BILL REQ. #: Z-0692.6
| State of Washington | 59th Legislature | 2006 Regular Session |
Read first time 01/16/2006. Referred to Committee on Financial Institutions & Insurance.
AN ACT Relating to the uniform securities act of Washington; amending RCW 42.56.400; adding a new chapter to Title 21 RCW; repealing RCW 21.20.005, 21.20.010, 21.20.020, 21.20.030, 21.20.035, 21.20.037, 21.20.040, 21.20.050, 21.20.060, 21.20.070, 21.20.080, 21.20.090, 21.20.100, 21.20.110, 21.20.120, 21.20.130, 21.20.135, 21.20.140, 21.20.180, 21.20.190, 21.20.200, 21.20.210, 21.20.220, 21.20.230, 21.20.240, 21.20.250, 21.20.260, 21.20.270, 21.20.275, 21.20.280, 21.20.290, 21.20.300, 21.20.310, 21.20.320, 21.20.325, 21.20.327, 21.20.330, 21.20.340, 21.20.350, 21.20.360, 21.20.370, 21.20.380, 21.20.390, 21.20.395, 21.20.400, 21.20.410, 21.20.420, 21.20.430, 21.20.435, 21.20.440, 21.20.450, 21.20.460, 21.20.470, 21.20.480, 21.20.490, 21.20.500, 21.20.510, 21.20.520, 21.20.530, 21.20.540, 21.20.550, 21.20.560, 21.20.570, 21.20.580, 21.20.590, 21.20.700, 21.20.702, 21.20.705, 21.20.710, 21.20.715, 21.20.717, 21.20.720, 21.20.725, 21.20.727, 21.20.730, 21.20.732, 21.20.734, 21.20.740, 21.20.745, 21.20.750, 21.20.800, 21.20.805, 21.20.810, 21.20.815, 21.20.820, 21.20.825, 21.20.830, 21.20.835, 21.20.840, 21.20.845, 21.20.850, 21.20.855, 21.20.900, 21.20.905, 21.20.910, 21.20.915, 21.20.920, 21.20.925, 21.20.930, 21.20.935, and 21.20.940; prescribing penalties; and providing an effective date.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:
NEW SECTION. Sec. 1 The following acts or parts of acts are each
repealed:
(1) RCW 21.20.005 (Definitions) and 2002 c 65 s 1, 1998 c 15 s 1,
& 1994 c 256 s 3;
(2) RCW 21.20.010 (Unlawful offers, sales, purchases) and 1959 c
282 s 1;
(3) RCW 21.20.020 (Unlawful acts of person advising another) and
2002 c 65 s 2, 1998 c 15 s 2, & 1959 c 282 s 2;
(4) RCW 21.20.030 (Unlawful acts of investment adviser) and 1993 c
114 s 1 & 1959 c 282 s 3;
(5) RCW 21.20.035 (Unlawful purchases or sales for customer's
account) and 1994 c 256 s 4 & 1993 c 470 s 1;
(6) RCW 21.20.037 (Variable contracts -- Registration required--Rules) and 2002 c 65 s 8;
(7) RCW 21.20.040 (Registration and notification required--Exemptions) and 2002 c 65 s 3, 1998 c 15 s 3, 1994 c 256 s 5, 1989 c
391 s 2, 1979 ex.s. c 68 s 2, 1975 1st ex.s. c 84 s 2, 1974 ex.s. c 77
s 1, & 1959 c 282 s 4;
(8) RCW 21.20.050 (Application for registration -- Filing of
documents -- Consent to service of process -- Fee) and 1998 c 15 s 4, 1994
c 256 s 6, 1981 c 272 s 1, 1979 ex.s. c 68 s 3, 1975 1st ex.s. c 84 s
3, 1961 c 37 s 2, & 1959 c 282 s 5;
(9) RCW 21.20.060 (Contents of application for registration--Capital requirements) and 1998 c 15 s 5, 1995 c 46 s 1, 1994 c 256 s 7,
1965 c 17 s 1, & 1959 c 282 s 6;
(10) RCW 21.20.070 (When registration effective -- Requirements
determined by rule) and 1998 c 15 s 6, 1981 c 272 s 2, 1979 ex.s. c 68
s 4, 1975 1st ex.s. c 84 s 4, 1974 ex.s. c 77 s 2, & 1959 c 282 s 7;
(11) RCW 21.20.080 (Duration of registration -- Association with
issuer, broker-dealer, federal covered adviser, or investment adviser--Notice to director -- Extension of licensing period) and 1998 c 15 s 7,
1994 c 256 s 8, 1981 c 272 s 3, 1979 ex.s. c 68 s 5, 1975 1st ex.s. c
84 s 5, & 1959 c 282 s 8;
(12) RCW 21.20.090 (Renewal of registration -- Financial reports--Application for a successor) and 1998 c 15 s 8, 1995 c 46 s 2, 1994 c
256 s 9, 1981 c 272 s 4, 1979 ex.s. c 68 s 6, 1975 1st ex.s. c 84 s 6,
1961 c 37 s 3, & 1959 c 282 s 9;
(13) RCW 21.20.100 (Accounts, correspondence, memoranda, papers,
books, and other records -- Release of information -- Correction of filed
document -- Examination) and 1998 c 15 s 9 & 1959 c 282 s 10;
(14) RCW 21.20.110 (Director may deny, suspend, revoke, restrict,
condition, or limit any application or registration -- Director may
censure or fine registrant -- Grounds -- Procedures -- Costs -- Accounting) and
2003 c 288 s 4, 2002 c 65 s 4, 1998 c 15 s 10, 1997 c 58 s 856, 1994 c
256 s 10, 1993 c 470 s 3, 1986 c 14 s 45, 1979 ex.s. c 68 s 7, 1975 1st
ex.s. c 84 s 7, 1965 c 17 s 2, & 1959 c 282 s 11;
(15) RCW 21.20.120 (Denial, suspension, revocation of
registration -- Order -- Request for, notice of hearing -- Findings and
conclusions) and 1994 c 256 s 11, 1979 ex.s. c 68 s 8, 1975 1st ex.s.
c 84 s 8, & 1959 c 282 s 12;
(16) RCW 21.20.130 (Cancellation of registration or application--Grounds) and 1994 c 256 s 12, 1979 ex.s. c 68 s 9, 1975 1st ex.s. c 84
s 9, & 1959 c 282 s 13;
(17) RCW 21.20.135 (License as salesperson or broker-dealer
prerequisite to suit for commission) and 1979 ex.s. c 68 s 10, 1974
ex.s. c 77 s 3, & 1961 c 37 s 10;
(18) RCW 21.20.140 (Unlawful to offer or sell unregistered
securities -- Exceptions) and 1998 c 15 s 11, 1975 1st ex.s. c 84 s 10,
& 1959 c 282 s 14;
(19) RCW 21.20.180 (Registration by coordination -- Requirements--Statement, contents) and 1994 c 256 s 13, 1979 ex.s. c 68 s 11, 1961 c
37 s 4, & 1959 c 282 s 18;
(20) RCW 21.20.190 (Time of taking effect of registration statement
by coordination -- Conditions -- "Price amendment", notification) and 1994
c 256 s 14, 1961 c 37 s 5, & 1959 c 282 s 19;
(21) RCW 21.20.200 (Failure to notify of price amendment, proof of
compliance -- Stop order -- Waiver of certain conditions) and 1994 c 256 s
15, 1979 ex.s. c 68 s 12, & 1959 c 282 s 20;
(22) RCW 21.20.210 (Registration by qualification -- Statements--Requirements -- Audits) and 1994 c 256 s 16, 1979 ex.s. c 68 s 13, 1973
1st ex.s. c 171 s 1, & 1959 c 282 s 21;
(23) RCW 21.20.220 (Information not required when nonissuer
distribution) and 1959 c 282 s 22;
(24) RCW 21.20.230 (Time of taking effect of registration statement
by qualification -- Conditions) and 1979 ex.s. c 68 s 14, 1975 1st ex.s.
c 84 s 11, 1974 ex.s. c 77 s 4, 1961 c 37 s 6, & 1959 c 282 s 23;
(25) RCW 21.20.240 (Registration statements -- Generally) and 1975
1st ex.s. c 84 s 12 & 1959 c 282 s 24;
(26) RCW 21.20.250 (Registration by qualification or coordination--Escrow -- Impounding proceeds) and 1979 ex.s. c 68 s 15 & 1959 c 282 s
25;
(27) RCW 21.20.260 (Registration by coordination or qualification--Offer and sale -- Duration of effectiveness) and 1975 1st ex.s. c 84 s
13, 1974 ex.s. c 77 s 5, & 1959 c 282 s 26;
(28) RCW 21.20.270 (Reports by filer of statement -- Annual financial
statements) and 1995 c 46 s 3, 1975 1st ex.s. c 84 s 14, 1965 c 17 s 3,
1961 c 37 s 7, & 1959 c 282 s 27;
(29) RCW 21.20.275 (Pending registration -- Notice of termination--Application for continuation) and 1994 c 256 s 17, 1979 ex.s. c 68 s
16, & 1974 ex.s. c 77 s 12;
(30) RCW 21.20.280 (Stop orders -- Grounds) and 1979 ex.s. c 68 s 17,
1975 1st ex.s. c 84 s 15, & 1959 c 282 s 28;
(31) RCW 21.20.290 (Stop order prohibited if facts known on
effective date of statement) and 1979 ex.s. c 68 s 18 & 1959 c 282 s
29;
(32) RCW 21.20.300 (Notification of entry of stop order -- Hearing--Findings, conclusions, modification, etc.) and 1979 ex.s. c 68 s 19 &
1959 c 282 s 30;
(33) RCW 21.20.310 (Securities exempt from registration) and 2002
c 65 s 5, 1998 c 15 s 13, 1995 c 46 s 4, 1994 c 256 s 18, 1981 c 272 s
5, 1979 ex.s. c 68 s 20, 1979 c 130 s 4, & 1979 c 8 s 1;
(34) RCW 21.20.320 (Exempt transactions) and 1998 c 15 s 14 & 1989
c 307 s 34;
(35) RCW 21.20.325 (Denial, revocation, condition, of exemptions--Authority -- Procedure) and 1979 ex.s. c 68 s 22, 1979 c 130 s 14, 1977
ex.s. c 188 s 3, 1975 1st ex.s. c 84 s 18, 1974 ex.s. c 77 s 7, & 1967
c 199 s 3;
(36) RCW 21.20.327 (Required filings -- Consent to service -- Failure
to comply -- Rules -- Fees) and 1998 c 15 s 12;
(37) RCW 21.20.330 (Consent to service of process -- Service, how
made) and 1998 c 15 s 15, 1994 c 256 s 19, 1979 ex.s. c 68 s 23, 1975
1st ex.s. c 84 s 19, & 1959 c 282 s 33;
(38) RCW 21.20.340 (Fees -- Disposition) and 1998 c 15 s 16, 1995 c
46 s 5, 1994 c 256 s 20, 1988 c 244 s 17, 1986 c 90 s 2, 1981 c 272 s
7, & 1979 ex.s. c 68 s 24;
(39) RCW 21.20.350 (False or misleading statements in filed
documents) and 1959 c 282 s 35;
(40) RCW 21.20.360 (Filing, registration, statement, exemption not
conclusive as to truth or completeness -- Unlawful representations) and
1975 1st ex.s. c 84 s 21 & 1959 c 282 s 36;
(41) RCW 21.20.370 (Investigations -- Statement of facts relating to
investigation may be permitted -- Publication of information -- Use of
criminal history record information) and 2002 c 65 s 6, 1998 c 15 s 17,
1994 c 256 s 21, 1979 ex.s. c 68 s 25, 1973 1st ex.s. c 171 s 2, & 1959
c 282 s 37;
(42) RCW 21.20.380 (Oaths -- Subpoenas -- Assisting another state--Compelling obedience -- Punishment) and 2002 c 65 s 7, 1995 c 46 s 6,
1994 c 256 s 22, 1979 ex.s. c 68 s 26, 1975 1st ex.s. c 84 s 22, 1974
ex.s. c 77 s 9, & 1959 c 282 s 38;
(43) RCW 21.20.390 (Injunction, cease and desist order, restraining
order, mandamus -- Appointment of receiver or conservator for insolvent--Restitution or damages -- Costs -- Accounting) and 2003 c 288 s 5, 1995 c
46 s 7, 1994 c 256 s 23, 1981 c 272 s 8, 1979 ex.s. c 68 s 27, 1975 1st
ex.s. c 84 s 23, 1974 ex.s. c 77 s 10, & 1959 c 282 s 39;
(44) RCW 21.20.395 (Administrative action -- Hearing -- Judicial
review -- Judgment) and 2003 c 288 s 6 & 1998 c 15 s 18;
(45) RCW 21.20.400 (Penalty for violation of chapter -- Limitation of
actions) and 2003 c 288 s 3, 2003 c 53 s 163, 1979 ex.s. c 68 s 28,
1965 c 17 s 5, & 1959 c 282 s 40;
(46) RCW 21.20.410 (Attorney general, prosecuting attorney may
institute criminal proceeding -- Referral of evidence by director) and
1998 c 15 s 19, 1979 ex.s. c 68 s 29, & 1959 c 282 s 41;
(47) RCW 21.20.420 (Criminal punishment, chapter not exclusive) and
1959 c 282 s 42;
(48) RCW 21.20.430 (Civil liabilities -- Survival, limitation of
actions -- Waiver of chapter void -- Scienter) and 1998 c 15 s 20, 1986 c
304 s 1, 1985 c 171 s 1, 1981 c 272 s 9, 1979 ex.s. c 68 s 30, 1977
ex.s. c 172 s 4, 1975 1st ex.s. c 84 s 24, 1974 ex.s. c 77 s 11, 1967
c 199 s 2, & 1959 c 282 s 43;
(49) RCW 21.20.435 (Assurance of discontinuance of violations--Acceptance -- Filing) and 1979 ex.s. c 68 s 31 & 1974 ex.s. c 77 s 13;
(50) RCW 21.20.440 (Judicial review of order -- Modification of order
by director on additional evidence) and 1979 ex.s. c 68 s 32 & 1959 c
282 s 44;
(51) RCW 21.20.450 (Administration of chapter -- Rules and forms,
publication -- Cooperation with other state and federal authorities) and
1994 c 256 s 24, 1993 c 472 s 15, 1979 ex.s. c 68 s 33, 1979 c 158 s
86, 1975 1st ex.s. c 84 s 25, & 1959 c 282 s 45;
(52) RCW 21.20.460 (Administrator of securities -- Appointment,
qualifications, term, etc.) and 1959 c 282 s 46;
(53) RCW 21.20.470 (Compensation, travel expenses of administrator
and employees) and 1979 ex.s. c 68 s 34, 1975-'76 2nd ex.s. c 34 s 64,
& 1959 c 282 s 47;
(54) RCW 21.20.480 (Unlawful use or disclosure of filed
information) and 1979 ex.s. c 68 s 35 & 1959 c 282 s 48;
(55) RCW 21.20.490 (No liability under chapter for act in good
faith) and 1959 c 282 s 49;
(56) RCW 21.20.500 (Administrative hearings public -- Exception) and
1979 ex.s. c 68 s 36 & 1959 c 282 s 50;
(57) RCW 21.20.510 (Document filed when received -- Register--Inspection of register, information, etc.) and 1994 c 256 s 25 & 1959
c 282 s 51;
(58) RCW 21.20.520 (Copies of entries, documents to be furnished--Copies as prima facie evidence) and 1979 ex.s. c 68 s 37 & 1959 c 282
s 52;
(59) RCW 21.20.530 (Interpretative opinions by director) and 1979
ex.s. c 68 s 38 & 1959 c 282 s 53;
(60) RCW 21.20.540 (Exemptions, exceptions, and preemptions -- Burden
of proof) and 1998 c 15 s 21 & 1959 c 282 s 54;
(61) RCW 21.20.550 (State advisory committee -- Composition,
appointment, qualifications) and 1973 1st ex.s. c 171 s 3 & 1959 c 282
s 55;
(62) RCW 21.20.560 (State advisory committee -- Chairperson,
secretary -- Meetings) and 1979 ex.s. c 68 s 39, 1973 1st ex.s. c 171 s
4, & 1959 c 282 s 56;
(63) RCW 21.20.570 (State advisory committee -- Terms -- Vacancies) and
1959 c 282 s 57;
(64) RCW 21.20.580 (State advisory committee -- Duties) and 1981 c
272 s 10, 1979 ex.s. c 68 s 40, & 1959 c 282 s 58;
(65) RCW 21.20.590 (State advisory committee -- Reimbursement of
travel expenses) and 1981 c 272 s 11, 1975-'76 2nd ex.s. c 34 s 65, &
1959 c 282 s 59;
(66) RCW 21.20.700 (Investigations and examinations -- Additional
authority -- Scope) and 1988 c 244 s 1 & 1973 1st ex.s. c 171 s 5;
(67) RCW 21.20.702 (Suitability of recommendation--Reasonable
grounds required) and 1994 c 256 s 26 & 1993 c 470 s 2;
(68) RCW 21.20.705 (Debenture companies -- Definitions) and 1988 c
244 s 2, 1987 c 421 s 1, 1979 c 140 s 1, & 1973 1st ex.s. c 171 s 6;
(69) RCW 21.20.710 (Debenture companies -- Capital requirements) and
1988 c 244 s 3 & 1973 1st ex.s. c 171 s 7;
(70) RCW 21.20.715 (Debenture companies -- Maturity date
requirements) and 1987 c 421 s 2 & 1973 1st ex.s. c 171 s 8;
(71) RCW 21.20.717 (Debenture companies -- Controlling person--Exceptions) and 1987 c 421 s 3;
(72) RCW 21.20.720 (Debenture companies -- Prohibited activities by
directors, officers, or controlling persons) and 1993 c 472 s 16, 1987
c 421 s 4, 1979 ex.s. c 68 s 41, 1979 c 158 s 87, & 1973 1st ex.s. c
171 s 9;
(73) RCW 21.20.725 (Debenture companies -- Debentures payable on
demand -- Interest -- Certificates of debenture) and 1988 c 244 s 4 & 1973
1st ex.s. c 171 s 10;
(74) RCW 21.20.727 (Debenture companies -- Acquisition of control--Requirements -- Violation -- Penalty) and 1987 c 421 s 5;
(75) RCW 21.20.730 (Debenture companies -- Acquisition of control--Grounds for disapproval) and 1987 c 421 s 6;
(76) RCW 21.20.732 (Debenture companies -- Notice of charges--Hearing -- Cease and desist orders) and 1988 c 244 s 5 & 1987 c 421 s 7;
(77) RCW 21.20.734 (Debenture companies -- Temporary cease and desist
orders) and 1988 c 244 s 6 & 1987 c 421 s 8;
(78) RCW 21.20.740 (Reports -- Requirements) and 1997 c 101 s 1, 1979
ex.s. c 68 s 42, & 1973 1st ex.s. c 171 s 11;
(79) RCW 21.20.745 (Reports -- Violations of reporting requirements--
Penalties -- Contribution) and 1979 ex.s. c 68 s 43 & 1973 1st ex.s. c
171 s 12;
(80) RCW 21.20.750 (Reports -- Suspension of sale of securities until
reporting requirements complied with) and 1973 1st ex.s. c 171 s 13;
(81) RCW 21.20.800 (Severability -- 1973 1st ex.s. c 171) and 1973
1st ex.s. c 171 s 15;
(82) RCW 21.20.805 (Effective date -- Construction -- 1973 1st ex.s. c
171) and 1973 1st ex.s. c 171 s 14;
(83) RCW 21.20.810 (Application of chapter not limited) and 1988 c
244 s 7;
(84) RCW 21.20.815 (Debenture companies -- Equity investments) and
1988 c 244 s 8;
(85) RCW 21.20.820 (Debenture companies -- Loans to any one
borrower -- Limitations) and 1988 c 244 s 9;
(86) RCW 21.20.825 (Debenture companies -- Bad debts) and 1988 c 244
s 10;
(87) RCW 21.20.830 (Debenture companies -- Investments in unsecured
loans) and 1988 c 244 s 11;
(88) RCW 21.20.835 (Debenture companies -- Debenture holders -- Notice
of maturity date of debenture) and 1988 c 244 s 12;
(89) RCW 21.20.840 (Debenture companies -- Annual financial
statement) and 1988 c 244 s 13;
(90) RCW 21.20.845 (Debenture companies -- Rules) and 1988 c 244 s
14;
(91) RCW 21.20.850 (Debenture companies -- Record maintenance and
preservation -- Examination) and 1988 c 244 s 15;
(92) RCW 21.20.855 (Debenture companies -- Examination reports and
information -- Exempt from public disclosure -- Use in civil actions) and
2005 c 274 § 238 & 1988 c 244 s 16;
(93) RCW 21.20.900 (Construction to secure uniformity) and 1959 c
282 s 61;
(94) RCW 21.20.905 (Severability -- 1959 c 282) and 1959 c 282 s 62;
(95) RCW 21.20.910 (Saving -- Civil, criminal proceedings) and 1959
c 282 s 63;
(96) RCW 21.20.915 (Saving -- Prior effective registrations) and 1979
ex.s. c 68 s 44 & 1959 c 282 s 64;
(97) RCW 21.20.920 (Application of prior law) and 1959 c 282 s 65;
(98) RCW 21.20.925 (Judicial review of prior administrative orders)
and 1959 c 282 s 66;
(99) RCW 21.20.930 (Solicitation permits under insurance laws not
limited) and 1959 c 282 s 67;
(100) RCW 21.20.935 (Repealer) and 1959 c 282 s 68; and
(101) RCW 21.20.940 (Short title) and 1959 c 282 s 69.
NEW SECTION. Sec. 2
NEW SECTION. Sec. 3
(1) "Director" means the director of the department of financial
institutions.
(2) "Sales agent" means an individual, other than a broker-dealer,
who represents a broker-dealer in effecting or attempting to effect
purchases or sales of securities or represents an issuer in effecting
or attempting to effect purchases or sales of the issuer's securities.
But a partner, officer, or director of a broker-dealer or issuer, or an
individual having a similar status or performing similar functions is
a sales agent only if the individual otherwise comes within this
definition. "Sales agent" does not include an individual excluded by
rule adopted or order issued under this chapter.
(3) "Bank" means:
(a) A banking institution organized under the laws of the United
States;
(b) A member bank of the Federal Reserve System;
(c) Any other banking institution, whether incorporated or not,
doing business under the laws of a state or of the United States, a
substantial portion of the business of which consists of receiving
deposits or exercising fiduciary powers similar to those permitted to
be exercised by national banks under the authority of the comptroller
of the currency pursuant to section 1 of Public Law 87-722 (12 U.S.C.
Sec. 92a), and which is supervised and examined by a state or federal
agency having supervision over banks, and which is not operated for the
purpose of evading this chapter; and
(d) A receiver, conservator, or other liquidating agent of any
institution or firm included in this subsection.
