WSR 97-08-061
PROPOSED RULES
DEPARTMENT OF
FINANCIAL INSTITUTIONS
(Securities Division)
[Filed April 1, 1997, 8:43 a.m.]
Original Notice.
Preproposal statement of inquiry was filed as WSR 95-21-038.
Title of Rule: Accredited investor exemption.
Purpose: Adoption of an exemption from registration for offers and sales of securities to accredited investors which permits public solicitation consistent with the North American Securities Administrators Association (NASAA) model accredited investor exemption.
Other Identifying Information: WAC 460-44A-300 (new section).
Statutory Authority for Adoption: RCW 21.20.450, 21.20.320(17).
Statute Being Implemented: Chapter 21.20 RCW.
Summary: The proposal would provide an exemption for offers and sales to accredited investors. Limited general solicitation would be permitted. Once the issuer has determined that a potential investor is accredited, further information may be provided. The exemption is similar in concept to California's 25102(n) exemption and the SEC's corresponding rule 1001. It is anticipated that the SEC will adopt a similar rule to allow such offerings on an interstate basis.
Reasons Supporting Proposal: The proposal will help promote small business capital formation and will provide for increased uniformity.
Name of Agency Personnel Responsible for Drafting: Nelda Shannon, 210 11th Avenue S.W., Olympia, (360) 902-8760; Implementation: John L. Bley, 210 11th Avenue S.W., Olympia, (360) 902-8760; and Enforcement: Deborah R. Bortner, 210 11th Avenue S.W., Olympia, (360) 902-8760.
Name of Proponent: Securities Division, Department of Financial Institutions, governmental.
Rule is not necessitated by federal law, federal or state court decision.
Explanation of Rule, its Purpose, and Anticipated Effects: The proposal would provide an exemption from registration for certain offers and sales to accredited investors. Limited general solicitation would be permitted. Once the issuer has determined that a potential investor is accredited, further information may be provided. The exemption may not be used by persons with significant disciplinary histories or by blind pools. The exemption is similar in concept to California's 25102(n) exemption and the SEC's corresponding rule 1001. It is anticipated that the SEC will adopt a similar rule pursuant to section 3(b) of the Securities Act of 1933 to allow such offerings on an interstate basis. The proposed rule is based on the NASAA model accredited investor exemption.
Proposal does not change existing rules. The proposal would create a new section in chapter 460-44A WAC.
No small business economic impact statement has been prepared under chapter 19.85 RCW. The proposal does not impose additional costs on business.
Section 201, chapter 403, Laws of 1995, does not apply to this rule adoption. The Department of Financial Institutions is not one of the agencies listed in section 201.
Hearing Location: Department of Financial Institutions, Securities Division, Executive Conference Room, 300 General Administration Building, 210 11th Avenue S.W., Olympia, WA 98504, on June 25, 1997, at 10:00 a.m.
Assistance for Persons with Disabilities: Contact Darlene Christianson by June 20, 1997, TDD (360) 664-8126, or (360) 902-8760.
Submit Written Comments to: N. Shannon, P.O. Box 9033, Olympia, WA 98507-9033, FAX (360) 586-5068, by June 24, 1997.
Date of Intended Adoption: August 6, 1997.
March 27, 1997
John L. Bley
Director
NEW SECTION
WAC 460-44A-300 Exemption for offers and sales to accredited investors pursuant to a public solicitation. (1) Any offer or sale of a security by an issuer in a transaction that meets the requirements of this rule and any exemption adopted by the Securities and Exchange Commission pursuant to Section 3(b) of the Securities Act of 1933 which provides for public solicitation of accredited investors, shall be exempt under RCW 21.20.320(17).
(2) Sales of securities shall be made only to persons who are or the issuer reasonably believes are accredited investors. "Accredited investor" shall have the meaning indicated in WAC 460-44A-501(1).
(3) The exemption is not available to an issuer that is in the development stage that either has no specific business plan or purpose or has indicated that its business plan is to engage in a merger or acquisition with an unidentified company or companies, or other entity or person.
(4) The issuer reasonably believes that all purchasers are purchasing for investment and not with the view to or for sale in connection with a distribution of the security. Any resale of a security sold in reliance on this exemption within twelve months of sale, except a resale to an accredited investor or pursuant to a registration statement effective under RCW 21.20.190 or RCW 21.20.230, shall be presumed to be with a view to distribution and not for investment. Securities issued under this exemption may only be resold pursuant to registration or an exemption under the Securities Act of Washington, chapter 21.20 RCW.
(5)(a) The exemption is not available to an issuer if the issuer, any of the issuer's predecessors, any affiliated issuer, any of the issuer's directors, officers, general partners, beneficial owners of ten percent or more of any class of its equity securities, any of the issuer's promoters presently connected with the issuer in any capacity, any underwriter of the securities to be offered, or any partner, director or officer of such underwriter:
(i) Within the last five years, has filed a registration statement which is the subject of a currently effective registration stop order entered by any state securities administrator or the United States Securities and Exchange Commission;
(ii) Within the last five years, has been convicted of any criminal offense in connection with the offer, purchase or sale of any security, or involving fraud or deceit;
(iii) Is currently subject to any state or federal administrative enforcement order or judgment, entered within the last five years, finding fraud or deceit in connection with the purchase or sale of any security; or
(iv) Is currently subject to any order, judgment or decree of any court of competent jurisdiction, entered with the last five years, temporarily, preliminarily or permanently restraining or enjoining such party from engaging in or continuing to engage in any conduct or practice involving fraud or deceit in connection with the purchase or sale of any security.
(b) Subsection (5)(a) shall not apply if:
(i) The party subject to the disqualification is licensed or registered to conduct securities related business in the state in which the order, judgment or decree creating the disqualification was entered against such party;
(ii) Before the first offer under this exemption, the state securities administrator, or the court or regulatory authority that entered the order, judgment or decree, waives the disqualification; or
(iii) The issuer establishes that it did not know and in the exercise of reasonable care could not have known that a disqualification existed under subsection (5)(a).
(6)(a) A general announcement of the proposed offering may be made by any means.
(b) The general announcement shall include only the following information, unless additional information is specifically permitted by the securities administrator:
(i) The name, address and telephone number of the issuer of the securities;
(ii) The name, a brief description and price (if known) of any security to be issued;
(iii) A brief description of the business of the issuer in twenty-five words or less;
(iv) The type, number and aggregate amount of securities being offered;
(v) The name, address and telephone number of the person to contact for additional information; and
(vi) A statement that:
(A) Sales will only be made to accredited investors;
(B) No money or other consideration is being solicited or will be accepted; and
(C) The securities have not been registered with or approved by any state securities agency or the U.S. Securities and Exchange Commission and are being offered and sold pursuant to an exemption from registration.
(7) The issuer, in connection with an offer, may provide information in addition to the general announcement under subsection (6), if such information:
(a) Is delivered through an electronic database that is restricted to persons who have been prequalified as accredited investors; or
(b) Is delivered after the issuer reasonably believes that the prospective purchaser is an accredited investor.
(8) No telephone solicitation shall be permitted unless prior to placing the call, the issuer reasonably believes that the prospective purchaser to be solicited is an accredited investor.
(9) Dissemination of the general announcement of the proposed offering to persons who are not accredited investors shall not disqualify the issuer from claiming the exemption under this rule.
(10) The issuer shall file with the administrator a notice of
transaction, a consent to service of process, a copy of the general
announcement, and a fee of three hundred dollars within fifteen days
after the first sale in this state.
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Reviser's note: The typographical error in the above section occurred in the copy filed by the agency and appears in the Register pursuant to the requirements of RCW 34.08.040.