BILL NUMBER: SB 2189 CHAPTERED
BILL TEXT
CHAPTER 668
FILED WITH SECRETARY OF STATE SEPTEMBER 21, 1998
APPROVED BY GOVERNOR SEPTEMBER 20, 1998
PASSED THE SENATE AUGUST 27, 1998
PASSED THE ASSEMBLY AUGUST 20, 1998
AMENDED IN ASSEMBLY AUGUST 6, 1998
AMENDED IN ASSEMBLY JULY 6, 1998
AMENDED IN SENATE MAY 5, 1998
AMENDED IN SENATE MARCH 30, 1998
INTRODUCED BY Senator Vasconcellos
(Principal coauthor: Assembly Member Kuykendall)
FEBRUARY 20, 1998
An act to amend Section 25102 of, to add Section 25208 to, and to
add Division 3 (commencing with Section 28000) to Title 4 of, the
Corporations Code, relating to capital access companies.
LEGISLATIVE COUNSEL'S DIGEST
SB 2189, Vasconcellos. Small business venture funds.
Existing law establishes certain programs, including those
contained in the Small Business Development Corporation Law, to
promote the economic development of small businesses in the state.
This bill would, in addition, enact the Capital Access Company
Law, which would provide for the licensure and regulation by the
Commissioner of Corporations, of capital access companies, to enable
those entities to provide risk capital and management assistance to
small businesses in the state, exempt from the requirements of the
federal Investment Company Act of 1940.
This bill would prescribe certain fees to be paid by applicants
for licensure under these provisions and for other related matters,
and would require that those fees be deposited into the State
Corporations Fund.
This bill would also impose civil penalties for violations, and
criminal penalties for willful violations, of these provisions. By
the creation of new crimes, this bill would impose a state-mandated
local program.
The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
This bill would provide that no reimbursement is required by this
act for a specified reason.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 25102 of the Corporations Code is amended to
read:
25102. The following transactions are exempted from the
provisions of Section 25110:
(a) Any offer (but not a sale) not involving any public offering
and the execution and delivery of any agreement for the sale of
securities pursuant to the offer if (1) the agreement contains
substantially the following provision: "The sale of the securities
that are the subject of this agreement has not been qualified with
the Commissioner of Corporations of the State of California and the
issuance of the securities or the payment or receipt of any part of
the consideration therefor prior to the qualification is unlawful,
unless the sale of securities is exempt from the qualification by
Section 25100, 25102, or 25105 of the California Corporations Code.
The rights of all parties to this agreement are expressly conditioned
upon the qualification being obtained, unless the sale is so exempt"
; and (2) no part of the purchase price is paid or received and none
of the securities are issued until the sale of the securities is
qualified under this law unless the sale of securities is exempt from
the qualification by this section, Section 25100, or 25105.
(b) Any offer (but not a sale) of a security for which a
registration statement has been filed under the Securities Act of
1933 but has not yet become effective, or for which an offering
statement under Regulation A has been filed but has not yet been
qualified, if no stop order or refusal order is in effect and no
public proceeding or examination looking toward such an order is
pending under Section 8 of the act and no order under Section 25140
or subdivision (a) of Section 25143 is in effect under this law.
(c) Any offer (but not a sale) and the execution and delivery of
any agreement for the sale of securities pursuant to the offer as may
be permitted by the commissioner upon application. Any negotiating
permit under this subdivision shall be conditioned to the effect that
none of the securities may be issued and none of the consideration
therefor may be received or accepted until the sale of the securities
is qualified under this law.
(d) Any transaction or agreement between the issuer and an
underwriter or among underwriters if the sale of the securities is
qualified, or exempt from qualification, at the time of distribution
thereof in this state, if any.
(e) Any offer or sale of any evidence of indebtedness, whether
secured or unsecured, and any guarantee thereof, in a transaction not
involving any public offering.
(f) Any offer or sale of any security in a transaction (other than
an offer or sale to a pension or profit-sharing trust of the issuer)
that meets each of the following criteria:
(1) Sales of the security are not made to more than 35 persons,
including persons not in this state.
(2) All purchasers either have a preexisting personal or business
relationship with the offeror or any of its partners, officers,
directors or controlling persons, or managers (as appointed or
elected by the members) if the offeror is a limited liability
company, or by reason of their business or financial experience or
the business or financial experience of their professional advisors
who are unaffiliated with and who are not compensated by the issuer
or any affiliate or selling agent of the issuer, directly or
indirectly, could be reasonably assumed to have the capacity to
protect their own interests in connection with the transaction.
(3) Each purchaser represents that the purchaser is purchasing for
the purchaser's own account (or a trust account if the purchaser is
a trustee) and not with a view to or for sale in connection with any
distribution of the security.
(4) The offer and sale of the security is not accomplished by the
publication of any advertisement. The number of purchasers referred
to above is exclusive of any described in subdivision (i), any
officer, director or affiliate of the issuer, or manager (as
appointed or elected by the members) if the issuer is a limited
liability company, and any other purchaser who the commissioner
designates by rule. For purposes of this section, a husband and wife
(together with any custodian or trustee acting for the account of
their minor children) are counted as one person and a partnership,
corporation or other organization that was not specifically formed
for the purpose of purchasing the security offered in reliance upon
this exemption, is counted as one person. The commissioner may by
rule require the issuer to file a notice of transactions under this
subdivision. However, the failure to file the notice or the failure
to file the notice within the time specified by the rule of the
commissioner shall not affect the availability of this exemption. An
issuer who fails to file the notice as provided by rule of the
commissioner shall, within 15 business days after demand by the
commissioner, file the notice and pay to the commissioner a fee equal
to the fee payable had the transaction been qualified under Section
25110.
(g) Any offer or sale of conditional sale agreements, equipment
trust certificates, or certificates of interest or participation
therein or partial assignments thereof, covering the purchase of
railroad rolling stock or equipment or the purchase of motor
vehicles, aircraft, or parts thereof, in a transaction not involving
any public offering.
(h) Any offer or sale of voting common stock by a corporation
incorporated in any state if, immediately after the proposed sale and
issuance, there will be only one class of stock of the corporation
outstanding that is owned beneficially by no more than 35 persons,
provided all of the following requirements have been met:
(1) The offer and sale of the stock is not accompanied by the
publication of any advertisement, and no selling expenses have been
given, paid, or incurred in connection therewith.
(2) The consideration to be received by the issuer for the stock
to be issued shall consist of (i) only assets (which may include
cash) of an existing business enterprise transferred to the issuer
upon its initial organization, of which all of the persons who are to
receive the stock to be issued pursuant to this exemption were
owners during, and the enterprise was operated for, a period of not
less than one year immediately preceding the proposed issuance, and
the ownership of the enterprise immediately prior to the proposed
issuance was in the same proportions as the shares of stock are to be
issued, or (ii) only cash or cancellation of indebtedness for money
borrowed or both upon the initial organization of the issuer,
provided all of the stock is issued for the same price per share, or
(iii) only cash, provided the sale is approved in writing by each of
the existing shareholders and the purchaser or purchasers are
existing shareholders, or (iv), in a case where after the proposed
issuance there will be only one owner of the stock of the issuer, any
legal consideration.
(3) No promotional consideration has been given, paid, or incurred
in connection with the issuance. Promotional consideration means
any consideration paid directly or indirectly to a person who, acting
alone or in conjunction with one or more other persons, takes the
initiative in founding and organizing the business or enterprise of
an issuer, for services rendered in connection with the founding or
organizing.
(4) A notice in a form prescribed by rule of the commissioner,
signed by an active member of the State Bar of California, shall be
filed with or mailed for filing to the commissioner not later than 10
business days after receipt of consideration for the securities by
the issuer, which notice shall contain an opinion of the member of
the State Bar of California that the exemption provided by this
subdivision is available for the offer and sale of the securities.
However, the failure to file the notice as required by this
subdivision and the rules of the commissioner shall not affect the
availability of this exemption. An issuer who fails to file the
notice within the time specified by this subdivision shall, within 15
business days after demand by the commissioner, file the notice and
pay to the commissioner a fee equal to the fee payable had the
transaction been qualified under Section 25110. The notice, except
when filed on behalf of a California corporation, shall be
accompanied by an irrevocable consent, in the form that the
commissioner by rule prescribes, appointing the commissioner or his
or her successor in office to be the issuer's attorney to receive
service of any lawful process in any noncriminal suit, action, or
proceeding against it or its successor that arises under this law or
any rule or order hereunder after the consent has been filed, with
the same force and validity as if served personally on the issuer.
An issuer on whose behalf a consent has been filed in connection with
a previous qualification or exemption from qualification under this
law (or application for a permit under any prior law if the
application or notice under this law states that the consent is still
effective) need not file another. Service may be made by leaving a
copy of the process in the office of the commissioner but it is not
effective unless (1) the plaintiff, who may be the commissioner in a
suit, action, or proceeding instituted by him or her, forthwith sends
notice of the service and a copy of the process by registered or
certified mail to the defendant or respondent at its last address on
file with the commissioner, and (2) the plaintiff's affidavit of
compliance with this section is filed in the case on or before the
return day of the process, if any, or within the further time as the
court allows.
(5) Each purchaser represents that the purchaser is purchasing for
the purchaser's own account, or a trust account if the purchaser is
a trustee, and not with a view to or for sale in connection with any
distribution of the stock.
For the purposes of this subdivision, all securities held by a
husband and wife, whether or not jointly, shall be considered to be
owned by one person, and all securities held by a corporation that
has issued stock pursuant to this exemption shall be considered to be
held by the shareholders to whom it has issued the stock.