(4) "Broker-dealer" means a person engaged in the business of
effecting transactions in securities for the account of others or for
the person's own account. "Broker-dealer" does not include:
(a) A sales agent;
(b) An issuer;
(c) A bank or savings institution if its activities as a broker-dealer are limited to those specified in subsections 3(a)(4)(B)(i)
through (vi), (viii) through (x), and (xi) if limited to unsolicited
transactions; 3(a)(5)(B); and 3(a)(5)(C) of the Securities Exchange Act
of 1934 (15 U.S.C. Secs. 78c(a)(4) and (5)) or a bank that satisfies
the conditions described in subsection 3(a)(4)(E) of the Securities
Exchange Act of 1934 (15 U.S.C. Sec. 78c(a)(4));
(d) An international banking institution; or
(e) A person excluded by rule adopted or order issued under this
chapter.
(5) "Depository institution" means:
(a) A bank; or
(b) A savings institution, trust company, credit union, or similar
institution that is organized or chartered under the laws of a state or
of the United States, authorized to receive deposits, and supervised
and examined by an official or agency of a state or the United States
if its deposits or share accounts are insured to the maximum amount
authorized by statute by the Federal Deposit Insurance Corporation, the
National Credit Union Share Insurance Fund, or a successor authorized
by federal law. "Depository institution" does not include:
(i) An insurance company or other organization primarily engaged in
the business of insurance;
(ii) A Morris Plan bank; or
(iii) An industrial loan company that is not an "insured depository
institution" as defined in Section 3(c)(2) of the Federal Deposit
Insurance Act, 12 U.S.C. Sec. 1813(c)(2), or any successor federal
statute.
(6) "Federal covered investment adviser" means a person registered
under the Investment Advisers Act of 1940.
(7) "Federal covered security" means a security that is, or upon
completion of a transaction will be, a covered security under Section
18(b) of the Securities Act of 1933 (15 U.S.C. Sec. 77r(b)) or rules or
regulations adopted pursuant to that section.
(8) "Filing" means the receipt under this chapter of a record by
the director or a designee of the director.
(9) "Fraud," "deceit," and "defraud" are not limited to common law
deceit.
(10) "Guaranteed" means guaranteed as to payment of all principal
and all interest.
(11) "Institutional investor" means any of the following, whether,
except as otherwise stated, acting for itself or for others in a
fiduciary capacity:
(a) A depository institution or international banking institution;
(b) An insurance company;
(c) A separate account of an insurance company;
(d) An investment company as defined in the Investment Company Act
of 1940;
(e) A broker-dealer registered under the Securities Exchange Act of
1934;
(f) An employee pension, profit-sharing, or benefit plan if the
plan has total assets in excess of ten million dollars or its
investment decisions are made by a named fiduciary, as defined in the
Employee Retirement Income Security Act of 1974, that is a broker-dealer registered under the Securities Exchange Act of 1934, an
investment adviser registered or exempt from registration under the
Investment Advisers Act of 1940, an investment adviser registered under
this chapter, a depository institution, or an insurance company;
(g) A plan established and maintained by a state, a political
subdivision of a state, or an agency or instrumentality of a state or
a political subdivision of a state for the benefit of its employees, if
the plan has total assets in excess of ten million dollars or its
investment decisions are made by a duly designated public official or
by a named fiduciary, as defined in the Employee Retirement Income
Security Act of 1974, that is a broker-dealer registered under the
Securities Exchange Act of 1934, an investment adviser registered or
exempt from registration under the Investment Advisers Act of 1940, an
investment adviser registered under this chapter, a depository
institution, or an insurance company;
(h) A trust, if it has total assets in excess of ten million
dollars, its trustee is a depository institution, and its participants
are exclusively plans of the types identified in (f) or (g) of this
subsection, regardless of the size of their assets, except a trust that
includes as participants self-directed individual retirement accounts
or similar self-directed plans;
(i) An organization described in Section 501(c)(3) of the Internal
Revenue Code (26 U.S.C. Sec. 501(c)(3)), corporation, Massachusetts
trust or similar business trust, limited liability company, or
partnership, not formed for the specific purpose of acquiring the
securities offered, with total assets in excess of ten million dollars;
(j) A small business investment company licensed by the Small
Business Administration under Section 301(c) of the Small Business
Investment Act of 1958 (15 U.S.C. Sec. 681(c)) with total assets in
excess of ten million dollars;
(k) A private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940 (15 U.S.C. Sec. 80b-2(a)(22)) with total assets in excess of ten million dollars;
(l) A federal covered investment adviser acting for its own
account;
(m) A "qualified institutional buyer" as defined in Rule
144A(a)(1), other than Rule 144A(a)(1)(i)(H), adopted under the
Securities Act of 1933 (17 C.F.R. 230.144A);
(n) A "major U.S. institutional investor" as defined in Rule 15a-6(b)(4)(i) adopted under the Securities Exchange Act of 1934 (17 C.F.R.
240.15a-6);
(o) Any other person, other than an individual, of institutional
character with total assets in excess of ten million dollars not
organized for the specific purpose of evading this chapter; or
(p) Any other person specified by rule adopted or order issued
under this chapter.
(12) "Insurance company" means a company organized as an insurance
company whose primary business is writing insurance or reinsuring risks
underwritten by insurance companies and which is subject to supervision
by the insurance commissioner or a similar official or agency of a
state.
(13) "Insured" means insured as to payment of all principal and all
interest.
(14) "International banking institution" means an international
financial institution of which the United States is a member and whose
securities are exempt from registration under the Securities Act of
1933.
(15) "Investment adviser" means a person that, for compensation,
engages in the business of advising others, either directly or through
publications or writings, as to the value of securities or the
advisability of investing in, purchasing, or selling securities or
that, for compensation and as a part of a regular business, issues or
promulgates analyses or reports concerning securities. "Investment
advisor" includes a financial planner or other person that, as an
integral component of other financially related services, provides
investment advice to others for compensation as part of a business or
that holds itself out as providing investment advice to others for
compensation. "Investment advisor" does not include:
(a) An investment adviser representative;
(b) A lawyer, accountant, engineer, or teacher whose performance of
investment advice is solely incidental to the practice of the person's
profession;
(c) A broker-dealer or its sales agents whose performance of
investment advice is solely incidental to the conduct of business as a
broker-dealer and that does not receive special compensation for the
investment advice;
(d) A publisher of a bona fide newspaper, news magazine, or
business or financial publication of general and regular circulation;
(e) A federal covered investment adviser;
(f) A bank or savings institution;
(g) Any other person that is excluded by the Investment Advisers
Act of 1940 from the definition of investment adviser; or
(h) Any other person excluded by rule adopted or order issued under
this chapter.
(16) "Investment adviser representative" means an individual
employed by or associated with an investment adviser or federal covered
investment adviser and who makes any recommendations or otherwise gives
investment advice regarding securities, manages accounts or portfolios
of clients, determines which recommendation or advice regarding
securities should be given, provides investment advice or holds herself
or himself out as providing investment advice, receives compensation to
solicit, offer, or negotiate for the sale of or for selling investment
advice, or supervises employees who perform any of these activities.
"Investment advisor representative" does not include an individual who:
(a) Performs only clerical or ministerial acts;
(b) Is a sales agent whose performance of investment advice is
solely incidental to the individual acting as a sales agent and who
does not receive special compensation for investment advisory services;
(c) Is employed by or associated with a federal covered investment
adviser, unless the individual has a "place of business" in this state
as defined by rule adopted under Section 203A of the Investment
Advisers Act of 1940 (15 U.S.C. Sec. 80b-3a) and is:
(i) An "investment adviser representative" as defined by rule
adopted under Section 203A of the Investment Advisers Act of 1940 (15
U.S.C. Sec. 80b-3a); or
(ii) Not a "supervised person" as defined in Section 202(a)(25) of
the Investment Advisers Act of 1940 (15 U.S.C. Sec. 80b-2(a)(25)); or
(d) Is excluded by rule adopted or order issued under this chapter.
(17) "Issuer" means a person that issues or proposes to issue a
security, subject to the following:
(a) The issuer of a voting trust certificate, collateral trust
certificate, certificate of deposit for a security, or share in an
investment company without a board of directors or individuals
performing similar functions is the person performing the acts and
assuming the duties of depositor or manager pursuant to the trust or
other agreement or instrument under which the security is issued;
(b) The issuer of an equipment trust certificate or similar
security serving the same purpose is the person by which the property
is or will be used or to which the property or equipment is or will be
leased or conditionally sold or that is otherwise contractually
responsible for assuring payment of the certificate; and
(c) The issuer of a fractional undivided interest in an oil, gas,
or other mineral lease or in payments out of production under a lease,
right, or royalty is the owner of an interest in the lease or in
payments out of production under a lease, right, or royalty, whether
whole or fractional, that creates fractional interests for the purpose
of sale.
(18) "Nonissuer transaction" or "nonissuer distribution" means a
transaction or distribution not directly or indirectly for the benefit
of the issuer.
(19) "Offer to purchase" includes an attempt or offer to obtain, or
solicitation of an offer to sell, a security or interest in a security
for value. "Offer to purchase" does not include a tender offer that is
subject to Section 14(d) of the Securities Exchange Act of 1934 (15
U.S.C. Sec. 78n(d)).
(20) "Person" means an individual; corporation; business trust;
estate; trust; partnership; limited liability company; association;
joint venture; government; governmental subdivision, agency, or
instrumentality; public corporation; or any other legal or commercial
entity.
(21) "Place of business" of a broker-dealer, an investment adviser,
or a federal covered investment adviser means:
(a) An office at which the broker-dealer, investment adviser, or
federal covered investment adviser regularly provides brokerage or
investment advice or solicits, meets with, or otherwise communicates
with customers or clients; or
(b) Any other location that is held out to the general public as a
location at which the broker-dealer, investment adviser, or federal
covered investment adviser provides brokerage or investment advice or
solicits, meets with, or otherwise communicates with customers or
clients.
(22) "Predecessor act" means chapter 21.20 RCW as repealed by
section 1 of this act.
(23) "Price amendment" means the amendment to a registration
statement filed under the Securities Act of 1933 or, if an amendment is
not filed, the prospectus or prospectus supplement filed under the
Securities Act of 1933 that includes a statement of the offering price,
underwriting and selling discounts or commissions, amount of proceeds,
conversion rates, call prices, and other matters dependent upon the
offering price.
(24) "Principal place of business" of a broker-dealer or an
investment adviser means the executive office of the broker-dealer or
investment adviser from which the officers, partners, or managers of
the broker-dealer or investment adviser direct, control, and coordinate
the activities of the broker-dealer or investment adviser.
(25) "Record," except in the phrases "of record," "official
record," and "public record," means information that is inscribed on a
tangible medium or that is stored in an electronic or other medium and
is retrievable in perceivable form.
(26) "Sale" includes every contract of sale, contract to sell, or
disposition of, a security or interest in a security for value, and
"offer to sell" includes every attempt or offer to dispose of, or
solicitation of an offer to purchase, a security or interest in a
security for value. "Sale" and "offer to sell" include:
(a) A security given or delivered with, or as a bonus on account
of, a purchase of securities or any other thing constituting part of
the subject of the purchase and having been offered and sold for value;
(b) A gift of assessable stock involving an offer and sale; and
(c) A sale or offer of a warrant or right to purchase or subscribe
to another security of the same or another issuer and a sale or offer
of a security that gives the holder a present or future right or
privilege to convert the security into another security of the same or
another issuer, including an offer of the other security.
(27) "Securities and Exchange Commission" means the United States
Securities and Exchange Commission.
(28) "Security" means a note; stock; treasury stock; security
future; bond; debenture; evidence of indebtedness; certificate of
interest or participation in a profit-sharing agreement; collateral
trust certificate; preorganization certificate or subscription;
transferable share; investment contract; voting trust certificate;
certificate of deposit for a security; fractional undivided interest in
oil, gas, or other mineral rights; put, call, straddle, option, or
privilege on a security, certificate of deposit, or group or index of
securities, including an interest therein or based on the value
thereof; put, call, straddle, option, or privilege entered into on a
national securities exchange relating to foreign currency; or, in
general, an interest or instrument commonly known as a "security"; or
a certificate of interest or participation in, temporary or interim
certificate for, receipt for, guarantee of, or warrant or right to
subscribe to or purchase, any of the foregoing. "Security":
(a) Includes both a certificated and an uncertificated security;
(b) Does not include an insurance or endowment policy or annuity
contract under which an insurance company promises to pay a fixed sum
of money either in a lump sum or periodically for life or other
specified period;
(c) Does not include an interest in a contributory or
noncontributory pension or welfare plan subject to the Employee
Retirement Income Security Act of 1974;
(d) Includes an investment in a common enterprise with the
expectation of profits to be derived primarily from the efforts of a
person other than the investor and a "common enterprise" means an
enterprise in which the fortunes of the investor are interwoven with
those of either the person offering the investment, a third party, or
other investors;
(e) Includes as an "investment contract," among other contracts, an
interest in a limited partnership or a limited liability company, or an
investment in a viatical settlement, life settlement, or similar
agreement;
(f) Includes an investment of money or other consideration in the
risk capital of a venture with the expectation of some valuable benefit
to the investor where the investor does not receive the right to
exercise practical or actual control over the managerial decisions of
the venture; and
(g) Includes a charitable gift annuity.
(29) "Self-regulatory organization" means a national securities
exchange registered under the Securities Exchange Act of 1934, a
national securities association of broker-dealers registered under the
Securities Exchange Act of 1934, a clearing agency registered under the
Securities Exchange Act of 1934, or the Municipal Securities Rulemaking
Board established under the Securities Exchange Act of 1934.
(30) "Sign" means, with present intent to authenticate or adopt a
record:
(a) To execute or adopt a tangible symbol; or
(b) To attach or logically associate with the record an electronic
symbol, sound, or process.
(31) "State" means a state of the United States, the District of
Columbia, Puerto Rico, the United States Virgin Islands, or any
territory or insular possession subject to the jurisdiction of the
United States.
NEW SECTION. Sec. 4
NEW SECTION. Sec. 5
NEW SECTION. Sec. 6
NEW SECTION. Sec. 7 Sections 2 through 6 of this act are each
added to chapter 21.20A RCW (created in section 115 of this act) and
codified with the subchapter heading of "General Provisions."
NEW SECTION. Sec. 8
(1) A security, including a revenue obligation or a separate
security as defined in Rule 131 (17 C.F.R. 230.131) adopted under the
Securities Act of 1933, issued, insured, or guaranteed by the United
States; by a state; by a political subdivision of a state; by a public
authority, agency, or instrumentality of one or more states; by a
political subdivision of one or more states; or by a person controlled
or supervised by and acting as an instrumentality of the United States
under authority granted by the Congress; or a certificate of deposit
for any of the securities listed in this subsection, but this exemption
does not include any security payable solely from revenues to be
received from a nongovernmental industrial or commercial enterprise
unless such payments are made or unconditionally guaranteed by a person
whose securities are exempt from registration by subsection (5) or (6)
of this section. However, the director, by rule or order, may exempt
any security payable solely from revenues to be received from a
nongovernmental industrial or commercial enterprise if the director
finds that registration with respect to such securities is not
necessary in the public interest and for the protection of investors;
(2) A security issued, insured, or guaranteed by a foreign
government with which the United States maintains diplomatic relations,
or any of its political subdivisions, if the security is recognized as
a valid obligation by the issuer, insurer, or guarantor, but this
exemption does not include any security payable solely from revenues to
be received from a nongovernmental industrial or commercial enterprise
unless such payments are made or unconditionally guaranteed by a person
whose securities are exempt from registration by subsection (5) or (6)
of this section. However, the director, by rule or order, may exempt
any security payable solely from revenues to be received from a
nongovernmental industrial or commercial enterprise if the director
finds that registration with respect to such securities is not
necessary in the public interest and for the protection of investors;
(3) A security issued by and representing or that will represent an
interest in or a direct obligation of, or be guaranteed by:
(a) An international banking institution;
(b) A banking institution organized under the laws of the United
States; a member bank of the Federal Reserve System; or a depository
institution a substantial portion of the business of which consists or
will consist of receiving deposits or share accounts that are insured
to the maximum amount authorized by statute by the Federal Deposit
Insurance Corporation, the National Credit Union Share Insurance Fund,
or a successor authorized by federal law or exercising fiduciary powers
that are similar to those permitted for national banks under the
authority of the Comptroller of Currency pursuant to Section 1 of
Public Law 87-722 (12 U.S.C. Sec. 92a); or
(c) Any other depository institution, unless by rule or order the
director proceeds under section 11 of this act;
(4) A security issued by and representing an interest in, or a debt
of, or insured or guaranteed by, an insurance company authorized to do
business in this state;
(5) A security issued or guaranteed by a railroad, other common
carrier, public utility, or public utility holding company that is:
(a) Regulated in respect to its rates and charges by the United
States or a state;
(b) Regulated in respect to the issuance or guarantee of the
security by the United States, a state, Canada, or a Canadian province
or territory; or
(c) A public utility holding company registered under the Public
Utility Holding Company Act of 1935 or a subsidiary of such a
registered holding company within the meaning of that act;
(6) A federal covered security specified in Section 18(b)(1) of the
Securities Act of 1933 (15 U.S.C. Sec. 77r(b)(1)) or by rule adopted
under that section or a security listed or approved for listing on
another securities market specified by rule under this chapter; a put
or a call option contract, a warrant, or a subscription right on or
with respect to such securities; or an option or similar derivative
security on a security or an index of securities or foreign currencies
issued by a clearing agency registered under the Securities Exchange
Act of 1934 and listed or designated for trading on a national
securities exchange, a facility of a national securities exchange, or
a facility of a national securities association registered under the
Securities Exchange Act of 1934 or an offer or sale, of the underlying
security in connection with the offer, sale, or exercise of an option
or other security that was exempt when the option or other security was
written or issued; or an option or a derivative security designated by
the Securities and Exchange Commission under Section 9(b) of the
Securities Exchange Act of 1934 (15 U.S.C. Sec. 78i(b));
(7) A security issued by a person organized and operated
exclusively for religious, educational, benevolent, fraternal,
charitable, social, athletic, or reformatory purposes, or as a chamber
of commerce, and not for pecuniary profit, no part of the net earnings
of which inures to the benefit of a private stockholder or other
person, or a security of a company that is excluded from the definition
of an investment company under Section 3(c)(10)(B) of the Investment
Company Act of 1940 (15 U.S.C. Sec. 80a-3(c)(10)(B)); except that with
respect to the offer or sale of a note, bond, debenture, or other
evidence of indebtedness issued by such a person, a rule may be adopted
under this chapter limiting the availability of this exemption by
classifying securities, persons, and transactions, imposing different
requirements for different classes, specifying with respect to (b) of
this subsection the scope of the exemption and the grounds for denial
or suspension, and requiring an issuer:
(a) To file a notice specifying the material terms of the proposed
offer or sale and copies of any proposed sales and advertising
literature to be used and provide that the exemption becomes effective
if the director does not disallow the exemption within the period
established by the rule;
(b) To file a request for exemption authorization for which a rule
under this chapter may specify the scope of the exemption, the
requirement of an offering statement, the filing of sales and
advertising literature, the filing of consent to service of process
complying with section 54 of this act, and grounds for denial or
suspension of the exemption; or
(c) To register under section 16 of this act;
(8) Any charitable gift annuity issued:
(a) Pursuant to the authority granted by RCW 28B.10.485 or similar
authority granted to colleges or universities by any state; or
(b) By an insurer or institution holding a certificate of exemption
under RCW 48.38.010; and
(9) An equipment trust certificate with respect to equipment leased
or conditionally sold to a person, if any security issued by the person
would be exempt under this section or would be a federal covered
security under Section 18(b)(1) of the Securities Act of 1933 (15
U.S.C. Sec. 77r(b)(1)).
NEW SECTION. Sec. 9
(1) An isolated nonissuer transaction, whether effected by or
through a broker-dealer or not;
(2) A nonissuer transaction by or through a broker-dealer
registered, or exempt from registration under this chapter, and a
resale transaction by a sponsor of a unit investment trust registered
under the Investment Company Act of 1940 in a security of a class that
has been outstanding in the hands of the public for at least ninety
days, if, at the date of the transaction:
(a) The issuer of the security is engaged in business, the issuer
is not in the organizational stage or in bankruptcy or receivership,
and the issuer is not a blank check, blind pool, or shell company that
has no specific business plan or purpose or has indicated that its
primary business plan is to engage in a merger or combination of the
business with, or an acquisition of, an unidentified person;
(b) The security is sold at a price reasonably related to its
current market price;
(c) The security does not constitute the whole or part of an unsold
allotment to, or a subscription or participation by, the broker-dealer
as an underwriter of the security or a redistribution;
(d) A nationally recognized securities manual or its electronic
equivalent designated by rule adopted or order issued under this
chapter or a record filed with the Securities and Exchange Commission
that is publicly available contains:
(i) A description of the business and operations of the issuer;
(ii) The names of the issuer's executive officers and the names of
the issuer's directors, if any;
(iii) An audited balance sheet of the issuer as of a date within
eighteen months before the date of the transaction or, in the case of
a reorganization or merger when the parties to the reorganization or
merger each had an audited balance sheet, a pro forma balance sheet for
the combined organization; and
(iv) An audited income statement for each of the issuer's two
immediately previous fiscal years or for the period of existence of the
issuer, whichever is shorter, or, in the case of a reorganization or
merger when each party to the reorganization or merger had audited
income statements, a pro forma income statement; and
(e) Any one of the following requirements is met:
(i) The issuer of the security has a class of equity securities
listed on a national securities exchange registered under Section 6 of
the Securities Exchange Act of 1934 or designated for trading on the
National Association of Securities Dealers Automated Quotation System;
(ii) The issuer of the security is a unit investment trust
registered under the Investment Company Act of 1940;
(iii) The issuer of the security, including its predecessors, has
been engaged in continuous business for at least three years; or
(iv) The issuer of the security has total assets of at least two
million dollars based on an audited balance sheet as of a date within
eighteen months before the date of the transaction or, in the case of
a reorganization or merger when the parties to the reorganization or
merger each had such an audited balance sheet, a pro forma balance
sheet for the combined organization;
(3) A nonissuer transaction by or through a broker-dealer
registered or exempt from registration under this chapter in a security
of a foreign issuer that is a margin security defined in regulations or
rules adopted by the Board of Governors of the Federal Reserve System;
(4) A nonissuer transaction by or through a broker-dealer
registered or exempt from registration under this chapter in an
outstanding security if the guarantor of the security files reports
with the Securities and Exchange Commission under the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934 (15 U.S.C. Sec. 78m or 78o(d));
(5) A nonissuer transaction by or through a broker-dealer
registered or exempt from registration under this chapter in a security
that:
(a) Is rated at the time of the transaction by a nationally
recognized statistical rating organization in one of its four highest
rating categories; or
(b) Has a fixed maturity or a fixed interest or dividend, if:
(i) A default has not occurred during the current fiscal year or
within the three previous fiscal years or during the existence of the
issuer and any predecessor if less than three fiscal years, in the
payment of principal, interest, or dividends on the security; and
(ii) The issuer is engaged in business, is not in the
organizational stage or in bankruptcy or receivership, and is not and
has not been within the previous twelve months a blank check, blind
pool, or shell company that has no specific business plan or purpose or
has indicated that its primary business plan is to engage in a merger
or combination of the business with, or an acquisition of, an
unidentified person;
(6) A nonissuer transaction by or through a broker-dealer
registered or exempt from registration under this chapter effecting an
unsolicited order or offer to purchase;
(7) A nonissuer transaction executed by a bona fide pledgee without
the purpose of evading this chapter;
(8) A nonissuer transaction by a federal covered investment adviser
with investments under management in excess of one hundred million
dollars acting in the exercise of discretionary authority in a signed
record for the account of others;
(9) A transaction in a security, whether or not the security or
transaction is otherwise exempt, in exchange for one or more bona fide
outstanding securities, claims, or property interests, or partly in
such exchange and partly for cash, if the terms and conditions of the
issuance and exchange or the delivery and exchange and the fairness of
the terms and conditions have been approved after a hearing by a court;
an official or agency of the United States; a state securities,
banking, or insurance agency; or other government authority, if
expressly authorized by law to grant such approvals;
(10) A transaction between the issuer or other person on whose
behalf the offering is made and an underwriter, or among underwriters;
(11)(a) A transaction in a note, bond, debenture, or other evidence
of indebtedness secured by a mortgage or other security agreement if:
(i) The note, bond, debenture, or other evidence of indebtedness is
offered and sold with the mortgage or other security agreement as a
unit;
(ii) A general solicitation or general advertisement of the
transaction is not made; and
(iii) A commission or other remuneration is not paid or given,
directly or indirectly, to a person not registered under this chapter
as a broker-dealer or as a sales agent.
