AN ACT Relating to the uniform securities act of 1985; adding a new title to the Revised Code of Washington; repealing chapters 21.17, 21.20, and 21.30 RCW; prescribing penalties; and providing an effective date.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

PART I

NEW SECTION. Sec. 101. As used in this title, unless the context otherwise requires:

(1) "Director" means the director of the department of licensing.

(2) "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. The term does not include:

(a) A sales representative;

(b) An issuer, except when effecting transactions other than with respect to its own securities;

(d) Any other person the director, by rule or order, designates.

(3) "Depository institution" means:

(a) A person that is organized, chartered, or holding an authorization certificate under the laws of a state or of the United States which authorizes the person to receive deposits, including a savings, share, certificate, or deposit account, and which is supervised and examined for the protection of depositors by an official or agency of a state or the United States; and

(b) A trust company or other institution that is authorized by federal or state law to exercise fiduciary powers of the type a national bank is permitted to exercise under the authority of the comptroller of the currency and is supervised and examined by an official or agency of a state or the United States. The term does not include an insurance company or other organization primarily engaged in the insurance business or a morris plan bank, industrial loan company, or a similar bank or company unless its deposits are insured by a federal agency.

(4) "Filed" means the actual delivery of a document or application to the director or designee of the director or to the principal office of the director.

(5) "Financial or institutional investor" means any of the following, whether acting for itself or others in a fiduciary capacity:

(a) A depository institution;

(b) An insurance company;

(d) An investment company as defined in the investment company act of 1940;

(e) An employee pension, profit-sharing, or benefit plan if the plan has total assets in excess of five 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 either 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, a depository institution, or an insurance company; and

(f) Any other institutional buyer.

(6) "Fraud," "deceit," and "defraud" are not limited to common-law fraud or deceit.

(7) "Investment adviser" means a person who, for compensation, engages in the business of advising others as to the value of securities or as to the advisability of investing in, purchasing, or selling securities or who, for compensation and as a part of a business, issues or promulgates analyses or reports concerning securities. The term does not include:

(a) An employee of an investment adviser;

(b) A depository institution;

(c) A lawyer, accountant, engineer, or teacher whose performance of investment advisory services is solely incidental to the practice of the person's profession;

(d) A broker-dealer whose performance of investment advisory services is solely incidental to the conduct of business as a broker-dealer and who receives no special compensation for the investment advisory services;

(e) A publisher, employee, or columnist of a newspaper, news magazine, or business or financial publication, or an owner, operator, producer, or employee of a cable, radio, or television network, station, or production facility if, in either case, the financial or business news published or disseminated is made available to the general public and the content does not consist of rendering advice on the basis of the specific investment situation of each client;

(f) A person whose advice, analyses, or reports relate only to securities exempt under section 401(1)(b) of this act; and

(g) Any other person the director, by rule or order, designates.

(8) Except as provided in (a), (b), or (c) of this subsection, "issuer" means a person who issues or proposes to issue a security, but:

(a) The "issuer" of a collateral trust certificate, voting trust certificate, certificate of deposit for a security, or share in an investment company without a board of directors or persons 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, including a conditional sales contract or similar security serving the same purpose, is the person to whom the equipment or property is or is to be leased or conditionally sold.

(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, who creates fractional interests for the purpose of sale.

(9) "Nonissuer transaction" means a transaction not directly or indirectly for the benefit of the issuer.

(10) "Person" means an individual, corporation, business trust, estate, trust, partnership, association, joint venture, government, governmental subdivision or agency, or any other legal or commercial entity.

(11) "Price amendment" means the amendment to a registration statement filed under the securities act of 1933 or, if no amendment is filed, the prospectus or prospectus supplement filed under the securities act of 1933, which 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.

(12) "Promoter" includes:

(a) A person who, acting alone or in concert with one or more other persons, takes the entrepreneurial initiative in founding or organizing the business or enterprise of an issuer;

(b) An officer or director owning securities of an issuer or a person who owns, beneficially or of record, ten percent or more of a class of securities of the issuer if the officer, director, or person acquires any of those securities in a transaction within three years before the filing by the issuer of a registration statement under this title and the transaction does not possess the indicia of arms-length bargaining; and

(c) A member of the immediate family of a person within (a) or (b) of this subsection if the family member receives securities of the issuer from that person in a transaction within three years before the filing by the issuer of a registration statement under this title and the transaction does not possess the indicia of arms-length bargaining.

(13) "Sale" or "sell" includes every contract of sale, contract to sell, or other disposition, of a security or interest in a security for value. In this context:

(a) "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.

(b) "Offer to purchase" includes every attempt or offer to obtain, or solicitation of an offer to sell, a security or interest in a security for value, but the term does not include a transaction that is subject to section 14(d) of the securities exchange act of 1934.

(c) A security given or delivered with, or as a bonus on account of, a purchase of securities or other item is considered to constitute part of the subject of the purchase and to have been offered and sold for value.

(d) A gift of assessable stock is deemed to involve an offer and sale.

(e) A sale or offer of a warrant or right to purchase or subscribe to another security of the same or another issuer, or a sale or offer of a security that gives the holder a present or future right or privilege to convert into another security of the same or another issuer, is deemed to include an offer of the other security.

(f) The terms defined in this subsection do not include the creation of a security interest or a loan; a stock dividend, whether or not the corporation distributing the dividend is the issuer of the stock, if nothing of value is given by stockholders for the dividend other than the surrender of a right to a cash or property dividend and each stockholder may elect to take the dividend in cash, property, or stock; or 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 exchange and partly for cash.

(14) "Sales representative" means an individual, other than a broker-dealer, authorized to act and acting for a broker-dealer or issuer in effecting or attempting to effect purchases or sales of securities. A partner, officer, or director of a broker-dealer or issuer, or a person occupying a similar status or performing similar functions, is a sales representative only if the person otherwise comes within the definition.

(15) "Securities act of 1933," "securities exchange act of 1934," "public utility holding company act of 1935," "investment company act of 1940," "investment advisers act of 1940," "employee retirement income security act of 1974," "national housing act," and "commodity exchange act" mean the federal statutes of those names, as amended.

(16) "Security" means: a note; stock; treasury stock; bond; debenture; evidence of indebtedness; certificate of interest or participation in a profit-sharing agreement; a limited partnership interest; collateral-trust certificate; preorganization certificate or subscription; transferable share; investment contract; voting-trust certificate; certificate of deposit for a security; fractional undivided interest in an oil, gas, or other mineral lease or in payments out of production under a lease, right, or royalty; a put, call, straddle, or option entered into on a national securities exchange relating to foreign currency; a put, call, straddle, or option on a security, certificate of deposit, or group or index of securities, including an interest in or based on the value of any of the foregoing; 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, whole or partial guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing. The term does not include:

(a) 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 some other specified period; or

(b) An interest in a contributory or noncontributory pension or welfare plan subject to the employee retirement income security act of 1974.

(17) "Self-regulatory organization" means a national securities exchange registered under section 6 of the securities exchange act of 1934, a national securities association of brokers and dealers registered under section 15A of the securities exchange act of 1934, a clearing agency registered under section 17A of the securities exchange act of 1934, the municipal securities rulemaking board established under section 15B(b)(1) of the securities exchange act of 1934, or section 21 of the commodity exchange act.

(18) "State" means a state, commonwealth, territory, or possession of the United States, the District of Columbia, or the Commonwealth of Puerto Rico.

PART II

NEW SECTION. Sec. 201. (1) A person may not transact business in this State as a broker-dealer or sales representative unless licensed or exempt from licensing under this title.

(2) A broker-dealer licensed under this title and an issuer may not employ a person as a sales representative in this state unless the sales representative is licensed under this title or is exempt from licensing under this title.

(3) A broker-dealer or issuer engaged in offering securities in this state may not employ, directly or indirectly, a person to engage in any activity in this state contrary to a suspension or bar from association with a broker-dealer or investment adviser imposed against that person by the director. A broker-dealer or issuer does not violate this subsection unless the broker-dealer or issuer knows or in the exercise of reasonable care should know of the suspension or bar. Upon request from a broker-dealer or issuer and for good cause shown, the director, by order, may waive the prohibition of this subsection with respect to a person suspended or barred.

NEW SECTION. Sec. 202. (1) The following broker-dealers are exempt from the licensing requirements of section 201 of this act:

(a) A broker-dealer who either is registered or, except as provided in subsection (b) of this section, is not required to be registered under the securities exchange act of 1934 and who has no place of business in this state if:

(i) The transactions effected by the broker-dealer in this state are exclusively with the issuer of the securities involved in the transactions, other broker-dealers licensed or exempt under this title, or financial or institutional investors;

(ii) The broker-dealer is licensed under the securities act of a state in which the broker-dealer maintains a place of business and the broker-dealer offers and sells in this state to a person who is an existing customer of the broker-dealer and whose principal place of residence is not in this state; or

(iii) The broker-dealer is licensed under the securities law of a state in which the broker-dealer maintains a place of business and the broker-dealer during any twelve consecutive months does not effect transactions with more than five persons in this state in addition to transactions with the issuers of the securities involved in the transactions, financial or institutional investors, or broker-dealers, whether or not the offeror or an offeree is then present in this state; and

(b) Other broker-dealers the director by rule or order exempts.

(2) The exemption provided in (a)(i) of this subsection is not available to a broker-dealer who deals solely in government securities and is not registered under the securities exchange act of 1934 unless the broker-dealer is subject to supervision as a dealer in government securities by the federal reserve board.

(3) The following sales representatives are exempt from the licensing requirements of section 201 of this act:

(a) A sales representative acting for a broker-dealer exempt under subsection (1) of this section;

(b) A sales representative acting for an issuer in effecting transactions in a security exempted by (a) through (d) and (k) through (m) of section 401(2) of this act;

(c) A sales representative acting for an issuer effecting offers or sales of securities in transactions exempted by section 402 of this act;

(d) A sales representative acting for an issuer effecting transactions with employees, partners, officers, or directors of the issuer, a parent or a wholly owned subsidiary of the issuer, if no commission or other similar compensation is paid or given directly or indirectly to the sales representative for soliciting an employee, partner, officer, or director in this state; and

(e) Other sales representatives the director by rule or order exempts.

NEW SECTION. Sec. 203. (1) A person may not transact business in this state as an investment adviser unless licensed as an investment adviser or exempt from licensing under this title.

(2) An investment adviser may not employ, directly or indirectly, a person to engage in any activity in this state contrary to a suspension or bar from association with a broker-dealer or investment adviser imposed against that person by the director. An investment adviser does not violate this subsection unless the investment adviser knows or in the exercise of reasonable care should know of the suspension or bar. Upon request from an investment adviser and for good cause shown, the director, by order, may waive the prohibition of this subsection with respect to a person suspended or barred.

