Bill Text: CA SB978 | 2011-2012 | Regular Session | Enrolled
NOTE: There are more recent revisions of this legislation. Read Latest Draft
Bill Title: Securities transactions: exemption from qualification
Spectrum: Slight Partisan Bill (Democrat 2-1)
Status: (Passed) 2012-09-27 - Chaptered by Secretary of State. Chapter 669, Statutes of 2012. [SB978 Detail]
Download: California-2011-SB978-Enrolled.html
Bill Title: Securities transactions: exemption from qualification
Spectrum: Slight Partisan Bill (Democrat 2-1)
Status: (Passed) 2012-09-27 - Chaptered by Secretary of State. Chapter 669, Statutes of 2012. [SB978 Detail]
Download: California-2011-SB978-Enrolled.html
BILL NUMBER: SB 978 ENROLLED
BILL TEXT
PASSED THE SENATE AUGUST 23, 2012
PASSED THE ASSEMBLY AUGUST 22, 2012
AMENDED IN ASSEMBLY AUGUST 20, 2012
AMENDED IN ASSEMBLY JUNE 18, 2012
AMENDED IN SENATE MAY 25, 2012
AMENDED IN SENATE MAY 15, 2012
AMENDED IN SENATE APRIL 19, 2012
AMENDED IN SENATE MARCH 15, 2012
AMENDED IN SENATE FEBRUARY 23, 2012
INTRODUCED BY Senators Vargas and Price
(Principal coauthor: Senator Blakeslee)
JANUARY 23, 2012
An act to amend Section 10232.5 of, and to add Sections 10232.3
and 10232.45 to, the Business and Professions Code, and to amend
Sections 25102 and 25113 of, and to add Section 25102.2 to, the
Corporations Code, relating to securities transactions.
LEGISLATIVE COUNSEL'S DIGEST
SB 978, Vargas. Securities transactions: exemption from
qualification requirements.
(1) Existing law, the Corporate Securities Law of 1968, regulates
the offer and sale of securities in this state by the Commissioner of
Corporations. Existing law requires an issuer of securities to
qualify with the commissioner the offer and sale of securities unless
the transaction is subject to one of several specified exemptions
from the qualification requirements. A willful violation of these
provisions is a crime.
Existing law exempts from the qualification requirements the offer
or sale of any security made to no more than 35 people, as
specified, and allows the commissioner to require the issuer to file
a notice of transactions. Existing law provides that the exemption
remains available to an issuer that fails to file the notice or files
the notice after the time specified by the commissioner. Existing
law requires an issuer relying on that exemption to file a notice
within 15 business days following discovery of the failure to timely
file the notice, or after demand of the commissioner, whichever is
earlier.
This bill would require the commissioner to require the issuer to
file a notice of transactions in connection with that exemption.
Existing federal law defines the term "accredited investor," for
purposes of regulating securities transactions, including determining
whether an offer and sale of securities is required to be registered
pursuant to the federal Securities Act of 1933.
This bill would require the commissioner to require an issuer that
relies upon a specified exemption from the qualification
requirements and that is principally engaged in the business of
purchasing, selling, financing, or brokering real estate, for an
offering to any person who is not an accredited investor in a
transaction that is not registered pursuant to the Securities Act of
1933, to provide information regarding the nature of the proposed
offering on a form prescribed by the commissioner, as specified. That
information would include, but not be limited to, the offering
disclosure documents provided to prospective investors, and the names
of the officers and directors of a corporate issuer and, in the case
of other types of issuers, the names of other specified persons. The
bill would also require the commissioner to prepare an annual report
regarding the securities offerings and sales authorized by permit
issued by the commissioner under specified provisions of existing law
and to make the report publicly available by posting the report on
the Internet Web site of the Department of Corporations.
(2) Existing law exempts from the qualification requirements,
subject to complying with specified requirements, a transaction that
involves the sale of a series of notes secured directly by an
interest in real property or the sale of undivided interests in a
note secured directly by real property equivalent to a series
transaction, having no more than 10 investors. Existing law requires
a real estate broker to indicate in the real estate broker's
transaction file the provisions of law pertaining to qualification or
exemption from qualification under which a transaction is being
conducted. Existing law requires a real estate broker to file certain
information with the commissioner relative to conducting these
transactions that are exempt from qualification. Existing law
requires a real estate broker to submit a copy of the information in
the real estate broker's transaction file relative to qualification
or exemption from qualification for a transaction to any investor
from whom the real estate broker obtains funds in connection with the
transaction.
This bill would require that a transaction that involves the sale
of a note secured directly by an interest in real property or the
sale of an undivided interest in a note secured directly by real
property equivalent to a series transaction be conducted in
compliance with those requirements.
(3) Existing law, the Real Estate Law, requires a real estate
broker negotiating a loan, as specified, secured by a lien on real
property or a business opportunity or the sale of a real property
sales contract or promissory note secured directly or collaterally by
a lien on real property, to provide a disclosure statement,
containing specified information regarding the proposed transaction,
to a prospective lender or a prospective purchaser, respectively. A
willful violation of the Real Estate Law is a crime.
This bill would add to the information required to be included in
the disclosure statement a statement that the broker has a
responsibility to make reasonable efforts to determine that the loan
or the purchase, respectively, is a suitable and appropriate
investment for the lender or purchaser, respectively.
Because this bill would expand the scope of existing crimes, the
bill would impose a state-mandated local program.
The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
This bill would provide that no reimbursement is required by this
act for a specified reason.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 10232.3 is added to the Business and
Professions Code, to read:
10232.3. (a) Any transaction that involves the sale of or offer
to sell a note secured directly by an interest in one or more parcels
of real property or the sale of an undivided interest in a note
secured directly by one or more parcels of real property shall adhere
to all of the following:
(1) Except as provided in paragraph (2), the aggregate principal
amount of the note or interest sold, together with the unpaid
principal amount of any encumbrances upon the real property senior
thereto, shall not exceed the following percentages of the current
market value of each parcel of the real property, as determined in
writing by the broker or appraiser pursuant to Section 10232.6, plus
the amount for which the payment of principal and interest in excess
of the percentage of current market value is insured for the benefit
of the holders of the note or interest by an insurer admitted to do
business in this state by the Insurance Commissioner:
(A) Single-family residence, owner occupied.. 80%
(B) Single-family residence, not owner 75%
occupied.................................
(C) Commercial and income-producing 65%
properties...............................