(b) A transaction does not qualify for the exemption if it
involves:
(i) A fractional or partial interest in one or more notes, bonds,
debentures, or other evidence of indebtedness, secured by a real or
chattel mortgage or deed of trust, or by an agreement for the sale of
real estate or chattels;
(ii) One of multiple notes, bonds, debentures, or other evidence of
indebtedness, all secured by the same real or chattel mortgage or deed
of trust, or by an agreement for the sale of real estate or chattels,
and sold to more than one purchaser; or
(iii) Services by a person other than the primary obligor on a
note, bond, debenture, or other evidence of indebtedness, that would
render the investor dependent upon such person for a return upon the
note, bond, debenture, or other evidence of indebtedness, as specified
by rule adopted or order issued under this chapter;
(12) A transaction by an executor, director of an estate, sheriff,
marshal, receiver, trustee in bankruptcy, guardian, or conservator;
(13) A sale or offer to sell to:
(a) An institutional investor;
(b) A federal covered investment adviser for its own account and
not for the account of others; or
(c) Any other person exempted by rule adopted or order issued under
this chapter;
(14) A sale or an offer to sell securities by or on behalf of an
issuer, if the transaction is part of a single issue in which:
(a) Not more than twenty-five purchasers are present in this state
during any twelve consecutive months, other than those designated in
subsection (13) of this section;
(b) A general solicitation or general advertising is not made in
connection with the offer to sell or sale of the securities;
(c) A commission or other remuneration is not paid or given,
directly or indirectly, to a person other than a broker-dealer
registered under this chapter or a sales agent registered under this
chapter for soliciting a prospective purchaser in this state;
(d) The issuer reasonably believes that all the purchasers in this
state, other than those designated in subsection (13) of this section,
are purchasing for investment and not with a view to distribution;
(e) A filing is made and a fee, not to exceed three hundred
dollars, is paid in accordance with a rule adopted by the director. A
rule adopted under this subsection may authorize late filings and
require the payment of an additional fee not to exceed three hundred
dollars for any late filing;
(15) A transaction under an offer to existing security holders of
the issuer, including persons that at the date of the transaction are
holders of convertible securities, options, or warrants, if a
commission or other remuneration, other than a standby commission, is
not paid or given, directly or indirectly, for soliciting a security
holder in this state. For purposes of this section, "standby
commission" means the commission payable to a broker-dealer registered
or exempt from registration under this chapter for its firm commitment
to purchase securities offered to existing security holders which are
not purchased by the security holders;
(16) An offer to sell, but not a sale of, a security not exempt
from registration under the Securities Act of 1933 if:
(a) A registration or offering statement or similar record as
required under the Securities Act of 1933 has been filed, but is not
effective, or the offer is made in compliance with Rule 165 adopted
under the Securities Act of 1933 (17 C.F.R. 230.165); and
(b) A stop order of which the offeror is aware has not been issued
against the offeror by the director or the Securities and Exchange
Commission, and an audit, inspection, or proceeding that is public and
that may culminate in a stop order is not known by the offeror to be
pending;
(17) An offer to sell, but not a sale of, a security exempt from
registration under the Securities Act of 1933 if:
(a) A registration statement has been filed under this chapter but
is not effective;
(b) A solicitation of interest is provided in a record to offerees
in compliance with a rule adopted by the director under this chapter;
and
(c) A stop order of which the offeror is aware has not been issued
by the director under this chapter and an audit, inspection, or
proceeding that may culminate in a stop order is not known by the
offeror to be pending;
(18) A transaction involving the distribution of the securities of
an issuer to the security holders of another person in connection with
a merger, consolidation, exchange of securities, sale of assets, or
other reorganization to which the issuer, or its parent or subsidiary,
and the other person, or its parent or subsidiary, are parties;
(19) A rescission offer, sale, or purchase under section 43 of this
act;
(20) An offer or sale of a security to a person not a resident of
this state and not present in this state if the offer or sale does not
constitute a violation of the laws of the state or foreign jurisdiction
in which the offeree or purchaser is present and is not part of an
unlawful plan or scheme to evade this chapter;
(21) A transaction pursuant to an employees' stock purchase,
savings, option, profit-sharing, pension, or similar employees' benefit
plan, including any securities, plan interests, and guarantees issued
under a compensatory benefit plan or compensation contract, contained
in a record, established by the issuer, its parents, its majority-owned
subsidiaries, or the majority-owned subsidiaries of the issuer's parent
for the participation of their employees including offers or sales of
such securities to:
(a) Directors; general partners; trustees, if the issuer is a
business trust; officers; consultants; and advisors;
(b) Family members who acquire such securities from those persons
through gifts or domestic relations orders;
(c) Former employees, directors, general partners, trustees,
officers, consultants, and advisors if those individuals were employed
by or providing services to the issuer when the securities were
offered; and
(d) Insurance agents who are exclusive insurance agents of the
issuer, or the issuer's subsidiaries or parents, or who derive more
than fifty percent of their annual income from those organizations;
(22) A transaction involving:
(a) A stock dividend or equivalent equity distribution, whether the
corporation or other business organization distributing the dividend or
equivalent equity distribution is the issuer or not, if nothing of
value is given by stockholders or other equity holders for the dividend
or equivalent equity distribution other than the surrender of a right
to a cash or property dividend if each stockholder or other equity
holder may elect to take the dividend or equivalent equity distribution
in cash, property, or stock;
(b) An act incident to a judicially approved reorganization in
which a security is issued in exchange for one or more outstanding
securities, claims, or property interests, or partly in such exchange
and partly for cash; or
(c) The solicitation of tenders of securities by an offeror in a
tender offer in compliance with Rule 162 adopted under the Securities
Act of 1933 (17 C.F.R. 230.162);
(23) A nonissuer transaction in an outstanding security by or
through a broker-dealer registered or exempt from registration under
this chapter, if the issuer is a reporting issuer in a foreign
jurisdiction designated by this subsection or by rule adopted or order
issued under this chapter; has been subject to continuous reporting
requirements in the foreign jurisdiction for not less than one hundred
eighty days before the transaction; and the security is listed on the
foreign jurisdiction's securities exchange that has been designated by
this subsection or by rule adopted or order issued under this chapter,
or is a security of the same issuer that is of senior or substantially
equal rank to the listed security or is a warrant or right to purchase
or subscribe to any of the foregoing under this subsection. For
purposes of this subsection, Canada, together with its provinces and
territories, is a designated foreign jurisdiction and The Toronto Stock
Exchange, Inc., is a designated securities exchange. The director, by
rule adopted or order issued under this chapter, may revoke the
designation of a securities exchange under this subsection, if the
director finds that revocation is necessary or appropriate in the
public interest and for the protection of investors;
(24) A transaction by a mutual or cooperative association which
meets the requirements of (a) and (b) of this subsection:
(a) The transaction:
(i) Does not involve advertising or public solicitation; or
(ii) Involves advertising or public solicitation, and:
(A) The association first files a notice of claim of exemption on
a form prescribed by the director specifying the terms of the offer and
the director does not by order deny the exemption within the next ten
business days; or
(B) The association is an employee cooperative and identifies
itself as an employee cooperative in advertising or public
solicitation.
(b) The transaction involves an instrument or interest that:
(i)(A) Qualifies its holder to be a member or patron of the
association;
(B) Represents a contribution of capital to the association by a
person who is or intends to become a member or patron of the
association;
(C) Represents a patronage dividend or other patronage allocation;
or
(D) Represents the terms or conditions by which a member or patron
purchases, sells, or markets products, commodities, or services from,
to, or through the association; and
(ii) Is nontransferable except in the case of death; operation of
law; bona fide transfer for security purposes only to the association,
a bank, or other financial institution; intrafamily transfer; or
transfer to an existing member or person who will become a member, and
in the case of an instrument so states conspicuously on its face; or
(25) A transaction not involving a public offering, whether
effected through a broker-dealer or not, consistent with section 4(2)
of the Securities Act of 1933.
NEW SECTION. Sec. 10
NEW SECTION. Sec. 11
(2) Knowledge of order required. A person does not violate section
13, 15 through 18, 37, or 43 of this act by an offer to sell, offer to
purchase, sale, or purchase effected after the entry of an order issued
under this section if the person did not know, and in the exercise of
reasonable care could not have known, of the order.
NEW SECTION. Sec. 12 Sections 8 through 11 of this act are each
added to chapter 21.20A RCW (created in section 115 of this act) and
codified with the subchapter heading of "Exemption from Registration of
Securities."
NEW SECTION. Sec. 13
(1) The security is a federal covered security and, if required, a
filing is made and a fee is paid in accordance with section 14 of this
act;
(2) The security, transaction, or offer is exempted from
registration under sections 8 through 10 of this act; or
(3) The security is registered under this chapter.
NEW SECTION. Sec. 14
(a) Before the initial offer of a federal covered security in this
state, all records that are part of a federal registration statement
filed with the Securities and Exchange Commission under the Securities
Act of 1933 and a consent to service of process complying with section
54 of this act signed by the issuer and the payment of a fee calculated
as follows:
(i) For each offering by a closed-end investment company pursuant
to Section 18(b)(2) of the Securities Act of 1933, the initial filing
fee shall be one hundred dollars for the first one hundred thousand
dollars of initial issue, or portion thereof in this state, based on
offering price, plus one-fortieth of one percent for any excess over
one hundred thousand dollars which are to be offered in this state
during the following twelve-month period; or
(ii) For every other offering being made pursuant to this
subsection, the initial filing fee shall be one hundred dollars for the
first one hundred thousand dollars of initial issue, or portion thereof
in this state, based on offering price, plus one-twentieth of one
percent for any excess over one hundred thousand dollars which are to
be offered in this state during the following twelve-month period;
(b) After the initial offer of the federal covered security in this
state, all records that are part of an amendment to a federal
registration statement filed with the Securities and Exchange
Commission under the Securities Act of 1933 and the payment of a fee of
ten dollars;
(c) To the extent necessary or appropriate to compute fees, a
report of the value of the federal covered securities sold or offered
to persons present in this state, if the sales data are not included in
records filed with the Securities and Exchange Commission and payment
of a fee of ten dollars; and
(d) To increase the amount of an effective notice filing, the
payment of a fee of:
(i) For a closed-end company offering pursuant to Section 18(b)(2)
of the Securities Act of 1933, one-fortieth of one percent of the
desired increase, based on offering price, prior to the sale of
securities to be covered by the fee; or
(ii) For every other effective notice filing under this subsection,
one-twentieth of one percent of the desired increase, based on offering
price, prior to the sale of securities to be covered by the fee.
(2) Notice filing effectiveness and renewal.
(a) A notice filing under subsection (1) of this section is
effective for one year commencing on the later of the notice filing or
the effectiveness of the offering filed with the Securities and
Exchange Commission.
(b) A notice filing under subsection (1) of this section may be
renewed on or before expiration pursuant to (b)(i) or (ii) of this
subsection:
(i) A closed-end company offering securities pursuant to Section
18(b)(2) of the Securities Act of 1933 may renew a notice filing by
filing a copy of those records filed by the issuer with the Securities
and Exchange Commission that are required by rule or order under this
chapter to be filed and by paying a renewal fee of one hundred dollars;
or
(ii) An issuer not subject to (b)(i) of this subsection may renew
an initial notice filing for one additional twelve-month period only by
paying a renewal fee of fifty dollars.
(c) A previously filed consent to service of process complying with
section 54 of this act may be incorporated by reference in a renewal.
(d) A renewed notice filing becomes effective upon the expiration
of the filing being renewed.
(3) Notice filings for federal covered securities under Section
18(b)(4)(D) of the Securities Act of 1933. With respect to a security
that is a federal covered security under Section 18(b)(4)(D) of the
Securities Act of 1933 (15 U.S.C. Sec. 77r(b)(4)(D)), a rule under this
chapter may require a notice filing by or on behalf of an issuer to
include a copy of Form D, including the Appendix, as promulgated by the
Securities and Exchange Commission, and a consent to service of process
complying with section 54 of this act signed by the issuer, not later
than fifteen days after the first sale of the federal covered security
in this state and the payment of a fee of three hundred dollars; and
the payment of an additional fee of three hundred dollars for any late
filing.
(4) Notice filings for federal covered securities under Section
18(b)(3) of the Securities Act of 1933. With respect to a security
that is a federal covered security under Section 18(b)(3) of the
Securities Act of 1933 (15 U.S.C. Sec. 77r(b)(3)), a rule under this
chapter may require a notice filing by or on behalf of an issuer. The
rule may require the filing of all records filed with the Securities
and Exchange Commission under the Securities Act of 1933 and a consent
to service of process complying with section 54 of this act signed by
the issuer and the payment of a fee.
(5) Stop orders. Except with respect to a federal covered security
under Section 18(b)(1) of the Securities Act of 1933 (15 U.S.C. Sec.
77r(b)(1)), if the director finds that there is a failure to comply
with a notice or fee requirement of this section, the director may
issue a stop order suspending the offer and sale of a federal covered
security in this state. If the deficiency is corrected, the stop order
is vacated as of the time the deficiency is corrected and no penalty
may be imposed by the director.
NEW SECTION. Sec. 15
(2) Required records. A registration statement and accompanying
records under this section must contain or be accompanied by the
following records in addition to the information specified in section
17 of this act and a consent to service of process complying with
section 54 of this act:
(a) A copy of the latest form of prospectus or offering circular
filed under the Securities Act of 1933;
(b) A copy of the articles of incorporation and bylaws or their
substantial equivalents currently in effect; a copy of any agreement
with or among underwriters; a copy of any indenture or other instrument
governing the issuance of the security to be registered; and a
specimen, copy, or description of the security that is required by rule
adopted or order issued under this chapter;
(c) Copies of any other information or any other records filed by
the issuer under the Securities Act of 1933 requested by the director;
(d) An undertaking to forward each amendment to the federal
prospectus or offering circular, other than an amendment that delays
the effective date of the registration statement, promptly after it is
filed with the Securities and Exchange Commission; and
(e) If the aggregate sales price of the offering exceeds one
million dollars, audited financial statements and other financial
information prepared as to form and content under rules adopted by the
director.
(3) Conditions for effectiveness of registration statement. A
registration statement under this section becomes effective
simultaneously with or subsequent to the federal registration statement
or offering statement when all the following conditions are satisfied:
(a) A stop order under subsection (4) of this section or section 18
of this act or issued by the Securities and Exchange Commission is not
in effect and a proceeding is not pending against the issuer under
section 18 of this act;
(b) The registration statement or offering circular has been on
file for at least twenty days or a shorter period provided by rule
adopted or order issued under this chapter; and
(c) The applicant or registrant has not requested that
effectiveness be delayed.
(4) Notice of federal registration statement or offering statement
effectiveness. The registrant shall promptly notify the director in a
record of the date when the federal registration statement or offering
statement becomes effective and the content of any price amendment and
shall promptly file a record containing the price amendment. If the
notice is not timely received, the director may issue a stop order,
without prior notice or hearing, retroactively denying effectiveness to
the registration statement or suspending its effectiveness until
compliance with this section. The director shall promptly notify the
registrant of an order by telegram, telephone, or electronic means and
promptly confirm this notice by a record. If the registrant
subsequently complies with the notice requirements of this section, the
stop order is void as of the date of its issuance.
(5) Effectiveness of registration statement. If the federal
registration statement or offering statement becomes effective before
each of the conditions in this section is satisfied or is waived by the
director, the registration statement is automatically effective under
this chapter when all the conditions are satisfied or waived. If the
registrant notifies the director of the date when the federal
registration statement or offering statement is expected to become
effective, the director shall promptly notify the registrant by
telegram, telephone, or electronic means and promptly confirm this
notice by a record, indicating whether all the conditions are satisfied
or waived and whether the director intends the institution of a
proceeding under section 18 of this act. The notice by the director
does not preclude the institution of such a proceeding.
NEW SECTION. Sec. 16
(2) Required records. A registration statement under this section
must contain the information or records specified in section 17 of this
act, a consent to service of process complying with section 54 of this
act, and the following information or records:
(a) With respect to the issuer and any significant subsidiary, its
name, address, and form of organization; the state or foreign
jurisdiction and date of its organization; the general character and
location of its business; a description of its physical properties and
equipment; and a statement of the general competitive conditions in the
industry or business in which it is or will be engaged;
(b) With respect to each director and officer of the issuer, and
other person having a similar status or performing similar functions,
the person's name, address, and principal occupation for the previous
five years; the amount of securities of the issuer held by the person
as of the thirtieth day before the filing of the registration
statement; the amount of the securities covered by the registration
statement to which the person has indicated an intention to subscribe;
and a description of any material interest of the person in any
material transaction with the issuer or a significant subsidiary
effected within the previous three years or proposed to be effected;
(c) With respect to persons covered by (b) of this subsection, the
aggregate sum of the remuneration paid to those persons during the
previous twelve months and estimated to be paid during the next twelve
months, directly or indirectly, by the issuer, and all predecessors,
parents, subsidiaries, and affiliates of the issuer;
(d) With respect to a person owning of record or owning
beneficially, if known, ten percent or more of the outstanding shares
of any class of equity security of the issuer, the information
specified in (b) of this subsection, other than the person's
occupation;
(e) With respect to a promoter, if the issuer was organized within
the previous three years, the information or records specified in (b)
of this subsection, any amount paid to the promoter within that period
or intended to be paid to the promoter, and the consideration for the
payment;
(f) With respect to a person on whose behalf any part of the
offering is to be made in a nonissuer distribution, the person's name
and address; the amount of securities of the issuer held by the person
as of the date of the filing of the registration statement; a
description of any material interest of the person in any material
transaction with the issuer or any significant subsidiary effected
within the previous three years or proposed to be effected; and a
statement of the reasons for making the offering;
(g) The capitalization and long-term debt, on both a current and
pro forma basis, of the issuer and any significant subsidiary,
including a description of each security outstanding or being
registered or otherwise offered, and a statement of the amount and kind
of consideration, whether in the form of cash, physical assets,
services, patents, goodwill, or anything else of value, for which the
issuer or any subsidiary has issued its securities within the previous
two years or is obligated to issue its securities;
(h) The kind and amount of securities to be offered; the proposed
offering price or the method by which it is to be computed; any
variation at which a proportion of the offering is to be made to a
person or class of persons other than the underwriters, with a
specification of the person or class; the basis on which the offering
is to be made if otherwise than for cash; the estimated aggregate
underwriting and selling discounts or commissions and finders' fees,
including separately cash, securities, contracts, or anything else of
value to accrue to the underwriters or finders in connection with the
offering or, if the selling discounts or commissions are variable, the
basis of determining them and their maximum and minimum amounts; the
estimated amounts of other selling expenses, including legal,
engineering, and accounting charges; the name and address of each
underwriter and each recipient of a finder's fee; a copy of any
underwriting or selling group agreement under which the distribution is
to be made or the proposed form of any such agreement whose terms have
not yet been determined; and a description of the plan of distribution
of any securities that are to be offered otherwise than through an
underwriter;
(i) The estimated monetary proceeds to be received by the issuer
from the offering; the purposes for which the proceeds are to be used
by the issuer; the estimated amount to be used for each purpose; the
order or priority in which the proceeds will be used for the purposes
stated; the amounts of any funds to be raised from other sources to
achieve the purposes stated; the sources of the funds; and, if a part
of the proceeds is to be used to acquire property, including goodwill,
otherwise than in the ordinary course of business, the names and
addresses of the vendors, the purchase price, the names of any persons
that have received commissions in connection with the acquisition, and
the amounts of the commissions and other expenses in connection with
the acquisition, including the cost of borrowing money to finance the
acquisition;
(j) A description of any stock options or other security options
outstanding, or to be created in connection with the offering, and the
amount of those options held or to be held by each person required to
be named in (b), (d) through (f), or (h) of this subsection and by any
person that holds or will hold ten percent or more in the aggregate of
those options;
(k) The dates of, parties to, and general effect concisely stated
of each managerial or other material contract made or to be made
otherwise than in the ordinary course of business to be performed in
whole or in part at or after the filing of the registration statement
or that was made within the previous two years, and a copy of the
contract;
(l) A description of any pending litigation, action, or proceeding
to which the issuer is a party and that materially affects its business
or assets, and any litigation, action, or proceeding known to be
contemplated by governmental authorities;
(m) A copy of any prospectus, pamphlet, circular, form letter,
advertisement, or other sales literature intended as of the effective
date to be used in connection with the offering and any solicitation of
interest used in compliance with section 9(17)(b) of this act;
(n) A specimen or copy of the security being registered, unless the
security is uncertificated; a copy of the issuer's articles of
incorporation and bylaws or their substantial equivalents, in effect;
and a copy of any indenture or other instrument covering the security
to be registered;
(o) A signed or conformed copy of an opinion of counsel concerning
the legality of the security being registered, with an English
translation if it is in a language other than English, which states
whether the security when sold will be validly issued, fully paid, and
nonassessable and, if a debt security, a binding obligation of the
issuer;
(p) A signed or conformed copy of a consent of any accountant,
engineer, appraiser, or other person whose profession gives authority
for a statement made by the person, if the person is named as having
prepared or certified a report or valuation, other than an official
record, that is public, which is used in connection with the
registration statement;
(q)(i) A balance sheet of the issuer as of a date within four
months before the filing of the registration statement; a statement of
income and a statement of cash flows for each of the three fiscal years
preceding the date of the balance sheet and for any period between the
close of the immediately previous fiscal year and the date of the
balance sheet, or for the period of the issuer's and any predecessor's
existence if less than three years; and, if any part of the proceeds of
the offering is to be applied to the purchase of a business, the
financial statements that would be required if that business were the
registrant;
(ii)(A) If the estimated proceeds to be received from the offering,
together with the proceeds from securities registered under this
section during the year preceding the date of the filing of this
registration statement, exceed one million dollars, but are not more
than five million dollars, the balance sheet specified as of the end of
the last fiscal year and the related financial statements for the last
fiscal year specified in (q)(i) of this subsection shall be audited;
(B) If such proceeds exceed five million dollars but are not more
than twenty-five million dollars, the balance sheets as of the end of
the last two fiscal years and the related financial statements for the
last two fiscal years specified in (q)(i) of this subsection shall be
audited;
(C) If such proceeds exceed twenty-five million dollars, the
balance sheets and related financial statements specified in (q)(i) of
this subsection for the last three fiscal years shall be audited; and
(iii) The financial statements of this subsection and such other
financial information as may be prescribed by the director shall be
prepared as to form and content in accordance with generally accepted
accounting principles and with the rules prescribed by the director,
and when applicable, shall be audited by an independent certified
public accountant who is registered and in good standing as a certified
public accountant under the laws of the place of his or her residence
or principal office and who is not an employee, officer, or member of
the board of directors of the issuer or a holder of the securities of
the issuer. An audit report of such independent certified public
accountant shall be based upon an audit made in accordance with
generally accepted auditing standards. The audit report shall have no
limitations on its scope unless expressly authorized in a record by the
director. The director may also verify such statements by examining
the issuer's books and records; and
(r) Any additional information or records required by rule adopted
or order issued under this chapter.
