Bill Text: CT HB05186 | 2010 | General Assembly | Comm Sub

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Bill Title: An Act Concerning Revisions To The Provisions Of The Securities And Business Investments Law Of Connecticut Governing Notice, The Denial, Suspension Or Revocation Of Registration, And The Disclosure To Purchaser-investors.

Spectrum: Slight Partisan Bill (Democrat 2-1)

Status: (Engrossed - Dead) 2010-05-05 - Senate Calendar Number 575 [HB05186 Detail]

Download: Connecticut-2010-HB05186-Comm_Sub.html

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General Assembly		Substitute Bill No. 5186
February Session, 2010		*_____HB05186JUD___040810____*

AN ACT CONCERNING REVISIONS TO THE PROVISIONS OF THE SECURITIES AND BUSINESS INVESTMENTS LAW OF CONNECTICUT GOVERNING NOTICE, THE DENIAL, SUSPENSION OR REVOCATION OF REGISTRATION, AND THE DISCLOSURE TO PURCHASER-INVESTORS.

Be it enacted by the Senate and House of Representatives in General Assembly convened:

Section 1. Subsection (a) of section 36b-15 of the 2010 supplement to the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2010):

(a) The commissioner may, by order, deny, suspend or revoke any registration or, by order, restrict or impose conditions on the securities or investment advisory activities that an applicant or registrant may perform in this state if the commissioner finds that (1) the order is in the public interest, and (2) the applicant or registrant or, in the case of a broker-dealer or investment adviser, any partner, officer, or director, any person occupying a similar status or performing similar functions, or any person directly or indirectly controlling the broker-dealer or investment adviser: (A) Has filed an application for registration which as of its effective date, or as of any date after filing in the case of an order denying effectiveness, was incomplete in any material respect or contained any statement which was, in light of the circumstances under which it was made, false or misleading with respect to any material fact; (B) has wilfully violated or wilfully failed to comply with any provision of sections 36b-2 to 36b-33, inclusive, as amended by this act, or a predecessor statute or any regulation or order under said sections or a predecessor statute; (C) has been convicted, within the past ten years, of any misdemeanor involving a security, any aspect of a business involving securities, commodities, investments, franchises, business opportunities, insurance, banking or finance, or any felony, or has been released from incarceration, within the past ten years, following such conviction, provided any denial, suspension or revocation of such registration shall be in accordance with the provisions of section 46a-80; (D) is permanently or temporarily enjoined by any court of competent jurisdiction from engaging in or continuing any conduct or practice involving any aspect of a business involving securities, commodities, investments, franchises, business opportunities, insurance, banking or finance; (E) is the subject of a cease and desist order of the commissioner or an order of the commissioner denying, suspending, or revoking registration as a broker-dealer, agent, investment adviser or investment adviser agent; (F) is the subject of any of the following sanctions that are currently effective or were imposed within the past ten years: (i) An order issued by the securities administrator of any other state or [by] the Securities and Exchange Commission or the Commodity Futures Trading Commission denying, suspending or revoking registration as a broker-dealer, agent, investment adviser, investment adviser agent or a person required to be registered under the Commodity Exchange Act, 7 USC 1 et seq., as from time to time amended, and the rules and regulations thereunder, or the substantial equivalent of those terms, as defined in sections 36b-2 to 36b-33, inclusive, as amended by this act, (ii) an order of the Securities and Exchange Commission or Commodity Futures Trading Commission suspending or expelling such applicant, registrant or person from a national securities or commodities exchange or national securities or commodities association registered under the Securities Exchange Act of 1934 or the Commodity Exchange Act, 7 USC 1 et seq., as from time to time amended, or, in the case of an individual, an order of the Securities and Exchange Commission or an equivalent order of the Commodity Futures Trading Commission barring such individual from association with a broker-dealer or an investment adviser, (iii) a suspension, expulsion or other sanction issued by a national securities exchange or other self-regulatory organization registered under federal laws administered by the Securities and Exchange Commission or the Commodity Futures Trading Commission if the effect of the sanction has not been stayed or overturned by appeal or otherwise, (iv) a United States Post Office fraud order, (v) a denial, suspension, revocation or other sanction issued by the commissioner or any other state or federal financial services regulator based upon nonsecurities violations of any state or federal law