Single-family residentially zoned lot or
parcel which has installed offsite
improvements including drainage, curbs,
(D) gutters, sidewalks, paved roads,
and utilities as mandated by the
political subdivision having
jurisdiction over the lot or parcel...... 65%
Land that has been zoned for (and if
(E) required, approved for subdivision as)
commercial or residential development.... 50%
(F) Other real property...................... 35%
(2) The percentage amounts specified in paragraph (1) may be
exceeded when and to the extent that the broker determines that the
encumbrance of the property in excess of these percentages is
reasonable and prudent considering all relevant factors pertaining to
the real property. However, in no event shall the aggregate
principal amount of the note or interest sold, together with the
unpaid principal amount of any encumbrances upon the property senior
thereto, exceed 80 percent of the current fair market value of
improved real property or 50 percent of the current fair market value
of unimproved real property, except in the case of a single-family
zoned lot or parcel as defined in paragraph (1), which shall not
exceed 65 percent of the current fair market value of that lot or
parcel, plus the amount insured as specified in paragraph (1). A
written statement shall be prepared by the broker that sets forth the
material considerations and facts that the broker relies upon for
his or her determination, which shall be retained as a part of the
broker's record of the transaction. Either a copy of the statement or
the information contained therein shall be included in the
disclosures required pursuant to Section 10232.5.
(3) A copy of the appraisal or the broker's evaluation, for each
parcel of real property securing the note or interest, shall be
delivered to the purchaser. The broker shall advise the purchaser of
his or her right to receive a copy. For purposes of this paragraph,
"appraisal" means a written estimate of value based upon the
assembling, analyzing, and reconciling of facts and value indicators
for the real property in question. A broker shall not purport to make
an appraisal unless the person so employed is qualified on the basis
of special training, preparation, or experience.
(4) For construction or rehabilitation loans, where the amount
withheld for construction or rehabilitation at the start of the
project exceeds one hundred thousand dollars ($100,000), the term
"current market value" may be deemed to be the value of the completed
project if all of the following safeguards are met:
(A) An independent neutral third-party escrow holder is used for
all deposits and disbursements relating to the construction or
rehabilitation of the secured property.
(B) The loan is fully funded, with the entire loan amount to be
deposited in escrow prior to recording of the deed or deeds of trust.
(C) A comprehensive, detailed draw schedule is used to ensure
proper and timely disbursements to allow for completion of the
project.
(D) The disbursement draws from the escrow account are based on
verification from an independent qualified person who certifies that
the work completed to date meets the related codes and standards and
that the draws were made in accordance with the construction contract
and draw schedule. For purposes of this subparagraph, "independent
qualified person" means a person who is not an employee, agent, or
affiliate of the broker and who is a licensed architect, general
contractor, structural engineer, or active local government building
inspector acting in his or her official capacity.
(E) An appraisal is completed by a qualified and licensed
appraiser in accordance with the Uniform Standards of Professional
Appraisal Practice (USPAP).
(F) The documentation includes a detailed description of the
actions that may be taken in the event of a failure to complete the
project, whether that failure is due to default, insufficiency of
funds, or other causes.
(G) The entire amount of the loan does not exceed two million five
hundred thousand dollars ($2,500,000).
(5) For construction or rehabilitation loans, where the amount
withheld for construction or rehabilitation at the start of the
project is one hundred thousand dollars ($100,000) or less, the term
"current market value" may be deemed to be the value of the completed
project if all of the following safeguards are met:
(A) The loan is fully funded, with the entire loan amount to be
deposited in escrow prior to recording of the deed or deeds of trust.
(B) A comprehensive, detailed draw schedule is used to ensure
proper and timely disbursements to allow for completion of the
project.
(C) An appraisal is completed by a qualified and licensed
appraiser in accordance with the Uniform Standards of Professional
Appraisal Practice (USPAP).
(D) The documentation includes a detailed description of the
actions that may be taken in the event of a failure to complete the
project, whether that failure is due to default, insufficiency of
funds, or other causes.
(E) The entire amount of the loan does not exceed two million five
hundred thousand dollars ($2,500,000).
(6) If a note or an interest will be secured by more than one
parcel of real property, for the purpose of determining the maximum
amount of the note or interest, each security property shall be
assigned a portion of the note or interest which shall not exceed the
percentage of current market value determined by, and in accordance
with, the provisions of paragraphs (1) and (2).
(b) The note or interest shall not be sold, unless the purchaser
meets one or both of the qualifications of income or net worth set
forth below and signs a statement, which shall be retained by the
broker for four years, conforming to the following:
""Transaction Identifier:___________________________
Name of Purchaser:__________________ Date:__________
Check either one of the following, if true:
( ) My investment in the transaction does not
exceed 10% of my net worth,
exclusive of home, furnishings, and automobiles.
( ) My investment in the transaction does not
exceed 10% of my adjusted
gross income for federal income tax purposes for
my last tax year or,
in the alternative, as estimated for the current
year.
___________________________
Signature''
SEC. 2. Section 10232.45 is added to the Business and Professions
Code, to read:
10232.45. (a) Any broker subject to the provisions of Section
10232.3 or Article 6 (commencing with Section 10237) shall make
reasonable efforts to ensure all of the following with respect to the
offer or sale of notes or interest in notes to be secured by a lien
on real property or a business opportunity:
(1) All persons to whom notes or interests are sold can be
reasonably assumed to have the capacity to understand the fundamental
aspects of the investment, by reason of their educational, business,
or financial experience.
(2) All persons to whom notes or interests are sold can bear the
economic risk of the investment.
(3) The investment in the notes or interests is suitable and
appropriate for the purchaser, given the purchaser's investment
objectives, portfolio structure, and financial situation.
(b) A broker shall make this determination on the basis of
information he or she obtains from the purchaser. Relevant
information for this purpose includes, at least, the age, investment
objective, investment experience, income, net worth, financial
situation, and other investments of the prospective purchaser, as
well as any other pertinent factors the commissioner shall establish
through regulation.
(c) A broker shall maintain records of the information used to
determine that an investment is suitable and appropriate for each
purchaser and shall retain these records for at least four years.
(d) A broker that complies with all of the following shall be
deemed to have complied with subdivision (a):
(1) Obtains from each person to whom notes and deeds of trust or
interests therein are offered or sold a completed investor
questionnaire in a form approved by the commissioner.
(2) Uses the responses in that questionnaire as an aid in
complying with subdivision (a).
