BILL REQ. #:  Z-0154.2 



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HOUSE BILL 1433
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State of Washington60th Legislature2007 Regular Session

By Representative Kirby; by request of Uniform Legislation Commission

Read first time 01/19/2007.   Referred to Committee on Insurance, Financial Service & Consumer Protection.



     AN ACT Relating to the uniform securities act of Washington; reenacting and 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  Sec. 1   The following acts or parts of acts are each repealed: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 2006 c 220 s 1, 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   SHORT TITLE. This chapter may be known and cited as the uniform securities act of Washington.

NEW SECTION.  Sec. 3   DEFINITIONS. The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.
     (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) and (5) of the Securities Exchange Act of 1934 (15 U.S.C. Secs. 78c(a)(4) and (5)) or a bank that satisfies the conditions specified 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   REFERENCES TO FEDERAL STATUTES. "Securities Act of 1933" (15 U.S.C. Sec. 77a et seq.), "Securities Exchange Act of 1934" (15 U.S.C. Sec. 78a et seq.), "Public Utility Holding Company Act of 1935" (15 U.S.C. Sec. 79 et seq.), "Investment Company Act of 1940" (15 U.S.C. Sec. 80a-1 et seq.), "Investment Advisers Act of 1940" (15 U.S.C. Sec. 80b-1 et seq.), "Employee Retirement Income Security Act of 1974" (29 U.S.C. Sec. 1001 et seq.), "National Housing Act" (12 U.S.C. Sec. 1701 et seq.), "Commodity Exchange Act" (7 U.S.C. Sec. 1 et seq.), "Internal Revenue Code" (26 U.S.C. Sec. 1 et seq.), "Securities Investor Protection Act of 1970" (15 U.S.C. Sec. 78aaa et seq.), "Securities Litigation Uniform Standards Act of 1998" (112 Stat. 3227), "Small Business Investment Act of 1958" (15 U.S.C. Sec. 661 et seq.), and "Electronic Signatures in Global and National Commerce Act" (15 U.S.C. Sec. 7001 et seq.) mean those statutes and the rules and regulations adopted under those statutes, as in effect on the effective date of this section, or as later amended.

NEW SECTION.  Sec. 5   REFERENCES TO FEDERAL AGENCIES. A reference in this chapter to an agency or department of the United States is also a reference to a successor agency or department.

NEW SECTION.  Sec. 6   ELECTRONIC RECORDS AND SIGNATURES. This chapter modifies, limits, and supersedes the Federal Electronic Signatures in Global and National Commerce Act, but does not modify, limit, or supersede Section 101(c) of that act (15 U.S.C. Sec. 7001(c)) or authorize electronic delivery of any of the notices described in Section 103(b) of that act (15 U.S.C. Sec. 7003(b)). This chapter authorizes the filing of records and signatures, when specified by this chapter or by a rule adopted or order issued under this chapter, in a manner consistent with Section 104(a) of that act (15 U.S.C. Sec. 7004(a)).

NEW SECTION.  Sec. 7   Sections 2 through 6 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 "General Provisions."

NEW SECTION.  Sec. 8   EXEMPT SECURITIES. The following securities are exempt from the requirements of sections 13 through 18 and 37 of this act:
     (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 or political subdivisions 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   EXEMPT TRANSACTIONS. The following transactions are exempt from the requirements of sections 13 through 18 and 37 of this act:
     (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) 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. In accordance with chapter 34.05 RCW, 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 pays a fee not to exceed fifty dollars and 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; transfer to an existing member or person who will become a member; or transfer by gift to a person organized and operating as a nonprofit organization as defined in RCW 84.36.800(4) that also possesses a current tax exempt status under the laws of the United States, 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   ADDITIONAL EXEMPTIONS AND WAIVERS. A rule adopted or order issued under this chapter may exempt a security, transaction, or offer; a rule under this chapter may exempt a class of securities, transactions, or offers from any or all of the requirements of sections 13 through 18 and 37 of this act; and an order under this chapter may waive, in whole or in part, any or all of the conditions for an exemption or offer under sections 8 and 9 of this act.

NEW SECTION.  Sec. 11   DENIAL, SUSPENSION, REVOCATION, CONDITION, OR LIMITATION OF EXEMPTIONS. (1) Enforcement related powers. Except with respect to a federal covered security or a transaction involving a federal covered security, an order under this chapter may deny, suspend application of, condition, limit, or revoke an exemption created under section 8 (3)(c), (7), or (8) or 9 of this act or an exemption or waiver created under section 10 of this act with respect to a specific security, transaction, or offer. An order under this section may be issued only pursuant to the procedures in section 18(4) or 48 of this act and only prospectively.
     (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 116 of this act) and codified with the subchapter heading of "Exemption from Registration of Securities."