All stock issued by a corporation pursuant to this subdivision as
it existed prior to the effective date of the amendments to this
section made during the 1996 portion of the 1995-96 Regular Session
that required the issuer to have stamped or printed prominently on
the face of the stock certificate a legend in a form prescribed by
rule of the commissioner restricting transfer of the stock in a
manner provided for by that rule shall not be subject to the transfer
restriction legend requirement and, by operation of law, the
corporation is authorized to remove that transfer restriction legend
from the certificates of those shares of stock issued by the
corporation pursuant to this subdivision as it existed prior to the
effective date of the amendments to this section made during the 1996
portion of the 1995-96 Regular Session.
(i) Any offer or sale (1) to a bank, savings and loan association,
trust company, insurance company, investment company registered
under the Investment Company Act of 1940, pension or profit-sharing
trust (other than a pension or profit-sharing trust of the issuer, a
self-employed individual retirement plan, or individual retirement
account), or other institutional investor or governmental agency or
instrumentality that the commissioner may designate by rule, whether
the purchaser is acting for itself or as trustee, or (2) to any
corporation with outstanding securities registered under Section 12
of the Securities Exchange Act of 1934 or any wholly owned subsidiary
of such a corporation that after the offer and sale will own
directly or indirectly 100 percent of the outstanding capital stock
of the issuer; provided the purchaser represents that it is
purchasing for its own account (or for the trust account) for
investment and not with a view to or for sale in connection with any
distribution of the security.
(j) Any offer or sale of any certificate of interest or
participation in an oil or gas title or lease (including subsurface
gas storage and payments out of production) if (1) all of the
purchasers: (i) are and have been during the preceding two years
engaged primarily in the business of drilling for, producing, or
refining oil or gas (or whose corporate predecessor, in the case of a
corporation, has been so engaged), or (ii) are persons described in
clause (1) of subdivision (i) of this section, or (iii) have been
found by the commissioner upon written application to be
substantially engaged in the business of drilling for, producing, or
refining oil or gas so as not to require the protection provided by
this law (which finding shall be effective until rescinded), or (2)
the security is concurrently hypothecated to a bank in the ordinary
course of business to secure a loan made by the bank; provided each
purchaser represents that it is purchasing for its own account for
investment and not with a view to or for sale in connection with any
distribution of the security.
(k) Any offer or sale of any security under, or pursuant to, a
plan of reorganization under Chapter 11 of the federal bankruptcy law
that has been confirmed or is subject to confirmation by the decree
or order of a court of competent jurisdiction.
(l) Any offer or sale of an option, warrant, put, call, or
straddle, and any guarantee of any of these securities, by a person
who is not the issuer of the security subject to the right, if the
transaction, had it involved an offer or sale of the security subject
to the right by the person, would not have violated Section 25110 or
25130.
(m) Any offer or sale of a stock to a pension, profit-sharing,
stock bonus or employee stock ownership plan provided that (1) the
plan meets the requirements for qualification under Section 401 of
the Internal Revenue Code, and (2) the employees are not required or
permitted individually to make any contributions to the plan. The
exemption provided by this subdivision shall not be affected by
whether the stock is contributed to the plan, purchased from the
issuer with contributions by the issuer or an affiliate of the
issuer, or purchased from the issuer with funds borrowed from the
issuer, an affiliate of the issuer or any other lender.
(n) Any offer or sale of any security in a transaction, other than
an offer or sale of a security in a rollup transaction, that meets
all of the following criteria:
(1) The issuer is (A) a California corporation or foreign
corporation that, at the time of the filing of the notice required
under this subdivision, is subject to Section 2115, or (B) any other
form of business entity, including without limitation a partnership
or trust organized under the laws of this state. The exemption
provided by this subdivision is not available to a "blind pool"
issuer, as that term is defined by the commissioner, or to an
investment company subject to the Investment Company Act of 1940.
(2) Sales of securities are made only to qualified purchasers or
other persons the issuer reasonably believes, after reasonable
inquiry, to be qualified purchasers. A corporation, partnership, or
other organization specifically formed for the purpose of acquiring
the securities offered by the issuer in reliance upon this exemption
may be a qualified purchaser if each of the equity owners of the
corporation, partnership, or other organization is a qualified
purchaser. Qualified purchasers include the following:
(A) A person designated in Section 260.102.13 of Title 10 of the
California Code of Regulations.
(B) A person designated in subdivision (i) or any rule of the
commissioner adopted thereunder.
(C) A pension or profit-sharing trust of the issuer, a
self-employed individual retirement plan, or an individual retirement
account, if the investment decisions made on behalf of the trust,
plan, or account are made solely by persons who are qualified
purchasers.
(D) An organization described in Section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business trust,
or partnership, each with total assets in excess of five million
dollars ($5,000,000) according to its most recent audited financial
statements.
(E) With respect to the offer and sale of one class of voting
common stock of an issuer or of preferred stock of an issuer
entitling the holder thereof to at least the same voting rights as
the issuer's one class of voting common stock, provided that the
issuer has only one-class voting common stock outstanding upon
consummation of the offer and sale, a natural person who, either
individually or jointly with the person's spouse, (i) has a minimum
net worth of two hundred fifty thousand dollars ($250,000) and had,
during the immediately preceding tax year, gross income in excess of
one hundred thousand dollars ($100,000) and reasonably expects gross
income in excess of one hundred thousand dollars ($100,000) during
the current tax year or (ii) has a minimum net worth of five hundred
thousand dollars ($500,000). "Net worth" shall be determined
exclusive of home, home furnishings, and automobiles. Other assets
included in the computation of net worth may be valued at fair market
value.
Each natural person specified above, by reason of his or her
business or financial experience, or the business or financial
experience of his or her professional advisor, who is unaffiliated
with and who is not compensated, directly or indirectly, by the
issuer or any affiliate or selling agent of the issuer, can be
reasonably assumed to have the capacity to protect his or her
interests in connection with the transaction. The amount of the
investment of each natural person shall not exceed 10 percent of the
net worth, as determined by this subparagraph, of that natural
person.
(F) Any other purchaser designated as qualified by rule of the
commissioner.
(3) Each purchaser represents that the purchaser is purchasing for
the purchaser's own account (or trust account, if the purchaser is a
trustee) and not with a view to or for sale in connection with a
distribution of the security.
(4) Each natural person purchaser, including a corporation,
partnership, or other organization specifically formed by natural
persons for the purpose of acquiring the securities offered by the
issuer, receives, at least five business days before securities are
sold to, or a commitment to purchase is accepted from, the purchaser,
a written offering disclosure statement that shall meet the
disclosure requirements of Regulation D (17 C.F.R. 230.501 et seq.),
and any other information as may be prescribed by rule of the
commissioner; provided that the issuer shall not be obligated
pursuant to this paragraph to provide this disclosure statement to a
natural person qualified under Section 260.102.13 of Title 10 of the
California Code of Regulations. The offer or sale of securities
pursuant to a disclosure statement required by this paragraph in
violation of Section 25401, or that fails to meet the disclosure
requirements of Regulation D (17 C.F.R. 230.501 et seq.), shall not
render unavailable to the issuer the claim of an exemption from
Section 25110 afforded by this subdivision. This paragraph does not
impose, directly or indirectly, any additional disclosure obligation
with respect to any other exemption from qualification available
under any other provision of this section.
(5) (A) A general announcement of proposed offering may be
published by written document only, provided that the general
announcement of proposed offering sets forth the following required
information:
(i) The name of the issuer of the securities.
(ii) The full title of the security to be issued.
(iii) The anticipated suitability standards for prospective
purchasers.
(iv) A statement that (I) no money or other consideration is being
solicited or will be accepted, (II) an indication of interest made
by a prospective purchaser involves no obligation or commitment of
any kind, and, if the issuer is required by paragraph (4) to deliver
a disclosure statement to prospective purchasers, (III) no sales will
be made or commitment to purchase accepted until five business days
after delivery of a disclosure statement and subscription information
to the prospective purchaser in accordance with the requirements of
this subdivision.
(v) Any other information required by rule of the commissioner.
(vi) The following legend: "For more complete information about
(Name of Issuer) and (Full Title of Security), send for additional
information from (Name and Address) by sending this coupon or calling
(Telephone Number)."
(B) The general announcement of proposed offering referred to in
subparagraph (A) may also set forth the following information:
(i) A brief description of the business of the issuer.
(ii) The geographic location of the issuer and its business.
(iii) The price of the security to be issued, or, if the price is
not known, the method of its determination or the probable price
range as specified by the issuer, and the aggregate offering price.
(C) The general announcement of proposed offering shall contain
only the information that is set forth in this paragraph.
(D) Dissemination of the general announcement of proposed offering
to persons who are not qualified purchasers, without more, shall not
disqualify the issuer from claiming the exemption under this
subdivision.
(6) No telephone solicitation shall be permitted until the issuer
has determined that the prospective purchaser to be solicited is a
qualified purchaser.
(7) The issuer files a notice of transaction under this
subdivision both (A) concurrent with the publication of a general
announcement of proposed offering or at the time of the initial offer
of the securities, whichever occurs first, accompanied by a filing
fee, and (B) within 10 business days following the close or
abandonment of the offering, but in no case more than 210 days from
the date of filing the first notice. The first notice of transaction
under subparagraph (A) shall contain an undertaking, in a form
acceptable to the commissioner, to deliver any disclosure statement
required by paragraph (4) to be delivered to prospective purchasers,
and any supplement thereto, to the commissioner within 10 days of the
commissioner's request for the information. The exemption from
qualification afforded by this subdivision is unavailable if an
issuer fails to file the first notice required under subparagraph (A)
or to pay the filing fee. The commissioner has the authority to
assess an administrative penalty of up to one thousand dollars
($1,000) against an issuer that fails to deliver the disclosure
statement required to be delivered to the commissioner upon the
commissioner's request within the time period set forth above.