(3) On an annual basis, obtains from each person to whom notes and
deeds of trust or interests therein are offered or sold, or on whose
behalf they are serviced, an updated investor questionnaire, which
reflects any material changes that may have occurred with respect to
any of the responses to questions in the questionnaire.
(e) Nothing in this section shall be construed to require a broker
to utilize an investor questionnaire to ensure compliance with
subdivision (a). Reliance of a broker on an investor questionnaire in
a form approved by the commissioner shall not prohibit that broker
from utilizing additional information to ensure compliance with
subdivision (a).
SEC. 3. Section 10232.5 of the Business and Professions Code is
amended to read:
10232.5. (a) If the real estate broker is performing acts
described in subdivision (d) of Section 10131 in negotiating a loan
to be secured by a lien on real property or on a business
opportunity, the statement required to be given to the prospective
lender shall include, but shall not necessarily be limited to, the
following information:
(1) Address or other means of identification of the real property
that is to be the security for the borrower's obligation.
(2) Estimated fair market value of the securing property as
determined by an appraisal, a copy of which shall be provided to the
lender. However, a lender may waive the requirement of an independent
appraisal in writing, on a case-by-case basis, in which case, the
real estate broker shall provide the broker's written estimated fair
market value of the securing property, which shall include the
objective data upon which the broker's estimate is based.
(3) Age, size, type of construction, and a description of
improvements to the property if contained in the appraisal or as
represented to the broker by the prospective borrower.
(4) Identity, occupation, employment, income, and credit data
about the prospective borrower or borrowers as represented to the
broker by the prospective borrower or borrowers.
(5) Terms of the promissory note to be given to the lender.
(6) Pertinent information concerning all encumbrances which
constitute liens against the securing property and, to the extent of
actual knowledge of the broker, pertinent information about other
loans that the borrower expects or anticipates will result in a lien
being recorded against the property securing the promissory note to
be created in favor of the prospective lender.
As used in this paragraph, actual knowledge with respect to any
anticipated or expected loan, means knowledge gained by the broker
through arranging that other loan or receipt of written notification
of that other loan. In this regard, the broker shall also provide to
the prospective lender the option to apply to purchase a title
insurance policy or an endorsement to an existing title insurance
policy covering the securing property, and a copy of a written loan
application, and a credit report.
(7) Provisions for servicing of the loan, if any, including
disposition of the late charge and prepayment penalty fees paid by
the borrower.
(8) Detailed information concerning any proposed arrangement under
which the prospective lender along with persons not otherwise
associated with him or her will be joint beneficiaries or obligees.
(9) If the solicitation is subject to the provisions of Section
10231.2, a detailed statement of the intended use and disposition of
the funds being solicited including an explanation of the nature and
extent of the benefits to be directly or indirectly derived by the
broker.
(10) If the broker is subject to the provisions of Section 10232
or Article 6 (commencing with Section 10237), a statement that the
broker has a responsibility to make reasonable efforts to determine
that the loan is a suitable and appropriate investment for the
lender, based on information provided by the lender regarding the
lender's financial situation and investment objectives.
(b) If the real estate broker is performing acts described in
subdivision (e) of Section 10131 or in Section 10131.1 in negotiating
the sale of a real property sales contract or promissory note
secured directly or collaterally by a lien on real property, the
statement required to be given to the prospective purchaser by
Section 10232.4 shall include, but shall not necessarily be limited
to, the following information:
(1) Address or other means of identification of the real property
that is the security for the trustor's or vendee's obligation.
(2) Estimated fair market value of the real property as determined
by an appraisal, a copy of which shall be provided to the
prospective purchaser. However, a purchaser may waive the requirement
of an independent appraisal in writing, on a case-by-case basis, in
which case, the real estate broker shall provide the broker's written
estimated fair market value of the securing property, which shall
include the objective data upon which the broker's estimate is based.
(3) Age, size, type of construction, and a description of
improvements to the real property if known by the broker.
(4) Information available to the broker relative to the ability of
the trustor or vendee to meet his or her contractual obligations
under the note or contract including the trustor's or vendee's
payment history under the note or contract.
(5) Terms of the contract or note including the principal balance
owing.
(6) Provisions for servicing of the note or contract, if any,
including disposition of late charge, prepayment penalty or other
fees or charges paid by the trustor or vendee.
(7) Detailed information concerning any proposed arrangement under
which the prospective purchaser along with persons not otherwise
associated with him or her will be joint beneficiaries or obligees.
In this regard, the broker shall also provide to the prospective
purchaser the option to apply to purchase a title insurance policy or
an endorsement to an existing title insurance policy covering the
real property and, if available from the seller of the note or
contract or from the original lender, a copy of a written loan
application, and a credit report.
(8) A statement as to whether the dealer is acting as a principal
or as an agent in the transaction with the prospective purchaser.
(9) If the broker is subject to the provisions of Section 10232 or
Article 6 (commencing with Section 10237), a statement that the
broker has a responsibility to make reasonable efforts to determine
that the purchase is a suitable and appropriate investment for the
purchaser, based on information provided by the purchaser regarding
the purchaser's financial situation and investment objectives.
SEC. 4. Section 25102 of the Corporations Code is amended to read:
25102. The following transactions are exempted from the
provisions of Section 25110:
(a) Any offer (but not a sale) not involving any public offering
and the execution and delivery of any agreement for the sale of
securities pursuant to the offer if (1) the agreement contains
substantially the following provision: "The sale of the securities
that are the subject of this agreement has not been qualified with
the Commissioner of Corporations of the State of California and the
issuance of the securities or the payment or receipt of any part of
the consideration therefor prior to the qualification is unlawful,
unless the sale of securities is exempt from the qualification by
Section 25100, 25102, or 25105 of the California Corporations Code.
The rights of all parties to this agreement are expressly conditioned
upon the qualification being obtained, unless the sale is so exempt"
; and (2) no part of the purchase price is paid or received and none
of the securities are issued until the sale of the securities is
qualified under this law unless the sale of securities is exempt from
the qualification by this section, Section 25100, or 25105.
(b) Any offer (but not a sale) of a security for which a
registration statement has been filed under the Securities Act of
1933 but has not yet become effective, or for which an offering
statement under Regulation A has been filed but has not yet been
qualified, if no stop order or refusal order is in effect and no
public proceeding or examination looking towards an order is pending
under Section 8 of the act and no order under Section 25140 or
subdivision (a) of Section 25143 is in effect under this law.