NEW SECTION. Sec. 204. The following investment advisers are exempt from the licensing requirements of section 203 of this act:

(1) An investment adviser who is registered or is not required to be registered as an investment adviser under the investment advisers act of 1940 if:

(a) Its only clients in this state are other investment advisers, broker-dealers, or financial or institutional investors;

(b) The investment adviser has no place of business in this state and the investment adviser directs business communications in this state to a person who is an existing client of the investment adviser and whose principal place of residence is not in this State; or

(c) The investment adviser has no place of business in this state and the investment adviser during any twelve consecutive months does not direct business communications in this state to more than five present or prospective clients other than those specified in (a) of this subsection, whether or not the person or client to whom the communication is directed is present in this state; and

(2) Other investment advisers the director, by rule or order, exempts.

NEW SECTION. Sec. 205. (1) An applicant for licensing as a broker-dealer, sales representative, or investment adviser shall file with the director an application for licensing and a consent to service of process under section 708 of this act. The application for licensing must contain the information that the director, by rule, requires.

(2) The requirements of subsection (1) of this section are satisfied by an applicant who has filed and maintains a completed and current registration with the securities and exchange commission or a self-regulatory organization by filing with the director notice of the registration in the form and content determined by the director, by rule, and a consent to service of process under section 708 of this act. The registration information filed with the securities and exchange commission or self-regulatory organization must be available to the director through a central registration depository system approved by the director. The director, by order, may require the submission of additional information by an applicant.

NEW SECTION. Sec. 206. (1) An applicant for licensing shall pay a licensing fee as follows:

(a) Broker-dealer one hundred dollars, and for each branch office fifty dollars;

(b) Sales representative twenty-five dollars; and

(2) Except in a year in which a licensing fee is paid, a licensed person shall pay an annual fee as follows:

(a) Broker-dealer seventy-five dollars, and for each branch office thirty dollars;

(b) Sales representative fifteen dollars; and

(3) For purposes of this section, "branch office" means an office of a broker-dealer in this state, other than the principal office in this State of the broker-dealer, from which three or more sales representatives transact business.

(4) If an application is denied or withdrawn or the license is revoked, suspended, or withdrawn, the director shall retain the fee paid.

NEW SECTION. Sec. 207. (1) The director, by rule or order, may require an examination of:

(a) An applicant for licensing under this section;

(b) A class of applicants; and

(c) A class of persons who will represent an investment adviser in performing an act that requires licensing as an investment adviser in this state.

(2) An examination may be administered by the director or a designee of the director. An examination may be oral or written, or both, and may differ for each class of applicants.

(3) The director, by rule or order, may waive an examination as to a person or class of persons if the director determines that an examination is not necessary for the protection of investors.

NEW SECTION. Sec. 208. (1) Unless a proceeding under section 212 of this act is instituted or the applicant is notified that the application is incomplete, the license of a broker-dealer, sales representative, or investment adviser becomes effective thirty days after the later of the date an application for licensing is filed and is complete or the date an amendment to an application is filed and is complete, in either case only if all requirements imposed under section 207 of this act are satisfied. An application is complete when the applicant has furnished information responsive to each applicable item of the application. The director by order may authorize an earlier effective date of licensing.

(2) The license of a broker-dealer, sales representative, or investment adviser is effective until terminated by expiration, revocation, or withdrawal.

(3) The license of a sales representative is effective only with respect to transactions effected on behalf of the broker-dealer or issuer for whom the sales representative is licensed.

(4) A person may not act at any one time as a sales representative for more than one broker-dealer or for more than one issuer, unless the broker-dealers or issuers for whom the sales representative acts are affiliated by direct or indirect common control or the director, by rule or order, authorizes multiple licenses.

(5) If a person licensed as a sales representative terminates association with a broker-dealer or issuer or ceases to be a sales representative, the sales representative and the broker-dealer or issuer on whose behalf the sales representative was acting shall promptly notify the director.

(6) The director by rule may authorize one or more special classifications of licenses as a broker-dealer, sales representative, or investment adviser to be issued to applicants subject to limitations and conditions on the nature of the activities that may be conducted by persons so licensed.

NEW SECTION. Sec. 209. (1) The director by rule may require that:

(a) A licensed broker-dealer who is not registered under the securities exchange act of 1934 maintain minimum net capital and a prescribed ratio between net capital and aggregate indebtedness, which may vary with type or class of broker-dealer; or

(b) A licensed investment adviser who is not registered under the investment advisers act of 1940 maintain a minimum net worth.

(2) If a licensed broker-dealer or investment adviser knows, or has reasonable cause to know, that a requirement imposed on it under this subsection is not being met, the broker-dealer or investment adviser shall promptly notify the director of its current financial condition.

(3) The director by rule may require a fidelity bond from a broker-dealer who is not registered under the securities exchange act of 1934.

(4) A licensed broker-dealer or investment adviser shall file with the director the financial and other information the director by rule or order requires, but:

(a) A licensed broker-dealer required to file financial reports under the securities exchange act of 1934 may satisfy periodic financial report requirements of this subsection by filing with the director a copy of the financial reports filed under the securities exchange act of 1934; and

(b) A licensed investment adviser required to file financial reports under the investment advisers act of 1940 may satisfy periodic financial report requirements of this subsection by filing with the director a copy of the financial reports filed under the investment advisers act of 1940.

(5) A licensed broker-dealer, sales representative, or investment adviser shall maintain the records the director by rule requires, but compliance with the recordkeeping requirements of the securities exchange act of 1934 by a broker- dealer or the investment advisers act of 1940 by an investment adviser satisfies the requirements of this subsection.

(6) Required records may be maintained in any form of data storage if they are readily accessible to the director. Required records must be preserved for five years unless the director by rule specifies a different period for a particular type or class of records.

(7) If the information contained in a document filed with the director as part of the application for licensing or under this section, except information the director by rule or order excludes, is or becomes inaccurate or incomplete in a material respect, the licensed person shall promptly file correcting information, unless notification of termination has been given under section 208(5) of this act.

NEW SECTION. Sec. 210. (1) A licensed broker-dealer or investment adviser may file an application for licensing of a successor, whether or not the successor is in existence, if the fee the director prescribes for the application is submitted with the application.

(2) If a broker-dealer or investment adviser succeeds to and continues the business of a licensed broker-dealer or investment adviser and the successor files an application for licensing within 30 days after the succession, the license of the predecessor remains effective as the license of the successor for 60 days after the succession.

(3) Licensing of each licensed sales representative of the broker-dealer filing an application under subsection (1) or (2) of this section continues without a separate filing or fee upon the licensing of the successor.

NEW SECTION. Sec. 211. (1) The director, without notice, may examine in a manner reasonable under the circumstances the records, within or without this state, of a licensed broker-dealer, sales representative, or investment adviser in order to determine compliance with this title. Broker-dealers, sales representatives, and investment advisers shall make their records available to the director in legible form.

(2) The director may copy records or require a licensed person to copy records and provide the copies to the director to the extent and in a manner reasonable under the circumstances.

(3) The director may impose a reasonable fee for the expense of conducting an examination under this section.

NEW SECTION. Sec. 212. (1) The director by order may:

(a) Deny, suspend, or revoke a license;

(b) Limit the securities activities that an applicant or licensed person may perform in this state;

(d) Bar from employment with a licensed broker-dealer or investment adviser a person who is a partner, officer, director, or a person occupying a similar status or performing a similar function for an applicant or licensed person. Subject to section 213 of this act, those actions may be taken only if the director finds that the order is in the public interest and that the applicant or licensed person or, in the case of a broker-dealer or investment adviser, a partner, officer, or director, a person occupying a similar status or performing similar functions, or a person directly or indirectly controlling the broker-dealer or investment adviser:

(i) Has filed an application for licensing with the director which, as of its effective date or any date after filing in the case of an order denying effectiveness, was incomplete in a material respect or contained a statement that was, in light of the circumstances under which it was made, false or misleading with respect to a material fact;

(ii) Has willfully violated or willfully failed to comply with this title, a predecessor act, or a rule or order under this title or a predecessor act;

(iii) Is the subject of an adjudication or determination, after notice and opportunity for hearing, within the last five years by a securities agency or administrator of another state or a court of competent jurisdiction that the person has 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, or the securities law of any other state but only if the acts constituting the violation of that state's law would constitute a violation of this title had the acts occurred in this state;

(iv) Within the last ten years, has been convicted of an offense that the director finds:

(A) Involves the purchase or sale of a security, taking a false oath, making a false report, bribery, perjury, burglary, robbery, or attempt or conspiracy to commit any of those offenses;

(B) Arises out of the conduct of business as a broker-dealer, investment adviser, depository institution, insurance company, or fiduciary; or

(C) Involves the larceny, theft, robbery, extortion, forgery, counterfeiting, fraudulent concealment, embezzlement, fraudulent conversion, or misappropriation of funds or securities or an attempt or conspiracy to commit any of those offenses;

(v) Is permanently or temporarily enjoined by a court of competent jurisdiction from acting as an investment adviser, underwriter, broker-dealer, or as an affiliated person or employee of an investment company, depository institution, or insurance company, or from engaging in or continuing conduct or practice in connection with any of the foregoing activities, or in connection with the purchase or sale of a security;

(vi) Is the subject of an order of the director denying, suspending, or revoking the person's license as a broker-dealer, sales representative, or investment adviser;

(vii) Is the subject of any of the following orders that are currently effective and were issued within the last five years:

(A) An order by the securities agency or administrator of another state or Canadian province or territory, or by the securities and exchange commission, entered after notice and opportunity for hearing, denying, suspending, or revoking the person's license as a broker-dealer, sales representative, or investment adviser, or the substantial equivalent of those terms;

(B) A suspension or expulsion from membership in or association with a member of a self-regulatory organization;

(D) A cease and desist order entered after notice and opportunity for hearing by the director, the securities agency or administrator of another state or a Canadian province or territory, the securities and exchange commission, or the commodity futures trading commission; or

(E) An order by the commodity futures trading commission denying, suspending, or revoking registration under the commodity exchange act;

(viii) Has engaged in unethical or dishonest practices in the securities business;

(ix) Is insolvent, either in the sense that liabilities exceed assets or in the sense that obligations cannot be met as they mature, but the director may not enter an order against a broker- dealer or investment adviser under this subsection without a finding of insolvency as to the broker-dealer or investment adviser;

(x) Is determined by the director in compliance with section 213 of this act not to be qualified because of the lack of training, experience, and knowledge of the securities business;

(xi) Has failed reasonably to supervise a sales representative or employee; or

(xii) Has failed to pay the proper filing fee within thirty days after being notified by the director of a deficiency, but the director shall vacate an order under this subsection when the deficiency is corrected.