under which a business involving investments, franchises, business opportunities, insurance, banking or finance is regulated, or (vi) a cease and desist order entered by the Securities and Exchange Commission, a self-regulatory organization or the securities agency or administrator of any other state or Canadian province or territory; but the commissioner may not (I) institute a revocation or suspension proceeding under this subparagraph more than five years from the date of the sanction relied on, and (II) enter an order under this subparagraph on the basis of an order under any other state act unless that order was based on facts which would constitute a ground for an order under this section; (G) may be denied registration under federal law as a broker-dealer, agent, investment adviser, investment adviser agent or as a person required to be registered under the Commodity Exchange Act, 7 USC 1 et seq., as from time to time amended, and the rules and regulations promulgated thereunder, or the substantial equivalent of those terms as defined in sections 36b-2 to 36b-33, inclusive, as amended by this act; (H) has engaged in fraudulent, dishonest or unethical practices in the securities, commodities, investment, franchise, business opportunity, banking, finance or insurance business, including abusive sales practices in the business dealings of such applicant, registrant or person with current or prospective customers or clients; (I) is insolvent, either in the sense that the liabilities of such applicant, registrant or person exceed the assets of such applicant, registrant or person, or in the sense that such applicant, registrant or person cannot meet the obligations of such applicant, registrant or person as they mature; but the commissioner may not enter an order against a broker-dealer or investment adviser under this subparagraph without a finding of insolvency as to the broker-dealer or investment adviser; (J) is not qualified on the basis of such factors as training, experience, and knowledge of the securities business, except as otherwise provided in subsection (b) of this section; (K) has failed reasonably to supervise: (i) The agents or investment adviser agents of such applicant or registrant, if the applicant or registrant is a broker-dealer or investment adviser; or (ii) the agents of a broker-dealer or investment adviser agents of an investment adviser, if such applicant, registrant or other person is or was an agent, investment adviser agent or other person charged with exercising supervisory authority on behalf of a broker-dealer or investment adviser; (L) in connection with any investigation conducted pursuant to section 36b-26 or any examination under subsection (d) of section 36b-14, has made any material misrepresentation to the commissioner or upon request made by the commissioner, has withheld or concealed material information from, or refused to furnish material information to the commissioner, provided, there shall be a rebuttable presumption that any records, including, but not limited to, written, visual, audio, magnetic or electronic records, computer printouts and software, and any other documents, that are withheld or concealed from the commissioner in connection with any such investigation or examination are material, unless such presumption is rebutted by substantial evidence; (M) has wilfully aided, abetted, counseled, commanded, induced or procured a violation of any provision of sections 36b-2 to 36b-33, inclusive, as amended by this act, or a predecessor statute or any regulation or order under such sections or a predecessor statute; (N) after notice and opportunity for a hearing, has been found within the previous ten years: (i) By a court of competent jurisdiction, to have wilfully violated the laws of a foreign jurisdiction under which the business of securities, commodities, investments, franchises, business opportunities, insurance, banking or finance is regulated; (ii) to have been the subject of an order of a securities regulator of a foreign jurisdiction denying, revoking or suspending the right to engage in the business of securities as a broker-dealer, agent, investment adviser, investment adviser agent or similar person; or (iii) to have been suspended or expelled from membership by or participation in a securities exchange or securities association operating under the securities laws of a foreign jurisdiction. As used in this subparagraph, "foreign" means a jurisdiction outside of the United States; or (O) has failed to pay the proper filing fee; but the commissioner may enter only a denial order under this subparagraph, and the commissioner shall vacate any such order when the deficiency has been corrected. The commissioner may not institute a suspension or revocation proceeding on the basis of a fact or transaction known to the commissioner when the registration became effective unless the proceeding is instituted within one hundred eighty days of the effective date of such registration.

Sec. 2. Subsections (g) and (h) of section 36b-33 of the general statutes are repealed and the following is substituted in lieu thereof (Effective from passage):