Neither the filing of the disclosure statement nor the failure by the
commissioner to comment thereon precludes the commissioner from
taking any action deemed necessary or appropriate under this division
with respect to the offer and sale of the securities.
(o) An offer or sale of any security issued pursuant to a stock
purchase plan or agreement, or issued pursuant to a stock option plan
or agreement, where the security is exempt from registration under
the Securities Act of 1933, as amended, pursuant to Rule 701 adopted
pursuant to that act (17 C.F.R. 230.701), the provisions of which
are hereby incorporated by reference into this section; provided that
(1) the terms of any stock purchase plan or agreement shall comply
with Sections 260.140.42, 260.140.45, and 260.140.46 of Title 10 of
the California Code of Regulations, (2) the terms of any stock option
plan or agreement shall comply with Sections 260.140.41, 260.140.45,
and 260.140.46 of Title 10 of the California Code of Regulations,
and (3) the issuer files a notice of transaction in accordance with
rules adopted by the commissioner within 30 days after the initial
issuance of any security under that plan, accompanied by a filing fee
as prescribed by subdivision (y) of Section 25608.
(p) An offer or sale of nonredeemable securities to accredited
investors (Section 28031) by a person licensed under the Capital
Access Company Law (Division 3 (commencing with Section 28000) of
Title 4). All nonredeemable securities shall be evidenced by
certificates that shall have stamped or printed prominently on their
face a legend in a form to be prescribed by rule or order of the
commissioner restricting transfer of the securities in the manner as
the rule or order provides.
SEC. 2. Section 25208 is added to the Corporations Code, to read:
25208. A person licensed as a capital access company under
Division 3 (commencing with Section 28000) of Title 4 is exempt from
the provisions of Section 25210 when engaged in the transaction of
business pursuant to the requirements of the Capital Access Company
Law and the regulations promulgated thereunder.
SEC. 3. Division 3 (commencing with Section 28000) is added to
Title 4 of the Corporations Code, to read:
DIVISION 3. CAPITAL ACCESS COMPANIES
CHAPTER 1. GENERAL PROVISIONS
Article 1. Short Title and Construction
28000. This division shall be known and may be cited as the
"Capital Access Company Law."
28001. This division shall be liberally construed to accomplish
its purposes.
28002. The provisions of the Corporate Securities Law of 1968
(Division 1 (commencing with Section 25000) of Title 4) shall apply
to licensees.
28003. The Legislature finds all of the following:
(a) It is necessary to increase job opportunities in the state.
(b) Promoting the establishment, growth, and expansion of small
business firms in this state is an efficient way to increase job
opportunities in the state.
(c) Small business firms are unable to grow and create job
opportunities unless they have access to risk capital.
(d) Congress has exempted from the provisions of the federal
Investment Company Act of 1940, certain companies that are not in the
business of issuing redeemable securities, the operations of which
are subject to state regulation governing entities that provide
financial or managerial assistance to enterprises doing business, or
proposing to do business, in that state.
(e) Therefore, in order for the state to obtain the full benefits
of that exemption, it is necessary that the state provide for the
licensure and regulation of capital access companies, to permit
these companies to operate
pursuant to the exemption from regulation under the federal
Investment Company Act of 1940.
28004. (a) The purpose of this division is to provide for the
licensure and regulation of capital access companies that will
provide risk capital and management assistance, primarily to small
business firms in the state, to enable those companies to operate
pursuant to the exemption from regulation under the federal
Investment Company Act of 1940.
(b) The purpose of this division as set forth in subdivision (a)
constitutes the standard that the commissioner shall observe in
administering the provisions of this division.
Article 2. Definitions
28030. Subject to additional definitions contained in this
division which are applicable to specific provisions of this
division, and unless the context otherwise requires, the definitions
in this article apply throughout this division.
28031. "Accredited investor" means a person who is defined in
Section 2(a)(15) of the Securities Act of 1933, or any other person
that the Securities and Exchange Commission may so designate by rule,
regulation, or order, who, by purchasing the securities of a
licensee, provides the investment funds with which the licensee will
provide financial assistance to small business firms.
28032. "Affiliate" means any person or persons controlling,
controlled by, or under common control with, other specified persons.
28033. "Commissioner" means the Commissioner of Corporations or
his or her designee with respect to a particular matter.
28034. "Company" means a corporation, limited partnership,
limited liability company, or other form of business entity, which is
organized under the laws of the State of California.
28035. "Control" means the possession, direct or indirect, of the
power to direct or cause the direction of the management and
policies of a specified person.
28036. "Controlling person," when used with respect to a
specified person, means any person who controls the specified person,
directly or indirectly, through one or more intermediaries.
28037. "Insolvent," when used with respect to any person, means a
person who has ceased to pay his or her debts in the ordinary course
of business, who cannot pay his or her debts as they become due, or
whose liabilities exceed his or her assets.
28038. "License" means a license issued under this division
authorizing a licensee to transact business as a capital access
company.
28039. "Licensee" means a company that is licensed under this
division.
28040. "Officer" means either of the following:
(a) When used with respect to a corporation, any person appointed
or designated as an officer of the corporation by or pursuant to
applicable law or the articles of incorporation or bylaws of the
corporation or any person who performs with respect to the
corporation functions usually performed by an officer of a
corporation.
(b) When used with respect to a specified person other than a
natural person or a corporation, any person who performs with respect
to the specified person functions usually performed by an officer of
a corporation with respect to the corporation.
28041. "Order" means any approval, consent, authorization,
exemption, denial, prohibition, or requirement applicable to a
specific case issued by the commissioner. "Order" includes any
condition of a license and any agreement made by any person with the
commissioner under this division.
28042. "Parent," when used with respect to a specified person
other than a natural person, means any person other than a natural
person that controls the specified person, directly or indirectly,
through one or more intermediaries.
28043. "Person" means any natural person, proprietorship, joint
venture, partnership, trust, business trust, syndicate, association,
joint stock company, corporation, limited liability company,
government, agency of any government, or any other organization.
However, "person," when used with respect to acquiring control of or
controlling a specified person, includes any combination of two or
more persons acting in concert.
28044. "Principal security holder," means any person who owns,
directly or indirectly, of record or beneficially, securities
representing 10 percent or more of the voting power of the issuer of
those securities.
28045. "To provide financing assistance to a person" means to
purchase securities issued by the person, either directly from the
person, or indirectly through a securities underwriter.
28046. "Security" has the meaning set forth in Section 25019.
28047. "Small business firm" means a person that: (a) proposes
to transact, or transacts, business on a regular and continuous basis
in California; (b) has fewer than 500 employees; (c) is (1) a
California corporation, (2) a foreign corporation, which is either
(A) subject to Section 2115 without regard to the filing requirement
under Section 2108 or (B) not subject to Section 2115, but by
applying the three-factor test set forth in subdivision (a) of
Section 2115, has an average property factor, payroll factor, and
sales factor of not less than 25 percent during the latest full
income year, provided that the payroll factor for the same period is
at least 50 percent, and has a percentage of outstanding voting
securities held of record, as of the last record date for a
shareholder's meeting, by persons having addresses in this state of
at least 25 percent, or (3) a limited partnership, limited liability
company, or other form of business entity organized under the laws of
the State of California; (d) is not an investment company subject to
the Investment Company Act of 1940; and (e) is not a person that
either (1) has no specific business plan or purpose or (2) has
indicated that its business plan is to engage in mergers or
acquisitions with unidentified companies or other entities.
28048. "Subsidiary," when used with respect to a specified person
other than a natural person, means any person other than a natural
person controlled by the specified person, directly or indirectly,
through one or more intermediaries.
28049. "Voting power" has the meaning set forth in Section 194.5.
CHAPTER 2. ADMINISTRATION
28100. The commissioner shall administer and enforce the
provisions of this division.
28101. Whenever the commissioner issues an order or license under
this division, the commissioner may impose any conditions that are
in his or her opinion necessary to carry out the provisions and
purposes of this division.
28102. Any application filed with the commissioner under this
division or under any regulation or order issued under this division
shall be in a form, shall contain information, shall be signed in a
manner, and shall be verified in a manner, that the commissioner may
by regulation or order require.
28103. In determining whether to approve any application filed
under this division or under any regulation or order issued under
this division, the commissioner may consider proposals made by the
applicant, including, but not limited to, proposals to appoint
officers, sell securities, obtain financing, or purchase securities
of small business firms, and, if in the opinion of the commissioner
it is probable that the applicant will be able to implement the
proposal, the commissioner may make findings on the basis of the
proposal. However, whenever the commissioner approves an application
on the basis, in whole or in part, of a proposal made by the
applicant, the commissioner shall impose upon the approval
appropriate conditions requiring that the applicant implement the
proposal within a period of time specified by the commissioner.
28104. (a) The commissioner may do both of the following:
(1) Make public or private investigations within or outside this
state that he or she deems necessary to determine whether to approve
any application filed under this division or under any regulation or
order issued under this division, to determine whether any person has
violated or may violate any provision of this division or of any
regulation or order issued under this division, to aid in the
enforcement of any provision of this division or of any regulation or
order issued under this division, or to aid in the issuing of
regulations or orders under this division.
(2) Publish information concerning any violation of any provision
of this division or of any regulation or order issued under this
division.