(2) The director may not begin a proceeding on the basis of a fact or transaction known to the director when the license became effective unless the proceeding is begun within the ninety days after issuance of the license.

(3) If the director finds that an applicant or licensed person is no longer in existence, has ceased to do business as a broker-dealer, sales representative, or investment adviser, is adjudicated mentally incompetent or subjected to the control of a committee, conservator, or guardian, or cannot be located after reasonable search, the director, by order, may deny the application or revoke the license.

NEW SECTION. Sec. 213. The director's determination that an applicant or licensed person lacks qualification under section 212 of this act is limited by the following provisions:

(1) The director may not enter an order against a broker-dealer because of the lack of qualification of (a) a person other than the broker-dealer if the broker-dealer is an individual or (b) a sales representative of the broker-dealer.

(2) The director may not enter an order against an investment adviser because of the lack of qualification of (a) a person other than the investment adviser if the investment adviser is an individual or (b) any other person who represents the investment adviser in doing an act that makes the person an investment adviser.

(3) The director may not enter an order solely because of lack of experience of the applicant or licensed person if the applicant or licensed person is qualified by training or knowledge, or both.

(4) The director shall consider that a sales representative who will work under the supervision of a licensed broker-dealer need not have the same qualifications as a broker-dealer.

(5) The director shall consider that an investment adviser is not necessarily qualified solely because of experience as a broker-dealer or sales representative.

NEW SECTION. Sec. 214. (1) An application for a license may be withdrawn by the applicant without prejudice before the license becomes effective.

(2) Withdrawal from licensing as a broker-dealer, sales representative, or investment adviser becomes effective thirty days after receipt by the director of an application to withdraw or within any shorter period the director, by order, determines, unless:

(a) A revocation or suspension proceeding is pending when the application is filed;

(b) A proceeding to revoke or suspend or to impose conditions upon the withdrawal is instituted within thirty days after the application is filed; or

(3) If a proceeding is pending or instituted under subsection (2) of this section, withdrawal becomes effective at the time and upon the conditions the director by order determines. If additional information is requested, withdrawal is effective thirty days after the additional information is filed. Although no proceeding is pending or instituted and withdrawal becomes effective, the director may institute a proceeding under section 212 of this act within one year after withdrawal became effective and enter an order as of the last date on which licensing was effective.

NEW SECTION. Sec. 215. (1) Unless prohibited by rule or order of the director, an investment adviser registered under the investment advisers act of 1940 may take or retain custody of securities or funds of a client.

(2) To the extent permitted by rule or order of the director, an investment adviser exempt from registration under the investment advisers act of 1940, but licensed as an investment adviser under this title, may take or retain custody of securities or funds of a client.

PART III

NEW SECTION. Sec. 301. A person may not offer to sell or sell a security in this state unless it is registered under this title or the security or transaction is exempt under this title.

NEW SECTION. Sec. 302. (1) Securities for which a registration statement has been filed under the securities act of 1933 in connection with the offering of the securities may be registered by filing, whether or not they are also eligible for registration under section 303 or 304 of this act, if:

(a) The issuer is organized under the laws of the United States or a state or, if the issuer is not organized under the laws of the United States or a state, it has appointed a duly authorized agent in the United States for service of process;

(b) The issuer has actively engaged in business operations in the United States for a period of at least thirty-six consecutive calendar months immediately before the filing of the federal registration statement;

(c) The issuer has registered a class of equity securities under section 12 (b) or (g) of the securities exchange act of 1934, which class of securities is held of record by five hundred or more persons;

(d) The issuer has:

(i) Either a total net worth of four million dollars or a total net worth of two million dollars and net pretax income from operations before allowances for extraordinary items, for at least two of the three preceding fiscal years;

(ii) Not less than four hundred thousand units of the class of security registered under section 12 of the securities exchange act of 1934 held by the public, excluding securities held by officers and directors of the issuer, underwriters, and persons beneficially owning ten percent or more of that class of security; and

(iii) No outstanding warrants and options held by the underwriters and executive officers and directors of the issuer in an amount exceeding ten percent of the total number of shares to be outstanding after completion of the offering of the securities being registered;

(e) The issuer has been subject to the requirements of section 12 of the securities exchange act of 1934 and has filed all the material required to be filed under sections 13 and 14 of that act for at least thirty-six consecutive calendar months immediately before the filing of the federal registration statement and the issuer has filed in a timely manner all reports required to be filed during the twelve calendar months next preceding the filing of the federal registration statement;

(f) For at least thirty days during the three months next preceding the offering of the securities registered there have been at least four market makers for the class of equity securities registered under section 12 of the securities exchange act of 1934;

(g) Each of the underwriters participating in the offering of the security and each broker-dealer who will offer the security in this state is a member of or is subject to the rules of fair practice of a national association of securities dealers with respect to the offering and the underwriters have contracted to purchase the securities offered in a principal capacity;

(h) The aggregate commissions or discounts to be received by the underwriters will not exceed ten percent of the aggregate price at which the securities being registered are offered to the public;

(i) Neither the issuer nor any of its subsidiaries, since the end of the fiscal year next preceding the filing of the registration statement, have: (i) Failed to pay a dividend or sinking fund installment on preferred stock, (ii) defaulted on indebtedness for borrowed money, or (iii) defaulted on the rental on one or more long-term leases, which defaults in the aggregate are material to the financial position of the issuer and its subsidiaries, taken as a whole; and

(j) In the case of an equity security, the price at which the security will be offered to the public is not less than five dollars a share.

(2) A registration statement under this section must contain the following information and be accompanied by the following documents in addition to the information specified in section 305(3) of this act and the consent to service of process required by section 708 of this act:

(a) A statement demonstrating eligibility for registration by filing;

(b) The name, address, and form of organization of the issuer;

(c) With respect to a person on whose behalf a part of the offering is to be made in a nonissuer distribution: 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; and a statement of the reasons for making the offering;

(d) A description of the security being registered; and

(e) A copy of the latest prospectus filed with the registration statement under and satisfying the requirements of section 10 of the securities act of 1933.

(3) If the information and documents required to be filed by subsection (2) of this section have been on file with the director for at least five business days or any shorter period the director by rule or order allows and the applicable registration fee has been paid before the effectiveness of the federal registration statement, a registration statement under this section automatically becomes effective concurrently with the effectiveness of the federal registration statement. If the federal registration statement becomes effective before the conditions in this subsection are satisfied and they are not waived, the registration statement becomes effective when the conditions are satisfied. The registrant shall promptly notify the director by telephone or telegram of the date and time when the federal registration statement became effective and the content of the price amendment, if any, and shall file promptly a post-effective amendment containing the information and documents in the price amendment. The director shall promptly acknowledge receipt of notification and effectiveness of the registration statement as of the date and time the registration statement became effective with the securities and exchange commission.

NEW SECTION. Sec. 303. (1) Securities for which a registration statement has been filed under the securities act of 1933 in connection with the offering of the securities may be registered by coordination.

(a) Two copies of the latest form of prospectus filed under the securities act of 1933;

(b) If the director by rule or order requires: 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 an indenture or other instrument governing the issuance of the security to be registered; and a specimen, copy, or description of the security;

(c) If the director requests, subject to section 703(2)(b) of this act, any other information, or copies of any other document, filed under the securities act of 1933; and

(d) An undertaking to forward promptly, and not later than the first business day after the day they are forwarded to or filed with the securities and exchange commission, all future amendments to the federal prospectus, other than an amendment that delays the effective date of the registration statement.

(3) A registration statement under this section becomes effective when the federal registration statement becomes effective if all of the following conditions are satisfied:

(a) No stop order is in effect and no proceeding is pending under section 306 of this act;

(b) The registration statement has been on file with the director for at least ten days, but if the registration statement is not filed with the director within ten days after the initial filing under the securities act of 1933, the registration statement has been on file with the director for thirty days or any shorter period the director, by rule or order, specifies; and

(c) A statement of the maximum and minimum proposed offering prices and the maximum underwriting discounts and commissions has been on file for two full business days or any shorter period the director, by rule or order, specifies and the offering is made within those limitations.

(4) The registrant shall promptly notify the director by telephone or telegram of the date and time when the federal registration statement became effective and the content of the price amendment, if any, and shall promptly file a post-effective amendment containing the information and documents in the price amendment.

(5) Upon failure to receive the required notification or post-effective amendment with respect to the price amendment, the director, without notice or hearing, may enter a stop order retroactively denying effectiveness to the registration statement or suspending its effectiveness until the registrant complies with subsection (4) of this section. The director shall promptly notify the registrant by telephone or telegram, and promptly confirm by letter or telegram if the director notifies by telephone, of the issuance of the order. If the registrant proves compliance with the requirements of subsection (4) of this section as to notice and post-effective amendment, the stop order is void as of its entry.

(6) The director by rule or order may waive either or both of the conditions specified in subsection (3) (b) and (c) of this section.

(7) If the federal registration statement becomes effective before all of the conditions in subsection (3) of this section are satisfied and they are not waived, the registration statement becomes effective when all the conditions are satisfied. If the registrant advises the director of the date when the federal registration statement is expected to become effective, the director shall promptly advise the registrant by telephone or telegram, at the registrant's expense, whether all the conditions are satisfied and whether the director then contemplates commencing a proceeding under section 306 of this act; but the advice by the director does not preclude the institution from a proceeding for a stop order suspending the effectiveness of the registration statement. A stop order issued under this subsection is not retroactive.

(8) The director by rule or order may waive or modify the application of a requirement of this section if a provision or an amendment, repeal, or other alteration of the securities registration provisions of the securities act of 1933, or the regulations adopted under that act, render the waiver or modification appropriate for further coordination of state and federal registration.

NEW SECTION. Sec. 304. (1) A security may be registered by qualification.