(c) Any offer (but not a sale) and the execution and delivery of
any agreement for the sale of securities pursuant to the offer as may
be permitted by the commissioner upon application. Any negotiating
permit under this subdivision shall be conditioned to the effect that
none of the securities may be issued and none of the consideration
therefor may be received or accepted until the sale of the securities
is qualified under this law.
(d) Any transaction or agreement between the issuer and an
underwriter or among underwriters if the sale of the securities is
qualified, or exempt from qualification, at the time of distribution
thereof in this state, if any.
(e) Any offer or sale of any evidence of indebtedness, whether
secured or unsecured, and any guarantee thereof, in a transaction not
involving any public offering.
(f) Any offer or sale of any security in a transaction (other than
an offer or sale to a pension or profit-sharing trust of the issuer)
that meets each of the following criteria:
(1) Sales of the security are not made to more than 35 persons,
including persons not in this state.
(2) All purchasers either have a preexisting personal or business
relationship with the offeror or any of its partners, officers,
directors or controlling persons, or managers (as appointed or
elected by the members) if the offeror is a limited liability
company, or by reason of their business or financial experience or
the business or financial experience of their professional advisers
who are unaffiliated with and who are not compensated by the issuer
or any affiliate or selling agent of the issuer, directly or
indirectly, could be reasonably assumed to have the capacity to
protect their own interests in connection with the transaction.
(3) Each purchaser represents that the purchaser is purchasing for
the purchaser's own account (or a trust account if the purchaser is
a trustee) and not with a view to or for sale in connection with any
distribution of the security.
(4) The offer and sale of the security is not accomplished by the
publication of any advertisement. The number of purchasers referred
to above is exclusive of any described in subdivision (i), any
officer, director, or affiliate of the issuer, or manager (as
appointed or elected by the members) if the issuer is a limited
liability company, and any other purchaser who the commissioner
designates by rule. For purposes of this section, a husband and wife
(together with any custodian or trustee acting for the account of
their minor children) are counted as one person and a partnership,
corporation, or other organization that was not specifically formed
for the purpose of purchasing the security offered in reliance upon
this exemption, is counted as one person. The commissioner shall by
rule require the issuer to file a notice of transactions under this
subdivision.
The failure to file the notice or the failure to file the notice
within the time specified by the rule of the commissioner shall not
affect the availability of the exemption. Any issuer that fails to
file the notice as provided by rule of the commissioner shall, within
15 business days after discovery of the failure to file the notice
or after demand by the commissioner, whichever occurs first, file the
notice and pay to the commissioner a fee equal to the fee payable
had the transaction been qualified under Section 25110. Neither the
filing of the notice nor the failure by the commissioner to comment
thereon precludes the commissioner from taking any action that the
commissioner deems necessary or appropriate under this division with
respect to the offer and sale of the securities.
(g) Any offer or sale of conditional sale agreements, equipment
trust certificates, or certificates of interest or participation
therein or partial assignments thereof, covering the purchase of
railroad rolling stock or equipment or the purchase of motor
vehicles, aircraft, or parts thereof, in a transaction not involving
any public offering.
(h) Any offer or sale of voting common stock by a corporation
incorporated in any state if, immediately after the proposed sale and
issuance, there will be only one class of stock of the corporation
outstanding that is owned beneficially by no more than 35 persons,
provided all of the following requirements have been met:
(1) The offer and sale of the stock is not accompanied by the
publication of any advertisement, and no selling expenses have been
given, paid, or incurred in connection therewith.
(2) The consideration to be received by the issuer for the stock
to be issued consists of any of the following:
(A) Only assets (which may include cash) of an existing business
enterprise transferred to the issuer upon its initial organization,
of which all of the persons who are to receive the stock to be issued
pursuant to this exemption were owners during, and the enterprise
was operated for, a period of not less than one year immediately
preceding the proposed issuance, and the ownership of the enterprise
immediately prior to the proposed issuance was in the same
proportions as the shares of stock are to be issued.
(B) Only cash or cancellation of indebtedness for money borrowed,
or both, upon the initial organization of the issuer, provided all of
the stock is issued for the same price per share.
(C) Only cash, provided the sale is approved in writing by each of
the existing shareholders and the purchaser or purchasers are
existing shareholders.
(D) In a case where after the proposed issuance there will be only
one owner of the stock of the issuer, only any legal consideration.
(3) No promotional consideration has been given, paid, or incurred
in connection with the issuance. Promotional consideration means any
consideration paid directly or indirectly to a person who, acting
alone or in conjunction with one or more other persons, takes the
initiative in founding and organizing the business or enterprise of
an issuer for services rendered in connection with the founding or
organizing.
(4) A notice in a form prescribed by rule of the commissioner,
signed by an active member of the State Bar of California, is filed
with or mailed for filing to the commissioner not later than 10
business days after receipt of consideration for the securities by
the issuer. That notice shall contain an opinion of the member of the
State Bar of California that the exemption provided by this
subdivision is available for the offer and sale of the securities.
The failure to file the notice as required by this subdivision and
the rules of the commissioner shall not affect the availability of
this exemption. An issuer who fails to file the notice within the
time specified by this subdivision shall, within 15 business days
after discovery of the failure to file the notice or after demand by
the commissioner, whichever occurs first, file the notice and pay to
the commissioner a fee equal to the fee payable had the transaction
been qualified under Section 25110. The notice, except when filed on
behalf of a California corporation, shall be accompanied by an
irrevocable consent, in the form that the commissioner by rule
prescribes, appointing the commissioner or his or her successor in
office to be the issuer's attorney to receive service of any lawful
process in any noncriminal suit, action, or proceeding against it or
its successor that arises under this law or any rule or order
hereunder after the consent has been filed, with the same force and
validity as if served personally on the issuer. An issuer on whose
behalf a consent has been filed in connection with a previous
qualification or exemption from qualification under this law (or
application for a permit under any prior law if the application or
notice under this law states that the consent is still effective)
need not file another. Service may be made by leaving a copy of the
process in the office of the commissioner, but it is not effective
unless (A) the plaintiff, who may be the commissioner in a suit,
action, or proceeding instituted by him or her, forthwith sends
notice of the service and a copy of the process by registered or
certified mail to the defendant or respondent at its last address on
file with the commissioner, and (B) the plaintiff's affidavit of
compliance with this section is filed in the case on or before the
return day of the process, if any, or within the further time as the
court allows.