NEW SECTION.  Sec. 13   SECURITIES REGISTRATION REQUIREMENT. It is unlawful for a person to offer or sell a security in this state unless:
     (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   NOTICE FILING. (1) Notice filings for federal covered securities under Section 18(b)(2) or 18(b)(4)(C) of the Securities Act of 1933. With respect to a federal covered security, as defined in Section 18(b)(2) or 18(b)(4)(C) of the Securities Act of 1933 (15 U.S.C. Sec. 77r(b)(2) or 77r(b)(4)(C)), that is not otherwise exempt under sections 8 through 10 of this act, a rule adopted or order issued under this chapter may require the filing of any or all of the following records:
     (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   SECURITIES REGISTRATION BY COORDINATION. (1) Registration permitted. A security for which a registration statement has been filed under the Securities Act of 1933, or a security for which an offering statement has been filed under regulation A pursuant to subsection (b) of Section 3 of the Securities Act of 1933, in connection with the same offering may be registered by coordination under this section.
     (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   SECURITIES REGISTRATION BY QUALIFICATION. (1) Registration permitted. A security may be registered by qualification under this section.
     (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   SECURITIES REGISTRATION FILINGS. (1) Who may file. A registration statement may be filed by the issuer, a person on whose behalf the offering is to be made, or a broker-dealer registered under this chapter.
     (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:
     (A) 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
     (B) The renewal fee for the unsold portion of the offering shall be one hundred dollars for each additional twelve-month period in which the same offering is continued; and
     (ii) For an offering pursuant to section 16 of this act;
     (A) 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; and
     (B) The renewal fee for the unsold portion of the offering shall be fifty dollars for one additional twelve-month period only, and the offering may only be renewed once.
     (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   DENIAL, SUSPENSION, AND REVOCATION OF SECURITIES REGISTRATION. (1) Stop orders. The director may issue a stop order denying effectiveness to, or suspending or revoking the effectiveness of, a registration statement if the director finds that the order is in the public interest and that:
     (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   WAIVER AND MODIFICATION. The director may waive or modify, in whole or in part, any or all of the requirements of sections 14, 15, and 16(2) of this act or the requirement of any information or record in a registration statement or in a periodic report filed pursuant to section 17(9) of this act.

NEW SECTION.  Sec. 20   Sections 13 through 19 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 "Registration of Securities and Notice Filing of Federal Covered Securities."

NEW SECTION.  Sec. 21   BROKER-DEALER REGISTRATION REQUIREMENT AND EXEMPTIONS. (1) Registration requirement. It is unlawful for a person to transact business in this state as a broker-dealer unless the person is registered under this chapter as a broker-dealer or is exempt from registration as a broker-dealer under subsection (2) or (4) of this section.
     (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   SALES AGENT REGISTRATION REQUIREMENT AND EXEMPTIONS. (1) Registration requirement. It is unlawful for an individual to transact business in this state as a sales agent unless the individual is registered under this chapter as a sales agent or is exempt from registration as a sales agent under subsection (2) of this section.
     (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   INVESTMENT ADVISER REGISTRATION REQUIREMENT AND EXEMPTIONS. (1) Registration requirement. It is unlawful for a person to transact business in this state as an investment adviser unless the person is registered under this chapter as an investment adviser or is exempt from registration as an investment adviser under subsection (2) of this section.
     (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   INVESTMENT ADVISER REPRESENTATIVE REGISTRATION REQUIREMENT AND EXEMPTIONS. (1) Registration requirement. It is unlawful for an individual to transact business in this state as an investment adviser representative unless the individual is registered under this chapter as an investment adviser representative or is exempt from registration as an investment adviser representative under subsection (2) of this section.
     (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   FEDERAL COVERED INVESTMENT ADVISER NOTICE FILING REQUIREMENT. (1) Notice filing requirement. Except with respect to a federal covered investment adviser described in subsection (2) of this section, it is unlawful for a federal covered investment adviser to transact business in this state as a federal covered investment adviser unless the federal covered investment adviser complies with subsection (3) of this section.
     (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   REGISTRATION BY BROKER-DEALER, SALES AGENT, INVESTMENT ADVISER, AND INVESTMENT ADVISER REPRESENTATIVE. (1) Application for initial registration. A person shall register as a broker-dealer, sales agent, investment adviser, or investment adviser representative by filing an application and a consent to service of process complying with section 54 of this act, and paying the fee specified in section 30 of this act and any reasonable fees charged by the designee of the director for processing the filing. The application must contain:
     (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   SUCCESSION AND CHANGE IN REGISTRATION OF BROKER-DEALER OR INVESTMENT ADVISER. (1) Succession. A broker-dealer or investment adviser may succeed to the current registration of another broker-dealer or investment adviser or a notice filing of a federal covered investment adviser, and a federal covered investment adviser may succeed to the current registration of an investment adviser or notice filing of another federal covered investment adviser, by filing as a successor an application for registration pursuant to section 21 or 23 of this act or a notice pursuant to section 25 of this act for the unexpired portion of the current registration or notice filing and paying the filing fee required by section 30 of this act.
     (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   TERMINATION OF EMPLOYMENT OR ASSOCIATION OF SALES AGENT AND INVESTMENT ADVISER REPRESENTATIVE AND TRANSFER OF EMPLOYMENT OR ASSOCIATION. (1) Notice of termination. If a sales agent registered under this chapter terminates employment by or association with a broker-dealer or issuer, or if an investment adviser representative registered under this chapter terminates employment by or association with an investment adviser or federal covered investment adviser, or if either registrant terminates activities that require registration as a sales agent or investment adviser representative, the broker-dealer, issuer, investment adviser, or federal covered investment adviser shall promptly file a notice of termination. If the registrant learns that the broker-dealer, issuer, investment adviser, or federal covered investment adviser has not filed the notice, the registrant may do so.
     (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   WITHDRAWAL OF REGISTRATION OF BROKER-DEALER, SALES AGENT, INVESTMENT ADVISER, AND INVESTMENT ADVISER REPRESENTATIVE. Withdrawal of registration by a broker-dealer, sales agent, investment adviser, or investment adviser representative becomes effective sixty days after the filing of the application to withdraw or within any shorter period as provided by rule adopted or order issued under this chapter unless a revocation or suspension proceeding is pending when the application is filed. If a proceeding is pending, withdrawal becomes effective when and upon such conditions as required by rule adopted or order issued under this chapter. The director may institute a revocation or suspension proceeding under section 32 of this act within one year after the withdrawal became effective automatically and issue a revocation or suspension order as of the last date on which registration was effective if a proceeding is not pending.