(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 property 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 every director and officer of the issuer, or person occupying a similar status or performing similar functions: Name, address, and principal occupation for the last five years; the amount of securities of the issuer held by the person as of a specified date within thirty days 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 in any material transaction with the issuer or a significant subsidiary effected within the last three years or proposed to be effected;

(c) With respect to persons covered by subsection (2) of this section: The compensation paid or given, directly or indirectly, during the last twelve months and estimated to be paid during the next twelve months, by the issuer, together with all predecessors, parents, subsidiaries, and affiliates, to all those persons in the aggregate;

(d) With respect to a person owning of record, or beneficially if known, ten percent or more of the outstanding shares of a class of equity security of the issuer: The information specified in (b) of this subsection other than occupation;

(e) With respect to a promoter, if the issuer was organized within the last three years: The information specified in (b) of this subsection, the amount paid or intended to be paid to the person within that period and the consideration for the payment;

(f) With respect to a person on whose behalf a part of the offering is to be made in a nonissuer distribution: 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 in any material transaction with the issuer, or a significant subsidiary, effected within the last 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 a 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, for which the issuer or a subsidiary has issued its securities within the last 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 therefrom 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 upon which the offering is to be made if other 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 every underwriter and every recipient of a finder's fee; a copy of any underwriting or selling-group agreement pursuant to which the distribution is to be made, or the proposed form of the agreement whose terms have not yet been determined; and a description of the plan of distribution of securities that are to be offered other than through an underwriter;

(i) The estimated cash proceeds to be received by the issuer from the offering; the purposes for which the proceeds are to be used by the issuer; the 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 funds to be raised from other sources to achieve the purposes stated; the sources of the funds; and, if part of the proceeds is to be used to acquire property, including goodwill, other than in the ordinary course of business, the names and addresses of the vendors, the purchase price, the names of the persons who have received commissions in connection with the acquisition, and the amounts of commissions and any other expense in connection with the acquisition, including the cost of borrowing money to finance the acquisition;

(j) A description of the stock options or other security options outstanding, or to be created in connection with the offering, and the amount of the options held or to be held by every person required to be named in (b), (d), (e), (f), or (h) of this subsection and by a person who holds or will hold ten percent or more in the aggregate of the options;

(k) The dates of, parties to, and general effect concisely stated of, every management or other material contract made or to be made other than in the ordinary course of business, if it is to be performed in whole or in part at or after the filing of the registration statement or was made within the last two years; and a copy of the contract;

(l) A description of any pending litigation or proceedings to which the issuer is a party and that materially affect its business or assets, including any litigation or proceeding known to be contemplated by a governmental authority;

(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;

(n) A specimen, copy, or description of the security being registered; a copy of the issuer's articles of incorporation and bylaws, or their substantial equivalents, as currently 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 as to the legality of the security being registered, with an English translation if it is in a foreign language, which states whether the security when sold will be legally issued, fully paid, and nonassessable, and, if a debt security, a binding obligation of the issuer;

(p) The written consent of an accountant, engineer, appraiser, or other person whose profession gives authority to a statement made by the person, if the person is named as having prepared or certified a report or valuation, other than a public and official document or statement, which is used in connection with the registration statement;

(q) A statement of financial condition of the issuer as of a date within four months preceding the filing of the registration statement; a statement of results of operations and analysis of surplus for each of the three fiscal years preceding the date of the statement of financial condition and for any period between the close of the last fiscal year and the date of the statement of financial condition, or for the period of the issuer's and any predecessors' existence if less than three years; and, if part of the proceeds of the offering is to be applied to the purchase of a business, the same financial statements that would be required if the business were the registrant; and

(r) Any additional information the director by rule or order specifies.

(3) A registration statement under this section becomes effective thirty calendar days, or any shorter period the director by rule or order specifies, after the date the registration statement or the last amendment other than a price amendment is filed, if:

(a) No stop order is in effect and no proceeding is pending under section 306 of this act;

(b) The director has not ordered under subsection (4) of this section that effectiveness be delayed; and

(4) The director may delay effectiveness for a single period of not more than ninety days if the director determines the registration statement is not complete in all material respects and promptly notifies the registrant of that determination. The director may delay effectiveness for a single period of not more than thirty days if the director determines that the delay is necessary, whether or not the director previously delayed effectiveness under this subsection.

NEW SECTION. Sec. 305. (1) A registration statement may be filed by the issuer, any other person on whose behalf the offering is to be made, or a broker-dealer licensed under this title.

(2) Except as provided in subsection (3) of this section, a person filing a registration statement shall pay a fee of one- twentieth of one percent of the maximum aggregate offering price at which the registered securities are to be offered in this state, but not less than fifty dollars or more than five hundred dollars. If a registration statement is withdrawn before the effective date or a pre-effective stop order is entered under section 306 of this act, the director shall retain fifty dollars of the fee.

(3) An open-end management company, a face-amount certificate company, or a unit investment trust, as defined in the investment company act of 1940, may register an indefinite amount of securities under a registration statement. The registrant, at the time of filing, shall pay a fee of one hundred dollars and within sixty days after the registrant's fiscal year during which its registration statement is effective, pay a fee of five hundred dollars or file a report on a form the director by rule adopts, specifying its sale of securities to persons in this state during the fiscal year and pay a fee of one-twentieth of one percent of the aggregate sales price of the securities sold to persons in this state, but the latter fee must not be less than fifty dollars or more than five hundred dollars.

(4) Except as permitted by subsection (3) of this section, a registration statement must specify the amount of securities to be offered in this state and the states in which a registration statement or similar document in connection with the offering has been or is to be filed and any adverse order, judgment, or decree entered by a court, the securities agency or administrator in any state, or the securities and exchange commission in connection with the offering.

(5) A document filed under this title or a predecessor act (within five years preceding the filing of a registration statement) may be incorporated by reference in the registration statement if the document is currently accurate.

(6) The director by rule or order may permit the omission of an item of information or document from a registration statement.

(7) In the case of a nonissuer offering, the director may not require information under subsection (14) of this section or section 304 of this act unless it is known to the person filing the registration statement or to the person on whose behalf the offering is to be made, or can be furnished by the person without unreasonable effort or expense.

(8) In the case of a registration under section 303 or 304 of this act by an issuer that has no public market for its shares or no significant earnings from continuing operations during the last five years or any shorter period of its existence, the director by rule or order may require as a condition of registration that the following securities be deposited in escrow for not more than three years:

(a) A security issued to a promoter within the three years next preceding the offering or to be issued to a promoter for a consideration substantially less than the offering price; and

(b) A security issued to a promoter for a consideration other than cash, unless the registrant demonstrates that the value of the noncash consideration received in exchange for the security is substantially equal to the offering price for the security.

(9) The director by rule or order may determine the conditions of an escrow required under subsection (8) of this section, but the director may not reject a depository solely because of its location in another state.

(10) The director by rule or order may require as a condition of registration under section 303 or 304 of this act 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. The director by rule or order may determine the conditions of an impoundment required under this subsection, but the director may not reject a depository solely because of its location in another state.

(11) If a security is registered under section 302 or 303 of this act, the prospectus filed under the securities act of 1933 must be delivered to each purchaser in accordance with the prospectus delivery requirements of the securities act of 1933.

(12) If a security is registered under section 304 of this act, an offering document containing information the director by rule or order designates must be delivered to each purchaser with or before the earliest of:

(a) The first written offer made to the purchaser 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 who is offering part of an unsold allotment or subscription taken by it as a participant in the distribution;

(b) Confirmation of a sale made by or for the account of a person named in (a) of this subsection;

(d) Delivery pursuant to a sale.

(13) A registration statement remains effective for one year after its effective date unless the director by rule or order extends the period of effectiveness. All outstanding securities of the same class as a registered security are considered to be registered for the purpose of a nonissuer transaction while the registration statement is effective, unless the director by rule or order provides otherwise. A registration statement may not be withdrawn after its effective date if any of the securities registered have been sold in this state, unless the director, by rule or order provides otherwise. A registration statement is not effective while a stop order is in effect under section 306(1) of this act.

(14) During the period in which an offering is being made pursuant to an effective registration statement, the director by rule or order may require the person who filed the registration statement to file reports, not more often than quarterly, to keep reasonably current the information contained in the registration statement and to disclose the progress of the offering.

(15) A registration statement filed under section 302 or 303 of this act may be amended after its effective date to increase the securities specified being offered and sold. The amendment becomes effective upon filing of the amendment and payment of an additional filing fee, calculated in the manner specified in subsection (2) or (3) of this section, with respect to the additional securities to be offered and sold. The effectiveness of the amendment relates back to the date of sale of the additional securities being registered.

(16) A registration statement filed under section 304 of this act may be amended after its effective date to increase the securities specified to be offered and sold, if the public offering price and underwriters' discounts and commissions are not changed from the respective amounts of which the director was informed. The amendment becomes effective when the director so orders and relates back to the date of sale of the additional securities being registered. A person filing an amendment shall pay an additional filing fee equal to two times the initial registration fee, calculated in the manner specified in subsection (2) or (3) of this section, with respect to the additional securities to be offered and sold.

NEW SECTION. Sec. 306. (1) 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 as of the proposed effective date in the case of an order denying effectiveness, an amendment under section 305 (15) or (16) of this act as of its effective date, or a report under section 305(14) 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 title or a rule, order, or condition lawfully imposed under this title 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, a person occupying a similar status or performing a similar function, 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 entered under any other federal or state law applicable to the offering; but the director may not institute a proceeding against an effective registration statement under this subsection more than one year after the date of the order or injunction relied on, and the director may not enter an order under this subsection on the basis of an order or injunction entered under the securities act of another state unless the order or injunction was based on facts that currently would constitute 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 illegal where performed;

(e) The offering is being made on terms that are unfair, unjust, or inequitable;

(f) The offering has been or would be made with unreasonable amounts of underwriters' and sellers' discounts, commissions, or other compensation, or promoters' profits or participation, or unreasonable amounts or kinds of options;

(g) A security sought to be registered under section 302 of this act is not eligible for registration under section 302 of this act;

(h) With respect to a security sought to be registered under section 303 of this act, there has been a failure to comply with the undertaking required by section 303(2)(d) of this act; or

(i) The applicant or registrant has failed to pay the proper filing fee; but the director may enter only a denial order under this subsection and shall vacate the order if the deficiency is corrected.

(2) The director may not institute a stop order proceeding:

(a) Against an effective registration statement on the basis of a fact or transaction known to the director when the registration statement became effective unless the proceeding is begun within thirty days after the registration statement became effective; or

(b) With respect to a registration statement filed under section 302 of this act, on the basis of subsection (1) (e) or (f) of this section.

(3) The director by order under section 712 of this act may summarily postpone or suspend the effectiveness of a registration statement pending final determination of an administrative proceeding. Upon the entry of the order, the director shall promptly notify each person specified in subsection (4) of this section that the order has been entered and of the reasons for the postponement or suspension and that within fifteen days after the receipt of a written request from the person the matter will be set down for hearing. If no hearing is requested and none is ordered by the director, the order remains in effect until it is modified or vacated by the director. If a hearing is requested or ordered, the director, after notice of and opportunity for hearing to each person specified in subsection (4) of this section, may modify or vacate the order or extend it until final determination.

(4) A stop order may not be entered under subsection (1) or (2) of 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) opportunity for hearing, and (c) written findings of fact and conclusions of law in accordance with chapter 34.05 RCW.

(5) The director may modify or vacate a stop order entered under this section if the director finds that the conditions that prompted entry have changed or that it is otherwise in the public interest.

PART IV

NEW SECTION. Sec. 401. (1) As used in this section:

(a) "Guaranteed" means guaranteed as to payment of all or substantially all of principal and interest or dividends.

