Amended in Assembly January 14, 2014

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 begin delete by the Commissioner of Corporations effective July 1, 2013, end delete is transferred begin insert , effective July 1, 2013, from the Commissioner of Corporations end insert to the Commissioner of Business Oversight.

This bill would add to the persons begin delete and entities end delete excluded from the definition of a broker-dealer an individual who is a finder, as defined, begin delete that end delete begin insert who end insert 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 begin insert or her end insert 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 begin insert or her end insert
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 begin insert or she end insert buys or sells securities for
his begin insert or her end insert 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 begin insert or
she end insert 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 begin insert or she end insert
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 begin insert in this state end insert and
who satisfies all of the conditions set forth in subparagraphs (B)
to (G), inclusive. For purposes of this section, a “finder” is an
individual who introduces or refers one or more accredited
investors, 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)), to an
issuer or an issuer to one or more accredited investors, solely for
the purpose of a potential sale of securities of the issuer, and who
does not (i) participate in negotiating any of the terms of the
securities transaction; (ii) advise any party to the securities
transaction regarding the merits of, or the advantages or
disadvantages of entering into the securities transaction; or (iii)
sell or intend to sell any securities of the issuer, which securities
are owned, directly or indirectly, by the finder as begin delete a end delete part of the
securities transaction. An individual 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 begin delete have filed end delete begin insert file end insert with the Department of
Business Oversight 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-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.

begin delete

(C) The finder shall have timely filed an annual report of activity
with the Department of Business Oversight and paid any requisite
filing fee, as determined by the commissioner by rule.

(D)

end delete

begin insert (C) end insert  For each begin insert securities end insert transaction or series of begin insert securities end insert
transactions, the finder shall begin delete have filed end delete begin insert file end insert with the Department
of Business Oversight, on a form begin delete as end delete prescribed by the
commissioner, a notice that shall include the following affirmative
representations by the finder, that the finder (i) is acting only to
introduce the issuer and the potential begin delete purchaser end delete begin insert accredited investor end insert
of an issuer’s securities and will not effect any begin insert securities end insert
transaction in, advise or consult on, or induce or attempt to induce
the purchase or sale of, any securities 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; (iii) will not receive, directly
or indirectly, possession or custody of any funds related to the
purchase and sale of the subject securities transactions; (iv) has
not acted in violation of any provision of this section; and (v) has
fully disclosed and obtained the informed written consent of the
issuer and each potential begin delete purchaser end delete begin insert accredited investor end insert introduced
by the finder to the issuer regarding the material terms of the
compensation arrangement between the issuer and the finder
relating to the finder’s services provided for the subject securities
transaction. A separate notice shall be filed for each new begin insert securities end insert
transaction or series of begin insert securities end insert transactions, no later than 20
business days following the first sale of securities in the 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-five dollars ($25).

(E) Concurrently with each introduction begin insert or referral end insert , the finder
shall begin delete have obtained end delete begin insert obtain end insert the informed, written consent of each
potential begin delete purchaser end delete begin insert accredited investor end insert introduced begin insert or referred end insert by
the finder to an issuer for the purchase and sale of securities of the
issuer, in an agreement signed by the finder, the issuer, and the
potential begin delete purchaser end delete begin insert accredited investor end insert , disclosing the following:
(i) the type and amount of compensation that will be paid to the
finder in connection with the subject securities transactions and
the conditions for payment of that compensation; (ii) that the finder
shall neither recommend nor advise the potential begin delete purchaser end delete
begin insert accredited investor end insert with respect to the subject securities
transaction; (iii) whether the finder is also an owner of the
securities of the issuer, and (iv) any other actual and potential
conflict of interest in connection with the finder’s activities related
to the subject securities transaction. Each potential begin delete purchaser end delete
begin insert accredited investor end insert shall represent in the written consent that the
potential begin delete purchaser end delete begin insert accredited investor end insert is an accredited investor,
as that term is defined in Rule 501(a) of Regulation D under the
Securities Exchange Act of 1933 (17 C.F.R. 230.501(a)), and that
the potential begin delete purchaser end delete begin insert accredited investor 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 (D), a copy of the notice, the written consent required
in subparagraph (E), and all other records relating to any securities
transaction 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 take possession or custody of funds related
to the purchase and sale of any subject securities transaction; (ii)
knowingly participate in any unregistered offering not otherwise
exempt from registration or qualification; (iii) fail to make the
disclosures required by subparagraph (E); (iv) conduct due
diligence on behalf of the issuer or the potential begin delete purchaser end delete
begin insert accredited investor end insert related to any subject securities transaction;
(v) make any disclosures to potential begin delete purchasers end delete begin insert accredited
investors end insert other than disclosures expressly permitted or required
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 potential begin delete purchaser end delete begin insert accredited investor 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.