BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
AB 713 (Wagner) - Broker-dealers
Amended: August 4, 2014 Policy Vote: BF&I 8-0
Urgency: No Mandate: No
Hearing Date: August 4, 2014
Consultant: Maureen Ortiz
This bill meets the criteria for referral to the Suspense File.
Bill Summary: AB 713 provides a new regulatory structure for
persons that meet the definition of "finder" in relation to the
offering of securities.
Fiscal Impact:
Unknown, potentially $642,000 partially offset by fee
revenue (Special Fund)
It is anticipated that the Department of Business Oversight
(DBO) will incur annual costs of approximately $642,000 based on
an estimated 885 finders to be registered and examined over a
five year period, necessitating 3 Examiners, and 1 AGPA
position. First year revenue would be $310,000 for a net cost
of $332,000; and annual ongoing offsetting fee revenue would be
$44,500 resulting in ongoing costs of $597,500 each year.
Background: Existing law defines "broker-dealer" as any person
engaged in the business of effecting transactions in securities
in California for the account of others or for his or her own
account. No broker-dealer, unless otherwise exempted may effect
any transaction in the purchase or sale of any security in
California unless that broker-dealer has first applied for and
secured from the DBO Commissioner a certificate authorizing
that person to act in that capacity.
Existing law provides for several exemptions from the
requirement to hold a certificate as a broker-dealer, including
persons without a physical location in California, who sell only
to specified persons in California and only under specified
circumstances; real estate brokers and financial institutions,
under certain circumstances; and persons licensed under the
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Capital Access Company Law.
A "broker-dealer" also does not include banks; trust companies;
savings and loan companies; real estate brokers; options
exchanges certified by DBO; individuals who trade for their own
accounts; issuers; and agents, when they are employees of
broker-dealers or issuers.
Proposed Law: Specifically, AB 713 does the following:
a) Defines "finder" as a person who introduces or refers one or
more accredited investors, for direct or indirect compensation,
to an issuer solely for the purpose of a potential offer or sale
of securities as specified.
b) Requires finders to adhere to the following:
i. File with the Department of Business Oversight an initial
statement of information and pay a fee of up to $300.
ii. File a form with the DBO for each issuer transaction
confirming specified compliances.
iii. File a separate notice for each new issuer transaction
with the DBO and pay a fee of up to $50.
iv. Obtain the written consent of each person introduced or
referred by the finder to an issuer and provide specified
disclosures including the amount of compensation received by the
finder, that the finder is not providing advice to either party,
whether the finder is also an owner of the securities being
offered, and any conflicts of interest.
v. Maintain a copy of all records for 5 years, and furnish them
to the commissioner upon request.
Further, AB 713 provides that a finder is an individual who does
not do any of the following:
a. 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 $25
million in the aggregate.
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b. Participate in negotiating any of the terms of the offer or
sale of the securities.
c. Advise any party to the transaction regarding the value of
the securities or the
advisability of investing in, purchasing, or selling the
securities.
d. Conduct any due diligence on the part of any party to the
transaction.
e. 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.
f. Receive, directly or indirectly, possession or custody of any
funds in connection with the issuer transaction.
g. Knowingly receive compensation in connection with any offer
or sale of securities, unless the sale is qualified by the
Commissioner of Business Oversight or the security or
transaction is exempt or not otherwise subject to qualification.
h. Make any disclosure other than the following limited
disclosures: the name, address, and contact information of the
issuer; the name, type, price, and aggregate amount of any
securities being offered in the issuer transaction; and the
issuer's industry, location, and years in business.
Staff Comments: A broker-dealer is a person engaged in the
business of effecting transactions in securities in this state.
A 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-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
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broker-dealers.
AB 713 is sponsored by the Corporations Committee of the
Business Law Section of the California State Bar to promote and
facilitate a regulatory framework to govern the activities and
accountability of finders, provide statutory and regulatory
certainty for finders and the businesses that rely upon them,
and protect investors.