SENATE BILL REPORT
SB 6594
BYSenators von Reichbauer, Moore, Sellar and Garrett; by request of Department of Licensing
Changing provisions relating to sales of securities.
Senate Committee on Financial Institutions & Insurance
Senate Hearing Date(s):February 2, 1988; February 4, 1988
Majority Report: That Substitute Senate Bill No. 6594 be substituted therefor, and the substitute bill do pass.
Signed by Senators von Reichbauer, Chairman; West, Vice Chairman; Johnson, Kreidler, McCaslin, Rasmussen, Sellar.
Senate Staff:Walt Corneille (786-7416)
February 8, 1988
AS REPORTED BY COMMITTEE ON FINANCIAL INSTITUTIONS & INSURANCE, FEBRUARY 4, 1988
BACKGROUND:
The Securities Act of Washington regulates the sale and purchase of securities. It provides for the registration of broker-dealers, salespersons, investment advisors and investment advisor salespersons. Requirements for the registration of securities are specified and exemptions from registration are provided in certain cases. The act provides for enforcement and specifies remedies and penalties for violation of the act. It has been suggested that in the interest of clarity and as a result of the changes in the securities market, certain revisions in the state's securities laws need to be made.
SUMMARY:
The provision excluding certain broker-dealers from the act is changed. Broker-dealers with an out-of-state office who effect transactions in securities in the state with not more than three persons are exempt from the act.
It is unlawful for a broker-dealer to employ a salesperson who is effecting or attempting to effect sales of securities in this state or any other state unless the salesperson is either registered or exempt from registration in this state or the state in which the salesperson is attempting to effect the sales of securities.
It is not a violation of the act for a broker-dealer or salesperson to conduct transactions which are exempt from the act unless otherwise provided by rule.
A broker-dealer is allowed to post a bond in lieu of meeting the existing minimum net capital requirements of the act.
The Department of Licensing Director is entitled to collect any expenses incurred in performing an audit of a broker-dealer records.
Registration requirements for an investment advisor are changed. A broker-dealer who provides investment advisor services that are only incidental to the conduct of the business of being a broker or dealer and who receives no special compensation for investment advising need not be registered as an investment advisor. The reference in the act to investment advisor salesperson is changed to investor advisor representative.
The requirements for capitalization for a registered broker-dealer are clarified.
The director may by order deny, suspend or revoke the registration of any broker-dealer, salesperson, investment advisor representative, or investment advisor if the director discovers that he or she is the subject of an order entered within the past five years requiring the person to cease and desist securities or commodities violations within any other state.
The financial statements that are required to be filed with a registration are changed. The administrator of the department's securities division may require financial statements in addition to those required under the act as are deemed necessary in the best interest of investors.
The requirements for a notice of exemption from the act for nonprofit organizations are to be established by the director. The notice requirements specified in the act for nonprofit organizations are stricken.
A transaction is exempt from the Securities Act if the securities to be sold are issued and outstanding and the issuer is required to file reports pursuant to the federal Securities and Exchange Act. A broker-dealer must have a reasonable basis for believing the issuer has a current filing pursuant to that act and makes available all annual reports or other reports required by the federal act. The broker-dealer in these circumstances is restricted from making any representation as to the accuracy of the figures in the financial statements offered and may represent only that the information provided is reasonably current.
The administrator may, after giving notice and an opportunity for a hearing, impose a fine not to exceed $5,000 per violation when a person is found to have engaged in any act or practice which is a violation of any provision of the act or any rule issued under the act. This fine is in addition to any other penalties provided by law. Any person failing to pay a fine levied by the administrator incurs a lien upon all the assets and property they own in the amount of the fine. Failure to pay a fine levied by the administrator constitutes a forfeiture of the right to transact business in this state under the Washington Securities Act.
Any person acting as an investment advisor and investment advisor representative who violates the act is liable to the person whom they advise. That person may sue to recover damages plus interest at 8 percent which is accruable from the date on which the violation occurred. Costs and reasonable attorneys fees may be recovered.
Provisions are added giving the director reciprocal subpoena power with other states. A section is added allowing for cooperation among the states in regulation and enforcement of the various securities acts.
EFFECT OF PROPOSED SUBSTITUTE:
The fee for the registration of a salesperson or investment advisor representative is changed from $35 to $50 for an original registration and from $15 to $35 for an annual renewal.
Appropriation: none
Revenue: none
Fiscal Note: none requested
Senate Committee - Testified: Deborah Bortner, DOL (for)