(b) For purposes of any investigation, examination, or other
proceeding under this division, the commissioner may administer oaths
and affirmations, subpoena witnesses, compel their attendance, take
evidence, and require the production of any books, papers,
correspondence, memoranda, agreements, or other documents or records
that the commissioner deems relevant or material to the inquiry.
(c) In case of contumacy by, or refusal to obey a subpoena issued
to, any person, the superior court, upon application by the
commissioner, may issue to the person an order requiring him or her
to appear before the commissioner, and to produce documentary
evidence, if so ordered, or to give evidence relevant to the matter
under investigation or in question. Failure to obey the order of the
court may be punished by the court as a contempt.
28105. The commissioner may provide information relating to a
licensee or any parent or subsidiary of the licensee to, or receive
information relating to a licensee or any parent or subsidiary of the
licensee from, any governmental agency.
28106. If the commissioner permits any licensee, any affiliate of
the licensee, or any governmental agency to inspect or make copies
of any record relating to the licensee or to any director, officer,
employee, or affiliate of the licensee, or if the commissioner
provides the record, or a copy thereof, to any of those persons,
Sections 6254 and 6255 of the Government Code shall continue to apply
to the record to the extent that these sections applied to the
record prior to that action by the commissioner.
28107. The commissioner may refer any evidence available
concerning any violation of this division or of any regulation or
order issued under this division that constitutes a crime to the
district attorney of the county in which the violation occurred, who
may, with or without that reference, institute appropriate criminal
proceedings.
28108. Before any applicant for a license is issued a license,
the applicant and each parent and subsidiary of the applicant shall
file, and each person that becomes a parent or subsidiary of a
licensee shall file, not less than 30 days after becoming a parent or
subsidiary of the licensee, with the commissioner, in the form the
commissioner may by regulation or order require, an irrevocable
consent appointing the commissioner to be the person's
attorney-in-fact to receive service of any lawful process in any
noncriminal judicial or administrative proceeding against the person,
or the person's successor, executor, or administrator, which arises
under this division or under any regulation or order issued under
this division after the consent has been filed, with the same force
and validity as if served personally on the person. Service may be
made by leaving a copy of the process at any office of the
commissioner, but the service is not effective unless (a) the party
making the service, who may be the commissioner, forthwith sends
notice of the service and a copy of the process by registered or
certified mail to the person served at the person's last address on
file with the commissioner, and (b) an affidavit of compliance with
this section by the party making service is filed on or before the
return date, if any, or within that further time as the court, in the
case of a judicial proceeding, or the administrative agency, in the
case of an administrative proceeding, allows.
28109. Whenever any person, including any nonresident of this
state, engages in conduct prohibited or made actionable by this
division or by any regulation or order issued under this division,
whether or not the person has filed a consent to service of process
under Section 28108, and if personal jurisdiction over the person
cannot otherwise be obtained in this state, that conduct shall be
considered equivalent to the person's appointment of the commissioner
to be the person's attorney-in-fact to receive service of any lawful
process in any noncriminal judicial or administrative proceeding
against the person or the person's successor, executor, or
administrator, which grows out of that conduct and which is brought
under this division or under any regulation or order issued under
this division, with the same force and validity as if served on the
person personally. Service may be made by leaving a copy of the
process in any office of the commissioner, but the service is not
effective unless (a) the party making the service, who may be the
commissioner, forthwith sends notice of the service and a copy of the
process by registered or certified mail to the person served at the
person's last known address or takes other steps which are reasonably
calculated to give actual notice, and (b) an affidavit of compliance
with this section by the party making service is filed in the case
on or before the return date, if any, or within that further time as
the court, in the case of a judicial proceeding, or the
administrative agency, in the case of an administrative proceeding,
allows.
28110. (a) Fees shall be paid to, and collected by, the
commissioner, as follows:
(1) The fee for filing with the commissioner an application for a
license shall be no greater than two thousand dollars ($2,000).
(2) The fee for filing with the commissioner an application for
approval to acquire control of a licensee shall be no greater than
one thousand dollars ($1,000).
(3) The fee for filing with the commissioner an application for
approval for a licensee to merge with another company, an application
for approval for a licensee to purchase all or substantially all of
the business of another person, or an application for approval for a
licensee to sell all or substantially all of its business or of the
business of any of its offices to another licensee, shall be no
greater than one thousand dollars ($1,000). However, whenever two or
more applications relating to the same merger, purchase, or sale are
filed with the commissioner, the fee for filing each application
shall be the quotient determined by dividing one thousand dollars
($1,000) by the number of the applications.
(4) Whenever the commissioner examines, audits, or investigates
any licensee or any affiliate of a licensee, that licensee shall pay,
within 10 days after receipt of a statement from the commissioner, a
fee that equals the amount of the salary or other compensation paid
to the persons making the examination, audit, or investigation plus
the amount of expenses, including overhead, reasonably incurred in
the performance of the work. The licensee shall be given a
preliminary estimate of the fee before the commissioner commences an
examination, audit, or investigation. In determining the costs
associated with an examination, audit, or investigation, the
commissioner may use the estimated average hourly cost for all
departmental persons performing examinations, audits, or
investigations for the fiscal year.
(b) (1) Each fee for filing an application with the commissioner
shall be paid at the time the application is filed with the
commissioner.
(2) No fee for filing an application with the commissioner shall
be refundable, regardless of whether the application is approved,
denied, withdrawn, or abandoned.
(c) All fees charged and collected under this section shall be
transmitted to the Treasurer at least weekly, accompanied by a
detailed statement therefor, and shall be credited to the State
Corporations Fund.
CHAPTER 3. LICENSING
28150. (a) Except as provided in subdivision (b), no person
proposing to transact or transacting business in this state, other
than a licensee, shall use any name or title that indicates that it
is a capital access company or otherwise represent that it is a
capital access company or that it is a licensee.
(b) Any company that proposes to apply for a license or that has
applied for a license, may, before being issued a license, use a name
or title that indicates that it is a capital access company if it
meets all of the following requirements:
(1) The company appends to the name the designation "proposed,"
"in organization," or "in formation," or any similar designation that
the commissioner may approve. The designation shall be set forth at
least as conspicuously as the name or title.
(2) The company performs only those acts that may be necessary to
(A) apply for and obtain the license and (B) prepare to commence
transacting business as a licensee.
(3) The company does not represent that it is a licensee.
28151. No person other than a person who meets the definition of
a licensee may be issued a license under this division.
28152. If the commissioner finds all of the following with
respect to an application for a license, the commissioner shall
approve the application:
(a) That the applicant has a tangible net worth, exclusive of the
funds to invest under subdivision (b), in an amount that is not less
than two hundred fifty thousand dollars ($250,000) and that the
tangible net worth is adequate for the applicant to transact business
as a capital access company.
(b) That the applicant has funds to invest in an amount that is
not less than five million dollars ($5,000,000).
(c) That the applicant has, in addition to the requirements of
subdivisions (a) and (b), financial resources in an amount that is
adequate for the applicant to pay its expenses in transacting
business as a capital access company for a period of not less than
three years from the date of licensure.
(d) That the directors, officers, and controlling persons of the
applicant are each of good character and sound financial standing,
that the directors and officers of the applicant are each competent
to perform their functions with respect to the applicant, and that
the directors and officers of the applicant are collectively adequate
to manage the business of the applicant as a capital access company.
For purposes of this subdivision, the commissioner shall accord
weight to the prior or current successful operation of a commercial
or investment enterprise.
(e) That any person who makes recommendations with respect to the
investment of funds of the company is an investment adviser, either
registered under the Investment Adviser Act of 1940 or licensed as an
investment adviser under the Corporate Securities Law of 1968, or
exempt from registration or licensure, and that the person is not
subject to any act or omission enumerated in subdivision (a), (e),
(f), or (g) of Section 25212, or has been convicted of, or pled nolo
contendere to, any offense or been held liable in any civil action
specified in subdivision (b) of Section 25212, or is enjoined from
any act, conduct, or practice specified in subdivision (c) of Section
25212, or is subject to any order specified in subdivision (d) of
Section 25212.
(f) That it is reasonable to believe that the applicant, if
licensed, will comply with the provisions of Section 6(a)(5) of the
Investment Company Act of 1940, the applicable provisions of the
Corporate Securities Law of 1968, this division, and of any
regulation adopted or order issued under this division.
If, after notice and a hearing, the commissioner finds otherwise,
the commissioner shall deny the application.
28153. (a) For purposes of Section 28152, the commissioner may
find:
(1) That a director, officer, or controlling person of an
applicant is not of good character if the director, officer, or
controlling person or any director or officer of the controlling
person has been convicted of, or has pleaded nolo contendere to, a
crime involving fraud or dishonesty.
(2) That it is not reasonable to believe that an applicant, if
licensed, will comply with all applicable provisions of this division
and of any regulation or order issued under this division if the
applicant has been convicted of, or has pleaded nolo contendere to, a
crime involving fraud or dishonesty.
(b) Subdivision (a) shall not be deemed to be the only grounds
upon which the commissioner may find, for purposes of Section 28152,
that a director, officer, or controlling person of an applicant is
not of good character or that it is not reasonable to believe that an
applicant, if licensed, will comply with all applicable provisions
of the Investment Company Act of 1940, the Corporate Securities Law
of 1968, this division, and of any regulation or order issued under
this division.
