BILL ANALYSIS �
AB 713
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Date of Hearing: January 23, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 713 (Wagner) - As Amended: January 6, 2014
Policy Committee: Banking and
Finance Vote: 12-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill exempts "finders" from the definition of
broker-dealers, which exempts them from the broker dealer
regulatory scheme. Specifically, this bill:
1)Defines a finder as an individual who introduces or refers one
or more accredited investors 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.
2)Requires the finder to file with the Department of Business
Oversight (DBO) and pay a filing fee of no more than $25 as
determined by DBO. Also requires the finder to timely file an
annual report of activity with the DBO and pay any requisite
filing fee if determined by the Commissioner of DBO.
3)Establishes a process for finders to follow including
obtaining written consent from potential purchasers and
records retention.
FISCAL EFFECT
Administrative costs of approximately $150,000 to DBO to
establish the programs, develop regulations and for ongoing
administration. Costs will depend on the number of people
filing as finders.
COMMENTS
1)Purpose . According to the sponsor, the Corporations Committee
of the State Bar of California Business Law Section, a
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determination that a finder has acted as an unlicensed
broker-dealer with State of California can be the basis for
subjecting an issuer (including its directors and officers)
and the unlicensed person to substantial liability, as
California law provides investors with the right of rescission
and an extended statute of limitations arising from unlicensed
broker-dealer activity. The sponsor states the enactment of
the proposal adds some certainty in connection with the
engagement of finders in securities transactions. The sponsor
argues this added certainty will benefit the state through
increased income tax revenues, increased access to capital
markets for startup companies, and small to midsized
businesses.
2)Background . A broker-dealer is a person engaged in the
business of effecting transactions in securities in this state
for the account of others or for his own account. A
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. Brokers-dealers are required
to apply and obtain a certificate from the DBO.
The term finder is commonly used in the securities environment
to refer to an unlicensed individual who introduces an
accredited investor to an issuer. In exchange for bringing in
a potential accredited investor, the finder receives
compensation. The only role of a finder in a securities
transaction is the introduction; therefore, finders are not
required to register as broker-dealers. Finders are not
specifically defined in either federal or state law.
Three states have enacted finder legislation. Federal law
does not specifically define finder and there is a
contradictory history of federal court decisions and
administrative actions governing finders. This measure would
only apply on an intrastate basis in California, for
securities subject to state regulation.
3)There is no registered opposition to this bill.
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Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081