Amended in Assembly January 6, 2014

California Legislature—2013–14 Regular Session

Assembly Bill No. 713

Introduced by Assembly Member Wagner

February 21, 2013

An act to amend Section 25004 of the Corporations Code, relating to securities.

LEGISLATIVE COUNSEL’S DIGEST

AB 713, as amended, Wagner. Broker-dealers.

Existing law, the Corporate Securities Law of 1968, defines a broker-dealer as, among other things, any person engaged in the business of effecting securities transactions in California for the account of others or his or her own account, and it specifies those persons or entities excluded from the definition.

Pursuant to the Governor’s Reorganization Plan No. 2 of 2012 (GRP 2), the regulation of corporations by the Commissioner of Corporations effective July 1, 2013, is transferred to the Commissioner of Business Oversight.

This bill would add to the persons and entities excluded from the definition of a broker-dealer an individual who is a finder, as defined, that satisfied specified requirements, including, among other things, filing an initial statement of information with the Department of Business Oversight and paying a filing fee. The bill also would make technical changes to conform with the GRP 2.

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

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

SECTION 1.  

Section 25004 of the Corporations Code is
amended to read:

25004.  

(a) “Broker-dealer” means any person engaged in the
business of effecting transactions in securities in this state for the
account of others or for his own account. “Broker-dealer” also
includes a person engaged in the regular business of issuing or
guaranteeing options with regard to securities not of his own issue.
“Broker-dealer” does not include any of the following:

(1) Any other issuer.

(2) An agent, when an employee of a broker-dealer or issuer.

(3) A bank, trust company, or savings and loan association.

(4) Any person insofar as he buys or sells securities for his own
account, either individually or in some fiduciary capacity, but not
as part of a regular business.

(5) A person who has no place of business in this state if he
effects transactions in this state exclusively with (A) the issuers
of the securities involved in the transactions or (B) other
broker-dealers.

(6) A broker licensed by the Real Estate Commissioner of this
state when engaged in transactions in securities exempted by
subdivision (f) or (p) of Section 25100 or in securities the issuance
of which is subject to authorization by the Real Estate
Commissioner of this state or in transactions exempted by
subdivision (e) of Section 25102.

(7) An exchange certified by the Commissioner of Business
Oversight pursuant to this section when it is issuing or guaranteeing
options. The commissioner may by order certify an exchange under
this section upon any conditions as he or she by rule or order deems
appropriate, and upon notice and opportunity to be heard he may
suspend or revoke that certification, if he or she finds the
certification, suspension, or revocation to be in the public interest
and necessary and appropriate for the protection of investors.

(8) (A) An individual who acts only as a finder and who
satisfies all of the conditions set forth in subparagraphs (B) to begin delete (H) end delete
begin insert (G) end insert , inclusive. For purposes of this section, a “finder” is begin delete a person end delete
begin insert an individual end insert who introduces or refers one or more accredited
investors begin insert , as that term is defined in Rule 501(a) of Regulation D
under the Securities Act of 1933 (17 C.F.R. 230.501(a)), end insert to an
issuer or an issuer to one or more accredited investors, solely for
the purpose of a potential begin delete investment in the end delete begin insert sale of end insert securities of
the issuer, and who does not (i) participate in negotiating any of
the terms of the begin delete investment end delete begin insert securities transaction end insert ; (ii) advise any
party to the securities transaction regarding the merits of, or the
advantages or disadvantages of entering into the begin delete investment end delete
begin insert securities transaction end insert ; or (iii) sell or intend to sell any securities
of the issuer, which securities are owned, directly or indirectly, by
the finder as a part of the begin delete investment. A person end delete begin insert securities
transaction. An individual end insert who fails to comply with the
requirements of this paragraph shall not be entitled to rely on the
exemption afforded hereunder.

(B) The finder shall have filed begin delete an initial statement of information end delete
with the Department of Business Oversight begin delete , in a form as the
commissioner may prescribe by regulation, and has paid an initial
filing fee. end delete begin insert prior to engaging in any activities described in
subparagraph (A), on a form prescribed by the commissioner, an
initial statement of information that shall include both of the
following: (i) the name and complete business or residential
address of the finder and (ii) the mailing address of the finder, if
different from the business or residential address. A filing fee of
not more than twenty end insert begin insert - end insert begin insert five dollars ($25) may be required to be
submitted, as determined by the commissioner by rule, to the
Department of Business Oversight along with the initial statement
of information required by this subparagraph. end insert

(C) The finder shall have timely filed begin delete any end delete begin insert an end insert annual begin delete reports end delete
begin insert report end insert of activity with the Department of Business Oversight begin delete , in
a form as the commissioner may prescribe by regulation, and has
paid the requisite filing fee. end delete begin insert and paid any requisite filing fee, as
determined by the commissioner by rule. end insert

