SENATE BILL REPORT

SB 5414

BYSenator Moore

Regulating investments.

Senate Committee on Financial Institutions & Insurance

Senate Hearing Date(s):February 10, 1989; February 28, 1989

Majority Report:  That Substitute Senate Bill No. 5414 be substituted therefor, and the substitute bill do pass.

      Signed by Senators Johnson, Vice Chairman; Fleming, McMullen, Moore, Rasmussen, Smitherman.

Senate Staff:Walt Corneille (786-7416)

                  March 13, 1989

AS REPORTED BY COMMITTEE ON FINANCIAL INSTITUTIONS & INSURANCE, FEBRUARY 28, 1989

BACKGROUND:

The Securities Act of Washington regulates the sale and purchase of securities.  It provides for the registration of broker-dealers, salespersons, investment advisers and investment adviser salespersons.  Requirements for the registration of securities are specified and exemptions from registration are provided in certain cases.  The act provides for enforcement and specifies remedies and penalties for violations.  It has been suggested that in the interest of clarity and as a result of the changes in the securities market, certain revisions in the state's securities laws need to be made.

SUMMARY:

Throughout the act the reference to investment adviser salesperson is changed to investment adviser representative.

The provision excluding certain broker-dealers from the act is changed.  Broker-dealers with an out-of-state office who effect transactions in this state with not more than three persons are exempt from the act.  A broker-dealer is exempt from the definition of investment adviser only if performance of investment adviser services is incidental to the business of the broker-dealer and no special compensation is received.

It is unlawful for a broker-dealer to employ a securities salesperson unless the salesperson is either registered or exempt from registration in this state or the state where he or she is attempting to effect sales.  It is unlawful to conduct business as an investment adviser unless registered as an investment adviser even if registered as a broker-dealer.

A broker-dealer is allowed to post a bond, cash or securities in lieu of meeting the existing minimum net capital requirements established by the director.

The director may suspend or revoke a registration if another jurisdiction has entered a cease and desist order.  All orders from other jurisdictions must be final before the director may suspend the registration.

The administrator may require financial statements in addition to those specified by statute.

The requirements for a notice of exemption from the act for nonprofit organizations must be established by the director.  Existing notice requirements for nonprofit organizations are stricken.

The exemption for nonpublic transactions is changed so that a person is required to register as a broker-dealer or salesperson before receiving a commission.

Securities when offered by a principal must be registered pursuant to federal or state law, in addition to current requirements, to be exempt.

A transaction is exempt from all registration requirements if the securities are issued and outstanding and the issuer is required to file reports under the federal Securities and Exchange Act.  A broker-dealer must have a reasonable basis for believing the issuer has a current filing and makes available all annual reports or other reports required by the federal act.  The broker-dealer in these circumstances is restricted from making any representation as to the accuracy of the figures in the financial statements offered and may represent only that the information provided is reasonably current.

The director may publish information regarding violations but is not required to do so.

The administrator may impose a fine not to exceed $5,000 per violation when a person is found to have violated any provision of the act or any rule.  This fine is in addition to any other penalties provided by law.  Persons failing to pay a fine levied by the administrator incur a lien upon all the assets and property they own.  Failure to pay a fine levied by the administrator constitutes a forfeiture of the right to transact securities business in this state.

Subpoena powers are given the director to compel witnesses in this state to attend and testify at proceedings in another jurisdiction.  The director may compel witnesses from another jurisdiction with similar laws to attend and testify at proceedings in this state.  Specified misleading and/or deceptive activities are declared unlawful.  Investment advisers or investment adviser salespersons are made civilly liable for fraud or deceit as defined by the act.  Interest of 8 percent may be collected from the date of the violation.

EFFECT OF PROPOSED SUBSTITUTE:

The fees for registration of a broker-dealer or investment adviser are changed, for an original registration from $150 to $500 and for an annual renewal, from $75 to $350.  The fees for registration of a salesperson or investment adviser salesperson are changed, for an original registration, from $40 to $100 and for an annual renewal, from $20 to $50.

Appropriation:    none

Revenue:    yes

Fiscal Note:      available

Senate Committee - Testified: Deborah Bortner (pro)