(g) Every applicant for registration under sections 36b-2 to 36b-33, inclusive, as amended by this act, every investment adviser exempt under subsection (e) of section 36b-6, and every issuer, other than the United States, any state, Canada, any other foreign government with which the United States currently maintains diplomatic relations, or any issuer of covered securities under Section 18(b)(1) of the Securities Act of 1933, which proposes to offer a security in this state through any person acting on an agency basis in the common-law sense shall file with the commissioner, in such form as the commissioner by regulation prescribes, an irrevocable consent appointing the commissioner or the commissioner's successor in office to be his or her attorney to receive service of any lawful process in any noncriminal suit, action, or proceeding against him or her or his or her successor executor or administrator which arises under sections 36b-2 to 36b-33, inclusive, as amended by this act, or any regulation or order thereunder after the consent has been filed, with the same force and validity as if served personally on the person filing the consent. A person who has filed such a consent in connection with a previous registration 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 (1) the plaintiff, who may be the commissioner in a suit, action, or proceeding instituted by the commissioner, forthwith sends notice of the service and a copy of the process by registered mail or certified mail, return receipt requested, or by any express delivery carrier that provides a dated delivery receipt, to the defendant or respondent at the defendant's or respondent's last address on file with the commissioner or take other steps which are reasonably calculated to give actual notice, and (2) the plaintiff's affidavit of compliance with this subsection is filed in the case on or before the return day of the process, if any, or within such further time as the court allows.

(h) When any person, including any nonresident of this state, engages in conduct prohibited or made actionable by sections 36b-2 to 36b-33, inclusive, as amended by this act, or any regulation or order thereunder, and such person has not filed a consent to service of process under subsection (g) of this section and personal jurisdiction over such person cannot otherwise be obtained in this state, that conduct shall be considered equivalent to such person's appointment of the commissioner or the commissioner's successor in office to be such person's attorney to receive service of any lawful process in any noncriminal suit, action, or proceeding against such person or such person's successor executor or administrator which grows out of that conduct and which is brought under said sections or any regulation or order thereunder, with the same force and validity as if served on such person personally. Service may be made by leaving a copy of the process in the office of the commissioner, and it is not effective unless (1) the plaintiff, who may be the commissioner in a suit, action, or proceeding instituted by the commissioner, forthwith sends notice of the service and a copy of the process by registered mail or certified mail, return receipt requested, or by any express delivery carrier that provides a dated delivery receipt, to the defendant or respondent at the defendant's or respondent's last known address or takes other steps which are reasonably calculated to give actual notice, and (2) the plaintiff's affidavit of compliance with this subsection is filed in the case on or before the return day of the process, if any, or within such further time as the court allows.

Sec. 3. Section 36b-61 of the 2010 supplement to the general statutes is repealed and the following is substituted in lieu thereof (Effective from passage):

When used in sections 36b-60 to 36b-80, inclusive, as amended by this act, unless the context otherwise requires:

(1) "Affiliate" means a person that: (A) Directly or indirectly controls, is controlled by, or is under common control with, a seller; (B) directly or indirectly owns, controls or holds with power to vote ten per cent or more of the outstanding voting securities of a seller; or (C) has, in common with a seller, one or more partners, officers, directors, trustees, branch managers or other persons occupying similar status or performing similar functions;

(2) "Business opportunity" means the sale or lease, or offer for sale or lease, of any product, equipment, supply or service which is sold or offered for sale to the purchaser-investor for the purpose of enabling the purchaser-investor to start a business, and in which the seller represents that: (A) The seller will provide locations or assist the purchaser-investor in finding locations for the use or operation of vending machines, racks, display cases or other similar devices, or currency-operated amusement machines or devices, or any other devices within the intent of sections 36b-60 to 36b-80, inclusive, as amended by this act, as the commissioner shall by regulation or order determine, on premises neither owned nor leased by the purchaser-investor or seller; or (B) the seller will purchase any or all products made, produced, fabricated, grown, bred or modified by the purchaser-investor using, in whole or in part, the supplies, services or chattels sold to the purchaser-investor; or (C) the seller guarantees, either conditionally or unconditionally, that the purchaser-investor will derive income from the business opportunity, or that the seller will refund all or part of the price paid for the business opportunity or repurchase any of the products, equipment, supplies or chattels supplied by the seller, if the purchaser-investor is unsatisfied with the business opportunity; or (D) the seller will provide a sales program or marketing program to the purchaser-investor, provided sections 36b-60 to 36b-80, inclusive, as amended by this act, shall not apply to the sale of a marketing program made in conjunction with the licensing of a registered trademark or service mark, provided (i) such trademark or service mark has been effectively registered under federal law; and (ii) for such trademark or service mark initially registered under federal law on or after October 1, 1996, the seller files with the commissioner a copy of the trademark or service mark certificate prior to any offer or sale in [the] this state, provided further that failure to file such certificate shall not, in and of itself, preclude reliance on this exclusion. "Business opportunity" does not include the sale of an ongoing business where the owner of that business sells and intends to sell only that one business opportunity, nor does it include the not-for-profit sale of sales demonstration equipment, materials or samples, for a total price of five hundred dollars or less to any one person;