NEW SECTION.  Sec. 30   FILING FEES. (1)(a) Broker-dealers. A person shall pay a fee of one hundred fifty dollars when initially filing an application for registration as a broker-dealer and a fee of seventy-five dollars when filing a renewal of registration as a broker-dealer. 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 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   POSTREGISTRATION REQUIREMENTS. (1) Financial requirements. 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 establish minimum financial requirements for broker-dealers registered or required to be registered under this chapter and investment advisers registered or required to be registered under this chapter.
     (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   DENIAL, REVOCATION, SUSPENSION, WITHDRAWAL, RESTRICTION, CONDITION, OR LIMITATION OF REGISTRATION. (1) Disciplinary conditions - applicants. 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 deny an application, or may condition or limit registration of an applicant to be a broker-dealer, sales agent, investment adviser, or investment adviser representative, and, if the applicant 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.
     (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 116 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   GENERAL FRAUD. It is unlawful for a person, in connection with the offer, sale, or purchase of a security, directly or indirectly:
     (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   PROHIBITED CONDUCT IN PROVIDING INVESTMENT ADVICE. (1) Fraud in providing investment advice. It is unlawful for a person that advises others for compensation, either directly or indirectly 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 part of a regular business, issues or promulgates analyses or reports relating to securities:
     (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   EVIDENTIARY BURDEN. (1) Civil. In a civil action or administrative proceeding under this chapter, a person claiming an exemption, exception, preemption, or exclusion has the burden to prove the applicability of the claim.
     (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   FILING OF SALES AND ADVERTISING LITERATURE. (1) Filing requirements. Except as otherwise provided in subsection (2) of this section, a rule adopted or order issued under this chapter may require the filing of a prospectus, pamphlet, circular, form letter, advertisement, sales literature, or other advertising record relating to a security or investment advice, addressed or intended for distribution to prospective investors, including clients or prospective clients of a person registered or required to be registered as an investment adviser under this chapter.
     (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   MISLEADING FILINGS. It is unlawful for a person to make or cause to be made, in a record that is used in an action or proceeding or filed under this chapter, a statement that, at the time and in the light of the circumstances under which it is made, is false or misleading in a material respect, or, in connection with the statement, to omit to state a material fact necessary to make the statement made, in the light of the circumstances under which it was made, not false or misleading.

NEW SECTION.  Sec. 39   MISREPRESENTATIONS CONCERNING REGISTRATION OR EXEMPTION. The filing of an application for registration, a registration statement, a notice filing under this chapter, the registration of a person, the notice filing by a person, or the registration of a security under this chapter does not constitute a finding by the director that a record filed under this chapter is true, complete, and not misleading. The filing or registration or the availability of an exemption, exception, preemption, or exclusion for a security or a transaction does not mean that the director has passed upon the merits or qualifications of, or recommended or given approval to, a person, security, or transaction. It is unlawful to make, or cause to be made, to a purchaser, customer, client, or prospective customer or client a representation inconsistent with this section.

NEW SECTION.  Sec. 40   IMMUNITY. A "person" under RCW 4.24.510 includes a broker-dealer, sales agent, investment adviser, federal covered investment adviser, or investment adviser representative.

NEW SECTION.  Sec. 41   CRIMINAL PENALTIES. (1) Criminal penalties. (a) A person that willfully violates this chapter, or a rule adopted or order issued under this chapter, except section 37 of this act or the notice filing requirements of section 14 or 25 of this act, or that willfully violates section 38 of this act knowing the statement made to be false or misleading in a material respect, is guilty of a class B felony punishable under RCW 9A.20.021. An individual convicted of violating a rule or order under this chapter may be fined, but may not be imprisoned, if the individual did not have knowledge of the rule or order.
     (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   CIVIL LIABILITY. (1) Securities Litigation Uniform Standards Act. Enforcement of civil liability under this section is subject to the Securities Litigation Uniform Standards Act of 1998.
     (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   RESCISSION OFFERS. A purchaser, seller, or recipient of investment advice may not maintain an action under section 42 of this act if:
     (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 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;
     (4) 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
     (5) The offer is filed with the director in accordance with this subsection:
     (a) If 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, the offeror must file the offer on or before the date the offering is made;
     (b) If the offeror does not have, 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, the offeror must file the offer at least ten business days before the offering and the offer must be passed upon by the director; and
     (c) The director may adopt rules prescribing the form and content of the offer and filing required by this section. 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   Sections 34 through 43 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 "Fraud and Liabilities."

