividend where the shareholders are given an option
17to accept either cash or additional shares of common stock) in the
18rights, preferences, privileges, or restrictions of or on outstanding
19securities.

20(2) Two hundred dollars ($200) plus one-fifth of 1 percent of
21the value, as alleged in the application, or the actual value, as
22determined by the commissioner, of the consideration to be
23received in exchange therefor, up to a maximum aggregate fee of
24two thousand five hundred dollars ($2,500), in any exchange of
25securities by the issuer with its existing security holders
26exclusively, or in any exchange in connection with any merger or
27consolidation or purchase of corporate assets in consideration of
28the issuance of securities, or any entity conversion transaction.

29(i) The fee for filing an application for qualification of the sale
30of securities by notification under Section 25131 shall be one
31hundred dollars ($100).

32(j) The fee for an application for the removal of any condition
33under Section 25141 is fifty dollars ($50).

34(k) The fee for filing any application for a permit to execute or
35issue any guarantee of any security is fifty dollars ($50).

36(l) The fee for acting as escrowholder for securities under
37Section 25149 is fifty dollars ($50). In addition, a fee of two dollars
38and fifty cents ($2.50) shall be paid for the deposit with the
39commissioner of each new certificate or other document resulting
40from a transfer in escrow.

P30   1(m) The fee for filing an application for an order (1) consenting
2to the transfer in escrow of securities or (2) consenting to the
3transfer of securities subject to any condition imposed by the
4commissioner requiring the commissioner’s consent to the transfer
5is twenty dollars ($20) for each transfer.

6(n) The filing fee for an amendment to an application filed after
7the effective date of the qualification of the sale of securities is
8fifty dollars ($50) plus any additional fee that would have been
9required to be paid with the original application for qualification
10of the sale of securities under this section if the matters set forth
11in the amendment had been included in the original application.

12(o) (1) The fee for filing an application for a broker-dealer
13certificate under Section 25211 is three hundred dollars ($300).

14(2) Each broker-dealer shall pay to the commissioner its pro
15rata share of all costs and expenses, reasonably incurred in the
16administration of the broker-dealer program under this division,
17as estimated by the commissioner for the ensuing year and any
18deficit actually incurred or anticipated in the administration of the
19program in the year in which the assessment is made. The pro rata
20share shall be the proportion that the broker-dealer and the number
21of its agents in this state bears to the aggregate number of
22broker-dealers and agents in this state as shown by records
23maintained by or on behalf of the commissioner. The pro rata share
24may include the costs of any examinations, audit, or investigation
25provided for in subdivision (r).

26(3) Every broker-dealer who has secured from the commissioner
27a certificate shall, in order to keep the certificate in effect for an
28additional period, pay a minimum assessment of seventy-five
29dollars ($75) on or before the 31st of December in each year.

30(4) The commissioner may assess and levy against each
31broker-dealer any additional amount above the minimum
32assessment amount of seventy-five dollars ($75) that is reasonable
33and necessary to support the broker-dealer program under this
34division. If an additional amount is assessed, the commissioner
35shall notify each broker-dealer by mail of any additional amount
36assessed and levied against it on or before the 30th day of May in
37each year, and that amount shall be paid within 20 days thereafter.
38If payment is not made within 20 days, the commissioner shall
39assess and collect a penalty in addition to the assessment of 1
P31   1percent of the assessment for each month or part of a month that
2the payment is delayed or withheld.

3(5) If a broker-dealer fails to pay any assessment on or before
4the 30th day of the month following the day upon which payment
5is due, the commissioner may by order summarily suspend or
6revoke the certificate issued to the broker-dealer. If, after that order
7is made, a request for hearing is filed in writing and a hearing is
8not held within 60 days thereafter, the order is deemed rescinded
9as of its effective date. During any period when its certificate is
10revoked or suspended, a broker-dealer shall not conduct business
11pursuant to this division except as may be permitted by order of
12the commissioner; provided, however, that the revocation,
13suspension, or surrender of a certificate shall not affect the powers
14of the commissioner as provided under this division.

15(6) In determining the amount assessed, the commissioner shall
16consider all appropriations from the State Corporations Fund for
17the support of the broker-dealer program under this division and
18all reimbursements applicable to the administration of the
19broker-dealer program under this division.