(5) Each purchaser represents that the purchaser is purchasing for
the purchaser's own account, or a trust account if the purchaser is
a trustee, and not with a view to or for sale in connection with any
distribution of the stock.
For the purposes of this subdivision, all securities held
by a husband and wife, whether or not jointly, shall be considered to
be owned by one person, and all securities held by a corporation
that has issued stock pursuant to this exemption shall be considered
to be held by the shareholders to whom it has issued the stock.
All stock issued by a corporation pursuant to this subdivision as
it existed prior to the effective date of the amendments to this
section made during the 1996 portion of the 1995-96 Regular Session
that required the issuer to have stamped or printed prominently on
the face of the stock certificate a legend in a form prescribed by
rule of the commissioner restricting transfer of the stock in a
manner provided for by that rule shall not be subject to the transfer
restriction legend requirement and, by operation of law, the
corporation is authorized to remove that transfer restriction legend
from the certificates of those shares of stock issued by the
corporation pursuant to this subdivision as it existed prior to the
effective date of the amendments to this section made during the 1996
portion of the 1995-96 Regular Session.
(i) Any offer or sale (1) to a bank, savings and loan association,
trust company, insurance company, investment company registered
under the Investment Company Act of 1940, pension or profit-sharing
trust (other than a pension or profit-sharing trust of the issuer, a
self-employed individual retirement plan, or individual retirement
account), or other institutional investor or governmental agency or
instrumentality that the commissioner may designate by rule, whether
the purchaser is acting for itself or as trustee, or (2) to any
corporation with outstanding securities registered under Section 12
of the Securities Exchange Act of 1934 or any wholly owned subsidiary
of the corporation that after the offer and sale will own directly
or indirectly 100 percent of the outstanding capital stock of the
issuer, provided the purchaser represents that it is purchasing for
its own account (or for the trust account) for investment and not
with a view to or for sale in connection with any distribution of the
security.
(j) Any offer or sale of any certificate of interest or
participation in an oil or gas title or lease (including subsurface
gas storage and payments out of production) if either of the
following apply:
(1) All of the purchasers meet one of the following requirements:
(A) Are and have been during the preceding two years engaged
primarily in the business of drilling for, producing, or refining oil
or gas (or whose corporate predecessor, in the case of a
corporation, has been so engaged).
(B) Are persons described in paragraph (1) of subdivision (i).
(C) Have been found by the commissioner upon written application
to be substantially engaged in the business of drilling for,
producing, or refining oil or gas so as not to require the protection
provided by this law (which finding shall be effective until
rescinded).
(2) The security is concurrently hypothecated to a bank in the
ordinary course of business to secure a loan made by the bank,
provided that each purchaser represents that it is purchasing for its
own account for investment and not with a view to or for sale in
connection with any distribution of the security.
(k) Any offer or sale of any security under, or pursuant to, a
plan of reorganization under Chapter 11 of the federal bankruptcy law
that has been confirmed or is subject to confirmation by the decree
or order of a court of competent jurisdiction.
( l ) Any offer or sale of an option, warrant, put,
call, or straddle, and any guarantee of any of these securities, by a
person who is not the issuer of the security subject to the right,
if the transaction, had it involved an offer or sale of the security
subject to the right by the person, would not have violated Section
25110 or 25130.
(m) Any offer or sale of a stock to a pension, profit-sharing,
stock bonus, or employee stock ownership plan, provided that (1) the
plan meets the requirements for qualification under Section 401 of
the Internal Revenue Code, and (2) the employees are not required or
permitted individually to make any contributions to the plan. The
exemption provided by this subdivision shall not be affected by
whether the stock is contributed to the plan, purchased from the
issuer with contributions by the issuer or an affiliate of the
issuer, or purchased from the issuer with funds borrowed from the
issuer, an affiliate of the issuer, or any other lender.
(n) Any offer or sale of any security in a transaction, other than
an offer or sale of a security in a rollup transaction, that meets
all of the following criteria:
(1) The issuer is (A) a California corporation or foreign
corporation that, at the time of the filing of the notice required
under this subdivision, is subject to Section 2115, or (B) any other
form of business entity, including without limitation a partnership
or trust organized under the laws of this state. The exemption
provided by this subdivision is not available to a "blind pool"
issuer, as that term is defined by the commissioner, or to an
investment company subject to the Investment Company Act of 1940.
(2) Sales of securities are made only to qualified purchasers or
other persons the issuer reasonably believes, after reasonable
inquiry, to be qualified purchasers. A corporation, partnership, or
other organization specifically formed for the purpose of acquiring
the securities offered by the issuer in reliance upon this exemption
may be a qualified purchaser if each of the equity owners of the
corporation, partnership, or other organization is a qualified
purchaser. Qualified purchasers include the following:
(A) A person designated in Section 260.102.13 of Title 10 of the
California Code of Regulations.
(B) A person designated in subdivision (i) or any rule of the
commissioner adopted thereunder.
(C) A pension or profit-sharing trust of the issuer, a
self-employed individual retirement plan, or an individual retirement
account, if the investment decisions made on behalf of the trust,
plan, or account are made solely by persons who are qualified
purchasers.
(D) An organization described in Section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business trust,
or partnership, each with total assets in excess of five million
dollars ($5,000,000) according to its most recent audited financial
statements.
(E) With respect to the offer and sale of one class of voting
common stock of an issuer or of preferred stock of an issuer
entitling the holder thereof to at least the same voting rights as
the issuer's one class of voting common stock, provided that the
issuer has only one-class voting common stock outstanding upon
consummation of the offer and sale, a natural person who, either
individually or jointly with the person's spouse, (i) has a minimum
net worth of two hundred fifty thousand dollars ($250,000) and had,
during the immediately preceding tax year, gross income in excess of
one hundred thousand dollars ($100,000) and reasonably expects gross
income in excess of one hundred thousand dollars ($100,000) during
the current tax year or (ii) has a minimum net worth of five hundred
thousand dollars ($500,000). "Net worth" shall be determined
exclusive of home, home furnishings, and automobiles. Other assets
included in the computation of net worth may be valued at fair market
value.
Each natural person specified above, by reason of his or her
business or financial experience, or the business or financial
experience of his or her professional adviser, who is unaffiliated
with and who is not compensated, directly or indirectly, by the
issuer or any affiliate or selling agent of the issuer, can be
reasonably assumed to have the capacity to protect his or her
interests in connection with the transaction. The amount of the
investment of each natural person shall not exceed 10 percent of the
net worth, as determined by this subparagraph, of that natural
person.