(3) Conditions for effectiveness of registration statement. A
registration statement under this section becomes effective thirty
days, or any shorter period provided by rule adopted or order issued
under this chapter, after the date the registration statement or the
last amendment other than a price amendment is filed, if:
(a) A stop order is not in effect and a proceeding is not pending
under section 18 of this act;
(b) The director has not issued an order under section 18 of this
act delaying effectiveness; or
(c) The applicant or registrant has not requested that
effectiveness be delayed.
(4) Delay of effectiveness of registration statement. The director
may delay effectiveness once for not more than ninety days if the
director determines the registration statement is not complete in all
material respects and promptly notifies the applicant or registrant of
that determination. The director may also delay effectiveness for a
further period of not more than thirty days if the director determines
that the delay is necessary or appropriate.
(5) Prospectus distribution may be required. A rule adopted or
order issued under this chapter may require as a condition of
registration under this section that a prospectus containing a
specified part of the information or record specified in subsection (2)
of this section be sent or given to each person to which an offer is
made, before or concurrently, with the earliest of:
(a) The first offer made in a record to the person otherwise than
by means of a public advertisement, by or for the account of the issuer
or another person on whose behalf the offering is being made or by an
underwriter or broker-dealer that is offering part of an unsold
allotment or subscription taken by the person as a participant in the
distribution;
(b) The confirmation of a sale made by or for the account of the
person;
(c) Payment pursuant to such a sale; or
(d) Delivery of the security pursuant to such a sale.
NEW SECTION. Sec. 17
(2) Filing fee. (a) A person filing a registration statement shall
pay a filing fee calculated as follows:
(i) For an offering pursuant to section 15 of this act, the initial
filing fee shall be one hundred dollars for the first one hundred
thousand dollars of initial issue, or portion thereof in this state,
based on offering price, plus one-fortieth of one percent for any
excess over one hundred thousand dollars which are to be offered in
this state during the following twelve-month period; and
(ii) For an offering pursuant to section 16 of this act, the
initial filing fee shall be one hundred dollars for the first one
hundred thousand dollars of initial issue, or portion thereof in this
state, based on offering price, plus one-twentieth of one percent for
any excess over one hundred thousand dollars which are to be offered in
this state during the following twelve-month period.
(b) If a registration statement is withdrawn before the effective
date or a preeffective stop order is issued under section 18 of this
act, the director shall retain the fee.
(3) Status of offering. A registration statement filed under
section 15 or 16 of this act must specify:
(a) The amount of securities to be offered in this state;
(b) The states in which a registration statement or similar record
in connection with the offering has been or is to be filed; and
(c) Any adverse order, judgment, or decree issued in connection
with the offering by a state securities regulator, the Securities and
Exchange Commission, or a court.
(4) Incorporation by reference. A record filed under this chapter
or chapter 21.20 RCW within five years preceding the filing of a
registration statement may be incorporated by reference in the
registration statement to the extent that the record is currently
accurate.
(5) Nonissuer distribution. In the case of a nonissuer
distribution, information or a record may not be required under
subsection (9) of this section or section 16 of this act, unless it is
known to the person filing the registration statement or to the person
on whose behalf the distribution is to be made or unless it can be
furnished by those persons without unreasonable effort or expense.
(6) Escrow and impoundment. A rule adopted or order issued under
this chapter may require as a condition of registration that a security
issued within the previous five years or to be issued to a promoter for
a consideration substantially less than the public offering price or to
a person for a consideration other than cash be deposited in escrow;
and that the proceeds from the sale of the registered security in this
state be impounded until the issuer receives a specified amount from
the sale of the security either in this state or elsewhere. The
conditions of any escrow or impoundment required under this subsection
may be established by rule adopted or order issued under this chapter,
but the director may not reject a depository institution solely because
of its location in another state.
(7) Form of subscription. A rule adopted or order issued under
this chapter may require as a condition of registration that a security
registered under this chapter be sold only on a specified form of
subscription or sale contract and that a signed or conformed copy of
each contract be filed under this chapter or preserved for a period
specified by the rule or order, which may not be longer than five
years.
(8) Effective period. Except while a stop order is in effect under
section 18 of this act, a registration statement is effective for one
year after its effective date, or for any longer period designated in
an order under this chapter during which the security is being offered
or distributed in a nonexempted transaction by or for the account of
the issuer or other person on whose behalf the offering is being made
or by an underwriter or broker-dealer that is still offering part of an
unsold allotment or subscription taken as a participant in the
distribution. For the purposes of a nonissuer transaction, all
outstanding securities of the same class identified in the registration
statement as a security registered under this chapter are considered to
be registered while the registration statement is effective. If any
securities of the same class are outstanding, a registration statement
may not be withdrawn until one year after its effective date. A
registration statement may be withdrawn only with the approval of the
director.
(9) Periodic reports. While a registration statement is effective,
a rule adopted or order issued under this chapter may require the
person that filed the registration statement to file reports, not more
often than quarterly, to keep the information or other record in the
registration statement reasonably current and to disclose the progress
of the offering.
(10) Posteffective amendments. (a) A registration statement may be
amended after its effective date. The posteffective amendment becomes
effective when the director so orders.
(b) The person filing the posteffective amendment shall pay a
filing fee of ten dollars.
(c) If a posteffective amendment is made to increase the number of
securities specified to be offered or sold, the person filing the
amendment shall pay, in addition to the filing fee required by (b) of
this subsection, a registration fee of:
(i) For an offering registered pursuant to section 15 of this act,
one-fortieth of one percent of the desired increase, based on offering
price, prior to the sale of securities to be covered by the fee; or
(ii) For an offering registered pursuant to section 16 of this act,
one-twentieth of one percent of the desired increase, based on offering
price, prior to the sale of securities to be covered by the fee.
(d) The director, in his or her discretion, may make effective a
posteffective amendment to register securities that have been sold in
excess of the amount registered, and may require the person filing the
amendment to pay, in addition to the filing fee required by (b) of this
subsection, a registration fee of three times the fee prescribed by (c)
of this subsection.
(e) A posteffective amendment relates back to the date of the
offering of the additional securities being registered if, within one
year after the date of the sale, the amendment is filed, the additional
registration fee is paid, and the director so orders.
NEW SECTION. Sec. 18
(a) The registration statement as of its effective date or before
the effective date in the case of an order denying effectiveness, an
amendment under section 17(10) of this act as of its effective date, or
a report under section 17(9) of this act, is incomplete in a material
respect or contains a statement that, in the light of the circumstances
under which it was made, was false or misleading with respect to a
material fact;
(b) This chapter or a rule adopted or order issued under this
chapter or a condition imposed under this chapter has been willfully
violated, in connection with the offering, by the person filing the
registration statement; by the issuer, a partner, officer, or director
of the issuer or a person having a similar status or performing a
similar function; a promoter of the issuer; or a person directly or
indirectly controlling or controlled by the issuer; but only if the
person filing the registration statement is directly or indirectly
controlled by or acting for the issuer; or by an underwriter;
(c) The security registered or sought to be registered is the
subject of a permanent or temporary injunction of a court of competent
jurisdiction or an administrative stop order or similar order issued
under any federal, foreign, or state law other than this chapter
applicable to the offering, but the director may not institute a
proceeding against an effective registration statement under this
subsection (1)(c) more than one year after the date of the order or
injunction on which it is based, and the director may not issue an
order under this subsection (1)(c) on the basis of an order or
injunction issued under the securities act of another state unless the
order or injunction was based on conduct that would constitute, as of
the date of the order, a ground for a stop order under this section;
(d) The issuer's enterprise or method of business includes or would
include activities that are unlawful where performed;
(e) With respect to a security sought to be registered under
section 15 of this act, there has been a failure to comply with the
undertaking required by section 15(2)(d) of this act;
(f) The applicant or registrant has not paid the filing fee, but
the director shall vacate the order if the deficiency is corrected; or
(g) The offering:
(i) Will work or tend to work a fraud upon purchasers or would so
operate; or
(ii) Has been or would be made with unreasonable amounts of
underwriters' and sellers' discounts, commissions, or other
compensation, or promoters' profits or participations, or unreasonable
amounts or kinds of options.
(2) Enforcement of subsection (1)(g) of this section. To the
extent practicable, the director by rule adopted or order issued under
this chapter shall publish standards that provide notice of conduct
that violates subsection (1)(g) of this section.
(3) Institution of stop order. The director may not institute a
stop order proceeding against an effective registration statement on
the basis of conduct or a transaction known to the director when the
registration statement became effective unless the proceeding is
instituted within thirty days after the registration statement became
effective.
(4) Summary process. The director may summarily revoke, deny,
postpone, or suspend the effectiveness of a registration statement
pending final determination of an administrative proceeding. Upon the
issuance of the order, the director shall promptly notify each person
specified in subsection (5) of this section that the order has been
issued, the reasons for the revocation, denial, postponement, or
suspension, and that, after the receipt of a request in a record from
the person, the matter will be scheduled for a hearing in accordance
with the adjudicative proceedings provisions of chapter 34.05 RCW. If
a hearing is not requested and none is ordered by the director, within
twenty days after the date of service of the order, the order becomes
final. If a hearing is requested or ordered, the director, after
notice of and opportunity for hearing for each person subject to the
order, may modify or vacate the order or extend the order until final
determination.
(5) Procedural requirements for stop order. A stop order may not
be issued under this section without:
(a) Appropriate notice to the applicant or registrant, the issuer,
and the person on whose behalf the securities are to be or have been
offered;
(b) An opportunity for hearing; and
(c) Findings of fact and conclusions of law in a record in
accordance with chapter 34.05 RCW.
(6) Modification or vacation of stop order. The director may
modify or vacate a stop order issued under this section if the director
finds that the conditions that caused its issuance have changed or that
it is necessary or appropriate in the public interest or for the
protection of investors.
NEW SECTION. Sec. 19
NEW SECTION. Sec. 20 Sections 13 through 19 of this act are each
added to chapter 21.20A RCW (created in section 115 of this act) and
codified with the subchapter heading of "Registration of Securities and
Notice Filing of Federal Covered Securities."
NEW SECTION. Sec. 21
(2) Exemptions from registration. The following persons are exempt
from the registration requirement of subsection (1) of this section:
(a) A broker-dealer without a place of business in this state if
its only transactions effected in this state are with:
(i) The issuer of the securities involved in the transactions;
(ii) A broker-dealer registered as a broker-dealer under this
chapter or not required to be registered as a broker-dealer under this
chapter;
(iii) An institutional investor;
(iv) A nonaffiliated federal covered investment adviser with
investments under management in excess of one hundred million dollars
acting for the account of others pursuant to discretionary authority in
a signed record;
(v) A bona fide preexisting customer whose principal place of
residence is not in this state and the person is registered as a
broker-dealer under the Securities Exchange Act of 1934 or not required
to be registered under the Securities Exchange Act of 1934 and is
registered under the securities act of the state in which the customer
maintains a principal place of residence;
(vi) A bona fide preexisting customer whose principal place of
residence is in this state but was not present in this state when the
customer relationship was established, if:
(A) The broker-dealer is registered under the Securities Exchange
Act of 1934 or not required to be registered under the Securities
Exchange Act of 1934 and is registered under the securities laws of the
state in which the customer relationship was established and where the
customer had maintained a principal place of residence; and
(B) Within forty-five days after the customer's first transaction
in this state, the person files an application for registration as a
broker-dealer in this state and a further transaction is not effected
more than seventy-five days after the date on which the application is
filed, or, if earlier, the date on which the director notifies the
person that the director has denied the application for registration or
has stayed the pendency of the application for good cause;
(vii) Not more than three customers in this state during the
previous twelve months, in addition to those customers specified in
(a)(i) through (vi) of this subsection and under (a)(viii) of this
subsection, if the broker-dealer is registered under the Securities
Exchange Act of 1934 or not required to be registered under the
Securities Exchange Act of 1934 and is registered under the securities
act of the state in which the broker-dealer has its principal place of
business; and
(viii) Any other person exempted by rule adopted or order issued
under this chapter;
(b) A person that deals solely in United States government
securities and is supervised as a dealer in government securities by
the Board of Governors of the Federal Reserve System, the Comptroller
of the Currency, the Federal Deposit Insurance Corporation, or the
Office of Thrift Supervision;
(c)(i) Subject to (c)(ii) and (iii) of this subsection, a
broker-dealer that exclusively effects transactions:
(A) Exempt under section 9 (13) or (25) of this act; or
(B) Involving a federal covered security under Section 18(b)(4)(D)
of the Securities Act of 1933 for which the issuer has made the filing
and paid the fee required under section 14 of this act.
(ii) A broker-dealer is not exempted under (c)(i) of this
subsection if the broker-dealer, or any of the following persons, is
currently the subject of an order, judgment, adjudication,
determination, or conviction that would constitute grounds for
discipline under section 32(4) (a) through (f), (h), or (k) through (m)
of this act:
(A) An employee, associate, partner, officer, or director of the
broker-dealer;
(B) A person having a status similar to, or performing functions
similar to those performed by, the persons described in (c)(ii)(A) of
this subsection; or
(C) A person directly or indirectly in control of the
broker-dealer.
(iii) The exemption created by (c)(i) of this subsection is subject
to any further provision to coordinate with federal or state law as may
be imposed by rule adopted or order issued by the director; and
(d) A person that participates only in the sale or offering for
sale of variable contracts which fund corporate plans meeting the
requirements for qualification under section 401 or 403 of the United
States Internal Revenue Code as set forth in RCW 48.18A.060.
(3) Limits on employment or association. It is unlawful for a
broker-dealer, or for an issuer engaged in offering, offering to
purchase, purchasing, or selling securities in this state, directly or
indirectly, to employ or associate with an individual to engage in an
activity related to securities transactions in this state if the
registration of the individual is suspended or revoked or the
individual is barred from employment or association with a broker-dealer, an issuer, an investment adviser, or a federal covered
investment adviser by an order of the director under this chapter, the
Securities and Exchange Commission, or a self-regulatory organization.
A broker-dealer or issuer does not violate this subsection if the
broker-dealer or issuer did not know and in the exercise of reasonable
care could not have known, of the suspension, revocation, or bar. Upon
request from a broker-dealer or issuer and for good cause, an order
under this chapter may modify or waive, in whole or in part, the
application of the prohibitions of this subsection to the broker-dealer.
(4) Foreign transactions. A rule adopted or order issued under
this chapter may permit:
(a) A broker-dealer that is registered in Canada or other foreign
jurisdiction and that does not have a place of business in this state
to effect transactions in securities with or for, or attempt to effect
the purchase or sale of any securities by:
(i) An individual from Canada or other foreign jurisdiction who is
temporarily present in this state and with whom the broker-dealer had
a bona fide customer relationship before the individual entered the
United States;
(ii) An individual from Canada or other foreign jurisdiction who is
present in this state and whose transactions are in a self-directed tax
advantaged retirement plan of which the individual is the holder or
contributor in that foreign jurisdiction; or
(iii) An individual who is present in this state, with whom the
broker-dealer customer relationship arose while the individual was
temporarily or permanently resident in Canada or the other foreign
jurisdiction; and
(b) A sales agent who represents a broker-dealer that is exempt
under this subsection to effect transactions in securities or attempt
to effect the purchase or sale of securities in this state as permitted
for a broker-dealer described in (a) of this subsection.
NEW SECTION. Sec. 22
(2) Exemptions from registration. The following individuals are
exempt from the registration requirement of subsection (1) of this
section:
(a) An individual who represents a broker-dealer in effecting
transactions in this state limited to those described in Section
15(h)(2) of the Securities Exchange Act of 1934 (15 U.S.C. Sec.
78(o)(2));
(b) An individual who represents a broker-dealer that is exempt
under section 21 (2) or (4) of this act;
(c) An individual who represents an issuer with respect to an offer
or sale of the issuer's own securities or those of the issuer's parent
or any of the issuer's subsidiaries, and who is not compensated in
connection with the individual's participation by the payment of
commissions or other remuneration based, directly or indirectly, on
transactions in those securities;
(d) An individual who represents an issuer and who effects
transactions in the issuer's securities exempted by section 9 of this
act, other than section 9 (11) and (14) of this act, but an individual
who is compensated in connection with the sales agent's participation
by the payment of commissions or other remuneration based, directly or
indirectly, on transactions in those securities is not exempt if the
individual is currently the subject of an order, judgment,
adjudication, determination, or conviction that would constitute
grounds for discipline under section 32(4) (a) through (f), (h), or (k)
through (m) of this act;
(e) An individual who represents an issuer that effects
transactions solely in federal covered securities of the issuer, but an
individual who effects transactions in a federal covered security under
section 18(b)(3) or 18(b)(4)(D) of the Securities Act of 1933 (15
U.S.C. Sec. 77r(b)(3) or 77r(b)(4)(D)) and is compensated in connection
with the sales agent's participation by the payment of commissions or
other remuneration based, directly or indirectly, on transactions in
those securities is not exempt if the individual is currently the
subject of an order, judgment, adjudication, determination, or
conviction that would constitute grounds for discipline under section
32(4) (a) through (f), (h), or (k) through (m) of this act;
(f) An individual who represents a broker-dealer registered in this
state under section 21(1) of this act or exempt from registration under
section 21(2) of this act in the offer and sale of securities for an
account of a nonaffiliated federal covered investment adviser with
investments under management in excess of one hundred million dollars
acting for the account of others pursuant to discretionary authority in
a signed record;
(g) An individual who represents an issuer in connection with the
purchase of the issuer's own securities;
(h) An individual who represents an issuer and who restricts
participation to performing clerical or ministerial acts; or
(i) Any other individual exempted by rule adopted or order issued
under this chapter.
(3) Registration effective only while employed or associated. The
registration of a sales agent is effective only while the sales agent
is employed by or associated with a broker-dealer registered under this
chapter or an issuer that is offering, selling, or purchasing its
securities in this state.
(4) Limit on employment or association. It is unlawful for a
broker-dealer, or an issuer engaged in offering, selling, or purchasing
securities in this state, to employ or associate with a sales agent who
transacts business in this state on behalf of broker-dealers or issuers
unless the sales agent is registered under subsection (1) of this
section or exempt from registration under subsection (2) of this
section.
(5) Limit on affiliations. An individual may not act as a sales
agent for more than one broker-dealer or one issuer at a time, unless
the broker-dealer or the issuer for which the sales agent acts are
affiliated by direct or indirect common control or are authorized by
rule or order under this chapter.
NEW SECTION. Sec. 23
(2) Exemptions from registration. The following persons are exempt
from the registration requirement of subsection (1) of this section:
(a) A person without a place of business in this state that is
registered under the securities act of the state in which the person
has its principal place of business if its only clients in this state
are:
(i) Federal covered investment advisers, investment advisers
registered under this chapter, or broker-dealers registered under this
chapter;
(ii) Institutional investors;
(iii) Bona fide preexisting clients whose principal places of
residence are not in this state if the investment adviser is registered
under the securities act of the state in which the clients maintain
principal places of residence; or
(iv) Any other client exempted by rule adopted or order issued
under this chapter;
(b) A person without a place of business in this state if the
person has had, during the preceding twelve months, not more than five
clients that are resident in this state in addition to those specified
under (a) of this subsection; or
(c) Any other person exempted by rule adopted or order issued under
this chapter.
(3) Limits on employment or association. It is unlawful for an
investment adviser, directly or indirectly, to employ or associate with
an individual to engage in an activity related to investment advice in
this state if the registration of the individual is suspended or
revoked or the individual is barred from employment or association with
an investment adviser, federal covered investment adviser, or broker-
dealer by an order under this chapter, the Securities and Exchange
Commission, or a self-regulatory organization, unless the investment
adviser did not know, and in the exercise of reasonable care could not
have known, of the suspension, revocation, or bar. Upon request from
the investment adviser and for good cause, the director, by order, may
waive, in whole or in part, the application of the prohibitions of this
subsection to the investment adviser.
(4) Investment adviser representative registration required. It is
unlawful for an investment adviser to employ or associate with an
individual required to be registered under this chapter as an
investment adviser representative who transacts business in this state
on behalf of the investment adviser unless the individual is registered
under section 24(1) of this act or is exempt from registration under
section 24(2) of this act.
NEW SECTION. Sec. 24
(2) Exemptions from registration. The following individuals are
exempt from the registration requirement of subsection (1) of this
section:
(a) An individual who is employed by or associated with an
investment adviser that is exempt from registration under section 23(2)
of this act or a federal covered investment adviser that is excluded
from the notice filing requirements of section 25 of this act; and
(b) Any other individual exempted by rule adopted or order issued
under this chapter.
(3) Registration effective only while employed or associated. The
registration of an investment adviser representative is not effective
while the investment adviser representative is not employed by or
associated with an investment adviser registered under this chapter or
a federal covered investment adviser that has made or is required to
make a notice filing under section 25 of this act.
(4) Limit on affiliations. An individual may transact business as
an investment adviser representative for more than one investment
adviser or federal covered investment adviser unless a rule adopted or
order issued under this chapter prohibits or limits an individual from
acting as an investment adviser representative for more than one
investment adviser or federal covered investment adviser.
