Amended in Senate August 4, 2014

Amended in Senate May 23, 2014

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 is transferred, effective July 1, 2013, from the Commissioner of Corporations to the Commissioner of Business Oversight.

This bill would add to the persons excluded from the definition of a broker-dealer an individual who is a finder, as defined, who 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 or her own account. “Broker-dealer”
also includes a person engaged in the regular business of issuing
or guaranteeing options with regard to securities not of his or her
own issue. “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 or she buys or sells securities for
his or her 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 or
she 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 or she
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) Any finder who satisfies all of the conditions set forth
in subparagraphs (B) to (E), inclusive. For purposes of this section,
a “finder” is a natural person who, for direct or indirect
compensation, 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 offer or sale of securities of the issuer
in an issuer transaction in this state, and who does not do any of
the following:

begin insert

(i) Provide services to an issuer for a transaction or a series of
related transactions for the offer or sale of securities of the issuer
that exceeds a securities purchase price of twenty-five million
dollars ($25,000,000) in the aggregate.

end insert begin delete

(i)

end delete

begin insert (ii) end insert  Participate in negotiating any of the terms of the offer or
sale of the securities.

begin delete

(ii)

end delete

begin insert (iii) end insert  Advise any party to the transaction regarding the value of
the securities or the advisability of investing in, purchasing, or
selling the securities.

begin delete

(iii)

end delete

begin insert (iv) end insert  Conduct any due diligence on the part of any party to the
transaction.

begin delete

(iv)

end delete

begin insert (v) end insert  Sell or offer for sale in connection with the issuer transaction
any securities of the issuer that are owned, directly or indirectly,
by the finder.

begin delete

(v)

end delete

begin insert (vi) end insert  Receive, directly or indirectly, possession or custody of any
funds in connection with the issuer transaction.

begin delete

(vi)

end delete

begin insert (vii) end insert  Knowingly receive compensation in connection with any
offer or sale of securities unless the sale is qualified under this
division or unless the security or the transaction is exempt or not
otherwise subject to qualification.

begin delete

(vii)

end delete

begin insert (viii) end insert  Make any disclosure to a potential purchaser other than
the following:

(I) The name, address, and contact information of the issuer.

(II) The name, type, price, and aggregate amount of any
securities being offered in the issuer transaction.

(III) The issuer’s industry, location, and years in business.

(B) (i) The finder shall file with the Department of Business
Oversight before 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.

(II) The mailing address of the finder, if different from the
business or residential address.

(ii) A filing fee of not more than begin delete twenty-five dollars ($25) end delete begin insert three
hundred dollars ($300) end insert 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.

(C) (i) For each issuer transaction, the finder shall file with the
Department of Business Oversight, on a form prescribed by the
commissioner, a notice that shall include begin insert all of end insert the begin delete following
affirmative representations by the finder: end delete begin insert following: end insert

begin insert

(I) The following affirmative representations by the finder:

end insert begin delete

(I)

end delete

begin insert (ia) end insert  The finder has complied and will continue to comply with
the provisions of subparagraph (A).

begin delete

(II)

end delete

begin insert (ib) end insert  The finder has not performed any acts or satisfied any
circumstances prohibited by Section 25212, nor been sanctioned
by the commissioner pursuant to Section 25212.

begin delete

(III)

end delete

begin insert (ic) end insert  The finder has obtained the written agreement described in
subparagraph (D).

begin insert

(II) An indication by the finder as to whether the finder is
receiving transaction-based compensation that is subject to the
actual sale of securities by the issuer in the transaction.

end insert

(ii) A separate notice shall be filed for each new issuer
transaction, no later than 20 business days following the first sale
of securities. The commissioner may by rule require the finder to
pay a filing fee in connection with the notice required in this
subparagraph of up to begin delete twenty-five dollars ($25). end delete begin insert fifty dollars ($50). end insert

(D) (i) Concurrently with each introduction, the finder shall
obtain the informed, written consent of each person introduced or
referred by the finder to an issuer, in a written agreement signed
by the finder, the issuer, and the person introduced or referred,
disclosing the following:

(I) The type and amount of compensation that has been or will
be paid to the finder in connection with the introduction or referral
and the conditions for payment of that compensation.

(II) That the finder is not providing advice to the issuer or any
person introduced or referred by the finder to an issuer as to the
value of the securities or as to the advisability of investing in,
purchasing, or selling the securities.

(III) Whether the finder is also an owner, directly or indirectly,
of the securities being offered or sold.

(IV) Any actual and potential conflict of interest in connection
with the finder’s activities related to the issuer transaction.

(V) That the parties to the agreement shall have the right to
pursue any available remedies at law or otherwise for any breach
of the agreement.

(ii) To satisfy the requirements of this subparagraph, the
agreement shall also include a representation by the person
introduced or referred by the finder to the issuer that the person 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 person knowingly consents to the payment
of the compensation described therein.

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

(F) (i) A natural person who does not meet the definition of
“finder” set forth in subparagraph (A) and does not satisfy all the
conditions set forth in subparagraphs (B) to (E), inclusive, may be
determined to be a broker-dealer by the commissioner.

(ii) In the event a natural person does not meet the definition of
“finder” set forth in subparagraph (A) and does not satisfy all the
conditions set forth in subparagraphs (B) to (E), inclusive, any
person introduced or referred by that natural person to an issuer,
who purchases securities of that issuer in an issuer transaction
following that introduction or referral, shall have the right to pursue
any applicable remedy afforded under state law, including, without
limitation, any applicable remedies pursuant to Section 25501.5.

(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.