(b) "Insured" means insured as to payment of all or substantially all of principal and interest or dividends.

(2) The following securities are exempt from sections 301 and 405 of this act:

(a) A security, including a revenue obligation, issued, insured, or guaranteed by the United States, an agency or corporate or other instrumentality of the United States, an international agency or corporate or other instrumentality of which the United States and one or more foreign governments are members, a state, a political subdivision of a state, or an agency or corporate or other instrumentality of one or more states or their political subdivisions; or a certificate of deposit for any of the foregoing, but this exemption does not include a security payable solely from revenues to be received from a nongovernmental industrial or commercial enterprise unless the payments are insured or guaranteed by a person whose securities are exempt from registration under (b), (c), (d), (e), (g), (i), or (m) of this subsection or the revenues from which the payments are to be made are a direct obligation of such a person;

(b) A security issued, insured, or guaranteed by Canada, a Canadian province or territory, a political subdivision of Canada or a Canadian province or territory, an agency or corporate or other instrumentality of one or more of the foregoing, or any other foreign government or governmental combination or entity with which the United States maintains diplomatic relations, if the security is recognized as a valid obligation by the issuer, insurer, or guarantor;

(c) A security issued by and representing an interest in or a direct obligation of, or guaranteed by, a depository institution if the deposit or share accounts of the depository institution are insured by the federal deposit insurance corporation, the federal savings and loan insurance corporation, the national credit union share insurance fund, or a successor to an applicable agency authorized by federal law;

(d) A security issued by and representing an interest in or a direct obligation of, or insured or guaranteed by, an insurance company organized under the laws of any state and authorized to do business in this state;

(e) A security issued or guaranteed by a railroad, other common carrier, public utility, or holding company that is:

(i) Subject to the jurisdiction of the interstate commerce commission;

(ii) A registered holding company under the public utility holding company act of 1935 or a subsidiary of a registered holding company within the meaning of that act;

(iii) Regulated in respect to its rates and charges by a governmental authority of the United States or a state; or

(iv) Regulated in respect to the issuance or guarantee of the security by a governmental authority of the United States, a state, Canada, or a Canadian province or territory;

(f) Equipment trust certificates in respect to equipment leased or conditionally sold to a person, if securities issued by the person would be exempt under this section;

(g) A security listed or approved for listing upon notice of issuance on the New York stock exchange, the American stock exchange, or the Midwest stock exchange, if, in either case, quotations have been available and public trading has taken place for the class of security listed before the offer or sale of a security in reliance upon this exemption; any other security of the same issuer which is of senior or substantially equal rank; a security called for by subscription right or warrant so listed or approved; or a warrant or right to purchase or subscribe to any of the foregoing;

(h) A security designated or approved for designation upon issuance for inclusion in the national market system by the national association of securities dealers, inc., if, in either case, quotations have been available and public trading has taken place for the class of security designated before the offer or sale of a security in reliance upon this exemption; any other security of the same issuer which is of senior or substantially equal rank; a security called for by subscription right or warrant so designated; or a warrant or a right to purchase or subscribe to any of the foregoing;

(i) An option issued by a clearing agency registered under the securities exchange act of 1934, other than an off-exchange futures contract or substantially similar arrangement, if the security, currency, commodity, or other interest underlying the option:

(i) Is registered under section 302, 303, or 304 of this act;

(ii) Is exempt under this section; or

(iii) Is not otherwise required to be registered under this title;

(j) A security issued by a person organized and operated not for private profit but exclusively for a religious, educational, benevolent, charitable, fraternal, social, athletic, or reformatory purpose, or as a chamber of commerce or trade or professional association if at least ten days before a sale of the security the person has filed with the director a notice setting forth the material terms of the proposed sale and copies of any sales and advertising literature to be used and the director by order does not disallow the exemption within the next five full business days;

(k) A promissory note, draft, bill of exchange, or banker's acceptance that evidences an obligation to pay cash within nine months after the date of issuance, exclusive of days of grace, is issued in denominations of at least fifty thousand dollars, and receives a rating in one of the three highest rating categories from a nationally recognized statistical rating organization; or a renewal of such an obligation that is likewise limited, or a guarantee of such an obligation or of a renewal;

(l) A security issued in connection with an employees' stock purchase, savings, option, profit-sharing, pension, or similar employees' benefit plan;

(m) A membership or equity interest in, or a retention certificate or like security given in lieu of a cash patronage dividend issued by a cooperative organized and operated as a nonprofit membership cooperative under the cooperative laws of any state if not traded to the public;

(n) A security issued by an issuer registered as an open-end management investment company or unit investment trust under section 8 of the investment company act of 1940 if:

(i) The issuer is advised by an investment adviser that is a depository institution exempt from registration under the investment adviser act of 1940 or that is currently registered as an investment adviser, and has been registered, or is affiliated with an adviser that has been registered, as an investment adviser under the investment advisers act of 1940 for at least three years next preceding an offer or sale of a security claimed to be exempt under this subsection; and the issuer has acted, or is affiliated with an investment adviser that has acted, as investment adviser to one or more registered investment companies or unit investment trusts for at least three years next preceding an offer or sale of a security claimed to be exempt under this subsection; or

(ii) The issuer has a sponsor that has at all times throughout the three years before an offer or sale of a security claimed to be exempt under this subsection sponsored one or more registered investment companies or unit investment trusts the aggregate total assets of which have exceeded one hundred million dollars.

For the purpose of this subsection, an investment adviser is affiliated with another investment adviser if it controls, is controlled by, or is under common control with the other investment adviser.

NEW SECTION. Sec. 402. The following transactions are exempt from sections 301 and 405 of this act:

(1) An isolated nonissuer transaction, whether or not effected through a broker-dealer;

(2) A nonissuer transaction in an outstanding security if the issuer of the security has a class of securities subject to registration under section 12 of the securities exchange act of 1934 and has been subject to the reporting requirements of sections 13 or 15(d) of the securities exchange act of 1934 for not less than ninety days next preceding the transaction; or has filed and maintained with the director for not less than 90 days next preceding the transaction information, in such form as the director by rule specifies, substantially comparable to the information the issuer would be required to file under section 12 (b) or (g) of the securities exchange act were the issuer to have a class of its securities registered under section 12 of the securities exchange act of 1934, and paid a fee with the filing of one hundred fifty dollars;

(3) A nonissuer transaction in a security of a class outstanding in the hands of the public for not less than ninety days next preceding the transaction if a nationally recognized securities manual designated by the director by rule or order contains:

(a) The names of the issuer's officers and directors; (b) A statement of financial condition of the issuer as of a date within the last eighteen months; and

(c) A statement of income or operations (i) for each of the two years next preceding the date of the statement of condition or (ii) for the period as of the date of the statement of financial condition if the period of existence is less than two years;

(d) A nonissuer transaction in a security that has a fixed maturity or a fixed interest or dividend provision and there has been no default during the current fiscal year or within the three next preceding years, or during the existence of the issuer, and any predecessors if less than three years, in the payment of principal, interest, or dividends on the security;

(e) A nonissuer transaction effected by or through a registered broker-dealer pursuant to an unsolicited order or offer to purchase;

(f) A transaction between the issuer or other person on whose behalf the offering of a security is made and an underwriter, or a transaction among underwriters;

(g) A transaction in a bond or other evidence of indebtedness secured by a real estate mortgage, deed of trust, personal property security agreement, or by an agreement for the sale of real estate or personal property, if the entire mortgage, deed of trust, or agreement, together with all the bonds or other evidences of indebtedness secured thereby, is offered and sold as a unit;

(h) A transaction by an executor, administrator, sheriff, marshal, receiver, trustee in bankruptcy, guardian, or conservator;

(i) A transaction executed by a bona fide secured party without a purpose of evading this title;

(j) An offer to sell or sale of a security to a financial or institutional investor or to a broker-dealer;

(k) A transaction pursuant to an offer to sell securities of an issuer, if the transaction is part of an issue in which there are no more than twenty-five purchasers in this state, other than those designated in (j) of this subsection, during any twelve consecutive months; no general solicitation or general advertising is used in connection with the offer to sell or sale of the securities; and no commission or other similar compensation is paid or given, directly or indirectly, to a person, other than a broker-dealer licensed or not required to be licensed under this title, for soliciting a prospective purchaser in this state; and either (i) the seller reasonably believes that all the purchasers in this state, other than those designated in (j) of this subsection, are purchasing for investment; or (ii) immediately before and immediately after the transaction, the issuer reasonably believes that the securities of the issuer are held by fifty or fewer beneficial owners, other than those designated in (j) of this subsection, and the transaction is part of an aggregate offering that does not exceed five hundred thousand dollars during any twelve consecutive months; but the director by rule or order as to a security or transaction or a type of security or transaction, may withdraw or further condition this exemption or waive one or more of the conditions in this subsection;

(l) An offer to sell or sale of a preorganization certificate or subscription if no commission or other similar compensation is paid or given, directly or indirectly, for soliciting a prospective subscriber; no public advertising or general solicitation is used in connection with the offer to sell or sale; the number of subscribers does not exceed ten; and no payment is made by a subscriber;

(m) An offer to sell or sale of a preorganization certificate or subscription issued in connection with the organization of a depository institution if that organization is under the supervision of an official or agency of a state or of the United States which has and exercises the authority to regulate and supervise the organization of the depository institution. For purpose of this subsection, supervision of the organization by an official or agency means that the official or agency by law has authority to require disclosures to prospective investors similar to that required under section 304 of this act, impound proceeds from the sale of a preorganization certificate or subscription until organization of the depository institution is completed, and require refund to investors if the depository institution does not obtain a grant of authority from the appropriate official or agency;

(n) A transaction pursuant to an offer to sell to existing security holders of the issuer, including persons who at the time of the transaction are holders of transferable warrants exercisable within not more than ninety days after their issuance, convertible securities, or nontransferable warrants, if:

(i) No commission or other similar compensation other than a standby commission, is paid or given, directly or indirectly, for soliciting a security holder in this state; or

(ii) The issuer first files a notice specifying the terms of the offer to sell and the director does not by order disallow the exemption within the next five full business days;

(o) A transaction involving an offer to sell, but not a sale, of a security not exempt from registration under the securities act of 1933 if:

(i) A registration or offering statement or similar document as required under the securities act of 1933 has been filed, but is not effective;

(ii) A registration statement, if required, has been filed under this title, but is not effective; and

(iii) No stop order of which the offeror is aware has been entered by the director or the securities and exchange commission, and no examination or public proceeding that may culminate in that kind of order is known by the offeror to be pending;

(p) A transaction involving an offer to sell, but not a sale, of a security exempt from registration under the securities act of 1933 if:

(i) A registration statement has been filed under this title, but is not effective; and