(5) Limits on employment or association. It is unlawful for an
individual acting as an investment adviser representative, directly or
indirectly, to conduct business in this state on behalf of an
investment adviser or a federal covered investment adviser if the
registration of the individual as an investment adviser representative
is suspended or revoked or the individual is barred from employment or
association with an investment adviser or a federal covered investment
adviser by an order under this chapter, the Securities and Exchange
Commission, or a self-regulatory organization. Upon request from a
federal covered investment adviser and for good cause, the director, by
order issued, may waive, in whole or in part, the application of the
requirements of this subsection to the federal covered investment
adviser.
(6) Referral fees. An investment adviser registered under this
chapter, a federal covered investment adviser that has filed a notice
under section 25 of this act, or a broker-dealer registered under this
chapter is not required to employ or associate with an individual as an
investment adviser representative if the only compensation paid to the
individual for a referral of investment advisory clients is paid to an
investment adviser registered under this chapter, a federal covered
investment adviser who has filed a notice under section 25 of this act,
or a broker-dealer registered under this chapter with which the
individual is employed or associated as an investment adviser
representative.
NEW SECTION. Sec. 25
(2) Notice filing requirement not required. The following federal
covered investment advisers are not required to comply with subsection
(3) of this section:
(a) A federal covered investment adviser without a place of
business in this state if its only clients in this state are:
(i) Federal covered investment advisers, investment advisers
registered under this chapter, and broker-dealers registered under this
chapter;
(ii) Institutional investors;
(iii) Bona fide preexisting clients whose principal places of
residence are not in this state; or
(iv) Other clients specified by rule adopted or order issued under
this chapter;
(b) A federal covered investment adviser without a place of
business in this state if the person has had, during the preceding
twelve months, not more than five clients that are resident in this
state in addition to those specified under (a) of this subsection; and
(c) Any other person excluded by rule adopted or order issued under
this chapter.
(3) Notice filing procedure. A person acting as a federal covered
investment adviser, not excluded under subsection (2) of this section,
shall file a notice, a consent to service of process complying with
section 54 of this act, and such records as have been filed with the
Securities and Exchange Commission under the Investment Advisers Act of
1940 required by rule adopted or order issued under this chapter and
pay the fees specified in section 30(5) of this act.
(4) Effectiveness of filing. The notice under subsection (3) of
this section becomes effective upon its filing.
NEW SECTION. Sec. 26
(a) The information or record required for the filing of a uniform
application; and
(b) Upon request by the director, any other financial or other
information or record that the director determines is appropriate.
(2) Amendment. If the information or record contained in an
application filed under subsection (1) of this section is or becomes
inaccurate or incomplete in a material respect, the registrant shall
promptly file a correcting amendment.
(3) Effectiveness of registration. If an order is not in effect,
a proceeding is not pending under section 32 of this act, and the
applicant has not requested that effectiveness be delayed, registration
becomes effective at noon on the forty-fifth day after a completed
application is filed, unless the registration is denied. A rule
adopted or order issued under this chapter may set an earlier effective
date or may defer the effective date until noon on the forty-fifth day
after the filing of any amendment completing the application.
(4) Registration renewal. A registration is effective until
midnight on December 31st of the year for which the application for
registration is filed unless the director by rule or order provides
otherwise. Unless an order is in effect under section 32 of this act,
a registration may be automatically renewed each year by filing such
records as are required by rule adopted or order issued under this
chapter, by paying the fee specified in section 30 of this act, and by
paying costs charged by the designee of the director for processing the
filings.
(5) Additional conditions or waivers. A rule adopted or order
issued under this chapter may impose other conditions that are not
inconsistent with the National Securities Markets Improvement Act of
1996 including, but not limited to, conditions governing the
registration of broker-dealers not registered under the Securities
Exchange Act of 1934. An order issued under this chapter may waive, in
whole or in part, specific requirements in connection with registration
as are in the public interest and for the protection of investors.
(6) Sellers of variable contracts. As required by chapter 48.18A
RCW, a person selling variable contracts shall be registered as a
broker-dealer or sales agent as required by this chapter. This
chapter, and any rules or orders adopted under this chapter, applies to
any person engaged in the offer, sale, or purchase of a variable
contract. "Variable contract" means the same as set forth under
chapter 48.18A RCW.
NEW SECTION. Sec. 27
(2) Organizational change. A broker-dealer or investment adviser
that changes its form of organization or state of incorporation or
organization may continue its registration by filing an amendment to
its registration if the change does not involve a material change in
its financial condition or management. The amendment becomes effective
when filed or on a date designated by the registrant in its filing.
The new organization is a successor to the original registrant for the
purposes of this chapter. If there is a material change in financial
condition or management, the broker-dealer or investment adviser shall
file a new application for registration. A predecessor registered
under this chapter shall stop conducting its securities business other
than winding down transactions and shall file for withdrawal of broker-dealer or investment adviser registration within forty-five days after
filing its amendment to effect succession.
(3) Name change. A broker-dealer or investment adviser that
changes its name may continue its registration by filing an amendment
to its registration. The amendment becomes effective when filed or on
a date designated by the registrant.
(4) Change of control. A change of control of a broker-dealer or
investment adviser may be made in accordance with a rule adopted or
order issued under this chapter.
NEW SECTION. Sec. 28
(2) Transfer of employment or association. If a sales agent
registered under this chapter terminates employment by or association
with a broker-dealer registered under this chapter, and begins
employment by or association with another broker-dealer registered
under this chapter; or if an investment adviser representative
registered under this chapter terminates employment by or association
with an investment adviser registered under this chapter, or a federal
covered investment adviser that has filed a notice under section 25 of
this act, and begins employment by or association with another
investment adviser registered under this chapter, or a federal covered
investment adviser that has filed a notice under section 25 of this
act, then upon the filing by or on behalf of the registrant, within
thirty days after the termination, of an application for registration
that complies with the requirement of section 26(1) of this act and
payment of the filing fee required under section 30 of this act, the
registration of the sales agent or investment adviser representative
is:
(a) Immediately effective as of the date of the completed filing,
if the sales agent's Central Registration Depository record or
successor record or the investment adviser representative's Investment
Adviser Registration Depository record or successor record does not
contain a new or amended disciplinary disclosure within the previous
twelve months; or
(b) Temporarily effective as of the date of the completed filing,
if the sales agent's Central Registration Depository record or
successor record or the investment adviser representative's Investment
Adviser Registration Depository record or successor record contains a
new or amended disciplinary disclosure within the preceding twelve
months.
(3) Withdrawal of temporary registration. The director may
withdraw a temporary registration if there are or were grounds for
discipline as specified in section 32 of this act and the director does
so within thirty days after the filing of the application. If the
director does not withdraw the temporary registration within the
thirty-day period, registration becomes automatically effective on the
thirty-first day after filing.
(4) Power to prevent registration. The director may prevent the
effectiveness of a transfer of a sales agent or investment adviser
representative under subsection (2)(a) or (b) of this section based on
the public interest and the protection of investors.
(5) Termination of registration or application for registration.
If the director determines that a registrant or applicant for
registration is no longer in existence or has ceased to act as a
broker-dealer, sales agent, investment adviser, or investment adviser
representative, or is the subject of an adjudication of incapacity or
is subject to the control of a committee, conservator, or guardian, or
cannot reasonably be located, a rule adopted or order issued under this
chapter may require the registration be canceled or terminated or the
application denied. The director may reinstate a canceled or
terminated registration, with or without hearing, and may make the
registration retroactive.
NEW SECTION. Sec. 29
NEW SECTION. Sec. 30
(b) The fee for transfer of a broker-dealer registration to a
successor shall be fifty dollars.
(2) Sales agents. The fee for an individual is forty dollars when
filing an application for registration as a sales agent, a fee of
twenty dollars when filing a renewal of registration as a sales agent,
and a fee of twenty-five dollars when filing for a change of
registration as a sales agent. If the filing results in a denial or
withdrawal, the director shall retain twenty dollars of the fee.
(3)(a) Investment advisers. A person shall pay a fee of one
hundred fifty dollars when filing an application for registration as an
investment adviser and a fee of seventy-five dollars when filing a
renewal of registration as an investment adviser. If the filing
results in a denial or withdrawal, the director shall retain seventy-five dollars of the fee.
(b) The fee for transfer of an investment adviser registration to
a successor shall be fifty dollars.
(4) Investment adviser representatives. The fee for an individual
is forty dollars when filing an application for registration as an
investment adviser representative, a fee of twenty dollars when filing
a renewal of registration as an investment adviser representative, and
a fee of twenty-five dollars when filing a change of registration as an
investment adviser representative. If the filing results in a denial
or withdrawal, the director shall retain twenty dollars of the fee.
(5)(a) Federal covered investment advisers. A federal covered
investment adviser required to file a notice under section 25 of this
act shall pay an initial fee of one hundred fifty dollars and an annual
notice fee of seventy-five dollars. A fee shall not be assessed in
connection with converting an investment adviser registration to a
notice filing when the investment adviser becomes a federal covered
adviser.
(b) The fee for transfer of a notice filing of a federal covered
investment adviser to a successor shall be fifty dollars.
(6) Payment. A person required to pay a filing or notice fee under
this section may transmit the fee through or to a designee as a rule or
order provides under this chapter.
(7) Duplicate certificate. The fee for a duplicate registration
certificate shall be five dollars.
NEW SECTION. Sec. 31
(2) Financial reports. Subject to Section 15(h) of the Securities
Exchange Act of 1934 (15 U.S.C. Sec. 78o(h)) or Section 222(b) of the
Investment Advisers Act of 1940 (15 U.S.C. Sec. 80b-22), a broker-dealer registered or required to be registered under this chapter and
an investment adviser registered or required to be registered under
this chapter shall file such financial reports as are required by a
rule adopted or order issued under this chapter. If the information
contained in a record filed under this subsection is or becomes
inaccurate or incomplete in a material respect, the registrant shall
promptly file a correcting amendment.
(3) Recordkeeping. Subject to Section 15(h) of the Securities
Exchange Act of 1934 (15 U.S.C. Sec. 78o(h)) or Section 222 of the
Investment Advisers Act of 1940 (15 U.S.C. Sec. 80b-22):
(a) A broker-dealer registered or required to be registered under
this chapter and an investment adviser registered or required to be
registered under this chapter shall make and maintain the accounts,
correspondence, memoranda, papers, books, and other records required by
rule adopted or order issued under this chapter;
(b) Broker-dealer records required to be maintained under (a) of
this subsection may be maintained in any form of data storage
acceptable under Section 17(a) of the Securities Exchange Act of 1934
(15 U.S.C. Sec. 78q(a)) if they are readily accessible to the director;
and
(c) Investment adviser records required to be maintained under (a)
of this subsection may be maintained in any form of data storage
required by rule adopted or order issued under this chapter.
(4) Audits or inspections. The records of a broker-dealer
registered or required to be registered under this chapter and of an
investment adviser registered or required to be registered under this
chapter are subject to such reasonable periodic, special, or other
audits or inspections by a representative of the director, within or
without this state, as the director considers necessary or appropriate
in the public interest and for the protection of investors. An audit
or inspection may be made at any time and without prior notice. The
director may copy, and remove for audit or inspection copies of, all
records the director reasonably considers necessary or appropriate to
conduct the audit or inspection. The director may assess a reasonable
charge for conducting an audit or inspection under this subsection.
(5) Custody and discretionary authority bond or insurance. Subject
to Section 15(h) of the Securities Exchange Act of 1934 (15 U.S.C. Sec.
78o(h)) or Section 222 of the Investment Advisers Act of 1940 (15
U.S.C. Sec. 80b-22), a rule adopted or order issued under this chapter
may require a broker-dealer or investment adviser that has custody of
or discretionary authority over funds or securities of a customer or
client to obtain insurance or post a bond or other satisfactory form of
security. The director may determine the requirements of the
insurance, bond, or other satisfactory form of security. Insurance or
a bond or other satisfactory form of security may not be required of a
broker-dealer registered under this chapter whose net capital exceeds,
or of an investment adviser registered under this chapter whose minimum
financial requirements exceed, the amounts required by rule or order
under this chapter. The insurance, bond, or other satisfactory form of
security must permit an action by a person to enforce any liability on
the insurance, bond, or other satisfactory form of security if
instituted within the time limitations in section 42(10)(b) of this
act.
(6) Requirements for custody. Subject to Section 15(h) of the
Securities Exchange Act of 1934 (15 U.S.C. Sec. 78o(h)) or Section 222
of the Investment Advisers Act of 1940 (15 U.S.C. Sec. 80b-22), a sales
agent may not have custody of funds or securities of a customer except
under the supervision of a broker-dealer and an investment adviser
representative may not have custody of funds or securities of a client
except under the supervision of an investment adviser or a federal
covered investment adviser. A rule adopted or order issued under this
chapter may prohibit, limit, or impose conditions on a broker-dealer
regarding custody of funds or securities of a customer and on an
investment adviser regarding custody of securities or funds of a
client.
(7) Investment adviser brochure rule. With respect to an
investment adviser registered or required to be registered under this
chapter, a rule adopted or order issued under this chapter may require
that information or a record be furnished or disseminated to clients or
prospective clients in this state as necessary or appropriate in the
public interest and for the protection of investors and advisory
clients.
(8) Continuing education. A rule adopted or order issued under
this chapter may require an individual registered under section 22 or
24 of this act to participate in a continuing education program
approved by the Securities and Exchange Commission and administered by
a self-regulatory organization or, in the absence of such a program, a
rule adopted or order issued under this chapter may require continuing
education for an individual registered under section 24 of this act.
NEW SECTION. Sec. 32
(2) Disciplinary conditions - registrants. If the director finds
that the order is in the public interest and subsection (4) of this
section authorizes the action, an order issued under this chapter may
revoke, suspend, condition, or limit the registration of a registrant
and if the registrant is a broker-dealer or investment adviser, of a
partner, officer, director, or person having a similar status or
performing similar functions, or a person directly or indirectly in
control of the broker-dealer or investment adviser. However, the
director may not:
(a) Institute a revocation or suspension proceeding under this
subsection based on an order issued under a law of another state that
is reported to the director or a designee of the director more than one
year after the date of the order on which it is based; or
(b) Under subsection (4)(e)(i) or (ii) of this section, issue an
order on the basis of an order issued under the securities act of
another state unless the other order was based on conduct for which
subsection (4) of this section would authorize the action had the
conduct occurred in this state.
(3) Disciplinary penalties - registrants. If the director finds
that the order is in the public interest and subsection (4)(a) through
(f), (h) through (j), (l), (m), or (o) through (q) of this section
authorizes the action, an order under this chapter may censure, impose
a bar, or impose a civil penalty in an amount not to exceed a maximum
of ten thousand dollars for each violation on a registrant and, if the
registrant is a broker-dealer or investment adviser, a partner,
officer, director, or person having a similar status or performing
similar functions, or a person directly or indirectly in control of the
broker-dealer or investment adviser.
(4) Grounds for discipline. A person may be disciplined under
subsections (1) through (3) of this section if the person:
(a) Has filed an application for registration in this state under
this chapter or chapter 21.20 RCW within the previous ten years, which,
as of the effective date of registration or as of any date after filing
in the case of an order denying effectiveness, was incomplete in any
material respect or contained a statement that, in light of the
circumstances under which it was made, was false or misleading with
respect to a material fact;
(b) Willfully violated or willfully failed to comply with this
chapter or chapter 21.20 RCW or a rule adopted or order issued under
this chapter or chapter 21.20 RCW within the previous ten years;
(c) Has been convicted of a felony or within the previous ten years
has been convicted of a misdemeanor involving a security, a commodity
future or option contract, or an aspect of a business involving
securities, commodities, investments, franchises, insurance, banking,
or finance;
(d) Is enjoined or restrained by a court of competent jurisdiction
in an action instituted by the director under this chapter or chapter
21.20 RCW, a state, the Securities and Exchange Commission, or the
United States from engaging in or continuing an act, practice, or
course of business involving an aspect of a business involving
securities, commodities, investments, franchises, insurance, banking,
or finance;
(e) Is the subject of an order, issued after notice and opportunity
for hearing by:
(i) The securities or other financial services regulator of a state
or the Securities and Exchange Commission or other federal agency
denying, revoking, barring, or suspending registration as a broker-dealer, sales agent, investment adviser, federal covered investment
adviser, or investment adviser representative;
(ii) The securities regulator of a state or the Securities and
Exchange Commission against a broker-dealer, sales agent, investment
adviser, investment adviser representative, or federal covered
investment adviser;
(iii) The Securities and Exchange Commission or a self-regulatory
organization suspending or expelling the registrant from membership in
the self-regulatory organization;
(iv) A court adjudicating a United States Postal Service fraud
order;
(v) The insurance regulator of a state denying, suspending, or
revoking registration as an insurance agent; or
(vi) A depository institution or financial services regulator
suspending or barring the person from the depository institution or
other financial services business;
(f) Is the subject of an adjudication or determination, after
notice and opportunity for hearing, by the Securities and Exchange
Commission; the Commodity Futures Trading Commission; the Federal Trade
Commission; a federal depository institution regulator; or a depository
institution, insurance, or other financial services regulator of a
state, that the person willfully violated the Securities Act of 1933,
the Securities Exchange Act of 1934, the Investment Advisers Act of
1940, the Investment Company Act of 1940, or the Commodity Exchange
Act, the securities or commodities law of a state, or a federal or
state law under which a business involving investments, franchises,
insurance, banking, or finance is regulated;
(g) Is insolvent, either because the person's liabilities exceed
the person's assets or because the person cannot meet the person's
obligations as they mature, but the director may not issue an order
against an applicant or registrant under this subsection (4)(g) without
a finding of insolvency as to the applicant or registrant;
(h) Refuses to allow or otherwise impedes the director from
conducting an audit or inspection under section 31(4) of this act or
refuses access to a registrant's office to conduct an audit or
inspection under section 31(4) of this act;
(i) Has failed to reasonably supervise a sales agent, investment
adviser representative, or other individual, if the sales agent,
investment adviser representative, or other individual was subject to
the person's supervision and committed a violation of this chapter or
chapter 21.20 RCW or a rule adopted or order issued under this chapter
or chapter 21.20 RCW within the previous ten years;
(j) Has not paid the proper filing fee within thirty days after
having been notified by the director of a deficiency, but the director
shall vacate an order under this subsection (4)(j) when the deficiency
is corrected;
(k) After notice and opportunity for a hearing, has been found
within the previous ten years:
(i) By a court of competent jurisdiction to have willfully violated
the laws of a foreign jurisdiction under which the business of
securities, commodities, investment, franchises, insurance, banking, or
finance is regulated;
(ii) To have been the subject of an order of a securities regulator
of a foreign jurisdiction denying, revoking, or suspending the right to
engage in the business of securities as a broker-dealer, sales agent,
investment adviser, investment adviser representative, or similar
person; or
(iii) To have been suspended or expelled from membership by or
participation in a securities exchange or securities association
operating under the securities laws of a foreign jurisdiction;
(l) Is the subject of a cease and desist order issued by the
Securities and Exchange Commission or issued under the securities,
commodities, investment, franchise, banking, finance, or insurance laws
of a state;
(m) Has engaged in dishonest or unethical practices in the
securities, commodities, investment, franchise, banking, finance, or
insurance business within the previous ten years;
(n) Is not qualified on the basis of factors such as training,
experience, and knowledge of the securities business. However, in the
case of an application by a sales agent for a broker-dealer that is a
member of a self-regulatory organization or by an individual for
registration as an investment adviser representative, a denial order
may not be based on this subsection (4)(n) if the individual has
successfully completed all examinations required by subsection (5) of
this section. The director may require an applicant for registration
under section 22 or 24 of this act who has not been registered in a
state within the two years preceding the filing of an application in
this state to successfully complete an examination;
(o) Knowingly effects or causes to be effected, with or for a
customer's account, transactions of purchase or sale that:
(i) Are excessive in size or frequency in view of the financial
resources and character of the account; and
(ii) Are effected because the person is vested with discretionary
power or is able by reason of the customer's trust and confidence to
influence the volume and frequency of the transactions;
(p) In recommending to a customer the purchase, sale, or exchange
of a security, does not have reasonable grounds for believing that the
recommendation is suitable for the customer upon the basis of the
facts, if any, disclosed by the customer as to his or her other
security holdings and as to his or her financial situation and needs;
or
(q) Before the execution of a transaction recommended to a
noninstitutional customer, other than transactions with customers where
investments are limited to money market mutual funds, does not make
reasonable efforts to obtain information concerning:
(i) The customer's financial status;
(ii) The customer's tax status;
(iii) The customer's investment objectives; and
(iv) Such other information used or considered to be reasonable in
making recommendations to the customer.
(5) Examinations. A rule adopted or order issued under this
chapter may require that an examination, including an examination
developed or approved by an organization of securities regulators, be
successfully completed by a class of individuals or all individuals.
An order issued under this chapter may waive, in whole or in part, an
examination as to an individual and a rule adopted under this chapter
may waive, in whole or in part, an examination as to a class of
individuals if the director determines that the examination is not
necessary or appropriate in the public interest and for the protection
of investors.
(6) Summary process. The director may suspend or deny an
application summarily; restrict, condition, limit, or suspend a
registration; or censure, bar, or impose a civil penalty on a
registrant before final determination of an administrative proceeding.
Upon the issuance of an order under this subsection, the director shall
give such notice of the order and of the opportunity for a hearing
pursuant to chapter 34.05 RCW as is practicable to persons who are
required to comply with the order. If a hearing is not requested and
none is ordered by the director within twenty days after the date of
service of the order, the order becomes final by operation of law. If
a hearing is requested or ordered, the director, after notice of and
opportunity for hearing to each person subject to the order, may modify
or vacate the order or extend the order until final determination.
(7) Procedural requirements. An order under this section, except
when issued under subsection (6) of this section, shall comply with the
adjudicative proceedings provisions of chapter 34.05 RCW.
(8) Control person liability. A person that controls, directly or
indirectly, a person not in compliance with this section may be
disciplined by order of the director under subsections (1) through (3)
of this section to the same extent as the noncomplying person, unless
the controlling person did not know, and in the exercise of reasonable
care could not have known, of the existence of conduct that is a ground
for discipline under this section.
(9) Limit on investigation or proceeding. The director may not
institute a proceeding under subsections (1) through (3) of this
section based solely on material facts actually known by the director
unless an investigation or the proceeding is instituted within one year
after the director actually acquires knowledge of the material facts.
(10) Costs, fees, and expenses. In any action under this section,
the director may charge the costs, fees, and other expenses incurred by
the director in the conduct of any administrative investigation,
hearing, or court proceeding against any person found to be in
violation of any provision of this section or any rule or order adopted
under this section.
(11) Accounting, restitution, and disgorgement. In any action
under this section, the director may issue an order requiring an
accounting, restitution, and disgorgement, including interest at the
legal rate under RCW 4.56.110(4). The director may by rule or order
provide for payments to investors, rates of interest, periods of
accrual, and other matters the director deems appropriate to implement
this subsection.