28154. No license shall be transferable or assignable.
28155. No licensee shall represent that it is sponsored,
recommended, or approved by, or that its abilities or qualifications
have in any respect been passed upon by, the commissioner. No
licensee shall advertise, print, display, publish, distribute, or
broadcast, or cause or permit to be advertised, printed, displayed,
published, distributed, or broadcast in any manner, any statement or
representation with regard to the business subject to the provisions
of this division that is false, misleading, or deceptive, or that
omits material information that is necessary to make the statements
not false, misleading, or deceptive, or in the case of a licensee,
that refers to the supervision of business by the state or any
department or official of the state. Nothing in this section shall
be deemed to prohibit a licensee from stating that it is licensed if
the effect of such license is not misrepresented.
CHAPTER 4. ORGANIZATIONAL MATTERS
Article 1. Organization and Name
28200. The organizational documents of the licensee shall include
the following statement:
(a) The activities of the licensee are limited to the promotion of
economic, business, or industrial development in the State of
California through the provision of financial or managerial
assistance primarily to small business firms and to other activities
that are incidental or necessary to carry out that purpose.
(b) The licensee will not engage in the business of issuing
redeemable securities.
(c) The security holders of the licensee are limited, on a
class-by-class basis, to persons who reside in the State of
California, or who have a substantial business presence in the State
of California, and who hold not less than 80 percent of the licensee'
s securities.
(d) The securities of the licensee will be sold solely to
accredited investors (Section 28031) and the licensee will not
purchase any securities issued by an investment company as defined in
Section 3 of the Investment Company Act of 1940 or issued by any
company that would be an investment company except for the exclusions
from that definition under paragraph (1) or (7) of Section 3(a) of
that act, other than (1) any debt security that is rated investment
grade by not less than one nationally recognized statistical rating
organization or (2) any security issued by a registered open-end
investment company that is required by its investment policies to
invest not less than 65 percent of its total assets in securities
described in paragraph (1) or securities that are determined by that
registered open-end investment company to be comparable in quality to
securities described in paragraph (1).
(e) The licensee will engage in the transaction of business
pursuant to the exemption from registration under the Investment
Company Act of 1940 afforded to economic, business, and industrial
development companies as provided for by Section 6(a)(5) of the
Investment Company Act of 1940, as amended (15 U.S.C. Sec. 80a-6(a)),
and a license pursuant to the Capital Access Company Law (Division 3
(commencing with Section 28000)).
(f) The investment of funds by the licensee will be limited by and
subject to the provisions of Section 6(a)(5) of the Investment
Company Act of 1940, the Corporate Securities Law of 1968, and the
Capital Access Company Law.
28201. No licensee shall, except by prior written notice to the
commissioner, transact business under any name other than its
corporate name.
Article 2. Directors
28210. Each licensee shall have a board of directors, executive
committee, or other policy body, which shall consist of not less than
three members.
28211. The board of directors, executive committee, or other
policy body of each licensee shall hold a meeting not less frequently
than once each calendar year.
28212. The board of directors, executive committee, or other
policy body of each licensee shall approve the contract to be entered
into between the licensee and any person who will make
recommendations with respect to the investment of funds of the
licensee.
CHAPTER 5. OFFICES
Article 1. Establishing, Relocating, and Closing Offices
28320. (a) No licensee shall relocate its head office without
prior written notice to the commissioner.
(b) No licensee shall establish, relocate, or close any office
(other than its head office) unless it files a notice with the
commissioner not less than two business days after taking the action.
CHAPTER 6. TRANSACTION OF BUSINESS
28400. No licensee shall engage in any business other than the
following:
(a) The business of providing financing assistance through the
purchase of securities of small business firms doing business or
proposing to do business wholly or substantially in this state.
(b) The business of providing managerial assistance (including
managerial and technical assistance) to small business firms doing
business or proposing to do business wholly or substantially in this
state.
28401. Each licensee shall use its best efforts to provide
financing assistance to small business firms doing business or
proposing to do business wholly or substantially in this state.
28402. (a) Except as provided in subdivision (b), no licensee
shall provide financing assistance to any person other than a small
business firm in this state.
(b) (1) If a licensee provides financing assistance to a small
business firm in this state that is a franchisor, the licensee may
also provide financing assistance to any small business firm in
another state that is a franchisee of the franchisor.
(2)
If a licensee provides financing assistance to a small business firm
in this state that is a franchisee of a franchisor, the licensee may
also provide financing assistance to any small business firm in
another state that is a franchisee of the franchisor.
28403. Except as otherwise provided in subdivision (b) of Section
28402, no licensee shall provide financing assistance or management
assistance for use primarily outside this state.
28404. (a) No licensee shall provide financing assistance to any
small business firm the primary business of which is to provide
financing assistance.
(b) No licensee shall provide financing assistance to any small
business firm for the purpose of evading the requirements of this
division.
28405. This section creates and authorizes an exempt class of
persons pursuant to Section 1 of Article XV of the California
Constitution. The restrictions upon rates of interest contained in
Section 1 of Article XV of the California Constitution shall not
apply to any evidence of indebtedness purchased by any licensee.
CHAPTER 7. RECORDS, REPORTS, AND EXAMINATIONS
28500. Each licensee shall make and keep books, accounts, and
other records in the form and in the manner that the commissioner may
by regulation or order require. All records so required shall be
kept at the place and shall be preserved for the time that the
commissioner may by regulation or order specify.
28501. Each licensee shall, not more than 90 days after the close
of each of its fiscal years or within a longer period that the
commissioner may by regulation or order specify, file with the
commissioner an audit report containing all of the following:
(a) Financial statements (including balance sheets, statements of
income or loss, statements of changes in capital accounts, and
statements of changes in financial position or, in the case of a
licensee that is a California nonprofit corporation, comparable
financial statements) for, or as of, the end of the fiscal year,
prepared, with audit, by an independent certified public accountant
in accordance with generally accepted accounting principles.
(b) A report, certificate, or opinion of the independent certified
public accountant or independent public accountant, stating that the
financial statements were prepared in accordance with generally
accepted accounting principles.
(c) Any other information that the commissioner may by regulation
or order require.
28502. Each licensee, director, officer, and employee of a
licensee, and each parent and subsidiary of a licensee shall file
with the commissioner all reports that the commissioner may by
regulation or order require within the timeframe specified. In
addition, each affiliate of a licensee (other than a parent or
subsidiary of the licensee) shall file with the commissioner all
reports regarding transactions between the affiliate and the licensee
that the commissioner may require within the timeframe specified.
Each report shall be in a form, shall contain information, shall be
signed in a manner, and shall be verified in a manner, that the
commissioner may by regulation or order require.
28503. (a) The commissioner shall examine each licensee not less
frequently than once each calendar year.
(b) (1) The commissioner may at any time examine any licensee or
any parent or subsidiary of a licensee.
(2) The commissioner may at any time examine any affiliate of a
licensee (other than a parent or subsidiary of the licensee), but
only with respect to matters relating to transactions between the
affiliate and the licensee.
(c) The directors, officers, and employees of any licensee or of
any affiliate of a licensee being examined by the commissioner and
any other person having custody of any of the books, accounts, or
records of the licensee or of the affiliate shall exhibit to the
commissioner, on request, any or all of the books, accounts, and
other records of the licensee or of the affiliate and shall otherwise
facilitate the examination so far as it may be in their power to do
so. However, in the case of an examination of an affiliate of a
licensee other than a parent or subsidiary of the licensee, only
books, accounts, and records of the affiliate that relate to
transactions between the affiliate and the licensee shall be subject
to this subdivision.
(d) The commissioner may, if in his or her opinion it is necessary
in the examination of any licensee or of any affiliate of a
licensee, retain any certified public accountant, attorney,
appraiser, or other person to assist him or her, and the licensee
shall pay, within 10 days after receipt of a statement from the
commissioner, the fees of the person retained.
28504. (a) A licensee may, after the approval of the board of
directors, executive committee, or other policy body of the licensee,
cause or permit any other person to make or keep any of its books,
accounts, or other records.
(b) If any person other than a licensee makes or keeps any of the
books, accounts, or other records of the licensee, the provisions of
this division and of any regulation or order issued under this
division shall apply to the person with respect to the performance of
those services and with respect to those books, accounts, and other
records to the same extent as if the person were the licensee.
(c) If any person other than an affiliate of a licensee makes or
keeps any of the books, accounts, or other records of the affiliate
or, in the case of an affiliate other than a parent or subsidiary of
the licensee, the books, accounts, and other records of the affiliate
that relate to transactions between the affiliate and the licensee,
the provisions of this division and of any regulation or order issued
under this division shall apply to the person with respect to those
books, accounts, and other records to the same extent as if the
person were the affiliate.
28505. Subject to the provisions of Rules 250.10 and 250.10.5 of
the Commissioner of Corporations (10 C.C.R. Secs. 250.10 and
250.10.5), the commissioner may make available to the public any
report filed with him or her under this division or under any
regulations or order issued under this division.
28506. The commissioner, on behalf of the Trade and Commerce
Agency, shall forward economic benefit surveys and questionnaires to
the licensees for their completion. The surveys and questionnaires
shall be for the purpose of evaluating the economic benefits to the
State of California resulting from the activities of the capital
access companies licensed under this division. The information
requested from the licensees shall be reasonable in scope and shall
include, but not be limited to, the number and type of jobs created
and retained by the small business firms provided financing
assistance, data on growth and expansion of the small business firms
provided financing assistance, and aggregate data on tax revenues.
The Trade and Commerce Agency shall compile and make this information
available to the public annually.
CHAPTER 8. ACQUISITION OF CONTROL
28550. No person shall, except with the prior written approval of
the commissioner, acquire control of a licensee.