(ii) No stop order of which the offeror is aware has been entered by the director and no examination or public proceeding that may culminate in that kind of order is known by the offeror to be pending; and

(q) 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, if:

(i) The securities to be distributed are registered under the securities act of 1933 before the consummation of the transaction; or

(ii) the securities to be distributed are not required to be registered under the securities act of 1933, written notice of the transaction and a copy of the materials, if any, by which approval of the transaction will be solicited is given to the director at least ten days before the consummation of the transaction and the director does not disallow by order the exemption within the next ten days; and

(r) (i) A transaction involving the offer to sell or sale of one or more promissory notes each of which is directly secured by a first lien on a single parcel of real estate, or a transaction involving the offer to sell or sale of participation interests in the notes if the notes and participation interests are originated by a depository institution and are offered and sold subject to the following conditions:

(A) The minimum aggregate sales price paid by each purchaser may not be less than two hundred fifty thousand dollars;

(B) Each purchaser must pay cash either at the time of the sale or within sixty days after the sale; and

(ii) A transaction involving the offer to sell or sale of one or more promissory notes directly secured by a first lien on a single parcel of real estate or participation interests in the notes, if the notes and participation interests are originated by a mortgagee approved by the secretary of housing and urban development under sections 203 and 211 of the national housing act and are offered or sold, subject to the conditions specified in (r)(i) of this subsection, to a depository institution or insurance company, the federal home loan mortgage corporation, the federal national mortgage association, or the government national mortgage association; and

(iii) A transaction between any of the persons described in (r)(ii) of this subsection involving a nonassignable contract to buy or sell the securities described in (r)(i) of this subsection which contract is to be completed within two years, if:

(A) The seller of the securities pursuant to the contract is one of the parties described in (r) (i) or (ii) of this subsection who may originate securities;

(B) The purchaser of securities pursuant to a contract is any other person described in (r)(ii) of this subsection; and

NEW SECTION. Sec. 403. (1) The director by rule may exempt any other security or transaction or class of securities or transactions from sections 301 and 405 of this act.

(2) The director by rule may adopt a limited offering transactional exemption that will further the objectives of compatibility with the exemptions from securities registration authorized by the securities act of 1933 and uniformity among the states.

NEW SECTION. Sec. 404. (1) The director by order may deny or revoke an exemption specified in section 401(2) (g), (h), (j), or (l) or section 402 of this act, with respect to a specific security or transaction.

(2) An order issued under this section is not retroactive. A person does not violate section 301 or 405 of this act by reason of an offer to sell or sale effected after the entry of an order 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. 405. The director by rule or order may require the filing of a prospectus, pamphlet, circular, form letter, advertisement, or other sales literature or advertising communication addressed or intended for distribution to prospective investors, including clients or prospective clients of an investment adviser, unless the security or transaction is exempt under section 401 or 402 of this act or the investment adviser is exempt under section 204 of this act.

PART V

NEW SECTION. Sec. 501. In connection with an offer to sell, sale, offer to purchase, or purchase, of a security, a person may not, directly or indirectly:

(1) Employ a device, scheme, or artifice to defraud;

(2) Make an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made not misleading, in the light of the circumstances under which they are made; or

(3) Engage in an act, practice, or course of business that operates or would operate as a fraud or deceit upon a person.

NEW SECTION. Sec. 502. (1) Without limiting the general applicability of section 501 of this act, a person may not:

(a) Quote a fictitious price with respect to a security;

(b) Effect a transaction in a security which involves no change in the beneficial ownership of the security for the purpose of creating a false or misleading appearance of active trading in a security or with respect to the market for the security;

(c) Enter an order for the purchase of a security with the knowledge that an order of substantially the same size and at substantially the same time and price for the sale of the security has been, or will be, entered by or for the same, or affiliated person for the purpose of creating a false or misleading appearance of active trading in a security or with respect to the market for the security;

(d) Enter an order for the sale of a security with knowledge that an order of substantially the same size and at substantially the same time and price for the purchase of the security has been, or will be, entered by or for the same, or affiliated person for the purpose of creating a false or misleading appearance of active trading in a security or with respect to the market for the security; or

(e) Employ any other deceptive or fraudulent device, scheme, or artifice to manipulate the market in a security.

(2) A transaction effected in compliance with, or conduct that does not violate, the applicable provisions of the securities exchange act of 1934 and the rules and regulations of the securities and exchange commission thereunder is not a violation of subsection (1) of this section.

NEW SECTION. Sec. 503. An investment adviser or person who represents an investment adviser in performing an act that requires licensing as an investment adviser under this title may not, directly or indirectly:

(1) Employ a device, scheme, or artifice to defraud a client; or

(2) Engage in an act, practice, or course of business that operates or would operate as a fraud or deceit upon a client.

NEW SECTION. Sec. 504. A person may not make or cause to be made, in a document filed with the director or in a proceeding under this title, a statement that the person knows or has reasonable grounds to know is, at the time and in the light of the circumstances under which it is made, false or misleading in a material respect.

NEW SECTION. Sec. 505. (1) Neither the fact that an application for licensing or a registration statement has been filed under this title nor the fact that a person is licensed or a security is registered under this title constitutes a finding by the director that a document filed under this title is true, complete, and not misleading. Neither of those facts nor the fact that an exemption or exception is available for a security or a transaction means that the director has passed upon the merits or qualifications of, or recommended or given approval to, a person, security, or transaction.

(2) A person may not make, or cause to be made, to a purchaser, customer, or client a representation inconsistent with subsection (1) of this section.

PART VI

NEW SECTION. Sec. 601. (1) The director may make any investigation, within or without this State, the director finds necessary to determine whether a person has violated or is about to violate this title or a rule or order of the director under this title or to aid in enforcement of this title.

(2) Except as provided in section 703(3) of this act, the director may publish information concerning a violation of this title or a rule or order of the director under this title or concerning types of securities or acts or practices in the offer to sell, sale, offer to purchase, or purchase of types of securities which may operate as a fraud or deceit.

(3) For purposes of an investigation or proceeding under this title, the director or an officer or employee designated by the director by rule or order may administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence, and require the production, by subpoena or otherwise, of books, papers, correspondence, memoranda, agreements, other documents, and records the director considers to be relevant and material to the investigation or proceeding. The director may require or permit a person to file a statement, under oath or otherwise as the director directs, as to the facts and circumstances concerning the matter to be investigated.

(4) If the activities constituting an alleged violation for which the information is sought would be a violation of this title had the activities occurred in this state, the director may issue and apply to enforce subpoenas in this state at the request of a securities agency or administrator of another state.

(5) If a person does not testify or produce the documents required by the director or a designated officer or employee pursuant to subpoena, the director or designated officer or employee may apply to the court for an order compelling compliance.

(6) A request for an order of compliance may be addressed to:

(a) The superior court if the person is subject to service of process in this state; or

(b) A court of another state able to assert jurisdiction over the person refusing to testify or produce, if the person is not subject to service of process in this state.

(7) Not later than the time the director requests an order for compliance, the director shall either send notice of the request by registered or certified mail, return receipt requested, to the respondent at the last known address or take other steps reasonably calculated to give the respondent actual notice.

NEW SECTION. Sec. 602. (1) If the director reasonably believes, whether or not based upon an investigation conducted under section 601 of this act, that (a) the sale of a security is subject to registration under this title and the security is being offered or has been offered or sold by the issuer or another person in violation of section 301 of this act or (b) a person is acting as a broker- dealer or investment adviser in violation of section 201 or 203 of this act, the director, in addition to any specific power granted under this title and subject to compliance with the requirements of section 712 of this act, may issue, without a prior hearing, an order against the person engaged in the prohibited activities, directing the person to desist and refrain from further activity until the security is registered or the person is licensed under this title. The cease and desist order must state the section of this title or rule or order of the director under this title which the director reasonably believes has been or is being violated.

(2) If the director reasonably believes, whether or not based upon an investigation conducted under section 601 of this act, that a person has violated this title or a rule or order of the director under this title, the director, in addition to any specific power granted under this title, after notice and hearing in an administrative proceeding unless the right to notice and hearing is waived by the person against whom the sanction is imposed, may:

(a) Issue a cease and desist order against the person;

(b) Censure the person, if the person is a licensed broker- dealer, sales representative, or investment adviser;

(d) Issue an order against an applicant, licensed person, or other person who knowingly violates this title or a rule or order of the director under this title, imposing a civil penalty up to a maximum of two thousand five hundred dollars for a single violation or of twenty-five thousand dollars for multiple violations in a single proceeding or a series of related proceedings; or

(e) Initiate one or more applicable actions specified in section 603 of this act.

(3) Imposition of the sanctions under this section is limited as follows:

(a) If the director revokes the license of a broker-dealer, sales representative, or investment adviser or bars a person from association with a licensed broker-dealer or investment adviser under this section or section 212 of this act, the imposition of that sanction precludes imposition of the sanction specified in subsection (2)(d) of this section; and

(b) The imposition by the director of one or more sanctions under subsection (2) of this section with respect to a specific violation precludes the director from later imposing any other sanctions under subsection (2) (a) through (d) of this section with respect to the violation.

(4) For purposes of determining any sanction to be imposed under subsection (2) (a) through (d) of this section, the director shall consider, among other factors, the frequency and persistence of the conduct constituting a violation of this title or a rule or order of the director under this title, the number of persons adversely affected by the conduct, and the resources of the person committing the violation.

NEW SECTION. Sec. 603. (1) Upon a showing by the director that a person has violated or is about to violate this title or a rule or order of the director under this title, the superior court may grant or impose one or more of the following appropriate legal or equitable remedies:

(a) Upon a showing of a violation of this title or a rule or order of the director under this title:

(i) A temporary restraining order, permanent or temporary prohibitory or mandatory injunction, or a writ of prohibition or mandamus;

(ii) A civil penalty up to a maximum of two thousand five hundred dollars for a single violation or of twenty-five thousand dollars for multiple violations in a single proceeding or a series of related proceedings;

(iii) A declaratory judgment;

(iv) Restitution to investors;

(v) The appointment of a receiver or conservator for the defendant or the defendant's assets; and

(vi) Other relief the court considers just.

(b) Upon a showing that the defendant is about to violate this title or a rule or order of the director under this title only:

(i) A temporary restraining order;

(ii) A temporary or permanent injunction; or

(iii) A writ of prohibition or mandamus.

(2) In determining the appropriate relief under subsection (1) of this section, the court shall consider enforcement actions taken and sanctions imposed by the director under section 602 of this act in connection with the transactions constituting violations of this title or a rule or order of the director under this title.

(3) The director is not required to post a bond in an action under this section.