(F) Any other purchaser designated as qualified by rule of the
commissioner.
(3) Each purchaser represents that the purchaser is purchasing for
the purchaser's own account (or trust account, if the purchaser is a
trustee) and not with a view to or for sale in connection with a
distribution of the security.
(4) Each natural person purchaser, including a corporation,
partnership, or other organization specifically formed by natural
persons for the purpose of acquiring the securities offered by the
issuer, receives, at least five business days before securities are
sold to, or a commitment to purchase is accepted from, the purchaser,
a written offering disclosure statement that shall meet the
disclosure requirements of Regulation D (17 C.F.R. 230.501 et seq.),
and any other information as may be prescribed by rule of the
commissioner, provided that the issuer shall not be obligated
pursuant to this paragraph to provide this disclosure statement to a
natural person qualified under Section 260.102.13 of Title 10 of the
California Code of Regulations. The offer or sale of securities
pursuant to a disclosure statement required by this paragraph that is
in violation of Section 25401, or that fails to meet the disclosure
requirements of Regulation D (17 C.F.R. 230.501 et seq.), shall not
render unavailable to the issuer the claim of an exemption from
Section 25110 afforded by this subdivision. This paragraph does not
impose, directly or indirectly, any additional disclosure obligation
with respect to any other exemption from qualification available
under any other provision of this section.
(5) (A) A general announcement of proposed offering may be
published by written document only, provided that the general
announcement of proposed offering sets forth the following required
information:
(i) The name of the issuer of the securities.
(ii) The full title of the security to be issued.
(iii) The anticipated suitability standards for prospective
purchasers.
(iv) A statement that (I) no money or other consideration is being
solicited or will be accepted, (II) an indication of interest made
by a prospective purchaser involves no obligation or commitment of
any kind, and, if the issuer is required by paragraph (4) to deliver
a disclosure statement to prospective purchasers, (III) no sales will
be made or commitment to purchase accepted until five business days
after delivery of a disclosure statement and subscription information
to the prospective purchaser in accordance with the requirements of
this subdivision.
(v) Any other information required by rule of the commissioner.
(vi) The following legend: "For more complete information about
(Name of Issuer) and (Full Title of Security), send for additional
information from (Name and Address) by sending this coupon or calling
(Telephone Number)."
(B) The general announcement of proposed offering referred to in
subparagraph (A) may also set forth the following information:
(i) A brief description of the business of the issuer.
(ii) The geographic location of the issuer and its business.
(iii) The price of the security to be issued, or, if the price is
not known, the method of its determination or the probable price
range as specified by the issuer, and the aggregate offering price.
(C) The general announcement of proposed offering shall contain
only the information that is set forth in this paragraph.
(D) Dissemination of the general announcement of proposed offering
to persons who are not qualified purchasers, without more, shall not
disqualify the issuer from claiming the exemption under this
subdivision.
(6) No telephone solicitation shall be permitted until the issuer
has determined that the prospective purchaser to be solicited is a
qualified purchaser.
(7) The issuer files a notice of transaction under this
subdivision both (A) concurrent with the publication of a general
announcement of proposed offering or at the time of the initial offer
of the securities, whichever occurs first, accompanied by a filing
fee, and (B) within 10 business days following the close or
abandonment of the offering, but in no case more than 210 days from
the date of filing the first notice. The first notice of transaction
under subparagraph (A) shall contain an undertaking, in a form
acceptable to the commissioner, to deliver any disclosure statement
required by paragraph (4) to be delivered to prospective purchasers,
and any supplement thereto, to the commissioner within 10 days of the
commissioner's request for the information. The exemption from
qualification afforded by this subdivision is unavailable if an
issuer fails to file the first notice required under subparagraph (A)
or to pay the filing fee. The commissioner has the authority to
assess an administrative penalty of up to one thousand dollars
($1,000) against an issuer that fails to deliver the disclosure
statement required to be delivered to the commissioner upon the
commissioner's request within the time period set forth above.
Neither the filing of the disclosure statement nor the failure by the
commissioner to comment thereon precludes the commissioner from
taking any action deemed necessary or appropriate under this division
with respect to the offer and sale of the securities.
(o) An offer or sale of any security issued by a corporation or
limited liability company pursuant to a purchase plan or agreement,
or issued pursuant to an option plan or agreement, where the security
at the time of issuance or grant is exempt from registration under
the Securities Act of 1933, as amended, pursuant to Rule 701 adopted
pursuant to that act (17 C.F.R. 230.701), the provisions of which are
hereby incorporated by reference into this section, provided that
(1) the terms of any purchase plan or agreement shall comply with
Sections 260.140.42, 260.140.45, and 260.140.46 of Title 10 of the
California Code of Regulations, (2) the terms of any option plan or
agreement shall comply with Sections 260.140.41, 260.140.45, and
260.140.46 of Title 10 of the California Code of Regulations, and (3)
the issuer files a notice of transaction in accordance with rules
adopted by the commissioner no later than 30 days after the initial
issuance of any security under that plan, accompanied by a filing fee
as prescribed by subdivision (y) of Section 25608. The failure to
file the notice of transaction within the time specified in this
subdivision shall not affect the availability of this exemption. An
issuer that fails to file the notice shall, within 15 business days
after discovery of the failure to file the notice or after demand by
the commissioner, whichever occurs first, file the notice and pay the
commissioner a fee equal to the maximum aggregate fee payable had
the transaction been qualified under Section 25110.
Offers and sales exempt pursuant to this subdivision shall be
deemed to be part of a single, discrete offering and are not subject
to integration with any other offering or sale, whether qualified
under Chapter 2 (commencing with Section 25110), or otherwise exempt,
or not subject to qualification.