(12) Noncompliance with a support order. The director shall
immediately suspend the license or certificate of a person who has been
certified pursuant to RCW 74.20A.320 by the department of social and
health services as a person who is not in compliance with a support
order. If the person has continued to meet all other requirements for
reinstatement during the suspension, reissuance of the license or
certificate shall be automatic upon the director's receipt of a release
issued by the department of social and health services stating that the
licensee is in compliance with the order.
NEW SECTION. Sec. 33 Sections 21 through 32 of this act are each
added to chapter 21.20A RCW (created in section 115 of this act) and
codified with the subchapter heading of "Broker-Dealers, Investment
Advisers, Investment Adviser Representatives, and Federal Covered
Investment Advisers."
NEW SECTION. Sec. 34
(1) To employ a device, scheme, or artifice to defraud;
(2) To make an untrue statement of a material fact or to omit to
state a material fact necessary in order to make the statements made,
in the light of the circumstances under which they were made, not
misleading; or
(3) To engage in an act, practice, or course of business that
operates or would operate as a fraud or deceit upon another person.
NEW SECTION. Sec. 35
(a) To employ a device, scheme, or artifice to defraud another
person; or
(b) To engage in an act, practice, or course of business that
operates or would operate as a fraud or deceit upon another person.
(2) Rules defining fraud. A rule adopted under this chapter may
define an act, practice, or course of business of an investment adviser
or an investment adviser representative, other than a supervised person
of a federal covered investment adviser, as fraudulent, deceptive, or
manipulative, and prescribe means reasonably designed to prevent
investment advisers and investment adviser representatives, other than
supervised persons of a federal covered investment adviser, from
engaging in acts, practices, and courses of business defined as
fraudulent, deceptive, or manipulative.
(3) Contents of advisory contract. It is unlawful for any
investment adviser to enter into, extend, or renew any investment
advisory contract unless it provides in writing:
(a) That the investment adviser shall not be compensated on the
basis of a share of capital gains upon or capital appreciation of the
funds or any portion of the funds of the client. However, this
subsection does not prohibit:
(i) An investment advisory contract which provides for compensation
based upon the total of a fund averaged over a definite period, or as
of definite dates or taken as of a definite date; or
(ii) Performance compensation arrangements permitted under any rule
the director may adopt in order to allow performance compensation
arrangements permitted under the Investment Advisers Act of 1940 and
regulations promulgated by the securities and exchange commission
thereunder;
(b) That no assignment of the contract may be made by the
investment adviser without the consent of the other party to the
contract; and
(c) That the investment adviser, if a partnership, shall notify the
other party to the contract of any change in the membership of the
partnership within a reasonable time after the change.
"Assignment," as used in (b) of this subsection, includes any
direct or indirect transfer or hypothecation of an investment advisory
contract by the assignor or of a controlling block of the assignor's
outstanding voting securities by a security holder of the assignor;
but, if the investment adviser is a partnership, no assignment of an
investment advisory contract is considered to result from the death or
withdrawal of a minority of the members of the investment adviser
having only a minority interest in the business of the investment
adviser, or from the admission to the investment adviser of one or more
members who, after admission, will be only a minority of the members
and will have only a minority interest in the business.
(4) Subsection (1) of this section applies whether or not the
person is an investment adviser, federal covered investment adviser, or
investment adviser representative under this chapter or the Investment
Advisers Act of 1940.
NEW SECTION. Sec. 36
(2) Criminal. In a criminal proceeding under this chapter, a
person claiming an exemption, exception, preemption, or exclusion has
the burden of going forward with evidence of the claim.
NEW SECTION. Sec. 37
(2) Excluded communications. This section does not apply to sales
or advertising literature specified in subsection (1) of this section
which relates to a federal covered security or a federal covered
investment adviser.
NEW SECTION. Sec. 38
NEW SECTION. Sec. 39
NEW SECTION. Sec. 40
NEW SECTION. Sec. 41
(b) Any person who knowingly alters, destroys, shreds, mutilates,
or conceals a record, document, or other object, or attempts to do so,
with the intent to impair the record's, document's, or object's
integrity or availability for use in an official proceeding under this
chapter, is guilty of a class B felony punishable by confinement under
RCW 9A.20.021 or punishable by a fine of not more than five hundred
thousand dollars, or both. The fines paid under this subsection shall
be deposited into the securities prosecution fund.
(2) Criminal reference not required. The director may refer such
evidence as may be available concerning violations of this chapter or
of any rule or order under this chapter to the attorney general or the
proper prosecuting attorney, who may in his or her discretion, with or
without a reference from the director, institute criminal proceedings
under this chapter. The director may render such assistance as the
attorney general or prosecuting attorney requests regarding a
reference.
(3) No limitation on other criminal enforcement. This chapter does
not limit the power of this state to punish a person for conduct that
constitutes a crime under other laws of this state.
(4) Statute of limitations. No indictment or information may be
returned under this chapter more than:
(a) Five years after the violation; or
(b) Three years after the actual discovery of the violation;
whichever date of limitation is later.
NEW SECTION. Sec. 42
(2) Liability of seller to purchaser. (a) A person is liable to
the purchaser if the person sells a security in violation of:
(i) Section 13 (2) or (3) of this act; or
(ii) Section 34 of this act, the purchaser not knowing the untruth
or omission or violation and the seller not sustaining the burden of
proof that the seller did not know and, in the exercise of reasonable
care, could not have known of the untruth or omission or violation.
(b) An action under (a) of this subsection is governed by the
following:
(i) The purchaser may maintain an action to recover the
consideration paid for the security, less the amount of any income
received on the security, and interest at eight percent per annum from
the date of the purchase, costs, and reasonable attorneys' fees
determined by the court, upon the tender of the security, or for actual
damages as provided in (b)(iii) of this subsection;
(ii) The tender referred to in (b)(i) of this subsection may be
made any time before entry of judgment. Tender requires only notice in
a record of ownership of the security and willingness to exchange the
security for the amount specified. A purchaser that no longer owns the
security may recover actual damages as provided in (b)(iii) of this
subsection; and
(iii) Actual damages in an action arising under this subsection are
the amount that would be recoverable upon a tender less the value of
the security when the purchaser disposed of it, and interest at eight
percent per annum from the date of the purchase, costs, and reasonable
attorneys' fees determined by the court.
(3) Liability of purchaser to seller. (a) A person is liable to
the seller if the person buys a security in violation of section 34 of
this act, the seller not knowing of the untruth or omission or
violation, and the purchaser not sustaining the burden of proof that
the purchaser did not know and, in the exercise of reasonable care,
could not have known of the untruth or omission or violation.
(b) An action under this subsection is governed by the following:
(i) The seller may maintain an action to recover the security, and
any income received on the security, costs, and reasonable attorneys'
fees determined by the court, upon the tender of the purchase price, or
for actual damages as provided in (b)(iii) of this subsection;
(ii) The tender referred to in (b)(i) of this subsection may be
made any time before entry of judgment. Tender requires only notice in
a record of the present ability to pay the amount tendered and
willingness to take delivery of the security for the amount specified.
If the purchaser no longer owns the security, the seller may recover
actual damages as provided in (b)(iii) of this subsection; and
(iii) Actual damages in an action arising under this subsection are
the difference between the price at which the security was sold and the
value the security would have had at the time of the sale in the
absence of the purchaser's conduct causing liability, and interest at
eight percent per annum from the date of the sale of the security,
costs, and reasonable attorneys' fees determined by the court.
(4) Liability of unregistered broker-dealer and sales agent. A
person acting as a broker-dealer or sales agent that sells or buys a
security in violation of section 21(1), 22(1), or 39 of this act is
liable to the customer. The customer, if a purchaser, may maintain an
action for recovery of actual damages as specified in subsection (2)(b)
of this section, or, if a seller, for a remedy as specified in
subsection (3)(b) of this section.
(5) Liability of unregistered investment adviser and investment
adviser representative. A person acting as an investment adviser or
investment adviser representative that provides investment advice for
compensation in violation of section 23(1), 24(1), or 39 of this act is
liable to the client. The client may maintain an action to recover the
consideration paid for the advice, interest at eight percent per annum
from the date of payment, costs, and reasonable attorneys' fees
determined by the court.
(6) Liability for investment advice. A person that receives
directly or indirectly any consideration for providing investment
advice to another person and that employs a device, scheme, or artifice
to defraud the other person or engages in an act, practice, or course
of business that operates or would operate as a fraud or deceit on the
other person is liable to the other person. An action under this
subsection is governed by the following:
(a) The person defrauded may maintain an action to recover the
consideration paid for the advice and the amount of any actual damages
caused by the fraudulent conduct, interest at eight percent per annum
from the date of the fraudulent conduct, costs, and reasonable
attorneys' fees determined by the court, less the amount of any income
received as a result of the fraudulent conduct; and
(b) This subsection does not apply to a broker-dealer or its sales
agents if the investment advice provided is solely incidental to
transacting business as a broker-dealer and no special compensation is
received for the investment advice.
(7) Joint and several liability. The following persons are liable
jointly and severally with and to the same extent as persons liable
under subsections (2) through (6) of this section:
(a) A person that directly or indirectly controls a person liable
under subsections (2) through (6) of this section, unless the
controlling person sustains the burden of proof that the person did not
know and, in the exercise of reasonable care, could not have known of
the existence of conduct by reason of which the liability is alleged to
exist;
(b) An individual who is a managing partner, executive officer, or
director of a person liable under subsections (2) through (6) of this
section, including an individual having a similar status or performing
similar functions, unless the individual sustains the burden of proof
that the individual did not know and, in the exercise of reasonable
care, could not have known of the existence of conduct by reason of
which the liability is alleged to exist;
(c) An individual who is an employee of or associated with a person
liable under subsections (2) through (6) of this section, and who
materially aids the conduct giving rise to the liability, unless the
individual sustains the burden of proof that the individual did not
know and, in the exercise of reasonable care, could not have known of
the existence of conduct by reason of which the liability is alleged to
exist; and
(d) A person that is a broker-dealer, sales agent, investment
adviser, or investment adviser representative that materially aids the
conduct giving rise to the liability under subsections (2) through (6)
of this section, unless the person sustains the burden of proof that
the person did not know and, in the exercise of reasonable care, could
not have known of the existence of conduct by reason of which liability
is alleged to exist.
(8) Right of contribution. A person liable under this section has
a right of contribution as in cases of contract against any other
person liable under this section for the same conduct.
(9) Survival of cause of action. A cause of action under this
section survives the death of an individual who might have been a
plaintiff or defendant.
(10) Statute of limitations. A person may not obtain relief:
(a) Under subsection (2) of this section for violation of section
13 (2) or (3) of this act, or under subsection (4) or (5) of this
section, unless the action is instituted within three years after the
violation occurred; or
(b) Under subsection (2) of this section, other than for violation
of section 13 of this act, or under subsection (3) or (6) of this
section, unless the action is instituted within the three years after
the facts constituting the violation were either discovered by such
person or would have been discovered by him or her in the exercise of
reasonable care.
(11)(a) No enforcement of violative contract. A person that has
made, or has engaged in the performance of, a contract in violation of
this chapter or a rule adopted or order issued under this chapter, or
that has acquired a purported right under the contract with knowledge
of conduct by reason of which its making or performance was in
violation of this chapter, may not base an action on the contract.
(b) No suit or action may be brought for the collection of a
commission for the sale of a security, as defined within this chapter,
without alleging and proving that the plaintiff was a duly registered
sales agent for an issuer or a broker-dealer, or exempt under section
22(2)of this act, or a duly registered broker-dealer, or exempt under
section 21(2) of this act in this state or another state at the time
the alleged cause of action arose.
(12) No contractual waiver. A condition, stipulation, or provision
binding a person purchasing or selling a security or receiving
investment advice to waive compliance with this chapter or a rule
adopted or order issued under this chapter is void.
(13) Survival of other rights or remedies. The rights and remedies
provided by this chapter are in addition to any other rights or
remedies that may exist, but this chapter does not create a cause of
action not specified in this section, section 31(5) of this act, or
section 70 of this act.
Notwithstanding subsections (2), (3), and (7) through (13) of this
section, if an initial offer or sale of securities that are exempt from
registration under section 8 of this act is made by this state or its
agencies, political subdivisions, municipal or quasi-municipal
corporations, or other instrumentality of one or more of the foregoing
in this subsection, and is in violation of section 34(2) of this act,
and any such issuer, member of the governing body, committee member,
public officer, director, employee, or agent of such issuer acting on
its behalf, or person in control of such issuer, member of the
governing body, committee member, public officer, director, employee,
or agent of such person acting on its behalf, materially aids in the
offer or sale, such person is liable to the purchaser of the security
only if the purchaser establishes scienter on the part of the
defendant. The word "employee" or the word "agent," as such words are
used in this subsection, do not include a bond counsel or an
underwriter. Under no circumstances whatsoever shall this subsection
be applied to require purchasers to establish scienter on the part of
bond counsels or underwriters. The provisions of this subsection are
retroactive and apply to any action commenced but not final before July
27, 1985. In addition, the provisions of this subsection apply to any
action commenced on or after July 27, 1985.
NEW SECTION. Sec. 43
(1) The purchaser, seller, or recipient of investment advice
receives in a record, before the action is instituted:
(a) An offer stating the respect in which liability under section
42 of this act may have arisen and fairly advising the purchaser,
seller, or recipient of investment advice of that person's rights in
connection with the offer, and any financial or other information
necessary to correct all material misrepresentations or omissions in
the information that was required by this chapter to be furnished to
that person at the time of the purchase, sale, or investment advice;
and
(b) If the basis for relief under this section may have been a
violation of section 42(2) of this act, an offer to repurchase the
security for cash, payable on delivery of the security, equal to the
consideration paid, and interest at eight percent per annum from the
date of the purchase, less the amount of any income received on the
security, or, if the purchaser no longer owns the security, an offer to
pay the purchaser upon acceptance of the offer damages in an amount
that would be recoverable upon a tender, less the value of the security
when the purchaser disposed of it, and interest at eight percent per
annum from the date of the purchase in cash equal to the damages
computed in the manner provided in this subsection; or
(c) If the basis for relief under this section may have been a
violation of section 42(3) of this act, an offer to tender the
security, on payment by the seller of an amount equal to the purchase
price paid, less income received on the security by the purchaser and
interest at eight percent per annum from the date of the sale; or if
the purchaser no longer owns the security, an offer to pay the seller
upon acceptance of the offer, in cash, damages in the amount of the
difference between the price at which the security was purchased and
the value the security would have had at the time of the purchase in
the absence of the purchaser's conduct that may have caused liability
and interest at eight percent per annum from the date of the sale; or
(d) If the basis for relief under this section may have been a
violation of section 42(4) of this act; and if the customer is a
purchaser, an offer to pay as specified in (b) of this subsection; or,
if the customer is a seller, an offer to tender or to pay as specified
in (c) of this subsection; or
(e) If the basis for relief under this section may have been a
violation of section 42(5) of this act, an offer to reimburse in cash
the consideration paid for the advice and interest at eight percent per
annum from the date of payment; or
(f) If the basis for relief under this section may have been a
violation of section 42(6) of this act, an offer to reimburse in cash
the consideration paid for the advice, the amount of any actual damages
that may have been caused by the conduct, and interest at eight percent
per annum from the date of the violation causing the loss;
(2) The offer under subsection (1) of this section states that it
must be accepted by the purchaser, seller, or recipient of investment
advice within thirty days after the date of its receipt by the
purchaser, seller, or recipient of investment advice or any shorter
period, of not less than three days, that the director, by order or
otherwise, specifies;
(3) The offeror has, in a separate account, cash on hand or other
liquid assets sufficient to pay the amount offered or the present
ability to tender the security under subsection (1) of this section,
unless:
(a) The filing made pursuant to subsection (6) of this section is
made at least ten business days before the offering; and
(b) The offer is passed upon by the director;
(4) The offer under subsection (1) of this section is delivered to
the purchaser, seller, or recipient of investment advice, or sent in a
manner that ensures receipt by the purchaser, seller, or recipient of
investment advice;
(5) The purchaser, seller, or recipient of investment advice that
accepts the offer under subsection (1) of this section in a record
within the period specified under subsection (2) of this section is
paid in accordance with the terms of the offer; and
(6) The offer is filed with the director on or before the offering
is made and conforms in form and content with a rule prescribed by the
director. If the basis for relief under this section may have been a
violation of section 13 of this act, the director may require that a
filing under this subsection be accompanied by the fee that would have
been paid had the offering that is the subject of the potential
violation been made in compliance with section 13 of this act.
NEW SECTION. Sec. 44
NEW SECTION. Sec. 45
(2) Unlawful use of records or information. It is unlawful for the
director or an officer, employee, or designee of the director to use
for personal benefit or the benefit of others records or other
information obtained by or filed with the director that are not public
under section 51(2) of this act. This chapter does not authorize the
director or an officer, employee, or designee of the director to
disclose the record or information, except in accordance with section
46, 51(3), or 52 of this act.
(3) No privilege or exemption created or diminished. This chapter
does not create or diminish a privilege or exemption that exists at
common law, by statute or rule, or otherwise.
(4) Investor education. The director may develop and implement
investor education initiatives to inform the public about investing in
securities, with particular emphasis on the prevention and detection of
securities fraud. In developing and implementing these initiatives,
the director may collaborate with public and nonprofit organizations
with an interest in investor education. The director may accept a
grant or donation from a person that is not affiliated with the
securities industry or from a nonprofit organization, regardless of
whether the organization is affiliated with the securities industry, to
develop and implement investor education initiatives.
(5) Advisory committee. There is hereby created a state advisory
committee, which shall consist of seven members to be appointed by the
governor on the basis of their experience and qualifications. The
membership shall be selected, insofar as possible, on the basis of
giving both geographic representation and representation to all phases
of the securities business including the legal and accounting
professions.
(a) The committee shall select a chairperson and a secretary from
their group.
(b) Regular meetings of the advisory committee may be held
quarterly, or semiannually, and special meetings may be called by the
chairperson upon at least seven days' written notice to each committee
member sent by regular mail.
(c) The appointment of a member of the committee shall be for four
years except in the case of a vacancy, in which event appointment shall
be only for the remainder of the unexpired term in which the vacancy
occurs.
(d) The advisory committee shall:
(i) Serve in an advisory capacity to the director on all matters
pertaining to this chapter;
(ii) Acquaint themselves fully with the operations of the
director's office as to the administration of securities, broker-dealer, sales agent, investment adviser, federal covered investment
advisor, and investment adviser representative rules and regulations,
and periodically recommend to the director such changes in connection
therewith as they deem advisable; and
(iii) Prepare and publish a report on their recommendations.
(e) The advisory committee shall be reimbursed for their travel
expenses in accordance with RCW 43.03.050 and 43.03.060.
NEW SECTION. Sec. 46
(i) Conduct public or private investigations within or outside of
this state which the director considers necessary or appropriate to
determine whether a person has violated, is violating, or is about to
violate this chapter or a rule adopted or order issued under this
chapter, or to aid in the enforcement of this chapter or in the
adoption of rules and forms under this chapter;
(ii) Require or permit a person to testify, file a statement, or
produce a record, under oath or otherwise as the director determines,
as to all the facts and circumstances concerning a matter to be
investigated or about which an action or proceeding is to be
instituted;
(iii) Publish a record concerning an action, proceeding, or an
investigation under, or a violation of, this chapter or a rule adopted
or order issued under this chapter if the director determines it is
necessary or appropriate in the public interest or for the protection
of investors; and
(iv) Engage in the investigation, detection, and identification of
criminal activities subject to this chapter.
(b) The enforcement unit of the securities division of the
department of financial institutions may be authorized to receive
criminal history record information in connection with the
investigation of criminal activities subject to this chapter.
(2) Director powers to investigate. For the purpose of an
investigation under this chapter, the director or his or her designated
officer may administer oaths and affirmations, subpoena witnesses, seek
compulsion of attendance, take evidence, require the filing of
statements, and require the production of any records that the director
considers relevant or material to the investigation. A subpoena issued
to a financial institution under this section may, if the director
finds it necessary or appropriate in the public interest or for the
protection of investors, include a directive that the financial
institution subpoenaed shall not disclose to third parties that are not
affiliated with the financial institution, other than to the
institution's legal counsel, the existence or content of the subpoena.
(3) Procedure and remedies for noncompliance. If a person does not
appear; refuses to testify, file a statement, or produce records; fails
to comply with a nondisclosure directive under subsection (2) of this
section; or otherwise does not obey a subpoena as required by the
director under this chapter, the director may apply to a court of
competent jurisdiction or a court of another state to enforce
compliance. The court may:
(a) Hold the person in contempt;
(b) Order the person to appear before the director;
(c) Order the person to testify about the matter under
investigation or in question;
(d) Order the production of records;
(e) Grant injunctive relief, including restricting or prohibiting
the offer or sale of securities or the providing of investment advice;
(f) Impose a civil penalty for each violation as determined
appropriate by the court; and
(g) Grant any other necessary or appropriate relief.
(4) Application for relief. This section does not preclude a
person from applying to a court of competent jurisdiction or a court of
another state for relief from a request to appear, testify, file a
statement, produce records, or obey a subpoena.
(5) Use immunity procedure. An individual is not excused from
attending, testifying, filing a statement, producing a record or other
evidence, or obeying a subpoena of the director under this chapter or
in an action or proceeding instituted by the director under this
chapter on the ground that the required testimony, statement, record,
or other evidence, directly or indirectly, may tend to incriminate the
individual or subject the individual to a criminal fine, penalty, or
forfeiture. If the individual refuses to testify, file a statement, or
produce a record or other evidence on the basis of the individual's
privilege against self-incrimination, the director may apply to a court
of competent jurisdiction to compel the testimony, the filing of the
statement, the production of the record, or the giving of other
evidence. The testimony, record, or other evidence compelled under
such an order may not be used, directly or indirectly, against the
individual in a criminal case, except in a prosecution for perjury or
contempt or otherwise failing to comply with the order.
(6) Assistance to securities regulator of another jurisdiction. At
the request of the securities regulator of another state or a foreign
jurisdiction, the director may provide assistance if the requesting
regulator states that it is conducting an investigation to determine
whether a person has violated, is violating, or is about to violate a
law or rule of the other state or foreign jurisdiction relating to
securities matters that the requesting regulator administers or
enforces. The director may provide the assistance by using the
authority to investigate and the powers conferred by this section as
the director determines is necessary or appropriate. The assistance
may be provided without regard to whether the conduct described in the
request would also constitute a violation of this chapter or other law
of this state if occurring in this state. In deciding whether to
provide the assistance, the director may consider whether the
requesting regulator is permitted and has agreed to provide assistance
reciprocally within its state or foreign jurisdiction to the director
on securities matters when requested; whether compliance with the
request would violate or prejudice the public policy of this state; and
the availability of resources and employees of the director to carry
out the request for assistance.