28551. The commissioner shall approve an application for approval
to acquire control of a licensee only if, after notice and a
hearing, the commissioner finds all of the following:
(a) That the applicant and the directors and officers of the
applicant are of good character and sound financial standing.
(b) That it is reasonable to believe that, if the applicant
acquires control of the licensee, the applicant will comply with all
applicable provisions of this division and of any regulation or order
issued under this division.
(c) That the applicant's plans, if any, to make any major change
in the business, corporate structure, or management of the licensee
are not detrimental to the safety and soundness of the licensee or
the accredited investors of the licensee, or to the public
convenience and advantage.
28552. (a) For purposes of Section 28551, the commissioner may
find:
(1) That an applicant or a director or officer of an applicant is
not of good character if the person has been convicted of, or has
pleaded nolo contendere to, a crime involving fraud or dishonesty.
(2) That an applicant's plan to make a major change in the
management of a licensee is detrimental to the safety and soundness
of the licensee or the accredited investors of the licensee and to
the public convenience and advantage if the plan provides for a
person who has been convicted of, or has pleaded nolo contendere to,
a crime involving fraud or dishonesty to become a director or officer
of the licensee.
(b) Subdivision (a) shall not be deemed to be the only grounds
upon which the commissioner may find, for purposes of Section 28551,
that an applicant or a director or officer of an applicant is not of
good character or that an applicant's plan to make a major change in
the management of a licensee is detrimental to the safety and
soundness of a licensee or to the accredited investors of the
licensee, or to the public convenience and advantage.
CHAPTER 9. MERGER AND PURCHASE OR SALE OF BUSINESS
28600. For purposes of this chapter:
(a) "Acquiring licensee" means either of the following:
(1) In the case of a merger, the licensee that is the surviving
company.
(2) In the case of a purchase or sale, the licensee that is the
purchaser.
(b) "Disappearing company" has the meaning set forth in Section
165.
(c) "Surviving company" has the meaning set forth in Section 190.
28601. No licensee shall merge with any other company unless
either of the following apply:
(a) If the licensee is to be the surviving company, the merger is
first approved by the commissioner.
(b) If the licensee is to be a disappearing company, the surviving
company is a licensee and the merger is first approved by the
commissioner.
28602. No licensee shall purchase all or substantially all of the
business of any other person unless the purchase is first approved
by the commissioner.
28603. No licensee shall sell all or substantially all of its
business to any other person unless the other person is a licensee
and the sale is first approved by the commissioner.
28604. The commissioner shall approve an application for approval
of a merger, purchase, or sale, only if, after notice and a hearing,
the commissioner finds all of the following:
(a) That the merger, purchase, or sale will be safe and sound with
respect to the acquiring licensee.
(b) That it is reasonable to believe that, upon consummation of
the merger, purchase, or sale, the acquiring licensee will comply
with all applicable provisions of this division and of any regulation
or order issued under this division.
(c) That the merger, purchase, or sale will not be detrimental to
the licensee or the accredited investors of the licensee, or the
public convenience and advantage, or, if the merger, purchase, or
sale would be detrimental to any of the foregoing, then it is
necessary in the interests of the safety and soundness of any of the
parties to it.
CHAPTER 10. VOLUNTARY SURRENDER OF LICENSE
28650. Any licensee may offer to surrender its license by filing
with the commissioner the license and a report, which shall (a) be in
a form, (b) contain information, and (c) be signed and verified in a
manner, that the commissioner may by regulation or order require.
28651. (a) Except as otherwise provided in subdivision (b), a
voluntary surrender of a license shall be effective upon the issuance
of an order by the commissioner accepting the offer of surrender and
the report required under Section 28650.
(b) If a proceeding to revoke or suspend a license is pending at
the time when the license and the report required under Section 28650
are filed with the commissioner or if a proceeding to revoke or
suspend a license or to impose conditions upon the surrender of a
license is instituted before the license and the report called for in
Section 28650 are filed with the commissioner, the voluntary
surrender of the license shall become effective at the time and upon
the conditions that the commissioner may by order specify.
CHAPTER 11. ENFORCEMENT
28700. For purposes of this chapter, unless the context otherwise
requires:
(a) "Office with a licensee" means the position of director,
officer, or employee of the licensee or of any subsidiary of the
licensee.
(b) "Subject person," when used with respect to a licensee, means
any of the following:
(1) Any controlling person or affiliate of the licensee.
(2) Any director, officer, or employee of the licensee or of any
of the persons specified in paragraph (1).
(3) Any other person who participates in the conduct of the
business of the licensee.
28701. Whenever it appears to the commissioner that any person
has violated, or that there is reasonable cause to believe that any
person may violate, any provision of this division or of any
regulation or order issued under this division, the commissioner may
bring an action in the name of the people of this state in the
superior court to enjoin the violation or to enforce compliance with
this division or with any regulation or order issued under this
division. Upon a proper showing, a restraining order, preliminary or
permanent injunction, or writ of mandate shall be granted, and a
receiver or a conservator may be appointed for the defendant or the
defendant's assets. The court may not require the commissioner to
post a bond.
28702. (a) If the commissioner finds that any person has
violated, or that there is reasonable cause to believe that any
person may violate, Section 28150, the commissioner may order the
person to cease and desist from the violation unless and until the
person is issued a license.
(b) (1) Within 30 days after an order is issued pursuant to
subdivision (a), the person to whom the order is directed may file
with the commissioner an application for a hearing on the order. If
the commissioner fails to commence a hearing within 15 business days
after the application is filed with him or her (or within any longer
period to which the person consents), the order shall be deemed
rescinded. Upon the completion of the hearing, the commissioner
shall affirm, modify, or rescind the order.
(2) The right of any person to whom an order is issued under
subdivision (a) to petition for judicial review of the order shall
not be affected by the failure of the person to apply to the
commissioner for a hearing on the order pursuant to paragraph (1).
28703. The commissioner may issue a cease and desist order,
including an order to take appropriate corrective action, if, after
notice and a hearing, the commissioner finds either of the following:
(a) That any licensee or any subject person of a licensee has
violated, is violating, or that there is reasonable cause to believe
that any licensee or any subject person of a licensee may violate,
any provision of this division or of any regulation or order issued
under this division or any provision of any other applicable law.
(b) That any licensee or any subject person of a licensee has
engaged or participated in, is engaging or participating in, or that
there is reasonable cause to believe that any licensee or any subject
person of a licensee may engage or participate in, any unsafe or
unsound act with respect to the business of the licensee.
28704. (a) The commissioner may issue a cease and desist order,
including an order to take appropriate corrective action, if the
commissioner finds both of the following:
(1) That any of the factors set forth in Section 28703 is true
with respect to any licensee or any subject person of a licensee.
(2) That the action or violation is likely to cause the insolvency
of, or substantial dissipation of the assets or earnings of, the
licensee, or is likely to seriously weaken the condition of the
licensee or otherwise to seriously prejudice the interests of the
licensee or the accredited investors of the licensee, prior to the
completion of proceedings conducted pursuant to Section 28703.
(b) (1) Within 30 days after an order is issued pursuant to
subdivision (a), any licensee or subject person of a licensee to whom
the order is directed may file with the commissioner an application
for a hearing on the order. The filing of an application for a
hearing shall not stay the effectiveness of the order. If the
commissioner fails to commence a hearing within 15 business days
after the application is filed (or within any longer period to which
the licensee or subject person consents), the order shall be deemed
rescinded. Upon the completion of the hearing, the commissioner
shall affirm, modify, or rescind the order.
(2) The right of any licensee or subject person of a licensee to
whom an order is issued under subdivision (a) to petition for
judicial review of the order shall not be affected by the failure of
the licensee or subject person to apply to the commissioner for a
hearing on the order pursuant to paragraph (1).
28705. The commissioner may issue an order removing a subject
person from that person's office with the licensee, if any, and
prohibiting that person from further participating in any manner in
the conduct of the business of the licensee, if, after notice and a
hearing, the commissioner finds all of the following:
(a) (1) That the subject person of a licensee has violated a
provision of this division or of any regulation or order issued under
this division or any provision of any other applicable law;
(2) That the subject person of a licensee has engaged or
participated in any unsafe or unsound act with respect to the
business of the licensee; or
(3) That the subject person of a licensee has engaged or
participated in any act which constitutes a breach of his or her
fiduciary duty as a subject person.
(b) (1) That the act, violation, or breach of fiduciary duty has
caused or is likely to cause substantial financial loss or other
damage to the licensee or the accredited investors of the licensee;
or
(2) That the act, violation, or breach of fiduciary duty has
seriously prejudiced or is likely to seriously prejudice the
interests of the licensee or the accredited investors of the
licensee; or
(3) That the subject person has received financial gain by reason
of the act, violation, or breach of fiduciary duty.
(c) That the act, violation, or breach of fiduciary duty either
involves dishonesty on the part of the subject person or demonstrates
the subject person's gross negligence with respect to the business
of the licensee or a willful disregard for the safety and soundness
of the licensee.
28706. The commissioner may issue an order removing a subject
person from his or her office, if any, with the licensee and
prohibiting him or her from further participating in any manner in
the conduct of the business of the licensee, except with the prior
consent of the commissioner, if the commissioner finds, after notice
and a hearing, that the subject person of a licensee has, by engaging
or participating in any act with respect to any financial or other
business institution which resulted in substantial financial loss or
other damage, demonstrated either of the following:
(a) Dishonesty.
(b) Willful or continuing disregard for the safety and soundness
of the financial or other business institution.