(D) For each transaction or series of transactions, the finder
shall have filed begin delete a notice end delete with the Department of Business
Oversight, begin delete to be made available to the public in end delete begin insert on end insert a form as
begin insert prescribed by end insert the commissioner begin delete may prescribe by regulation,
containing end delete begin insert , a notice that shall include the following end insert affirmative
representations by the finder begin insert , end insert that the finder (i) is acting only to
introduce the begin delete parties end delete begin insert issuer and the potential purchaser of an
issuer’s securities end insert and will not effect any transaction in, advise or
consult on, or induce or attempt to induce the purchase or sale of,
any begin delete security end delete begin insert securities end insert in this state; (ii) has not done any of the
acts, satisfied any of the circumstances, or is subject to any order
specified in Section 25212; begin delete (iii) has not engaged in any advertising
or general solicitation with respect to the offering, sale, or purchase
of any securities; (iv) end delete begin insert (iii) end insert will not receive, directly or indirectly,
possession or custody of any funds begin delete in connection with acting as a
finder; (v) end delete begin insert related to the purchase and sale of the subject securities
transactions; (iv) end insert has not acted in violation of any provision of
this section; and begin delete (vi) end delete begin insert (v) end insert has fully disclosed and obtained the
informed written consent of the issuer and begin delete the potential investor end delete
begin insert each potential purchaser introduced by the finder to the issuer end insert
regarding the material terms of the compensation arrangement
between the issuer and the finder relating to the finder’s
begin delete introduction of the investor end delete begin insert services provided for the subject
securities transaction end insert . A separate notice shall be filed for each
new begin delete offering of securities end delete begin insert transaction or series of transactions end insert , no
later than begin delete 30 calendar end delete begin insert 20 business end insert days following the first sale of
securities in the begin delete offering, unless the end of that period falls on a
Saturday, Sunday or holiday, in which case the due date shall be
the next business day. For each notice filing, the finder shall pay
a filing fee, as set from time to time by the Department of Business
Oversight. end delete begin insert offering. The commissioner may by rule require the
finder to pay a filing fee in connection with the notice required in
this subparagraph of not more than twenty end insert begin insert -five dollars ($25). end insert

(E) Concurrently with each introduction, the finder shall have
obtained the informed, written consent of each begin delete person or entity end delete
begin insert potential purchaser end insert introduced by the finder to an issuer begin insert for the
purchase and sale of securities of the issuer end insert , in an agreement signed
by the finder, the issuer, and the begin delete investor end delete begin insert potential purchaser end insert ,
disclosing the following: (i) the type and amount of compensation
that will be paid to the finder in connection with the begin delete investment end delete
begin insert subject securities transactions end insert and the conditions for payment of
that compensation; (ii) that the finder shall neither recommend nor
advise the begin delete investor end delete begin insert potential purchaser end insert with respect to the subject
securities transaction; (iii) whether the finder is also an owner of
the securities begin delete offered by end delete begin insert of end insert the issuer, and (iv) any other actual and
potential conflict of interest in connection with the finder’s
activities begin insert related to the subject securities transaction end insert . Each begin delete investor end delete
begin insert potential purchaser end insert shall represent in the written consent that the
begin delete investor end delete begin insert potential purchaser end insert is an accredited investor, as that term
is defined in begin insert end insert begin insert Rule 501(a) of end insert Regulation D under the Securities
Exchange Act of 1933 begin delete , as amended end delete begin insert (17 C.F.R. 230.501(a)) end insert , and
that the begin delete investor end delete begin insert potential purchaser end insert knowingly consents to the
payment of the compensation described therein.

(F) The finder shall maintain and preserve, for a period of five
years from the date of filing of the notice prescribed in
subparagraph begin delete (B) end delete begin insert (D) end insert , a copy of the notice, the written consent
required in subparagraph begin delete (C) end delete begin insert (E) end insert , and all other records relating to
any begin delete investments end delete begin insert securities transaction end insert in connection with which
the finder receives compensation, as the commissioner may by
rule require. The finder, upon written request of the commissioner,
shall furnish to the commissioner any records required to be
maintained and preserved under this subparagraph.

(G) The finder shall not engage in any of the following: (i)
directly or indirectly begin delete taking end delete begin insert take end insert possession or custody of begin delete investor end delete
funds begin insert related to the purchase and sale of any subject securities
transaction end insert ; (ii) knowingly begin delete participating end delete begin insert participate end insert in any
unregistered offering not otherwise exempt from registration or
qualification; (iii) begin delete failing to disclose the existence of a financial
or pecuniary benefit to the finder in connection with or relating to
the finders’ introduction end delete begin insert fail to make the disclosures required by
subparagraph (E) end insert ; (iv) begin delete conducting end delete begin insert conduct end insert due diligence on behalf
of begin insert the end insert issuer or begin delete investor; (v) soliciting, marketing, advertising, or
holding himself, herself, or itself out to the public in general as
being in the business of making introductions between accredited
investors or issuers or seeking business from accredited investors
or issuers; (vi) or making any disclosures to investors end delete begin insert the potential
purchaser related to any subject securities transaction; (v) make
any disclosures to potential purchasers end insert other than disclosures
expressly permitted begin insert or required end insert under this subparagraph. Permitted
disclosures are limited to the name, address, and telephone number
of the issuer; the name, type, and price (if known) of any securities
to be issued; the issuer’s industry, location, and years in business;
the type, number, and aggregate amount of securities being offered;
and contact information regarding the begin delete investor end delete begin insert potential purchaser end insert .

(b) For purposes of this section, an agent is an employee of a
broker-dealer under paragraph (2) of subdivision (a) when the
agent is employed by or associated with the broker-dealer under
all of the following conditions:

(1) The agent is subject to the supervision and control of the
broker-dealer.

(2) The agent performs under the name, authority, and marketing
policies of the broker-dealer.

(3) The agent discloses to investors the identity of the
broker-dealer.

(4) The agent is reported pursuant to subdivision (c) of Section
25210 and the rules adopted thereunder.