(p) An offer or sale of nonredeemable securities to accredited
investors (Section 28031) by a person licensed under the Capital
Access Company Law (Division 3 (commencing with Section 28000) of
Title 4), provided that all purchasers either (1) have a preexisting
personal or business relationship with the offeror or any of its
partners, officers, directors, controlling persons, or managers (as
appointed or elected by the members), or (2) by reason of their
business or financial experience or the business or financial
experience of their professional advisers who are unaffiliated with
and who are not compensated by the issuer or any affiliate or selling
agent of the issuer, directly or indirectly, could be reasonably
assumed to have the capacity to protect their own interests in
connection with the transaction. All nonredeemable securities shall
be evidenced by certificates that shall have stamped or printed
prominently on their face a legend in a form to be prescribed by rule
or order of the commissioner restricting transfer of the securities
in the manner as the rule or order provides. The exemption under this
subdivision shall not be available for any offering that is exempt
or asserted to be exempt pursuant to Section 3(a)(11) of the
Securities Act of 1933 (15 U.S.C. Sec. 77c(a)(11)) or Rule 147 (17
C.F.R. 230.147) thereunder or otherwise is conducted by means of any
form of general solicitation or general advertising.
(q) Any offer or sale of any viatical or life settlement contract
or fractionalized or pooled interest therein in a transaction that
meets all of the following criteria:
(1) Sales of securities described in this subdivision are made
only to qualified purchasers or other persons the issuer reasonably
believes, after reasonable inquiry, to be qualified purchasers. A
corporation, partnership, or other organization specifically formed
for the purpose of acquiring the securities offered by the issuer in
reliance upon this exemption may be a qualified purchaser only if
each of the equity owners of the corporation, partnership, or other
organization is a qualified purchaser. Qualified purchasers include
the following:
(A) A person designated in Section 260.102.13 of Title 10 of the
California Code of Regulations.
(B) A person designated in subdivision (i) or any rule of the
commissioner adopted thereunder.
(C) A pension or profit-sharing trust of the issuer, a
self-employed individual retirement plan, or an individual retirement
account, if the investment decisions made on behalf of the trust,
plan, or account are made solely by persons who are qualified
purchasers.
(D) An organization described in Section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business trust,
or partnership, each with total assets in excess of five million
dollars ($5,000,000) according to its most recent audited financial
statements.
(E) A natural person who, either individually or jointly with the
person's spouse, (i) has a minimum net worth of one hundred fifty
thousand dollars ($150,000) and had, during the immediately preceding
tax year, gross income in excess of one hundred thousand dollars
($100,000) and reasonably expects gross income in excess of one
hundred thousand dollars ($100,000) during the current tax year or
(ii) has a minimum net worth of two hundred fifty thousand dollars
($250,000). "Net worth" shall be determined exclusive of home, home
furnishings, and automobiles. Other assets included in the
computation of net worth may be valued at fair market value.
Each natural person specified above, by reason of his or her
business or financial experience, or the business or financial
experience of his or her professional adviser, who is unaffiliated
with and who is not compensated, directly or indirectly, by the
issuer or any affiliate or selling agent of the issuer, can be
reasonably assumed to have the capacity to protect his or her
interests in connection with the transaction.
The amount of the investment of each natural person shall not
exceed 10 percent of the net worth, as determined by this
subdivision, of that natural person.
(F) Any other purchaser designated as qualified by rule of the
commissioner.
(2) Each purchaser represents that the purchaser is purchasing for
the purchaser's own account (or trust account, if the purchaser is a
trustee) and not with a view to or for sale in connection with a
distribution of the security.
(3) Each natural person purchaser, including a corporation,
partnership, or other organization specifically formed by natural
persons for the purpose of acquiring the securities offered by the
issuer, receives, at least five business days before securities
described in this subdivision are sold to, or a commitment to
purchase is accepted from, the purchaser, the following information
in writing:
(A) The name, principal business and mailing address, and
telephone number of the issuer.
(B) The suitability standards for prospective purchasers as set
forth in paragraph (1) of this subdivision.
(C) A description of the issuer's type of business organization
and the state in which the issuer is organized or incorporated.
(D) A brief description of the business of the issuer.
(E) If the issuer retains ownership or becomes the beneficiary of
the insurance policy, an audit report of an independent certified
public accountant together with a balance sheet and related
statements of income, retained earnings, and cashflows that reflect
the issuer's financial position, the results of the issuer's
operations, and the issuer's cashflows as of a date within 15 months
before the date of the initial issuance of the securities described
in this subdivision. The financial statements listed in this
subparagraph shall be prepared in conformity with generally accepted
accounting principles. If the date of the audit report is more than
120 days before the date of the initial issuance of the securities
described in this subdivision, the issuer shall provide unaudited
interim financial statements.
(F) The names of all directors, officers, partners, members, or
trustees of the issuer.
(G) A description of any order, judgment, or decree that is final
as to the issuing entity of any state, federal, or foreign country
governmental agency or administrator, or of any state, federal, or
foreign country court of competent jurisdiction (i) revoking,
suspending, denying, or censuring for cause any license, permit, or
other authority of the issuer or of any director, officer, partner,
member, trustee, or person owning or controlling, directly or
indirectly, 10 percent or more of the outstanding interest or equity
securities of the issuer, to engage in the securities, commodities,
franchise, insurance, real estate, or lending business or in the
offer or sale of securities, commodities, franchises, insurance, real
estate, or loans, (ii) permanently restraining, enjoining, barring,
suspending, or censuring any such person from engaging in or
continuing any conduct, practice, or employment in connection with
the offer or sale of securities, commodities, franchises, insurance,
real estate, or loans, (iii) convicting any such person of, or
pleading nolo contendere by any such person to, any felony or
misdemeanor involving a security, commodity, franchise, insurance,
real estate, or loan, or any aspect of the securities, commodities,
franchise, insurance, real estate, or lending business, or involving
dishonesty, fraud, deceit, embezzlement, fraudulent conversion, or
misappropriation of property, or (iv) holding any such person liable
in a civil action involving breach of a fiduciary duty, fraud,
deceit, embezzlement, fraudulent conversion, or misappropriation of
property. This subparagraph does not apply to any order, judgment, or
decree that has been vacated, overturned, or is more than 10 years
old.
(H) Notice of the purchaser's right to rescind or cancel the
investment and receive a refund pursuant to Section 25508.5.
(I) The name, address, and telephone number of the issuing
insurance company, and the name, address, and telephone number of the
state or foreign country regulator of the insurance company.
(J) The total face value of the insurance policy and the
percentage of the insurance policy the purchaser will own.
(K) The insurance policy number, issue date, and type.
(L) If a group insurance policy, the name, address, and telephone
number of the group, and, if applicable, the material terms and
conditions of converting the policy to an individual policy,
including the amount of increased premiums.
(M) If a term insurance policy, the term and the name, address,
and telephone number of the person who will be responsible for
renewing the policy if necessary.