(7)(a) In addition to the authority conferred elsewhere in this
section, the director may, at any time during a public offering,
whether registered or not, or one year thereafter or at any time that
any debt or equity securities which have been sold to the public
pursuant to registration under this chapter are still an outstanding
obligation of the issuer:
(i) Investigate the issuer for the purpose of ascertaining whether
there have been violations of this chapter, rules adopted under this
chapter, or any conditions imposed by the director expressed in any
permit for a public offering or otherwise;
(ii) Visit and examine the issuer for the purpose of assuring
compliance with this chapter, rules adopted under this chapter, or any
conditions imposed by the director whether expressed in the permit for
the public offering or otherwise;
(iii) Require or permit any person to file a statement in writing,
under oath or otherwise as the director may determine, as to all the
facts and circumstances concerning the matter to be investigated; and
(iv) Publish information concerning any violation of this chapter,
or any rule, order, or condition adopted or imposed under this chapter.
(b) The examination or investigation, whether conducted within or
without this state, shall include the right to reasonably examine the
issuer's books, accounts, records, files, papers, feasibility reports,
and other pertinent information and obtain written permission from the
issuer to consult with the independent accountant who audited the
financial statements of the issuer. The reasonable costs of the
examination shall be paid by the issuer to the director. The issuer
shall not be liable for the costs of second or subsequent examinations
during a calendar year.
NEW SECTION. Sec. 47
(a) If the director believes that a person has engaged, is
engaging, or is about to engage in an act, practice, or course of
business constituting a violation of this chapter or a rule adopted or
order issued under this chapter or that a person has, is, or is about
to engage in an act, practice, or course of business that materially
aids a violation of this chapter or a rule adopted or order issued
under this chapter, the director may maintain an action in any court of
competent jurisdiction to enjoin the act, practice, or course of
business and to enforce compliance with this chapter or a rule adopted
or order issued under this chapter.
(b) Whenever it appears to the director that any person who has
received a permit to issue, sell, or otherwise dispose of securities
under this chapter, whether current or otherwise, has become insolvent,
the director may petition a court of competent jurisdiction to appoint
a receiver or conservator for the defendant or the defendant's assets.
(2) Relief available. In an action under this section and on a
proper showing, the court may:
(a) Issue a permanent or temporary injunction, restraining order,
or declaratory judgment;
(b) Order other appropriate or ancillary relief, which may include:
(i) An asset freeze, accounting, writ of attachment, writ of
general or specific execution, and appointment of a receiver or
conservator, that may be the director, for the defendant or the
defendant's assets;
(ii) Ordering the director to take charge and control of a
defendant's property, including investment accounts and accounts in a
depository institution, rents, and profits; to collect debts; and to
acquire and dispose of property;
(iii) Imposing a civil penalty; an order of rescission,
restitution, or disgorgement directed to a person that has engaged in
an act, practice, or course of business constituting a violation of
this chapter or chapter 21.20 RCW or a rule adopted or order issued
under this chapter or chapter 21.20 RCW;
(iv) Ordering the payment of prejudgment and postjudgment interest;
and
(v) If the director prevails, awarding reasonable attorneys' fees
to the director; or
(c) Order such other relief as the court considers appropriate.
(3) No bond required. The director may not be required to post a
bond in an action or proceeding under this chapter.
NEW SECTION. Sec. 48
(a) Issue an order directing the person to cease and desist from
engaging in the act, practice, or course of business or to take other
appropriate action within a reasonable time, as prescribed by the
director, to correct conditions resulting from the act, practice, or
course of business including, without limitation, a requirement to
provide restitution;
(b) Issue an order denying, suspending, revoking, or conditioning
the exemptions for a broker-dealer under section 21(2)(a) (iv) or (vi)
of this act or an investment adviser under section 23(2)(a)(iii) of
this act;
(c) Issue an order under section 11 of this act; or
(d) Issue an order requiring an accounting, restitution, and
disgorgement, including interest at the legal rate under RCW
4.56.110(4). The director may by rule or order provide for payments to
investors, interest rates, periods of accrual, and other matters the
director deems appropriate to implement this subsection.
(2) Summary process.
(a) An order under subsection (1) of this section is effective on
the date of issuance. Upon issuance of the order, the director shall
give such notice of the order and of the opportunity for a hearing
pursuant to chapter 34.05 RCW as is practicable to persons who are
required to comply with the order. The order must comply with the
adjudicative proceedings provisions of chapter 34.05 RCW.
(b) If a person subject to the order does not request a hearing and
none is ordered by the director within twenty days after the date of
service of the order, the order, including the imposition of a civil
penalty or requirement for payment of the costs of investigation sought
in a statement in the order, becomes final as to that person by
operation of law. If a hearing is requested or ordered, the director,
after notice of and opportunity for hearing to each person subject to
the order, may modify or vacate the order or extend it until final
determination.
(3) Procedure for final order. If a hearing is requested or
ordered pursuant to subsection (2) of this section, a hearing must be
held pursuant to the adjudicative proceedings provisions of chapter
34.05 RCW. A final order may not be issued unless the director makes
findings of fact and conclusions of law in a record in accordance with
the adjudicative proceedings provisions of chapter 34.05 RCW. The
final order may make final, vacate, or modify the order issued under
subsection (1) of this section.
(4) Civil penalty. In a final order under subsection (3) of this
section, the director may impose a civil penalty up to ten thousand
dollars for each violation. A person who, in an administrative action
by the director, is found to have knowingly or recklessly violated an
administrative order issued under subsection (3) of this section or
section 32 of this act shall pay an administrative fine in an amount
not to exceed twenty-five thousand dollars for each violation.
(5) Costs. In any action under this section, the director may
charge the costs, fees, and other expenses incurred by the director in
the conduct of any administrative investigation, hearing, or court
proceeding against any person found to be in violation of any provision
of this section or any rule or order adopted under this section.
(6) Filing of certified final order with court; effect of filing.
If a petition for judicial review of a final order is not filed in
accordance with section 53 of this act, the director may file a
certified copy of the final order with the clerk of a court of
competent jurisdiction. The order so filed has the same effect as a
judgment of the court and may be recorded, enforced, or satisfied in
the same manner as a judgment of the court.
(7) Enforcement by court; further civil penalty. If a person does
not comply with an order under this section, the director may petition
a court of competent jurisdiction to enforce the order. The court may
not require the director to post a bond in an action or proceeding
under this section. If the court finds, after service and opportunity
for hearing, that the person was not in compliance with the order, the
court may adjudge the person in civil contempt of the order. The court
may impose a further civil penalty against the person for contempt in
an amount determined by the court for each violation and may grant any
other relief the court determines is just and proper in the
circumstances.
NEW SECTION. Sec. 49
(a) Issue forms and orders and, in accordance with chapter 34.05
RCW, adopt or amend rules necessary or appropriate to carry out this
chapter and repeal rules, including rules and forms governing
registration statements, applications, notice filings, reports, and
other records;
(b) By rule, define terms, whether or not used in this chapter, but
those definitions may not be inconsistent with this chapter; and
(c) By rule, classify securities, persons, and transactions and
adopt different requirements for different classes.
(2) Findings and cooperation. Under this chapter, a rule or form
may not be adopted or amended, or an order issued or amended, unless
the director finds that the rule, form, order, or amendment is
necessary or appropriate in the public interest or for the protection
of investors and is consistent with the purposes intended by this
chapter. In adopting, amending, and repealing rules and forms, section
52 of this act applies in order to achieve uniformity among the states
and coordination with federal laws in the form and content of
registration statements, applications, reports, and other records,
including the adoption of uniform rules, forms, and procedures.
(3) Financial statements. Subject to Section 15(h) of the
Securities Exchange Act and Section 222 of the Investment Advisers Act
of 1940, the director may require that a financial statement filed
under this chapter be prepared in accordance with generally accepted
accounting principles in the United States, or other recognized method
of accounting, and comply with other requirements specified by rule
adopted or order issued under this chapter. A rule adopted or order
issued under this chapter may establish:
(a) Subject to Section 15(h) of the Securities Exchange Act and
Section 222 of the Investment Advisers Act of 1940, the form and
content of financial statements required under this chapter;
(b) Whether unconsolidated financial statements must be filed; and
(c) Whether required financial statements must be audited by an
independent certified public accountant.
(4) Interpretive opinions. The director, in his or her discretion,
may provide interpretive opinions or issue determinations that the
director will not institute a proceeding or an action under this
chapter against a specified person for engaging in a specified act,
practice, or course of business if the determination is consistent with
this chapter. The fee for requesting an interpretive opinion or
determination under this section shall be thirty-five dollars. A rule
adopted or order issued under this chapter may establish procedures for
requesting interpretive opinions or determinations that the director
will not institute an action or a proceeding under this chapter.
(5) Effect of compliance. A penalty under this chapter may not be
imposed for, and liability does not arise from, conduct that is engaged
in or omitted in good faith in conformity with a rule, form, or order
of the director under this chapter.
(6) Presumption for public hearings. A hearing in an
administrative proceeding under this chapter must be conducted in
public unless the director for good cause consistent with this chapter
determines that the hearing will not be so conducted.
NEW SECTION. Sec. 50
(2) Public availability. The director shall make all rules, forms,
interpretive opinions, and orders available to the public.
(3) Copies of public records. (a) The director, in response to a
request from a person, shall:
(i) Furnish a copy of a record that is a public record;
(ii) Certify the records furnished under (a)(i) of this subsection;
(iii) Certify that records have been searched and that a requested
record was not located; or
(iv) Certify whether, according to records maintained by the
director, a person is or was registered under this chapter and the
dates of such registration.
(b) A rule adopted under this chapter may establish a reasonable
charge for furnishing the record or certification.
(c) A copy of the record certified by the director under (a)(ii) of
this subsection is prima facie evidence of a record. A certificate by
the director under (a)(iii) of this subsection is prima facie evidence
that the requested record was not located within the director's records
as of the date of the certification. A certificate by the director
under (a)(iv) of this subsection is prima facie evidence of the
person's registration status as of the dates stated on the certificate.
NEW SECTION. Sec. 51
(2) Exempt records. The following records and information are
exempt from public inspection and copying under chapter 42.56 RCW:
(a) Reports, working papers, documents, materials, or information
produced by, obtained by, or disclosed to the director in connection
with an audit or inspection under section 31(4) of this act or an
examination under section 46(7) of this act;
(b) Documents, materials, or information, which is either
confidential, privileged, or both, which has been provided to the
director by a person specified in section 52(1) of this act, if the
documents, materials, or information is protected from disclosure by
the applicable laws of the jurisdiction that is the source of the
document, material, or information; and
(c) Any social security number, residential address unless used as
a business address, residential telephone number unless used as a
business telephone number, or other sensitive personal and financial
identifying numbers contained in a record that is filed.
(3) Director discretion to disclose. The director may disclose a
record otherwise exempt under this section if disclosure is necessary
or appropriate in the public interest or for the protection of
investors.
NEW SECTION. Sec. 52
(2) Policies to consider. In cooperating, coordinating,
consulting, and sharing records and information under this section and
in acting by rule, order, or waiver under this chapter, the director
may, in his or her discretion in carrying out the public interest, take
into consideration the following general policies:
(a) Maximizing effectiveness of regulation for the protection of
investors;
(b) Maximizing uniformity in federal and state regulatory
standards, without materially adversely affecting investor protection;
and
(c) Minimizing burdens on the business of capital formation,
without materially adversely affecting investor protection.
(3) Subjects for cooperation. The cooperation, coordination,
consultation, and sharing of records and information authorized by this
section includes:
(a) Establishing or employing one or more designees as a central
depository for registration and notice filings under this chapter and
for records required or allowed to be maintained under this chapter;
(b) Developing and maintaining uniform forms;
(c) Conducting a joint examination or investigation;
(d) Holding a joint administrative hearing;
(e) Instituting and prosecuting a joint civil or administrative
proceeding;
(f) Sharing and exchanging personnel;
(g) Coordinating registrations under sections 13 and 21 through 24
of this act and exemptions under section 10 of this act;
(h) Sharing and exchanging records, subject to section 51 of this
act;
(i) Formulating rules, statements of policy, guidelines, forms, and
interpretive opinions and releases;
(j) Formulating common systems and procedures;
(k) Notifying the public of proposed rules, forms, statements of
policy, and guidelines;
(l) Attending conferences and other meetings among securities
regulators, which may include representatives of governmental and
private sector organizations involved in capital formation, deemed
necessary or appropriate to promote or achieve uniformity; and
(m) Developing and maintaining a uniform exemption from
registration for small issuers, and taking other steps to reduce the
burden of raising investment capital by small businesses.
NEW SECTION. Sec. 53
NEW SECTION. Sec. 54
(2) Conduct constituting appointment of agent for service. If a
person, including a nonresident of this state, engages in an act,
practice, or course of business prohibited or made actionable by this
chapter or a rule adopted or order issued under this chapter and the
person has not filed a consent to service of process under subsection
(1) of this section, the act, practice, or course of business
constitutes the appointment of the director as the person's agent for
service of process in a noncriminal action or proceeding against the
person or the person's successor or personal representative.
(3) Procedure for service of process. Service under subsection (1)
or (2) of this section may be made by providing a copy of the process
to the office of the director, but it is not effective unless:
(a) The plaintiff, which may be the director, promptly sends notice
of the service and a copy of the process, return receipt requested, to
the defendant or respondent at the address set forth in the consent to
service of process or, if a consent to service of process has not been
filed, at the last known address, or takes other reasonable steps to
give notice; and
(b) The plaintiff files an affidavit of compliance with this
subsection in the action or proceeding on or before the return day of
the process, if any, or within the time that the court, or the director
in a proceeding before the director, allows.
(4) Service in administrative proceedings or civil actions by
director. Service pursuant to subsection (3) of this section may be
used in a proceeding before the director or by the director in a civil
action in which the director is the moving party.
(5) Opportunity to defend. If process is served under subsection
(3) of this section, the court, or the director in a proceeding before
the director, shall order continuances as are necessary or appropriate
to afford the defendant or respondent reasonable opportunity to defend.
NEW SECTION. Sec. 55
(2) The director may in his or her discretion send notice to the
applicant in any pending registration in which no action has been taken
for six months immediately prior to the sending of such notice,
advising such registrant that the pending registration will be
terminated thirty days from the date of sending unless on or before the
termination date the applicant makes application in writing to the
director showing good cause why it should be continued as a pending
registration. If such application is not made or good cause is not
shown, the director shall terminate the pending registration.
NEW SECTION. Sec. 56 Sections 45 through 55 of this act are each
added to chapter 21.20A RCW (created in section 115 of this act) and
codified with the subchapter heading of "Administration and Judicial
Review."
NEW SECTION. Sec. 57
(2) Continued effectiveness under chapter 21.20 RCW. All effective
registrations under chapter 21.20 RCW, all administrative orders
relating to the registrations, rules, statements of policy,
interpretive opinions, declaratory rulings, no action determinations,
and conditions imposed on the registrations under chapter 21.20 RCW
remain in effect while they would have remained in effect if this
chapter had not been enacted. They are considered to have been filed,
issued, or imposed under this chapter, but are exclusively governed by
chapter 21.20 RCW.
(3) Applicability of chapter 21.20 RCW to offers or sales. Chapter
21.20 RCW exclusively applies to an offer or sale made within one year
after the effective date of this section pursuant to an offering made
in good faith before the effective date of this section on the basis of
an exemption available under chapter 21.20 RCW.
(4) Applicability to RCW 48.06.030. Nothing in this chapter shall
limit the provisions of RCW 48.06.030.
NEW SECTION. Sec. 58 Section 57 of this act is added to chapter
21.20A RCW (created in section 115 of this act) and codified with the
subchapter heading of "Transition."
NEW SECTION. Sec. 59
(1)(a) "Debenture company" means an issuer of any note, debenture,
or other debt obligation for money used or to be used as capital or
operating funds of the issuer, which is offered or sold in this state,
and which issuer is engaged or proposes to engage in the business of
investing, reinvesting, owning, holding, or trading in:
(i) Notes or other debt obligations, whether or not secured by real
or personal property;
(ii) Vendors' interests in real estate contracts;
(iii) Real or personal property to be leased to third parties; or
(iv) Real or personal property.
(b) "Debenture company" does not include an issuer by reason of any
of its securities which are:
(i) Exempt from registration under section 8 of this act;
(ii) Offered or sold in transactions exempt from registration under
section 9 (13), (20), or (25) of this act; or
(iii) Federal covered securities under Section 18(b)(4)(D) of the
Securities Act of 1933 for which the issuer has made the filing and
paid the fee required under section 14 of this act.
(c) An issuer that the director finds is not primarily engaged in
the activities described in (a)(i) through (iv) of this subsection is
not a debenture company.
(2) "Acquiring party" means any person becoming or attempting to
become a controlling person under section 62 of this act.
(3) A "director" of a debenture company means any director of a
debenture company that is organized as a corporation or any other
person performing similar functions with respect to any other
organization constituting a debenture company.
(4) An "officer" of a debenture company means its president; any
vice president in charge of a principal business unit, division, or
function (such as sales, administration, or finance); any other officer
who performs a policy-making function; or any other person who performs
similar policy-making functions for the debenture company. Executive
officers of subsidiaries may be deemed executive officers of the
debenture company if they perform such policy-making functions for the
debenture company.
NEW SECTION. Sec. 60
(1) For outstanding securities other than equity securities
totaling from one dollar to one million dollars, a debenture company
shall have a net worth of at least two hundred thousand dollars;
(2) In addition to the requirement set forth in subsection (1) of
this section:
(a) A debenture company with outstanding securities other than
equity securities totaling in excess of one million dollars but not
over one hundred million dollars shall have additional net worth equal
to at least ten percent of the outstanding securities in excess of one
million dollars but not over one hundred million dollars; and
(b) A debenture company with outstanding securities other than
equity securities totaling in excess of one hundred million dollars
shall have additional net worth equal to at least five percent of the
outstanding securities in excess of one hundred million dollars; and
(3) Every debenture company shall hold at least one-half the amount
of its required net worth in cash or comparable liquid assets as
defined by rule, or shall demonstrate comparable liquidity to the
satisfaction of the director.
NEW SECTION. Sec. 61
(2) If good cause is shown, the director may, in his or her
discretion, waive or modify the requirements of this section. In
determining whether to make such a waiver or modification, the director
may take into consideration the impact of the waiver or modification on
the protection of investors and the safety and soundness of the
debenture company and other appropriate factors.
NEW SECTION. Sec. 62
(a) Such person directly or indirectly, or acting through one or
more other persons owns, controls, or has power to vote twenty-five
percent or more of any class of voting securities of a debenture
company;
(b) Such person controls in any manner the election of a majority
of the board of directors, board of trustees, or other managing body of
a debenture company; or
(c) The director determines, after notice and opportunity for
hearing, that such person, directly or indirectly, exercises a
controlling influence over the management or policies of a debenture
company.
(2) The director may except, by order, for good cause shown, any
person from subsection (1) of this section if the director finds the
exception to be in the public interest and that the exception does not
threaten the protection of investors.
NEW SECTION. Sec. 63
(a) Have any interest, direct or indirect, in the gains or profits
of the debenture company, except to receive dividends upon the amounts
contributed by him or her, the same as any other investor or
shareholder and under the same regulations and conditions. However,
this subsection shall not be construed to prohibit salaries as may be
approved by the debenture company's board of directors; or
(b) Become a member of the board of directors or a controlling
equity owner of another debenture company or a bank, trust company, or
national banking association, of which board enough other directors or
officers of the debenture company are members so as to constitute with
him or her a majority of the board of directors.
(2) A director, an officer, or controlling person shall not:
(a) For himself or herself or as agent or partner of another,
directly or indirectly use any of the funds held by the debenture
company, except to make such current and necessary payments as are
authorized by the board of directors;
(b) Receive directly or indirectly and retain for his or her own
use any commission on or benefit from any loan made by the debenture
company, or any pay or emolument for services rendered to any borrower
from the debenture company in connection with such loan;
(c) Become an indorser, surety, or guarantor, or in any manner an
obligor, for any loan made from the debenture company and except when
approval has been given by the director or the director's administrator
of securities upon recommendation by the company's board of directors;
or
(d) For himself or herself or as agent or partner of another,
directly or indirectly borrow any of the funds held by the debenture
company, or become the owner of real or personal property upon which
the debenture company holds a mortgage, deed of trust, or property
contract. A loan to or a purchase by an entity in which he or she is
an equity holder to the amount of fifteen percent of the total
outstanding equity securities, or in which he or she and other
directors, officers, or controlling persons of the debenture company
hold stock to the amount of twenty-five percent of the total
outstanding equity securities, shall be deemed a loan to or a purchase
by such director or officer within the meaning of this section, except
when the loan to or purchase by such entity occurred without his or her
knowledge or against his or her protest.
(3) A debenture company may not have as a director, officer, or
controlling person any person who is currently the subject of an order,
judgment, adjudication, determination, or conviction that would
constitute grounds for discipline under section 32(4) (a) through (f),
(h), or (k) through (m) of this act.
NEW SECTION. Sec. 64
(2) Debenture companies shall not issue certificates of debentures
in passbook form, or in any other form that suggests to the holder that
such moneys may be withdrawn on demand.
(3) Each certificate of debenture or an application for a
certificate shall specify on the face of the certificate or application
therefore, in twelve-point bold face type or larger, that such
debenture is not guaranteed or insured by the United States government,
the state of Washington, or any other government, governmental agency,
or instrumentality thereof.
NEW SECTION. Sec. 65
(a) The identity and business experience of each person by whom or
on whose behalf acquisition is to be made;
(b) The financial and managerial resources and future prospects of
each person involved in the acquisition;
(c) The terms and conditions of any proposed acquisition and the
manner in which the acquisition is to be made;
(d) The source and amount of the funds or other consideration used
or to be used in making the acquisition, and a description of the
transaction and the names of the parties if any part of these funds or
other consideration has been or is to be borrowed or otherwise obtained
for the purpose of making the acquisition;
(e) Any plan or proposal which any person making the acquisition
may have to liquidate the debenture company, to sell its assets, to
merge it with any other company, or to make any other major change in
its business or corporate structure or management;
(f) The identification of any person employed, retained, or to be
compensated by the acquiring party, or by any person on its behalf, who
makes solicitations or recommendations to shareholders for the purpose
of assisting in the acquisition and a brief description of the terms of
the employment, retainer, or arrangement for compensation; and
(g) Copies of all invitations for tenders or advertisements making
a tender offer to shareholders for the purchase of their stock to be
used in connection with the proposed acquisition.
(2) When a person, other than an individual or corporation, is
required to file an application under this section, the director may
require that the information required by subsection (1)(a), (b), and
(f) of this section be given with respect to each person who has an
interest in or controls a person filing an application under this
subsection.
(3) When a corporation is required to file an application under
this section, the director may require that the information required by
subsection (1)(a), (b), and (f) of this section be given for the
company, each officer and director of the company, and each person who
is directly or indirectly the beneficial owner of twenty-five percent
or more of the outstanding voting securities of the company.