NEW SECTION.  Sec. 45   ADMINISTRATION. (1) Administration. The director shall appoint a competent person to administer this chapter who shall be designated administrator of securities. The director shall delegate to the administrator such powers, subject to the authority of the director, as may be necessary to carry out the provisions of this chapter. The administrator shall hold office at the pleasure of the director. The administrator, and any person employed by the administrator, shall be paid, in addition to regular compensation, travel expenses incurred by each of them in the performance of their duties under this chapter in accordance with RCW 43.03.050 and 43.03.060.
     (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 chapter 42.56 RCW. 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 or 52 of this act or chapter 42.56 RCW.
     (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   INVESTIGATIONS AND SUBPOENAS. (1) Authority to investigate. (a) The director may:
     (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   CIVIL ENFORCEMENT. (1) Civil action instituted by director.
     (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   ADMINISTRATIVE ENFORCEMENT. (1) Issuance of an order or notice. If the director determines 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 materially aided, is materially aiding, or is about to materially aid an act, practice, or course of business constituting a violation of this chapter or a rule adopted or order issued under this chapter, the director may:
     (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   RULES, FORMS, ORDERS, INTERPRETIVE OPINIONS, AND HEARINGS. (1) Issuance and adoption of forms, orders, and rules. The director may:
     (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   ADMINISTRATIVE FILES AND OPINIONS. (1) Public register of filings. The director shall maintain, or designate a person to maintain, a register of applications for registration of securities; registration statements; notice filings; applications for registration of broker-dealers, sales agents, investment advisers, and investment adviser representatives; notice filings by federal covered investment advisers that are or have been effective under this chapter or chapter 21.20 RCW; notices of claims of exemption from registration or notice filing requirements contained in a record; orders issued under this chapter or chapter 21.20 RCW; and interpretive opinions or no action determinations issued under this chapter.
     (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   PUBLIC RECORDS. Public records are available for inspection and copying as set forth in chapter 42.56 RCW.

NEW SECTION.  Sec. 52   UNIFORMITY AND COOPERATION WITH OTHER AGENCIES. (1) Objective of uniformity. The director shall, in his or her discretion, cooperate, coordinate, consult, and, subject to section 51 of this act, share records and information with the securities regulator of another state, Canada, a Canadian province or territory, a foreign jurisdiction, the Securities and Exchange Commission, the United States Department of Justice, the Commodity Futures Trading Commission, the Federal Trade Commission, the Securities Investor Protection Corporation, a self-regulatory organization, a national or international organization of securities regulators, a federal or state banking and insurance regulator, and a governmental law enforcement agency to effectuate greater uniformity in securities matters among the federal government, self-regulatory organizations, states, and foreign governments.
     (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   JUDICIAL REVIEW OF ORDERS. A final order issued by the director under this chapter is subject to judicial review in accordance with chapter 34.05 RCW.

NEW SECTION.  Sec. 54   SERVICE OF PROCESS. (1) Signed consent to service of process. A consent to service of process required by this chapter must comply with this section and be signed and filed in a form required by the director. The consent may be included in a form promulgated by the Securities and Exchange Commission or other federal or state agency or self-regulatory organization. The consent shall appoint the director as the person's agent for service of process in a noncriminal action or proceeding under this chapter brought against the person, or the person's successor or personal representative, after the consent is filed. Service on the director pursuant to the consent has the same force and validity as if the service were made personally on the person filing the consent. Service on the director pursuant to the consent is not the exclusive means of service on the person filing the consent. A person that has filed a consent complying with this subsection in connection with a previous application for registration or notice filing need not file an additional consent.
     (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   FEES SHALL BE PAID IN ADVANCE--REFUNDABILITY--TERMINATION OF PENDING REGISTRATIONS. (1) The fees required by this chapter shall be paid in advance and are not refundable except as may be expressly provided by other sections of this chapter.
     (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 116 of this act) and codified with the subchapter heading of "Administration and Judicial Review."

NEW SECTION.  Sec. 57   APPLICATION OF CHAPTER TO EXISTING PROCEEDINGS, EXISTING RIGHTS AND DUTIES, AND RCW 48.06.030. (1) Applicability of chapter 21.20 RCW to pending proceedings and existing rights. Chapter 21.20 RCW exclusively governs all actions or proceedings that are pending on the effective date of this section or may be instituted on the basis of conduct occurring before the effective date of this section, but a civil action may not be maintained to enforce any liability under chapter 21.20 RCW unless instituted within any period of limitation that applied when the cause of action accrued or within five years after the effective date of this section, whichever is earlier.
     (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 116 of this act) and codified with the subchapter heading of "Transition."