28707. (a) The commissioner may issue an order suspending a
subject person from his or her office, if any, with the licensee and
prohibiting him or her from further participating in any manner in
the conduct of the business of the licensee, except with the consent
of the commissioner, if the commissioner finds both of the following:
(1) That the factors set forth in subdivisions (a), (b), and (c)
of Section 28705 or the factors set forth in subdivision (a) of
Section 28706 are true with respect to the subject person of a
licensee.
(2) That it is necessary for the protection of the interests of
the licensee or the accredited investors of the licensee, or for the
protection of the public interest that the commissioner immediately
suspend the subject person from his or her office, if any, with the
licensee and prohibit him or her from further participating in any
manner in the conduct of the business of the licensee.
(b) (1) Within 30 days after an order is issued pursuant to
subdivision (a), any subject person of a licensee to whom the order
is directed may file with the commissioner an application for a
hearing on the order. The filing of an application for a hearing
shall not stay the effectiveness of the order. If the commissioner
fails to begin a hearing within 15 business days after the
application is filed (or within any longer period to which the
subject person consents), the order shall be deemed rescinded. Upon
the completion of the hearing, the commissioner shall affirm, modify,
or rescind the order.
(2) The right of any subject person of a licensee to whom an order
is issued under subdivision (a) to petition for judicial review of
the order shall not be affected by the failure of the subject person
to apply to the commissioner for a hearing on the order pursuant to
paragraph (1).
28708. (a) The commissioner may issue an order suspending a
subject person from his or her office, if any, with the licensee and
prohibiting him or her from further participating in any manner in
the conduct of the business of the licensee, except with the consent
of the commissioner, if the commissioner finds both of the following:
(1) That the subject person of a licensee has been indicted by a
grand jury for, or held to answer by a magistrate for, a crime
involving dishonesty or breach of trust.
(2) That the continuation of that person as a subject person of
the licensee may threaten the interests of the licensee or the
accredited investors of the licensee, or may threaten to impair
public confidence in the licensee.
(b) The commissioner may issue an order suspending or removing the
subject person or former subject person from his or her office, if
any, with the licensee and prohibiting him or her from further
participating in any manner in the conduct of the business of the
licensee, except with the prior consent of the commissioner, if the
commissioner finds both of the following:
(1) That the subject person or former subject person of a licensee
to whom an order was issued pursuant to subdivision (a) or any other
subject person of a licensee has been finally convicted of a crime
which is punishable by imprisonment for a term exceeding one year and
which involves dishonesty or breach of trust.
(2) That the continuation or resumption by that person as a
subject person of the licensee may threaten the interests of the
licensee or the accredited investors of the licensee, or may threaten
to impair public confidence in the licensee.
(c) (1) Within 30 days after an order is issued pursuant to
subdivision (a) or (b), any subject person of a licensee to whom the
order is directed may file with the commissioner an application for a
hearing on the order. If the commissioner fails to commence a
hearing within 15 business days after the application is filed (or
within any longer period to which the subject person consents), the
order shall be deemed rescinded. Upon the completion of the hearing,
the commissioner shall affirm, modify, or rescind the order.
(2) The right of any subject person or former subject person of a
licensee to whom an order is issued under subdivision (a) or (b) to
petition for judicial review of the order shall not be affected by
the failure of the person to apply to the commissioner for a hearing
on the order pursuant to paragraph (1).
(d) The fact that any subject person of a licensee charged with a
crime involving dishonesty or breach of trust is not finally
convicted of the crime shall not preclude the commissioner from
issuing an order to the subject person pursuant to any other section
of this division.
28709. Any person to whom an order is issued under Section 28705,
28706, 28707, or 28708 may apply to the commissioner to modify or
rescind the order. The commissioner shall not grant the application
unless the commissioner finds that it is in the public interest to do
so and that it is reasonable to believe that the person will, if and
when he or she becomes a subject person of a licensee, comply with
all applicable provisions of this division and of any regulation or
order issued under this division.
28710. The commissioner may issue an order suspending or revoking
the license of a licensee, if, after notice and a hearing, the
commissioner finds any of the following:
(a) That the licensee or any controlling person or affiliate of
the licensee has violated any provision of this division or of any
regulation or order issued under this division or any provision of
any other applicable law.
(b) That the licensee is conducting its business in an unsafe and
unsound manner.
(c) That the licensee is in a condition that it is unsafe or
unsound for it to transact business.
(d) That the licensee has ceased to transact business as a capital
access company.
(e) That the licensee is insolvent.
(f) That the licensee has suspended payment of its obligations,
has made an assignment for the benefit of its creditors, or has
admitted in writing its inability to pay its debts as they become
due.
(g) That the licensee has applied for an adjudication of
bankruptcy, reorganization, arrangement, or other relief under any
bankruptcy, reorganization, insolvency, or moratorium law, or that
any person has applied for any of that relief under any of those laws
against any licensee and the licensee has by any affirmative act
approved of or consented to the action or the relief has been
granted.
(h) That any fact or condition exists which, if it had existed at
the time when any licensee applied for its license, would have been
grounds for denying the application.
28711. (a) If the commissioner finds that any of the factors set
forth in Section 28709 is true with respect to any licensee and that
it is necessary for the protection of the public interest that the
commissioner immediately suspend or revoke the license of the
licensee, the commissioner may issue an order suspending or revoking
the license of the licensee.
(b) Within 30 days after an order is issued pursuant to
subdivision (a), any licensee to whom the order is directed may file
with the commissioner
a request for a hearing on the order. If the commissioner fails
to commence a hearing within 15 business days after the request is
filed (or within any longer period to which the licensee consents),
the order shall be deemed rescinded. Upon the completion of the
hearing, the commissioner shall affirm, modify, or rescind the order.
28712. Any person whose license is suspended or revoked shall
immediately deliver the license to the commissioner.
28713. Any person to whom an order is issued under Section 28709
or 28710 may apply to the commissioner to modify or rescind the
order.
The commissioner shall not grant the application unless the
commissioner finds that it is in the public interest to do so and
that it is reasonable to believe that the person will, if and when it
becomes a licensee, comply with all applicable provisions of this
division and of any regulation or order issued under this division.
28714. (a) If the commissioner finds that any of the factors set
forth in Section 28709 is true with respect to any licensee and that
it is necessary for the protection of the interests of the licensee
or the accredited investors of the licensee, or for the protection of
the public interest that the commissioner take immediate possession
of the property and business of the licensee, the commissioner may
forthwith take possession of the property and business of the
licensee and retain possession until the licensee resumes business or
is finally liquidated. The licensee may, with the consent of the
commissioner, resume business upon any conditions that the
commissioner may prescribe.
(b) Whenever the commissioner takes possession of the property and
business of a licensee pursuant to subdivision (a), the licensee may
apply within 10 days to the superior court in the county in which
the head office of the licensee is located to enjoin further
proceedings. The court, after citing the commissioner to show cause
why further proceedings should not be enjoined and after a hearing,
may dismiss the application or enjoin the commissioner from further
proceedings and order the commissioner to surrender the property and
business of the licensee to the licensee or make any further order
that may be just.
(c) An appeal may be taken from the judgment of the superior court
by the commissioner or by the licensee in the manner provided by law
for appeals from the judgment of a superior court. An appeal from
the judgment of the superior court shall operate as a stay of the
judgment. No bond need be given if the appeal is taken by the
commissioner, but if the appeal is taken by the licensee, a bond
shall be given as required by the Code of Civil Procedure.
(d) Whenever the commissioner takes possession of the property and
business of a licensee pursuant to subdivision (a), the commissioner
shall conserve or liquidate the property and business of the
licensee.
28715. Sections 11041, 11042, and 11043 of the Government Code do
not apply to the Commissioner of Corporations.
CHAPTER 12. CRIMES AND CRIMINAL PENALTIES
Article 1. General Provisions
28800. It shall be unlawful for any person willfully to make any
untrue statement of a material fact in any application, report, or
other document filed with the commissioner under this division or
under any regulation or order issued under this division, or
willfully to omit to state in any application, report or other
document filed with the commissioner under this division any material
fact which is required to be stated therein.
28801. It shall be unlawful for any person having custody of any
of the books, accounts, or other records of a licensee willfully to
refuse to allow the commissioner, upon request, to inspect or make
copies of any of those books, accounts, or other records.
28802. It shall be unlawful for any person, with intent to
deceive any director, officer, employee, auditor, or attorney of a
licensee, the commissioner or any governmental agency, to make any
false entry in any of the books, accounts or other records of the
licensee, to omit to make any entry in those books, accounts or other
records which the person is required to make, or to alter, conceal,
or destroy any of those books, accounts, or other records.
Article 2. Conflicts of Interest
28820. In this article, unless the context otherwise requires:
(a) "Adviser," when used with respect to a licensee, means any
person who regularly provides legal, accounting, investment, or
management services or advice to the licensee.
(b) (1) "Associate," when used with respect to a licensee, means
all of the following:
(A) Any principal shareholder, director, officer, manager, agent,
or adviser of such licensee.
(B) Any director, officer, partner, general manager, agent,
employer, or employee of any person referred to in subparagraph (A).
(C) Any person who controls, is controlled by, or is under common
control with, any person referred to in subparagraph (A), directly or
indirectly, through one or more intermediaries.
(D) Any close relative of any person referred to in subparagraph
(A).
(E) Any person of which any person referred to in subparagraphs
(A) to (D), inclusive, is a director or officer.
(F) Any person in which any person referred to in subparagraphs
(A) to (D), inclusive, or any combination of persons acting in
concert owns or controls, directly or indirectly, a 10 percent or
greater equity interest.