(4) Upon a showing by the securities agency or administrator of another state that a person has violated the securities act of that state or a rule or order of the securities agency or administrator of that state, the court, in addition to any other legal or equitable remedies, may impose one or more of the following remedies:

(a) Appointment of a receiver, conservator, or ancillary receiver or conservator for the defendant or the defendant's assets located in this state; and

(b) Other relief the court considers just.

NEW SECTION. Sec. 604. (1) A person who willfully violates a provision of this title, except section 504 of this act, or a rule of the director under this title, or who violates section 504 of this act, knowing the statement made to be false or misleading in any material respect, is guilty of a felony.

(2) A person who willfully violates a stop order or a cease and desist order issued by the director under this title is guilty of a misdemeanor.

(3) A person convicted of violating a rule or order under this title may be fined, but may not be imprisoned, if the person proves lack of knowledge of the rule or order.

(4) A criminal prosecution may not be instituted under this section more than five years after the alleged violation.

(5) The director may refer evidence concerning violations of this title or a rule or order of the director under this title to the attorney general or district attorney who, with or without a reference, may institute appropriate criminal prosecutions under this title.

(6) This title does not limit the power of this state to punish a person for conduct constituting a crime under other law.

NEW SECTION. Sec. 605. (1) A person who offers to sell or sells a security in violation of section 201(1), 301, 305(11), 501(2), or 505(2) of this act or of a condition imposed under section 305 (7), (8), or (9) of this act is liable to one who purchases the security from that person. Upon tender of the security, the purchaser may recover the consideration paid for the security and interest at the legal rate of this state from the date of payment, costs, and reasonable attorneys' fees as determined by the court, less the amount of income received on the security. Tender requires only notice of willingness to exchange the security for the amount specified. A purchaser who no longer owns the security may recover damages. Damages are the amount that would be recoverable upon a tender less the value of the security when the purchaser disposed of it, plus interest at the legal rate of this state from the date of disposition of the security, costs, and reasonable attorneys' fees determined by the court.

(2) A person who offers or sells a security in violation of section 501(2) of this act is not liable under subsection (1) of this section if:

(a) The purchaser knew of the untrue statement of a material fact or misleading omission of a statement of a material fact; or

(b) The seller did not know and in the exercise of reasonable care could not have known of the untrue statement or misleading omission.

(3) A person who willfully participates in an act or transaction in violation of section 502 of this act is liable to a person who purchases or sells a security, other than a security traded on a national securities exchange or quoted on a national automated quotation system administered by a self-regulatory organization, at a price that was affected by the act or transaction for the damages sustained as a result of the act or transaction. Damages are the difference between the price at which the securities were purchased or sold and the market value the securities would have had at the time of the person's purchase or sale in the absence of the act or transaction, plus interest at the legal rate of this state from the date of the act or transaction, costs, and reasonable attorneys' fees determined by the court.

(4) A person who directly or indirectly controls another person who is liable under subsection (1) or (3) of this section, a partner, officer, or director of the person liable, a person occupying a similar status or performing similar functions, an employee of the person liable if the employee materially aids in the act, omission, or transaction constituting the violation, and a broker-dealer or sales representative who materially aids in the act, omission, or transaction constituting the violation, are also liable jointly and severally with and to the same extent as the other person, but it is a defense that the person did not know, and in the exercise of reasonable care could not have known, of the existence of the facts by which the liability is alleged to exist. With respect to a person who, directly or indirectly, controls another person who is liable under subsection (3) of this section, it is also a defense that the controlling person acted in good faith and did not, directly or indirectly, induce the act, omission, or transaction constituting the violation. Contribution among the several persons liable is the same as in cases arising out of breach of contract.

NEW SECTION. Sec. 606. A person may not obtain relief under section 605 of this act unless suit is brought within the earliest of one year after the discovery of the violation, one year after discovery should have been made by the exercise of reasonable care, or three years after the act, omission, or transaction constituting the violation.

NEW SECTION. Sec. 607. (1) Relief may not be obtained under section 605(1) of this act if, before suit is commenced, the purchaser:

(a) Receives a written offer:

(i) Stating the respect in which liability under section 605 of this act may have arisen and fairly advising the purchaser of the purchaser's rights of rescission;

(ii) If the basis for relief under section 605(1) of this act is a violation of section 501(2) of this act, including financial and other information necessary to correct all material misstatements or omissions in the information which was required by this title to be furnished to the purchaser as of the time of the sale of the security to the purchaser;

(iii) Offering to repurchase the security for cash, payable on delivery of the security, equal to the consideration paid, plus interest at the legal rate of this state from the date of payment, less income received thereon, or, if the purchaser no longer owns the security, offering to pay the purchaser upon acceptance of the offer an amount in cash equal to the damages computed under section 605(1) of this act; and

(iv) Stating that the offer may be accepted by the purchaser within thirty days after the date of its receipt by the purchaser or any shorter period, not less than three days, the director by order prescribes; and

(b) Fails to accept the offer in writing within the period specified under (a)(iv) of this subsection.

(2) The director by rule may prescribe the form in which the information specified in subsection (1) of this section must be contained in an offer made under subsection (1) of this section.

(3) An offer under subsection (1) of this section must be delivered to the offeree or sent in a manner which assures actual receipt by the offeree.

(4) If, after acceptance, a rescission offer is not performed in accordance with either its terms or this section, the offeree may obtain relief under section 605 of this act without regard to this section.

NEW SECTION. Sec. 608. (1) In a civil action or administrative proceeding under this title, a person claiming an exemption or an exception from a definition has the burden of proving the exemption or exception.

(2) In a criminal proceeding, the burden of going forward with evidence of a claim of exemption or exception from a definition is on the person claiming it.

NEW SECTION. Sec. 609. (1) Except as provided in section 607 of this act, a tender required under this title may be made before entry of judgment.

(2) The rights and remedies provided by this title are in addition to any other rights or remedies that exist at law or in equity, but this title does not create any cause of action not specified in sections 601 through 608 of this act.

(3) A cause of action under this title survives the death of a person who might have obtained relief as a plaintiff or defendant.

PART VII

NEW SECTION. Sec. 701. The director shall administer this title in accordance with chapter 34.05 RCW

NEW SECTION. Sec. 702. Neither the director nor an employee of the director may use for personal gain or benefit information filed with or obtained by the director which is not public information. Neither the director nor an employee of the director may conduct securities dealings based upon information filed with or obtained by the director, even though public, if there has not been sufficient time for the securities markets to assimilate the information.

NEW SECTION. Sec. 703. (1) Except as provided in subsection (2) of this section, information and documents filed with or obtained by the director are public information and are available for public examination under the open records laws of this state.

(2) The following information and documents do not constitute public information under subsection (1) of this section:

(a) Information or documents obtained by the director in connection with an investigation under section 601 of this act; and

(b) Information or documents filed with the director in connection with a registration statement under sections 301 through 306 of this act or a report under section 209 of this act and constituting trade secrets or commercial or financial information of a person for which that person is entitled to, and has asserted, a claim of confidentiality or privilege authorized by law.

(3) The director may disclose:

(a) Information obtained in connection with an investigation under section 601(1) of this act to the extent provided in section 601(2) of this act subject to the restrictions of subsection (2)(b) of this section; and

(b) Information obtained in connection with an investigation under section 601(1) of this section, if disclosure is for the purpose of a civil, administrative, or criminal investigation or proceeding by a securities agency, law enforcement agency, or administrator specified in section 704(1) of this act, and the receiving agency or administrator represents in writing that under applicable law protections exist to preserve the integrity, confidentiality, and security of the information.

(4) This title does not create any privilege or diminish any privilege existing at common law, by statute, rule, or otherwise.

NEW SECTION. Sec. 704. (1) To encourage uniform interpretation and administration of this title and effective securities regulation and enforcement, the director may cooperate with the securities agencies or administrators of one or more states, Canadian provinces or territories, or another country, the securities and exchange commission, the commodity futures trading commission, the securities investor protection corporation, any self-regulatory organization, any national or international organization of securities officials or agencies, and any governmental law enforcement or regulatory agency.

(2) The cooperation authorized by subsection (1) of this section includes:

(a) Establishing a central depository for licensing or registration under this title and for documents or records required or allowed to be maintained under this title;

(b) Making a joint license or registration examination or investigation;

(d) Filing and prosecuting a joint civil or administrative proceeding;

(e) Sharing and exchanging personnel;

(f) Sharing and exchanging information and documents subject to the restrictions of section 703 (2) and (3) of this act; and

(g) Formulating, in accordance with chapter 34.05 RCW, rules or proposed rules on matters such as statements of policy, guidelines, and interpretative opinions and releases.

NEW SECTION. Sec. 705. (1) In addition to specific authority otherwise granted by this title, the director:

(a) Shall adopt as a rule a description of the organization of the director's office which states the general course and method of its organization and where and how a person may obtain information or make a submission or request;

(b) Shall adopt rules of practice setting forth the nature and requirements of all formal and informal procedures available to a person, including a description of all forms and instructions that are to be used by a person dealing with the director;

(c) May adopt rules, in addition to those otherwise required by this title, embodying appropriate standards, principles, and procedural safeguards that the director applies in the administration of this title; and

(d) May adopt rules defining any term, whether or not used in this title, insofar as the definition is not inconsistent with this title.

(2) To keep rules adopted by the director in harmony with the regulations adopted by the securities and exchange commission under the federal securities laws and to encourage uniformity with the rules of securities agencies and administrators in other states, the director, so far as is consistent with this title, shall take into consideration the regulations adopted by the securities and exchange commission and the rules of securities agencies and administrators in other states that enact a law comparable to this title.

(3) Unless specifically provided in this title to the contrary, a rule or order may not be adopted, amended, or repealed unless the director determines that the action is:

(a) In the public interest and appropriate for the protection of investors; and

(b) Consistent with the purposes fairly intended by the policy and provisions of this title.

(4) The director may use his or her own experience, technical competence, specialized knowledge, and judgment in the adoption of a rule.

(5) The director by rule or order may prescribe:

(a) The form and content of financial statements required under this title;

(b) The circumstances under which consolidated financial statements must be filed; and

(c) Whether a required financial statement must be certified and by whom. Unless the director by rule or order provides otherwise, a financial statement required under this title must be prepared in accordance with generally accepted accounting principles or other accounting principles as are prescribed for the issuer of the financial statement by the securities and exchange commission.

(6) The director shall file in the office of the secretary of state or other location required by law and in the director's office each rule adopted or amended and all rules existing on the effective date of this title that have not been previously filed. The filing must be done as soon after adoption or amendment of the rule as is practicable. The director shall affix to each rule a certification of the time and date of filing and keep a permanent register open to public inspection of all filed rules.