NEW SECTION.  Sec. 59   DEBENTURE COMPANIES--DEFINITIONS. The definitions in this section apply throughout this subchapter, unless the context otherwise requires:
     (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   DEBENTURE COMPANIES--CAPITAL REQUIREMENTS. A debenture company shall not offer for sale any security other than equity securities if such sale would result in the violation of the following capital requirements:
     (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   DEBENTURE COMPANIES--MATURITY DATE REQUIREMENTS. (1) Any debenture company offering debt securities to the public shall provide that at least fifty percent of the amount of those securities outstanding have maturity dates of two years or more.
     (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   DEBENTURE COMPANIES--CONTROLLING PERSON--EXCEPTIONS. (1) For purposes of this subchapter, a person shall be deemed a controlling person if:
     (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   DEBENTURE COMPANIES--PROHIBITED ACTIVITIES BY DIRECTORS, OFFICERS, OR CONTROLLING PERSONS. (1) A director, officer, or controlling person of a debenture company shall not:
     (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   DEBENTURE COMPANIES--DEBENTURES PAYABLE ON DEMAND--INTEREST CERTIFICATES OF DEBENTURE. (1) A debenture company shall redeem each debenture on its maturity date. A debenture company shall not issue any debenture payable on demand nor pay or accrue interest beyond the maturity date of any debenture.
     (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   DEBENTURE COMPANIES--ACQUISITION OF CONTROL--REQUIREMENTS--VIOLATION--PENALTY. (1) It is unlawful for any person to acquire control of a debenture company until thirty days after filing with the director a copy of the notice of change of control on the form specified by the director. The notice or application shall be under oath and contain substantially all of the following information plus any additional information that the director may prescribe as necessary or appropriate in the particular instance for the protection of investors, borrowers, or shareholders and the public interest:
     (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   DEBENTURE COMPANIES--ACQUISITION OF CONTROL--GROUNDS FOR DISAPPROVAL. The director may disapprove the acquisition of a debenture company within thirty days after the filing of a complete application under section 65 of this act or an extended period not exceeding an additional fifteen days if:
     (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   DEBENTURE COMPANIES--NOTICE OF CHARGES--HEARING--CEASE AND DESIST ORDERS. (1) The director may issue and serve upon a debenture company a notice of charges if it appears to the director any debenture company:
     (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   DEBENTURE COMPANIES--TEMPORARY CEASE AND DESIST ORDERS. Whenever the director determines that any violation, act, or practice specified in section 67 of this act or its continuation is likely to cause insolvency or substantial dissipation of assets or earnings of the debenture company or to otherwise seriously prejudice the interests of its security holders, the director may also issue a temporary order requiring the debenture company and its directors, officers, controlling persons, employees, and agents to cease and desist from the violation, act, or practice. The order shall become effective upon service on the debenture company and shall remain effective pending the completion of the administrative proceedings under the notice and until such time as the director dismisses the charges specified in the notice or until the effective date of a cease and desist order issued against the debenture company under section 67 of this act.

NEW SECTION.  Sec. 69   REPORTS--REQUIREMENTS. (1) Every issuer that has registered securities under Washington state securities law shall file with the director reports described in subsection (2) of this section. Such reports shall be filed with the director not more than one hundred twenty days after the end of the issuer's fiscal year, unless an extension of time is granted by the director.
     (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   REPORTS--VIOLATIONS OF REPORTING REQUIREMENTS--PENALTIES--CONTRIBUTION. (1) It is unlawful for any person, including the officers and directors of any issuer, to fail to file a report required by section 69 of this act or to file any such report which contains an untrue statement of a material fact or an omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading, unless the person sustains burden of proof that the person did not know and, in the exercise of reasonable care, could not have known of the failure, untruth, or omission. In addition to any other penalties or remedies provided by this chapter, each officer and director of an issuer which violates this subsection shall be personally liable for damages as provided in subsection (2) of this section if such officer or director:
     (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   REPORTS--SUSPENSION OF SALE OF SECURITIES UNTIL REPORTING REQUIREMENTS COMPLIED WITH. In case of a violation of sections 69 and 70 of this act, the director may suspend sale or trading by or through a broker-dealer of the securities of the issuer until the failure to file a report or statement or the inaccuracy or omissions in any report or statement are remedied as determined by the director.

NEW SECTION.  Sec. 72   Application of chapter not limited. Nothing in sections 46(7), 59 through 71, and 73 through 111 of this act limits the application of other provisions of this chapter.