(2) For purposes of this subdivision, any person who is in any of
the relationships referred to in subparagraphs (A) to (F), inclusive,
of paragraph (1) within six months before or after a licensee
provides financing assistance shall be deemed to be in the
relationship as of the date when the licensee provides such financing
assistance.
(3) For purposes of this subdivision, if a licensee, in order to
protect its interests, designates any person to serve as a director
of, officer of, or in any capacity in the management of, a small
business firm to which the licensee provides financing assistance,
the person shall not, on that account, be deemed to have any
relationship with the small business firm. However, this paragraph
shall not apply in any case where the person has, directly or
indirectly, any other financial interest in the small business firm
or where the person, at any time before the licensee provides the
financing assistance, served as a director of, officer of, or in any
other capacity in the management of, the small business firm for a
period of 30 days or more.
(c) "Close relative" means ancestor, lineal descendant, brother or
sister and lineal descendants of either, spouse, father-in-law,
mother-in-law, son-in-law, brother-in-law, daughter-in-law, or
sister-in-law.
(d) "Closing services" means services performed in connection with
the providing of financing assistance. "Closing services" includes,
but is not limited to, appraising property and preparing credit
reports. "Closing services" does not include any services performed
after the providing of financing assistance.
(e) "Short-term financing assistance" means any financing
assistance with a term of not more than five years.
28821. (a) The commissioner may, by regulation or order, either
unconditionally or upon specified terms and conditions and for
specified periods, exempt from the provisions of this article any
person or transaction or class of persons or transactions, if the
commissioner finds the action to be in the public interest and that
the regulation of the persons or transactions is not necessary for
the purposes of this division.
(b) In exempting from the provisions of this article any person or
transaction or class of persons or transactions, the commissioner
shall give due consideration to any conflict of interest provision of
federal law or regulation applicable to the person or transaction
governing participants in federal financing programs.
28822. It shall be unlawful for any licensee, directly or
indirectly, to provide financing assistance to any of its associates.
28823. (a) It shall be unlawful for any licensee, directly or
indirectly, to provide financing assistance to any associate of
another licensee if any associate of the first licensee receives, has
received, or is about to receive, directly or indirectly, financing
assistance or a commitment for financing assistance from the other
licensee.
(b) It shall be unlawful for any licensee, directly or indirectly,
to provide financing assistance to any associate of another licensee
if any associate of the first licensee receives, has received, or is
about to receive, directly or indirectly, financing assistance or a
commitment for financing assistance from a third licensee pursuant to
any contract, understanding, or arrangement among the licensees.
28824. It shall be unlawful for any licensee or for any associate
of a licensee, directly or indirectly, to borrow money, or purchase
or otherwise receive securities, from any of the following:
(a) Any person to which the licensee has provided, or has
committed to provide, financing assistance.
(b) Any director of, officer of, or person who owns a 10 percent
or greater equity interest in, any person referred to in subdivision
(a).
(c) Any close relative of any person referred to in subdivision
(b).
28825. It shall be unlawful for any licensee, directly or
indirectly, to provide financing assistance to discharge, or to free
other funds for use in discharging, in whole or in part, an
obligation to any associate of the licensee. However, this section
shall not apply to any transaction effected by an associate of a
licensee in the normal course of the associate's business involving a
line of credit or short-term financing assistance.
28826. It shall be unlawful for any licensee, directly or
indirectly, to provide financing assistance for the purchase of
property from any associate of the licensee.
28827. It shall be unlawful for any licensee, directly or
indirectly, to provide financing assistance to any person to whom any
associate of the licensee provides financing assistance, either
contemporaneously with, or within one year before or after, the
providing of financing assistance by the licensee, if the terms on
which the licensee provides financing assistance are less favorable
to the licensee than the terms on which the associate provides
financing assistance to the associate. In any case where the
financing assistance provided by the associate of the licensee is of
a different kind from the financing assistance provided by the
licensee, the burden shall be on the licensee to prove that the terms
on which it provided financing assistance were at least as favorable
to it as the terms on which the associate provided financing
assistance to the associate. This section shall not apply to any
transaction effected by an associate of a licensee in the normal
course of the associate's business involving a line of credit or
short-term financing assistance.
28828. It shall be unlawful for any associate of a licensee,
directly or indirectly, to receive from any person to whom the
licensee provides financing assistance, any compensation in
connection with the providing of the financing assistance or anything
of value for procuring, influencing, or attempting to procure or
influence, the licensee's action with respect to the providing of the
financing assistance. This section shall not apply to the receipt
by an associate of a licensee of fees for bona fide closing services
performed by the associate. If the associate is, with the consent
and knowledge of the person to whom the financing assistance is
provided, designated by the licensee to perform the services, the
services are appropriate and necessary in the circumstances, the fees
for the services are approved as reasonable by the licensee, and the
fees for the services are collected by the licensee on behalf of the
associate.
28829. It shall be unlawful for any licensee, directly or
indirectly, to sell or otherwise transfer any of its assets to any of
its associates.
Article 3. Criminal Penalties
28880. Any person who willfully violates any provision under this
chapter shall upon conviction be fined not more than two hundred
fifty thousand dollars ($250,000) or be imprisoned in the state
prison, or in a county jail for not more than one year, or be
punished by both that fine and imprisonment.
28881. Nothing in this division limits the power of the state to
punish any person for any act which constitutes a crime under any
statute.
CHAPTER 13. CIVIL PENALTIES
28900. If, after notice and a hearing, the commissioner finds
that any person has violated any provision of this division or of any
regulation or order issued under this division, the commissioner may
order the person to pay to the commissioner a civil penalty in that
amount as the commissioner may specify. However, the amount of the
civil penalty shall not exceed two thousand five hundred dollars
($2,500) for each violation, or in the case of a continuing
violation, two thousand five hundred dollars ($2,500) for each day
for which the violation continues.
28901. The provisions of Section 28900 are additional to, and not
alternative to, other provisions of this division which authorize
the commissioner to issue orders or to take other action on account
of a violation of any provision of this division or of any regulation
or order issued under this division. However, no person who has
been finally convicted under Chapter 12 (commencing with Section
28800) of this division on account of a violation of any provision of
Chapter 12 (commencing with Section 28800) shall be liable to pay a
civil penalty under Section 28900 on account of the violation.
CHAPTER 14. MISCELLANEOUS PROVISIONS
28950. No provision of this division imposing any liability
applies to any act done or omitted in good faith in conformity with
any rule, form, permit, order, or written interpretive opinion of the
commissioner, or any written interpretive opinion of the Attorney
General, notwithstanding that the rule, form, permit, order, or
written interpretive opinion may later be amended or rescinded or be
determined by judicial or other authority to be invalid for any
reason.
28951. (a) The commissioner may from time to time make, amend,
and rescind the rules, forms, and orders that are necessary to carry
out this law, and define any terms, whether or not used in this law,
insofar as the definitions are not inconsistent with this law. For
the purpose of rules, the commissioner may, among other things,
classify persons within the commissioner's jurisdiction and may
prescribe different requirements for different classes. The
commissioner may, in the commissioner's discretion, waive any
requirement of any rule or form in situations where in his or her
opinion the requirement is not necessary in the public interest.
(b) The commissioner may, by regulation or order, either
unconditionally or upon specified terms and conditions or for
specified periods, exempt from the provisions of this division any
person or transaction or class of persons or transactions, if the
commissioner finds that action to be in the public interest and that
the regulation of those persons or transactions is not necessary for
the purposes of this division.
28952. The commissioner may honor requests from interested
persons for interpretive opinions.
28953. In any proceeding under this law, the burden of proving an
exemption or an exception from a definition is upon the person
claiming it.
28954. Every final order, decision, license, or other official
act of the commissioner is subject to judicial review in accordance
with law.
28955. Nothing in this law, shall impair, derogate, or otherwise
affect the authority or powers of the commissioner under the
Corporate Securities Law of 1968 (Part 3 (commencing with Section
25000)) or the application of any provision thereof to any person or
transaction subject thereto.
28956. If any provision of this division are or the application
thereof to any person or circumstance is held invalid, the invalidity
shall not affect other provisions or applications of this law which
can be given effect without the invalid provision or application, and
to this end the provisions of this division are declared to be
severable.
28957. Neither the commissioner nor any employee of the
commissioner shall use any information which is filed with or
obtained by the commissioner which is not public information for
personal gain or benefit, nor shall the commissioner nor any employee
of the commissioner engage in any securities transaction based on
that information, even though public, if there has not been a
sufficient period of time for the securities or commodity markets to
assimilate that information.
28958. (a) The program established by this division shall be
supported from funds appropriated by the Legislature from the State
Corporations Fund.
(b) The funds appropriated from the State Corporations Fund and
made available for expenditure under subdivision (a) of this section
shall come from fees collected under Section 28110, penalties
collected under Sections 28880 and 28900, and securities application
filing fees collected under subdivisions (e), (f), (h), and (i) of
Section 25608 and notice filing fees collected under subdivision (a)
of Section 25608.1.
SEC. 4. This act shall become operative on July 1, 1999.
SEC. 5. No reimbursement is required by this act pursuant to
Section 6 of Article XIIIB of the California Constitution because the
only costs that may be incurred by a local agency or school district
will be incurred because this act creates a new crime or infraction,
eliminates a crime or infraction, or changes the penalty for a crime
or infraction, within the meaning of Section 17556 of the Government
Code, or changes the definition of a crime within the meaning of
Section 6 of Article XIIIB of the California Constitution.
Notwithstanding Section 17580 of the Government Code, unless
otherwise specified, the provisions of this act shall become
operative on the same date that the act takes effect pursuant to the
California Constitution.