(4) If any tender offer, request, or invitation for tenders or
other agreements to acquire control is proposed to be made by means of
a registration statement under the Securities Act of 1933 (48 Stat. 74;
15 U.S.C. Sec. 77(a)), as amended, or in circumstances requiring the
disclosure of similar information under the Securities Exchange Act of
1934 (48 Stat. 881; 15 U.S.C. Sec. 78(a)), as amended, the registration
statement or application may be filed with the director in lieu of the
requirements of this section.
(5) Any acquiring party shall also deliver a copy of any notice or
application required by this section to the debenture company proposed
to be acquired within two days after the notice or application is filed
with the director.
(6) Any acquisition of control in violation of this section shall
be ineffective and void.
(7) Any person who willfully or intentionally violates this section
or any rule adopted under this section is guilty of a gross misdemeanor
and shall be punished pursuant to chapter 9A.20 RCW. Each day's
violation shall be considered a separate violation.
NEW SECTION. Sec. 66
(1) The poor financial condition of any acquiring party might
jeopardize the financial stability of the debenture company or might
prejudice the interests of the investors, borrowers, or shareholders;
(2) The plan or proposal of the acquiring party to liquidate the
debenture company, to sell its assets, to merge it with any person, or
to make any other major change in its business or corporate structure
or management is not fair and reasonable to the debenture company's
investors, borrowers, or stockholders or is not in the public interest;
(3) The business experience and integrity of any acquiring party
who would control the operation of the debenture company indicates that
approval would not be in the interest of the debenture company's
investors, borrowers, or shareholders;
(4) The information provided by the application is insufficient for
the director to make a determination or there has been insufficient
time to verify the information provided and conduct an examination of
the qualification of the acquiring party;
(5) The acquiring party, an employee, associate, partner, officer,
or director, of the acquiring party or a person having a similar status
or performing similar functions, or a person directly or indirectly in
control of the acquiring party, is currently the subject of an order,
judgment, adjudication, determination, or conviction that would
constitute grounds for discipline under section 32(4) (a) through (f),
(h), or (k) through (m) of this act; or
(6) The acquisition would not be in the public interest.
NEW SECTION. Sec. 67
(a) Is engaging or has engaged in an unsafe or unsound practice in
conducting the business of the debenture company;
(b) Is violating or has violated section 73, 74, or 76 of this act,
or any rule, order, or condition adopted or imposed thereunder; or
(c) Is about to do the acts prohibited in (a) or (b) of this
subsection when the appearance that the threat exists is based upon
reasonable cause.
(2) The notice shall contain a statement of the facts constituting
the alleged violation, act, or practice and shall fix a time and place
at which a hearing will be held to determine whether an order to cease
and desist should issue against the debenture company. The hearing
shall be set in accordance with chapter 34.05 RCW.
Unless the debenture company appears at the hearing by a duly
authorized representative, it shall be considered to have consented to
the issuance of the cease and desist order. If the debenture company
is deemed to have consented or if upon the record made at the hearing
the director finds that any violation, act, or practice specified in
the notice of charges has been established, the director may issue and
serve upon the debenture company an order to cease and desist from the
violation, act, or practice. The order may require the debenture
company and its directors, officers, controlling persons, employees,
and agents to cease and desist from the violation, act, or practice and
may require the debenture company to take affirmative action to correct
the conditions resulting from the violation, act, or practice.
(3) A cease and desist order shall become effective at the
expiration of ten days after the service of the order upon the
debenture company concerned except that a cease and desist order issued
upon consent shall become effective at the time specified in the order
and shall remain effective as provided therein unless it is stayed,
modified, terminated, or set aside by action of the director or a
reviewing court.
NEW SECTION. Sec. 68
NEW SECTION. Sec. 69
(2) The reports required by subsection (1) of this section shall
contain such information, statements, and documents regarding the
financial and business conditions of the issuer and the number and
description of securities of the issuer held by its officers,
directors, and controlling equity owners and shall be in such form and
filed at such annual times as the director may require by rule or
order. For the purposes of sections 63, 69, and 70 of this act, a
"controlling equity owner" means a person who is directly or indirectly
the beneficial holder of more than ten percent of the outstanding
voting securities of an issuer.
(3)(a) The reports described in subsection (2) of this section
shall include financial statements corresponding to those required
under the provisions of section 16 of this act and to the issuer's
fiscal year setting forth in comparative form the corresponding
information for the preceding year and such financial statements shall
be furnished to all equity owners within one hundred twenty days after
the end of such year, unless an extension of time is granted by the
director, but at least twenty days prior to the date of the annual
meeting of equity owners.
(b) Such financial statements shall be prepared as to form and
content in accordance with rules prescribed by the director and shall
be audited by an independent certified public accountant who is not an
employee, officer, or member of the board of directors of the issuer or
a holder of securities of the issuer. The report of such independent
certified public accountant shall be based upon an audit made in
accordance with generally accepted auditing standards with no
limitations on its scope.
(4) The director may by rule or order exempt any issuer or class of
issuers from this section for a period of up to one year if the
director finds that the filing of any such report by a specific issuer
or class of issuers is not necessary for the protection of investors
and the public interest.
(5) For the purposes of this section and section 70 of this act,
"issuer" does not include issuers of:
(a) Securities registered by the issuer pursuant to Section 12 of
the Securities and Exchange Act of 1934 as now or hereafter amended or
exempted from registration under that act on a basis other than the
number of shareholders and total assets; or
(b) Securities which are held of record by less than two hundred
persons or whose total assets are less than five hundred thousand
dollars at the close of the issuer's fiscal year.
(6) Any issuer who has been required to file under this section and
who subsequently becomes excluded from the definition of "issuer" by
subsection (5) of this section must file a certification setting forth
the basis on which they claim to no longer be an issuer within the
meaning of this chapter.
(7) The reports filed under this section shall be filed and
maintained by the director for public inspection. Any person is
entitled to receive copies thereof from the director upon payment of
the reasonable costs of duplication.
(8) Filing of reports pursuant to this section shall not constitute
an approval thereof by the director or a finding by the director that
the report is true, complete, and not misleading. It shall be unlawful
to make, or cause to be made, to any prospective purchaser, seller,
customer, or client, any representation inconsistent with this
subsection.
NEW SECTION. Sec. 70
(a) Had actual notice of the issuer's duty to file reports;
(b) Knew, or in the exercise of reasonable care could have known,
of the violation; and
(c) Could have prevented the violation.
(2) Any issuer and other person who violate subsection (1) of this
section shall be liable jointly and severally for the damages
occasioned by such violation, together with reasonable attorneys' fees
and costs to any person who, during the continuation of the violation
and without actual notice of the violation, purchases or sells any
securities of the issuer within six months following the date the
violation commenced.
(3) No suit or action may be commenced under subsection (2) of this
section more than one year after the purchase or sale.
(4) Any person held liable under this section shall be entitled to
contribution from those jointly and severally liable with that person.
NEW SECTION. Sec. 71
NEW SECTION. Sec. 72
NEW SECTION. Sec. 73
(a) Make equity investments in a single project or subsidiary of
more than ten percent of its assets or of more than its net worth,
whichever is greater; or
(b) Make equity investments, including investments in subsidiaries,
other than investments in income-producing real property, which in the
aggregate exceed twenty percent of its assets.
(2) For the purposes of this section, an equity investment does not
include any real property, held by the debenture company for not more
than three years, or such longer period as permitted by the director,
which was acquired in satisfaction or on account of debts previously
contracted in the regular course of the debenture company's business,
judgments, vendors' interests in real property contracts, or liens.
(3) If good cause is shown, the director may, in his or her
discretion, waive or modify the requirements of this section. In
determining whether to make such a waiver or modification, the director
may take into consideration the impact of the waiver or modification on
the protection of investors and the safety and soundness of the
debenture company and other appropriate factors.
NEW SECTION. Sec. 74
(2) For the purpose of this section, loans made to affiliates of
the borrower are deemed to have been made to the borrower.
(3)(a) If good cause is shown, the director may, in his or her
discretion, waive or modify subsection (1) of this section. In
determining whether to make such a waiver or modification, the director
may take into consideration the impact of the waiver or modification on
the protection of investors and the safety and soundness of the
debenture company and other appropriate factors.
(b) A loan or obligation shall not be subject to the limitation in
subsection (1) of this section to the extent that the loan is secured
or covered by guarantee, or by commitment or agreement to take over or
to purchase the loan, made by any federal reserve bank or by the United
States or any department, bureau, board, commission, or establishment
of the United States, including any corporation wholly owned directly
or indirectly by the United States.
NEW SECTION. Sec. 75
(a) Such debt is well-secured and in the course of collection by
legal process or probate proceedings; or
(b) Such debt is represented or secured by bonds having a
determinable market value currently quoted on a national securities
exchange, provided that in such case, such bonds shall be carried on
the books of the debenture company at such value as the director may
from time to time direct, but in no event may such carrying value
exceed the market value thereof.
(2) A final judgment held by a debenture company shall not be
considered an asset of the debenture company after two years from the
date of its entry excluding any time for appeal unless extended by the
director in writing for a specified period.
(3) If good cause is shown, the director may, in his or her
discretion, waive or modify the requirements of this section. In
determining whether to make such a waiver or modification, the director
may take into consideration the impact of the waiver or modification on
the protection of investors and the safety and soundness of the
debenture company and other appropriate factors.
NEW SECTION. Sec. 76
(2)(a) Except as provided in (b) of this subsection, a loan shall
be deemed unsecured if the ascertained market value of the collateral
securing the loan does not exceed one hundred twenty-five percent of
the loan and all senior indebtedness.
(b) A loan shall not be deemed unsecured to the extent that the
loan is guaranteed or insured by the federal housing administration,
the administrator of veterans' affairs, the farmers home
administration, or an insurer authorized to do business in this state,
or any other guarantor or insurer approved by the director.
(3) If good cause is shown, the director may, in his or her
discretion, waive or modify the requirements of this section. In
determining whether to make such a waiver or modification, the director
may take into consideration the impact of the waiver or modification on
the protection of investors and the safety and soundness of the
debenture company and other appropriate factors.
NEW SECTION. Sec. 77
NEW SECTION. Sec. 78
NEW SECTION. Sec. 79
NEW SECTION. Sec. 80
NEW SECTION. Sec. 81
(2) In any civil action in which the reports are sought to be
discovered or used as evidence, any party may, upon notice to the
director, petition the court for an in camera review of the report.
The court may permit discovery and introduction of only those portions
of the report that are relevant and otherwise unobtainable by the
requesting party. This subsection shall not apply to an action brought
or defended by the director.
NEW SECTION. Sec. 82
(1) The person has committed a material violation of law or an
unsafe or unsound practice;
(2)(a) The debenture company has suffered or is likely to suffer
substantial financial loss or other damage as a result of the violation
or practice; or
(b) The interests of the debenture holders could be seriously
prejudiced by reason of the violation or practice; and
(3) The violation or practice involves personal dishonesty,
recklessness, or incompetence.
NEW SECTION. Sec. 83
(2) Upon receipt of a request for a meeting pursuant to subsection
(1) of this section, the secretary or other appropriate officer of the
debenture company shall designate the time and place at which the
special meeting will be held. The designated place of the meeting must
be a reasonable location within the county in which the principal place
of business of the debenture company is located, unless provided
otherwise by the bylaws. The designated time of the meeting must be no
sooner than twenty, and no later than thirty days after the request is
received by the secretary or other appropriate officer.
(3) The secretary or other appropriate officer shall give notice of
the meeting within ten days of receipt of the request or within such
other reasonable time period as may be provided by the bylaws or other
organization documents of the debenture company. The notice must
include the purpose or purposes for which the meeting is called, as
provided in the bylaws or other organization documents of the debenture
company. The director may require the attendance of all of the
directors at the special board meeting, and an absence unexcused by the
director constitutes a violation of this chapter.
NEW SECTION. Sec. 84
NEW SECTION. Sec. 85
(1) Consents to the action;
(2) Has failed to comply with the requirements of the director
while the debenture company is under supervisory direction;
(3) Has committed or is about to commit a material violation of law
or an unsafe or unsound practice, and such violation or practice has
caused or is likely to cause an unsafe or unsound condition at the
debenture company; or
(4) Is in an unsafe or unsound condition.
NEW SECTION. Sec. 86
(a) The director's determination; and
(b) Any requirements that must be satisfied before the director
shall terminate the supervisory direction.
(2) The debenture company must comply with the requirements of the
director as provided in the notice. If the debenture company fails to
comply with the requirements, the director may appoint a conservator,
liquidating agent, or receiver for the debenture company, in accordance
with this chapter. The director may appoint a representative to
supervise the debenture company during the period of supervisory
direction.
(3) All costs incident to supervisory direction will be a charge
against the assets of the debenture company to be allowed and paid as
the director may determine.
NEW SECTION. Sec. 87
(1) Disposing of, conveying, or encumbering any of its assets;
(2) Withdrawing any of its accounts at other financial
institutions;
(3) Lending any of its funds;
(4) Investing any of its funds;
(5) Transferring any of its property; or
(6) Incurring any debt, obligation, or liability.
NEW SECTION. Sec. 88
NEW SECTION. Sec. 89
(2) The conservator shall conduct the business of the debenture
company and take such steps toward the removal of the causes and
conditions that have necessitated the appointment of a conservator, as
the director may direct. The conservator is authorized to, without
limitation:
(a) Take all necessary measures to preserve, protect, and recover
any assets or property of the debenture company, including any claim or
cause of action belonging to or which may be asserted by the debenture
company, and administer the same in his or her own name as conservator;
and
(b) File, prosecute, and defend any suit that has been filed or may
be filed by or against the debenture company that is deemed by the
conservator to be necessary to protect all of the interested parties or
a property affected thereby.
The conservator shall make such reports to the director from time
to time as may be required by the director.
(3) All costs incident to conservatorship will be a charge against
the assets of the debenture company to be allowed and paid as the
director may determine.
(4) If at any time the director determines that the debenture
company is not in condition to continue business under the conservator
in the interest of its debenture holders, equity owners, or creditors,
and grounds exist under section 85 of this act, the director may
proceed with appointment of a liquidating agent or receiver in
accordance with this chapter.
NEW SECTION. Sec. 90
NEW SECTION. Sec. 91
NEW SECTION. Sec. 92
NEW SECTION. Sec. 93
(2) If the debenture company fails to adequately show cause, the
director shall serve the debenture company with an order directing the
suspension or revocation of the articles of incorporation, certificate
of limited partnership, certificate of formation, or similar charter
document; placing the debenture company in involuntary liquidation;
appointing a liquidating agent under this section and section 94 of
this act; and providing a statement of the findings on which the order
is based.
(3) The suspension or revocation must be immediate and complete.
Once the articles of incorporation, certificate of limited partnership,
certificate of formation, or similar charter document is suspended or
revoked, the debenture company shall cease conducting business. The
debenture company may not grant or pay out any new or previously
approved loans, may not invest any of its assets, and may not declare
or pay out any previously declared dividends. The liquidating agent of
a debenture company whose articles or certificate has been suspended or
revoked may accept payments on loans previously paid out and may accept
income from investments already made.
NEW SECTION. Sec. 94
(2) The liquidating agent shall proceed to convert the assets to
cash, collect all debts due to the debenture company, and wind up its
affairs in accordance with any instructions and procedures issued by
the director. If a liquidating agent agrees to absorb the debenture
company, the director may approve a pooling of assets and liabilities
rather than a distribution of assets.
(3) Each equity owner of a debenture company is entitled to a
proportionate allocation of the assets in liquidation after all debts
have been paid. The proportionate allocation shall be based on account
balances as of a date determined by the board.
(4) The liquidating agent shall cause a notice of liquidation to be
published once a week for three consecutive weeks in a newspaper of
general circulation in the county in which the principal place of
business of the debenture company is located. The notice of
liquidation must inform creditors of the debenture company on how to
make a claim upon the liquidating agent, and that if a claim is not
made upon the liquidating agent within thirty days of the last date of
publication, the creditor's claim is barred. The liquidating agent
shall provide personal notice of liquidation to the creditors of
record, informing them that if they fail to make a claim upon the
liquidating agent within thirty days of the service of the notice, the
creditor's claim is barred. If a creditor fails to make a claim upon
the liquidating agent within the times required to be specified in the
notices of liquidation, the creditor's claim is barred. All contingent
liabilities of the debenture company are discharged upon the director's
order to liquidate the debenture company. The liquidating agent shall,
upon completion, certify to the director that the distribution or
pooling of assets of the debenture company is complete.
NEW SECTION. Sec. 95
Upon taking possession of the debenture company, the receiver shall
give written notice to the directors of the debenture company and to
all persons having possession of any assets of the debenture company.
No person with knowledge of the taking of possession by the receiver
may have a lien or charge for any payment advanced, clearance made, or
liability incurred against any of the assets of the debenture company,
after the receiver takes possession, unless approved by the receiver.
NEW SECTION. Sec. 96
The court shall summarily hear and dismiss the complaint if it
finds that the receiver was appointed for cause. However, if the court
finds that no cause existed for appointment of the receiver, the court
shall require the receiver to restore the debenture company to
possession of its assets and enjoin the director from further
appointment of a receiver for the debenture company without cause.
NEW SECTION. Sec. 97
With the approval of the Thurston county superior court or the
superior court of the county in which the principal place of business
of the debenture company is located, the receiver may sell, compound,
or compromise bad or doubtful debts; and upon such terms as the court
may direct, the receiver may borrow, mortgage, pledge, or sell all or
any part of the real and personal property of the debenture company.
The receiver may deliver to each purchaser or lender an appropriate
deed, mortgage, agreement of pledge, or other instrument of title or
security. The receiver may employ an attorney or other assistants to
assist in carrying out the receivership, subject to such surety bond as
the director may require. The premium for any such bond must be paid
out of the assets of the debenture company.
In carrying out the receivership, the receiver may, subject to the
requirements of section 65 of this act, arrange for the merger or
consolidation of the debenture company in receivership with another
debenture company, or may arrange for the purchase of the debenture
company's assets and the assumption of its liabilities by another
debenture company, in whole or in part, or may arrange for such a
transaction with another entity as may be otherwise permitted by law.
NEW SECTION. Sec. 98
After the expiration of the time fixed in the notice, the receiver
has no power to accept any claim. The receiver may approve or reject
any claim, but shall serve notice of rejection upon the claimant by
mail or personally. An affidavit of service of the notice of rejection
will serve as prima facie evidence that notice was given. No action
may be brought on any claim after three months from the date of service
of the notice of rejection.
NEW SECTION. Sec. 99
Objection may be made by any interested person to any claim
approved by the receiver. Objections to claims approved by the
receiver will be resolved by the court after providing notice to both
the claimant and objector, as the court may prescribe.
NEW SECTION. Sec. 100
NEW SECTION. Sec. 101
NEW SECTION. Sec. 102
NEW SECTION. Sec. 103
NEW SECTION. Sec. 104
(2) After the expiration of two years from the date of mailing the
notice, the receiver shall promptly send to each person in whose name
the property stood on the books of the debenture company, at the
person's last known address, a registered letter providing notice of
sale. The letter must indicate that the receiver will sell the
property set out in the notice, at a public auction at a specified time
and place, not less than thirty days after the date of mailing the
letter. The receiver may sell the property unless the person, prior to
the sale, presents satisfactory evidence of the person's right to the
property. A notice of the time and place of the sale must be published
once within ten days prior to the sale in a newspaper of general
circulation in the county where the sale is to be held.
(3) Any property, for which the address of the owner or owners is
not known, may be sold at public auction after it has been held by the
receiver for two years. A notice of the time and place of the sale
must be published once within ten days prior to the sale in a newspaper
of general circulation in the county where the sale is to be held.
(4) Whenever the personal property left with the debenture company
consists either wholly or in part of documents, letters, or other
papers of a private nature, the documents, letters, or papers may not
be sold, but must be retained by the receiver and may be destroyed
after a period of five years.
NEW SECTION. Sec. 105
NEW SECTION. Sec. 106
NEW SECTION. Sec. 107
NEW SECTION. Sec. 108
NEW SECTION. Sec. 109
NEW SECTION. Sec. 110
(2) Every debenture company director, officer, or employee making
any transfer described in subsection (1) of this section is guilty of
a class B felony punishable according to chapter 9A.20 RCW.
(3) An officer, director, or employee of a debenture company who
fraudulently sells a debenture on behalf of the debenture company,
knowing that the debenture company is insolvent, is guilty of a class
B felony punishable according to chapter 9A.20 RCW.
NEW SECTION. Sec. 111
Sec. 112 RCW 42.56.400 and 2005 c 274 s 420 are each amended to
read as follows:
The following information relating to insurance and financial
institutions is exempt from disclosure under this chapter:
(1) Records maintained by the board of industrial insurance appeals
that are related to appeals of crime victims' compensation claims filed
with the board under RCW 7.68.110;
(2) Information obtained and exempted or withheld from public
inspection by the health care authority under RCW 41.05.026, whether
retained by the authority, transferred to another state purchased
health care program by the authority, or transferred by the authority
to a technical review committee created to facilitate the development,
acquisition, or implementation of state purchased health care under
chapter 41.05 RCW;
(3) The names and individual identification data of all viators
regulated by the insurance commissioner under chapter 48.102 RCW;
(4) Information provided under RCW 48.30A.045 through 48.30A.060;
(5) Information provided under RCW 48.05.510 through 48.05.535,
48.43.200 through 48.43.225, 48.44.530 through 48.44.555, and 48.46.600
through 48.46.625;
(6) Information gathered under chapter 19.85 RCW or RCW 34.05.328
that can be identified to a particular business;
(7) Examination reports and information obtained by the department
of financial institutions from banks under RCW 30.04.075, from savings
banks under RCW 32.04.220, from savings and loan associations under RCW
33.04.110, from credit unions under RCW 31.12.565, from check cashers
and sellers under RCW 31.45.030(3), from debenture companies under
section 81 of this act, and from securities ((brokers and)) broker-dealers, investment advisers ((under RCW 21.20.100)), and issuers under
section 51 of this act, all of which is confidential and privileged
information;
(8) Information provided to the insurance commissioner under RCW
48.110.040(3);
(9) Documents, materials, or information obtained by the insurance
commissioner under RCW 48.02.065, all of which are confidential and
privileged; and
(10) Confidential proprietary and trade secret information provided
to the commissioner under RCW 48.31C.020 through 48.31C.050 and
48.31C.070.
NEW SECTION. Sec. 113 If any provision of this act or its
application to any person or circumstance is held invalid, the
remainder of the act or the application of the provision to other
persons or circumstances is not affected.
NEW SECTION. Sec. 114 Captions used in this act are not any part
of the law.
NEW SECTION. Sec. 115 Sections 59 through 68 and 71 through 111
of this act are each added to chapter 21.20A RCW (created in section
116 of this act) and codified with the subchapter heading of "Debenture
Companies."
NEW SECTION. Sec. 116 Sections 1 through 111, 113, 114, and 117
of this act constitute a new chapter in Title
NEW SECTION. Sec. 117 This act takes effect January 1, 2007.