NEW SECTION. Sec. 706. (1) Any person may petition the director for a declaratory order as to the applicability to specified circumstances of a statute, rule, or order under this title. The director may issue a declaratory order in response to a petition for that order unless the director determines that the petition fails to comply with the director's rules or, if the order were issued, would substantially prejudice the rights of a person who would be a necessary party and who does not consent to the determination of the matter by a declaratory order.

(2) The director, upon application by an interested party, may conduct a hearing and issue a declaratory ruling as to the applicability of this title or a rule or order of the director under this title to a person, security, or transaction, or as to the meaning of a term used in this title.

NEW SECTION. Sec. 707. No provision of this title imposing liability applies to an act done or omitted in good faith in conformity with:

(1) A rule or order adopted by the director, notwithstanding that the rule or order is later amended, repealed, or determined by judicial or other authority to be invalid; or

(2) A declaratory order or ruling issued by the director under section 706 of this act.

NEW SECTION. Sec. 708. (1) An applicant for licensing or registration under this title or an issuer who proposes to offer a security in this State through an agent shall file with the director, in the form the director by rule prescribes, an irrevocable consent appointing the director the person's agent for service of process in a noncriminal proceeding against the person, a successor, or personal representative, which arises under this title or a rule or order of the director under this title after the consent is filed, with the same force and validity as if served personally on the person filing the consent.

(2) A person who has filed a consent complying with subsection (1) of this section in connection with a previous application for licensing or registration need not file an additional consent.

(3) If a person, including a nonresident of this state, engages in conduct prohibited or made actionable by this title or a rule or order of the director under this title and the person has not filed a consent to service of process under subsection (1) of this section, the engaging in the conduct constitutes the appointment of the director as the person's agent for service of process in a noncriminal proceeding against the person, a successor, or personal representative which grows out of the conduct.

(4) A consent to service filed on behalf of an issuer organized or domiciled under the laws of a foreign country whose securities are being offered in this state other than by or through underwriters, must be accompanied by an opinion of counsel stating that a judgment of United States courts will be recognized by the courts of the country in which the issuer is organized or domiciled.

(5) Service under subsection (1) or (3) of this section may be made by leaving a copy of the process in the office of the director, but it is not effective unless:

(a) The plaintiff, who may be the director, promptly sends notice of the service and a copy of the process by registered or certified mail, return receipt requested, to the defendant or respondent at the address set forth in the consent to service of process or, if no consent to service of process has been filed, at the last known address, or takes other steps reasonably calculated to give actual notice; and

(b) The plaintiff files an affidavit of compliance with this subsection in the proceeding on or before the return day of the process, if any, or within such further time as the court, or the director in a proceeding before the director, allows.

(6) Service as provided in subsection (5) of this section may be used in a proceeding before the director or by the director in a proceeding in which the director is the moving party.

(7) If the process is served under subsection (5) of this section, the court, or the director in a proceeding before the director, shall order continuances as may be necessary to afford the defendant or respondent reasonable opportunity to defend.

NEW SECTION. Sec. 709. (1) The director shall keep one or more registers of:

(a) All applications for licensing and registration under this title;

(b) All licenses and registration statements that become effective under this title;

(d) all declaratory orders and rulings issued under this title; and

(e) All other orders issued under this title.

(2) The director shall retain:

(a) All licenses and related applications and all registration statements currently effective or that have been effective within the last five years;

(b) All licenses and related applications and all registration statements that have been denied, suspended, or revoked within the last five years, and the order of suspension, denial, or revocation;

(c) All investigatory files under this title that are open or that have been closed within the last five years, and any disciplinary or file-closure order pertaining to the file;

(d) The transcript or record of all administrative hearings held during the last five years; and

(e) Any other orders of the director entered under this title.

(3) All records required to be maintained by subsections (1) and (2) of this section may be maintained in any form of data storage.

(4) Upon request, the director shall certify under the seal of office a copy as being a true and correct copy of the records maintained by the office. The director by rule may establish reasonable charges for furnishing or certifying copies. In an investigation or proceeding under this title, a copy so certified is prima facie evidence of the contents of the records certified.

NEW SECTION. Sec. 710. The director may commence an administrative proceeding at any time with respect to a matter within the director's jurisdiction. The director shall commence an administrative proceeding upon the application of a person, unless:

(1) The director lacks jurisdiction over the subject matter;

(2) Resolution of the matter requires the director to exercise discretion to determine whether or not to issue an order;

(3) A statute vests the director with discretion to conduct or not to conduct an administrative proceeding before issuing an order to resolve the matter and, in the exercise of discretion, the director determines not to conduct an administrative proceeding;

(4) Resolution of the matter does not require the director to issue an order that determines the person's legal rights, duties, privileges, immunities, or other legal interests;

(5) The matter is not timely submitted to the director; or

(6) The matter is not submitted in a form substantially complying with the rules of the director.

NEW SECTION. Sec. 711. (1) All actions of the director including administrative proceedings, adoption of rules, and issuance of orders are governed by chapter 34.05 RCW, but:

(a) The issue of a stop order under section 303(5) of this act is governed by section 303(5) of this act;

(b) The issue of an order pursuant to an emergency administrative proceeding is governed by section 712 of this act; and

(2) All rules and orders issued under this title are subject to judicial review in accordance with chapter 34.05 RCW.

NEW SECTION. Sec. 712. (1) The director may use emergency administrative proceedings in a situation involving an immediate danger to the public welfare requiring immediate action.

(2) The director may take only such action as is necessary to prevent or avoid the immediate danger to the public welfare that justifies use of emergency administrative proceedings.

(3) The director shall issue an order, including a brief statement of findings of fact, conclusions of law, and, if it is an exercise of the agency's discretion, policy reasons for the decision to justify the determination of an immediate danger and the director's decision to take the specific action.

(4) The director shall give such notice as is practicable to persons who are required to comply with the order. The order is effective when issued.

(5) After issuing an order under this section, the director shall proceed as quickly as feasible to complete proceedings that would be required under chapter 34.05 RCW if the matter did not involve an immediate danger.

(6) The record of the director consists of the documents regarding the matter that were considered or prepared by the director. The director shall maintain these documents as the official record.

(7) Unless otherwise required by law, the director's record need not constitute the exclusive basis for the director's action in emergency administrative proceedings or for judicial review of the action.

(8) An order issued under this section is subject to judicial review in accordance with chapter 34.05 RCW.

PART VIII

NEW SECTION. Sec. 801. (1) Sections 201, 301, 501, 502, 505, and 605 of this act apply to a person who sells or offers to sell a security if:

(a) An offer to sell is made in this state; or

(b) An offer to purchase is made and accepted in this state.

(2) Sections 201, 501, 502, and 505 of this act apply to a person who purchases or offers to purchase a security if:

(a) An offer to purchase is made in this state; or

(b) An offer to sell is made and accepted in this state.

(3) For the purpose of this section, an offer to sell or to purchase is made in this state, whether or not either person is present in this state, if the offer:

(a) Originates in this state; or

(b) Is directed by the offeror to a destination in this state and received where it is directed, or at a post office in this state if the offer is mailed.

(4) For the purpose of this section, an offer to purchase or to sell is accepted in this state if acceptance is communicated to the offeror in this state and has not previously been communicated to the offeror, orally or in writing, outside this state. Acceptance is communicated to the offeror in this state, whether or not either person is present in this state, if the offeree directs it to the offeror in this state reasonably believing the offeror is in this state and it is received where it is directed, or at a post office in this state if an acceptance is mailed.

(5) For the purpose of subsections (1) through (4) of this section, an offer to sell or to purchase made in a newspaper or other publication of general, regular, and paid circulation is not made in this state if the publication:

(a) Is not published in this state; or

(b) Is published in this state, but has had more than two-thirds of its circulation outside this state during the last twelve months.

(6) For the purpose of subsection (5) of this section, if a publication is published in editions, each edition is a separate publication except for material common to all editions.

(7) For the purpose of subsections (1) through (4) of this section, an offer to sell or to purchase made in a radio or television program or other electronic communication received in this state which originates outside this state is not made in this state.

(8) For the purpose of subsection (7) of this section, a radio or television program or other electronic communication is considered as having originated in this state if either the broadcast studio or the originating source of transmission is located in this state, unless:

(a) The program or communication is syndicated and distributed from outside this state for redistribution to the general public in this state;

(b) The program or communication is supplied by a radio, television, or other electronic network with the electronic signal originating from outside this state for redistribution to the general public in this state;

(c) The program or communication is an electronic signal that originates outside this state and is captured for redistribution to the general public in this state by a community antenna or cable, radio, cable television, or other electronic system; or

(d) The program or communication consists of an electronic signal that originates in this state, but which is not intended for redistribution to the general public in this state.

NEW SECTION. Sec. 802. (1) A person subject to this title who makes or engages in the performance of a contract in violation of this title or a rule or order of the director under this title, or who acquires a right under a contract with knowledge of the facts by which its making or performance is in violation of this title, may not obtain relief on the contract.

(2) A provision in a contract entered into or effective in this state, binding a person acquiring a security to waive compliance with this title or a rule or order of the director under this title is nonenforceable. A provision in a contract containing (a) an agreement to arbitrate or (b) a choice of law provision in a contract between persons engaged in the securities business is not a provision waiving compliance with this title and is enforceable in accordance with its terms.

NEW SECTION. Sec. 803. This title shall be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of this title among states enacting it and to coordinate the interpretation and administration of this title with the related federal laws and regulations.

NEW SECTION. Sec. 804. This title may be cited as the uniform securities act (1985).

NEW SECTION. Sec. 805. 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. 806. This title takes effect on January 1, 1990.

NEW SECTION. Sec. 807. (1) Chapter 21.27 RCW, chapter 21.20 RCW, and chapter 21.30 RCW are each repealed except as saved in this section.

(2) Law repealed by this title exclusively governs a suit, action, prosecution, or proceeding that is pending on the effective date of this title or may be initiated on the basis of facts or circumstances occurring before the effective date of this title, but a civil action or proceeding may not be maintained to enforce any liability under law repealed by this title unless brought within the earlier of the period of limitation that applied when the cause of action accrued or two years after the effective date of this title.

(3) All effective registrations under law repealed by this title, all administrative orders relating to those registrations, and all conditions imposed upon those registrations remain in effect for as long as they would have remained in effect if this title had not been enacted. They are considered to have been filed, issued, or imposed under this title, but are governed by the law repealed by this title.

(4) A law repealed by this title applies to an offer to sell or sale made within one year after the effective date of this title pursuant to an offering begun in good faith before the effective date of this title on the basis of an exemption available under the repealed law.

(5) Judicial review of all administrative orders as to which review proceedings have not been instituted before the effective date of this title are governed by chapter 34.05 RCW but a review proceeding may not be instituted unless the petition for review is filed within the earlier of the period of limitation that applied to a review proceeding when the order was entered or sixty days after the effective date of this title.