NEW SECTION.  Sec. 73   DEBENTURE COMPANIES--EQUITY INVESTMENTS. (1) A debenture company shall not, without prior written consent of the director:
     (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   DEBENTURE COMPANIES--LOANS TO ANY ONE BORROWER--LIMITATIONS. (1) Except as provided in subsection (3) of this section, a debenture company shall not loan or invest in a loan or loans to any one borrower more than two and one-half percent of the debenture company's assets without prior written consent of the director.
     (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   DEBENTURE COMPANIES--BAD DEBTS. (1) Any debt due a debenture company on which interest is one year or more past due and unpaid shall be considered a bad debt and shall be charged off the books of the debenture company unless:
     (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   DEBENTURE COMPANIES--INVESTMENTS IN UNSECURED LOANS. (1) A debenture company shall not invest more than twenty percent of its assets in unsecured loans.
     (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   DEBENTURE COMPANIES--DEBENTURE HOLDERS--NOTICE OF MATURITY DATE OF DEBENTURE. Every debenture company shall notify each of its debenture holders of the maturity date of the holder's debenture by sending a notice to the holder not more than forty-five days nor less than fifteen days prior to the maturity date of the debenture at the holder's last known address.

NEW SECTION.  Sec. 78   DEBENTURE COMPANIES--ANNUAL FINANCIAL STATEMENT. A debenture company shall send annually and in a timely manner either a copy of its annual financial statements or a summary of its financial statements for the most recent fiscal year to each debenture holder at the debenture holder's last known address. If a summary is sent, the debenture company shall make available to any debenture holder upon request a copy of its complete annual financial statements for its most recent fiscal year.

NEW SECTION.  Sec. 79   DEBENTURE COMPANIES--RULES. The director may adopt rules to govern examinations and reports of debenture companies and to otherwise govern the administration of debenture companies under this chapter.

NEW SECTION.  Sec. 80   DEBENTURE COMPANIES--RECORD MAINTENANCE AND PRESERVATION--EXAMINATION. Every debenture company shall make and keep such accounts and other records as shall be prescribed by the director. All records so required shall be preserved for three years unless the director prescribes otherwise for particular types of records. All the records of a debenture company are subject at any time or from time to time to such reasonable periodic, special, or other examinations by representatives of the director, within or without this state, as the director deems necessary or appropriate in the public interest or for protection of investors.

NEW SECTION.  Sec. 81   DEBENTURE COMPANIES--EXAMINATION REPORTS AND INFORMATION--EXEMPT FROM PUBLIC DISCLOSURE--USE IN CIVIL ACTIONS. (1) Examination reports and information obtained by the director or the director's representatives in connection with an examination pursuant to section 46(7) of this act shall not be subject to public disclosure under chapter 42.56 RCW.
     (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   REMOVAL OR PROHIBITION ORDERS--DIRECTOR'S AUTHORITY--NOTICE. The director may issue and serve a debenture company director, officer, or employee with written notice of intent to remove the person from office or employment or to prohibit the person from participating in the conduct of the affairs of the debenture company or any debenture company whenever it appears to the director:
     (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   AUTHORITY OF DIRECTOR TO CALL SPECIAL MEETING OF BOARD. (1) The director may request a special meeting of the board of a debenture company if the director believes that a special meeting is necessary for the welfare of the debenture company or the purposes of this chapter. The director's request for a special board meeting must be made in writing to the secretary of the board or other appropriate officer.
     (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   AUTHORITY OF DIRECTOR TO ATTEND MEETINGS OF THE BOARD. The director may attend a meeting of the board of a debenture company if the director believes that attendance at the meeting is necessary for the welfare of the debenture company, or the purposes of this chapter, or if the board has requested the director's attendance. The director shall provide reasonable notice to the board before attending a meeting.

NEW SECTION.  Sec. 85   INTERVENTION BY DIRECTOR--CONDITIONS. The director may place a debenture company under supervisory direction in accordance with sections 86 through 88 of this act, appoint a conservator for a debenture company in accordance with sections 89 through 92 of this act, appoint a liquidating agent for a debenture company in accordance with sections 93 and 94 of this act, or appoint a receiver for a debenture company in accordance with sections 95 through 110 of this act, if the debenture company:
     (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   SUPERVISION BY DIRECTOR--NOTICE--COMPLIANCE--COSTS. (1) As authorized by section 85 of this act, the director may determine to place a debenture company under supervisory direction. Upon such a determination, the director shall notify the debenture company in writing of:
     (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   SUPERVISION BY DIRECTOR--CERTAIN ACTS PROHIBITED. During the period of supervisory direction, the director may prohibit the debenture company from engaging in any of the following acts without prior approval:
     (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   SUPERVISION BY DIRECTOR--DEBENTURE COMPANY REQUEST FOR REVIEW. During the period of supervisory direction, the debenture company may request the director to review an action taken or proposed to be taken by the representative, specifying how the action is not in the best interests of the debenture company. The request stays the action, pending the director's review of the request.

NEW SECTION.  Sec. 89   CONSERVATOR--AUTHORIZED ACTIONS--COSTS. (1) As authorized by section 85 of this act, the director may, upon due notice and hearing, appoint a conservator for a debenture company. The director may appoint himself or herself or another qualified party as conservator of the debenture company. The conservator shall immediately take charge of the debenture company and all of its property, books, records, and effects.
     (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   ACTIONS BY CONSERVATOR--REVIEW. During the period of conservatorship, the debenture company may request the director to review an action taken or proposed to be taken by the conservator, specifying how the action is not in the best interest of the debenture company. The request stays the action, pending the director's review of the request.