20(p)  (1) The commissioner shall charge a fee of twenty-five
21dollars ($25) for the filing of a notice or report required by rules
22adopted pursuant to subdivision (b) of Section 25210 or subdivision
23(b) of Section 25230.

24(2) The commissioner may charge a fee up to thirty-five dollars
25($35) to keep in effect for the following year any notice or report
26required by rules adopted pursuant to subdivision (b) of Section
2725210 or subdivision (b) of Section 25230.

28(3) No person shall, on behalf of a broker-dealer licensed
29pursuant to Section 25211, effect any transaction in, or induce or
30attempt to induce the purchase or sale of, any security in this state
31unless the broker-dealer pays the annual fee required by paragraph
32(2) of this subdivision on or before the day upon which payment
33is due.

34(4) No person may, in this state, on behalf of an investment
35adviser licensed pursuant to Section 25231, offer or negotiate for
36the sale of investment advisory services of the investment adviser,
37determine which recommendations shall be made to, make
38recommendations to, or manage the accounts of, clients of the
39investment adviser, or determine the reports or analyses concerning
40securities to be published by the investment adviser, unless the
P32   1investment adviser pays the annual fee required by paragraph (2)
2on or before the day upon which payment is due.

3(5) The commissioner may by order summarily enjoin an
4individual from performing any activity under paragraph (3) or
5(4) if the annual fee in paragraph (2) is not paid on or before the
6day upon which payment is due. An order under this paragraph
7may not be made before 10 days after notice by the commissioner
8that the fee is due and unpaid.

9(q) (1) Except as provided for in paragraph (2), the fee for filing
10an application for an investment adviser under Section 25231 is
11one hundred twenty-five dollars ($125), and payment of this
12amount shall keep the certificate, if granted, in effect during the
13calendar year during which it is granted. Every investment adviser
14who has secured from the commissioner a certificate shall, in order
15to keep the certificate in effect for an additional period, pay a
16renewal fee of one hundred twenty-five dollars ($125) on or before
17the 31st day of December.

18(2) Paragraph (1) shall not apply to a broker-dealer licensed
19under Section 25210.

20(r) (1) Except as provided for in paragraph (2), the fee for any
21routine or nonroutine regulatory examination, audit, or
22investigation is the amount of the salary or other compensation
23paid to the persons making the examination, audit, or investigation
24plus the amount of expenses including overhead reasonably
25incurred in the performance of the work. In determining the costs
26associated with an examination, audit, or investigation, the
27commissioner may use the estimated average hourly cost for all
28persons performing examinations, audits, or investigations for the
29fiscal year.

30(2) An investment adviser licensed under Section 25230 pursuant
31to the Investment Adviser Registration Depository shall not be
32subject to paragraph (1) only in regard to the fee for a routine
33regulatory examination of its investment advisory services for
34which it is licensed under Section 25230.

35(s) The fee for any hearing held by the commissioner pursuant
36to Section 25142 shall be the sum determined by the commissioner
37to cover the actual expense of noticing and holding the hearing.

38(t) The commissioner may fix by rule a reasonable charge for
39any publications issued under his or her authority. The charges
P33   1shall not apply to reports of the commissioner in the ordinary
2course of distribution.

3(u) The fee for filing an offer under subdivision (b) of Section
425507 shall be the amount of filing fee payable under subdivision
5(e), (f), (h), or (i) of this section if an application had been filed to
6qualify the transaction in which the securities upon which the offer
7is to be made were sold in violation of the qualification provisions
8of this law.

9(v) The fee for filing an application for exemption pursuant to
10subdivision (l) of Section 25100 is two hundred fifty dollars ($250).

11(w) The commissioner may by rule require payment of a fee
12for filing a notice or report required by a rule adopted pursuant to
13Section 25105. The fee required in connection with a transaction
14as defined by that rule shall not exceed the fees specified in
15subdivision (c) based on the value of the securities sold, but the
16commissioner may permit a single notice for more than one
17transaction.

18(x) The fee for filing the first notice of transaction under
19subdivision (n) of Section 25102 is six hundred dollars ($600).

20(y) The fee for filing a notice of transaction under subdivision
21(o) of Section 25102 shall be the fee for filing an application for
22qualification of the sale of securities by permit under paragraph
23(1) of subdivision (b) of Section 25113 as set forth in subdivision
24(e) of this section.

25(z) The fee for filing a notice of transaction under subdivision
26(h) of Section 25103 shall be six hundred dollars ($600).



O

    98