(N) That the insurance policy is beyond the state statute for
contestability and the reason therefor.
(O) The insurance policy premiums and terms of premium payments.
(P) The amount of the purchaser's moneys that will be set aside to
pay premiums.
(Q) The name, address, and telephone number of the person who will
be the insurance policy owner and the person who will be responsible
for paying premiums.
(R) The date on which the purchaser will be required to pay
premiums and the amount of the premium, if known.
(S) A statement to the effect that any projected rate of return to
the purchaser from the purchase of a viatical or life settlement
contract or a fractionalized or pooled interest therein is based on
an estimated life expectancy for the person insured under the life
insurance policy; that the return on the purchase may vary
substantially from the expected rate of return based upon the actual
life expectancy of the insured that may be less than, equal to, or
may greatly exceed the estimated life expectancy; and that the rate
of return would be higher if the actual life expectancy were less
than, and lower if the actual life expectancy were greater than the
estimated life expectancy of the insured at the time the viatical or
life settlement contract was closed.
(T) A statement that the purchaser should consult with his or her
tax adviser regarding the tax consequences of the purchase of the
viatical or life settlement contract or fractionalized or pooled
interest therein and, if the purchaser is using retirement funds or
accounts for that purchase, whether or not any adverse tax
consequences might result from the use of those funds for the
purchase of that investment.
(U) Any other information as may be prescribed by rule of the
commissioner.
SEC. 5. Section 25102.2 is added to the Corporations Code, to
read:
25102.2. The commissioner shall require any issuer that is
engaged in the business of purchasing, selling, financing, or
brokering real estate, and that relies upon an exemption authorized
by subdivision (e), (f), (h), or (n) of Section 25102, or subdivision
(p) of Section 25100, for an offering which involves the offer or
sale of securities to any person who is not an accredited investor,
as defined in Regulation D of the Securities and Exchange Commission
(17 C.F.R. 230.501 et seq.), in a transaction that is not registered
pursuant to the Securities Act of 1933, to provide additional
information regarding the nature of the proposed offering on a form
prescribed by the commissioner. This information shall include the
names of the issuer's officers and directors in the case of a
corporation, managers in the case of a manager-managed limited
liability company, members in the case of a member-managed limited
liability company, general
partner in the case of a limited partnership, or persons performing
similar functions, in the case of other types of issuers, the
offering disclosure documents provided to prospective purchasers, a
list of all state and federal licenses required to further the
purposes of the investment, and the names of all licensed persons
that will undertake those activities.
SEC. 6. Section 25113 of the Corporations Code is amended to read:
25113. (a) All securities, whether or not eligible for
qualification by coordination under Section 25111 or qualification by
notification under Section 25112, may be qualified by permit under
this section.
(b) (1) An application for a permit under this section shall
contain any information and be accompanied by any documents as shall
be required by rule of the commissioner, in addition to the
information specified in Section 25160 and the consent to service of
process required by Section 25165. For this purpose, the commissioner
may classify issuers and types of securities.
(2) An applicant may file a small company application for permit
under this section if it meets all of the following conditions:
(A) The applicant is: (i) a California corporation or a foreign
corporation, which at the time of filing an application under this
subdivision is subject to Section 2115, and neither corporation is a
"blind pool" company, as that term is defined by the commissioner;
(ii) not engaged in oil and gas exploration or production, or mining
or other extractive industries; (iii) not an investment company
subject to the Investment Company Act of 1940; and (iv) not subject
to the reporting requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934.
(B) The total offering of voting common stock and preferred stock
by the applicant to be sold in a 12-month period, within or outside
this state, is limited to one million dollars ($1,000,000), less the
aggregate offering price for all securities sold (within the 12
months before the start, and during the offering, of the voting
common stock or preferred stock) under Rule 504 of the Securities and
Exchange Commission, in reliance on any exemption under subdivision
(b) of Section 3 of the Securities Act of 1933, or in violation of
subdivision (a) of Section 5 of that act, and immediately after the
proposed sale and issuance there will be only one class of voting
common stock.
(C) The minimum offering price of the voting common stock and
preferred stock (and the conversion price if the preferred stock is
convertible into the voting common stock) to be sold is two dollars
($2) per share and the applicant files an undertaking with the
commissioner that there will be no stock splits, stock dividends,
spinoffs, or mergers for a period of two years from the close of the
offering. The undertaking notwithstanding, the commissioner may
approve a spinoff or merger pursuant to an application for
qualification filed by an applicant.
(D) The net proceeds from the offering are to be expended in the
operations of the business.
(E) The offering is made pursuant to a Small Corporate Offering
Registration disclosure document based on the Form U-7 as adopted by
the North American Securities Administrators Association and any
additional requirements as the commissioner shall prescribe, that may
include, but not be limited to, investor suitability and due
diligence investigation requirements.
(F) The application and disclosure document is reviewed and signed
by a majority of the members of the board of directors of the
applicant.
(G) The application shall contain that information and be
accompanied by those documents required by rule of the commissioner,
in addition to the information specified in Section 25610 and the
consent to service of process required by Section 25165.
(c) Qualification of securities under this section becomes
effective upon the commissioner issuing a permit authorizing the
issuance of those securities.
(d) The commissioner shall annually prepare a report, and make
that report publicly available by posting the report on the
department's Internet Web site, summarizing data collected from
persons to which it issues permits pursuant to this section. The
report shall include, but not be limited to, a summary of the general
categories of investments for which permits are approved; the
minimum, maximum, and average net worth required of those persons to
whom permits are issued for each category of activity; the least
stringent and most stringent suitability standards imposed on persons
issued permits for each category of activity; the experience
requirements imposed on persons issued permits for each category of
activity; the total dollar amount of money sought to be raised per
category of activity; the number and nature of enforcement actions
taken against permitholders; and any other information the
commissioner deems relevant to inform the Legislature about the
activities of permitholders and the protections for those who invest
with permitholders. The commissioner shall take steps to ensure that
the publication of data collected from permitholders does not result
in the release of proprietary information about individuals or
businesses.
(e) The commissioner may examine those persons to whom permits are
issued pursuant to this section to review compliance with the
conditions of the permit and other applicable state law. The
commissioner may disqualify an offering permitted pursuant to this
section if he or she finds that the issuer has materially violated
the provisions of its permit.
SEC. 7. No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of the
Government Code, or changes the definition of a crime within the
meaning of Section 6 of Article XIII B of the California
Constitution.