NEW SECTION.  Sec. 91   LAWSUITS DURING PERIOD OF CONSERVATORSHIP. Any suit filed against a debenture company or its conservator, during the period of conservatorship, must be brought in the superior court of Thurston county. A conservator for a debenture company may file suit in any superior court or other court of competent jurisdiction against any person for the purpose of preserving, protecting, or recovering any asset or property of the debenture company, including, but not limited to, any claims or causes of action belonging to or asserted by the debenture company.

NEW SECTION.  Sec. 92   CONSERVATOR SERVES UNTIL PURPOSES ARE ACCOMPLISHED. The conservator shall serve until the purposes of the conservatorship have been accomplished. If rehabilitated, the debenture company must be returned to management or new management under such conditions as the director may determine.

NEW SECTION.  Sec. 93   LIQUIDATION--SUSPENSION OR REVOCATION OF ARTICLES--PLACEMENT IN INVOLUNTARY LIQUIDATION--APPOINTMENT OF LIQUIDATING AGENT--NOTICE--PROCEDURE--EFFECT. (1) As authorized by section 85 of this act, the director may appoint a liquidating agent for a debenture company. Before appointing a liquidating agent, the director shall issue, in accordance with chapter 34.05 RCW, an order directing the debenture company to show cause why its articles of incorporation, certificate of limited partnership, certificate of formation, or similar charter document should not be suspended or revoked.
     (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   ORDER DIRECTING INVOLUNTARY LIQUIDATION--PROCEDURE. (1) On receipt of the order placing the debenture company in involuntary liquidation, the officers and directors of the debenture company shall deliver to the liquidating agent possession and control of all books, records, assets, and property of the debenture company.
     (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   RECEIVERSHIP--APPOINTMENT OF RECEIVER BY DIRECTOR--NOTICE--ACT WITHOUT BOND. As authorized by section 85 of this act, the director may without prior notice appoint a receiver to take possession of a debenture company. The director may appoint any qualified party as receiver. Upon appointment, the receiver is authorized to act without bond. Upon acceptance of the appointment, the receiver may have and possess all the powers and privileges provided by the laws of this state with respect to the receivership of a debenture company, and be subject to all the duties of and restrictions applicable to such a receiver.
     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   RECEIVER MAY BE REQUIRED TO SHOW CAUSE--SUPERIOR COURT. Within ten days after the receiver takes possession of a debenture company's assets, the debenture company may serve notice upon the receiver to appear before the superior court of the county in which the principal place of business of the debenture company is located and at a time to be fixed by the court, which may not be less than five or more than fifteen days from the date of the service of the notice, to show cause why the debenture company should not be restored to the possession of its assets.
     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   POWERS AND DUTIES OF RECEIVER. Upon taking possession of a debenture company, the receiver shall proceed to collect the assets of the debenture company and preserve, administer, and liquidate its business and assets.
     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   CLAIMS AGAINST DEBENTURE COMPANY IN RECEIVERSHIP--NOTICE. The receiver shall publish once a week for four consecutive weeks in a newspaper of general circulation in the county where the debenture company's principal place of business is located, a notice requiring all persons having claims against the debenture company to file proof of claim not later than ninety days from the date of the first publication of the notice. The receiver shall mail similar notices to all persons whose names appear as creditors upon the books of the debenture company. The assets of the debenture company are not subject to contingent claims.
     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   RECEIVER SHALL INVENTORY ASSETS--FILE LISTS OF ASSETS AND CLAIMS--OBJECTIONS TO APPROVED CLAIMS. Upon taking possession of the debenture company, the receiver shall make an inventory of the assets and file the list in the office of the county clerk. Upon the expiration of the time fixed for the presentation of claims, the receiver shall make a list of claims presented, segregating those approved and those rejected, to be filed in the office of the county clerk. The receiver shall also make and file with the office of the county clerk a supplemental list of claims at least fifteen days before the declaration of any liquidation dividend, and in any event at least every six months.
     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   EXPENSES INCURRED BY RECEIVER. All expenses incurred by the receiver in relation to the receivership of a debenture company, including, but not limited to, reasonable attorneys' fees, become a first charge upon the assets of the debenture company. The charges shall be fixed and determined by the receiver, subject to the approval of the court.

NEW SECTION.  Sec. 101   LIQUIDATION DIVIDENDS--APPROVAL OF COURT. At any time after the expiration of the date fixed for the presentation of claims, the receiver, subject to the approval of the court, may declare one or more liquidation dividends out of the funds remaining after the payment of expenses.

NEW SECTION.  Sec. 102   REMAINING ASSETS--DISTRIBUTION. When all expenses of the receivership have been paid, as well as all proper claims of debenture holders and other creditors, and proper provision has been made for unclaimed or unpaid debts and liquidation dividends, and assets of the debenture company still remain, the receiver shall wind up the affairs of the debenture company and distribute its assets to those entitled to them.

NEW SECTION.  Sec. 103   UNCLAIMED LIQUIDATION DIVIDENDS. Any liquidation dividends under section 102 of this act remaining uncalled for and unpaid in the hands of the receiver for six months after the order of final distribution must be deposited and held in trust for the benefit of the persons entitled to the funds and, subject to the supervision of the court, must be paid by the receiver to them upon presentation of satisfactory evidence of their right to the funds.

NEW SECTION.  Sec. 104   PERSONAL PROPERTY--RECEIVER'S DUTIES. (1) The receiver shall inventory, package, and seal uncalled for and unclaimed personal property left with the debenture company and arrange for the packages to be held in safekeeping. The debenture company, its directors and officers, and the receiver shall be relieved of responsibility and liability for the property held in safekeeping. 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 notifying the person that the property will be held in the person's name for a period of not less than two years.
     (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   PROCEEDS OF SALE--DEPOSIT OR PAYMENT BY RECEIVER. The proceeds of the sale less any amounts for costs and charges incurred in safekeeping and sale must be deposited by the receiver in a financial institution, in trust for the benefit of the person entitled to the property. The sale proceeds must be paid by the receiver to the person upon presentation of satisfactory evidence of the person's right to the funds.

NEW SECTION.  Sec. 106   COMPLETION OF RECEIVERSHIP--MERGER, PURCHASE, OR LIQUIDATION--SECRETARY OF STATE. Upon the completion of a receivership through merger, purchase of assets and assumption of liabilities, or liquidation, the director shall terminate the debenture company's authority to conduct business and certify that fact to the secretary of state. Upon certification, the debenture company shall cease to exist and the secretary of state shall note that fact upon his or her records.

NEW SECTION.  Sec. 107   DIRECTOR MAY TERMINATE RECEIVERSHIP--EXPENSES. If at any time after a receiver is appointed, the director determines that all material deficiencies at the debenture company have been corrected, and that the debenture company is in a safe and sound condition to resume conducting business, the director may terminate the receivership and permit the debenture company to reopen upon such terms and conditions as the director may prescribe. Before being permitted to reopen, the debenture company must pay all of the expenses of the receiver.

NEW SECTION.  Sec. 108   RECEIVERSHIP FILES. The receiver or director, as appropriate, may at any time after the expiration of one year from the order of final distribution, or from the date when the receivership has been completed, destroy any of the remaining files, records, documents, books of account, or other papers of the debenture company that appear to be obsolete or unnecessary for future reference as part of the receivership files.

NEW SECTION.  Sec. 109   APPOINTMENT BY COURT OF TEMPORARY RECEIVER--NOTICE TO DIRECTOR. No receiver may be appointed by any court for any debenture company, except that a court otherwise having jurisdiction may in case of imminent necessity appoint a temporary receiver to take possession of and preserve the assets of the debenture company. Immediately upon appointment, the clerk of the court shall notify the director in writing of the appointment and the director shall appoint a receiver to take possession of the debenture company and the temporary receiver shall upon demand surrender possession of the assets of the debenture company to the receiver. The receiver may in due course pay the temporary receiver out of the assets of the debenture company, subject to the approval of the court.

NEW SECTION.  Sec. 110   ACTIONS THAT ARE VOID--FELONIOUS CONDUCT--PENALTIES. (1) Every transfer of a debenture company's property or assets, and every assignment by a debenture company for the benefit of creditors, made in contemplation of insolvency, or after it has become insolvent, to intentionally prefer one creditor over another, or to intentionally prevent the equal distribution of its property and assets among its creditors, is void.
     (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   APPLICABILITY OF GENERAL RECEIVERSHIP LAW. Except in cases in which a receiver is appointed by a court on a temporary basis under section 109 of this act, the provisions of Title 7 RCW generally applicable to receivers and receiverships do not apply to receivers elected or appointed under this chapter.

Sec. 112   RCW 42.56.400 and 2006 c 284 s 17 and 2006 c 8 s 210 are each reenacted and 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), and from securities ((brokers and)) broker-dealers and investment advisers under ((RCW 21.20.100)) section 31 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;
     (10) Confidential proprietary and trade secret information provided to the commissioner under RCW 48.31C.020 through 48.31C.050 and 48.31C.070;
     (11) Data filed under RCW 48.140.020, 48.140.030, 48.140.050, and 7.70.140 that, alone or in combination with any other data, may reveal the identity of a claimant, health care provider, health care facility, insuring entity, or self-insurer involved in a particular claim or a collection of claims. For the purposes of this subsection:
     (a) "Claimant" has the same meaning as in RCW 48.140.010(2).
     (b) "Health care facility" has the same meaning as in RCW 48.140.010(6).
     (c) "Health care provider" has the same meaning as in RCW 48.140.010(7).
     (d) "Insuring entity" has the same meaning as in RCW 48.140.010(8).
     (e) "Self-insurer" has the same meaning as in RCW 48.140.010(11); and
     (12) Documents, materials, or information obtained by the insurance commissioner under RCW 48.135.060.

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 21 RCW to be codified as chapter 21.20A RCW.

NEW SECTION.  Sec. 117   This act takes effect January 1, 2008.

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