(3) "Commissioner" means the Banking Commissioner or any person appointed or designated by the Banking Commissioner to administer said sections;

(4) "Not-for-profit sale" means a sale in which the seller recovers only the actual costs of producing and shipping the goods or materials sold. A sale shall not qualify as a not-for-profit sale if the price to the purchaser-investor includes any commissions, rebates, fees or overrides;

(5) "Person" means an individual, corporation, limited liability company, trust, partnership, incorporated or unincorporated association or any other legal entity;

(6) "Purchaser-investor" means a person who has purchased or is solicited for the purchase of a business opportunity;

(7) (A) "Sale" or "sell" includes every contract of sale of, contract to sell, or disposition of a business opportunity or interest in a business opportunity for value; (B) "offer" or "offer to sell" includes every attempt or offer to dispose of, or solicitation of an offer to buy, a business opportunity or interest in a business opportunity for value. Nothing in this subdivision shall limit or diminish the full meaning of the terms "sale", "sell", "offer" or "offer to sell" as construed by the courts of this state;

(8) "Seller" means a person who sells or offers to sell a business opportunity or any agent or person who, directly or indirectly, acts on behalf of such person; and

(9) "Trademark" or "service mark" includes a trademark, trade name, service mark, logotype, advertising or other commercial symbol.

Sec. 4. Subsection (b) of section 36b-62 of the 2010 supplement to the general statutes is repealed and the following is substituted in lieu thereof (Effective from passage):

(b) Prior to the sale or offer for sale of a business opportunity the seller shall register the business opportunity with the commissioner by filing with the commissioner:

(1) A copy of the disclosure document required by section 36b-63, as amended by this act;

(2) A bond as required by section 36b-64;

(3) In accordance with subsection (e) of this section, an irrevocable consent appointing the commissioner to be such seller's attorney to receive service of any lawful process in any noncriminal suit, action or proceeding which arises under sections 36b-60 to 36b-80, inclusive, as amended by this act, or any regulation or order adopted or issued under the provisions of said sections;

(4) Information and documents in such form as the commissioner may prescribe, including, but not limited to:

(A) The official name, address and principal place of business of the seller and of the parent firm or holding company of such seller, if any;

(B) The biographical data and business experience of each of the seller's directors and officers;

(C) The business experience of the seller, including the length of time such seller has: (i) Conducted a business of the type to be operated by the purchaser-investor, (ii) sold any business opportunity for such business, and (iii) sold any business opportunity in any other line of business;

(D) A copy of any contracts, agreements, brochures or other documents relating to the business opportunity;

(E) A factual description of the business opportunity offered to be sold and of the services, training and assistance that will be provided by the seller to the purchaser-investor;

(F) A statement describing any services, supplies, products, signs, fixtures or equipment relating to the establishment or the operation of the business opportunity that the purchaser-investor is required to purchase, lease or rent directly or indirectly from the seller;

(G) A copy of the table of contents of any operations manual to be provided to the purchaser-investor;

(H) (i) A balance sheet, income statement and statement of changes in financial condition of the seller as of a date not more than four months prior to the filing under this subsection, which financial statements may be unaudited, provided, if the seller has been in business for less than twelve months from the date of such filing, such financial statements shall be reviewed by an independent certified public accountant and shall include a written opinion from such accountant stating that the accountant is not aware of any material modifications that should be made to the financial statements in order for them to be in conformity with generally accepted accounting principles; (ii) a balance sheet of the seller, an income statement and statement of changes in financial position for the most recent fiscal year audited by an independent public accountant or an independent certified public accountant; (iii) a balance sheet of the seller, an income statement and statement of changes in financial position for the prior two fiscal years reviewed by an independent certified public accountant who provides an opinion stating that such accountant is not aware of any material modifications that should be made to the financial statements in order for them to be in conformity with generally accepted accounting principles; and (iv) if any material changes in the financial condition of the seller occur after such financial statements are prepared, the seller shall disclose such changes and explain their significance to the operation of the business opportunity. If the seller is controlled by any person who absolutely and unconditionally guarantees to assume the duties and obligations of the seller under the business opportunity agreement should the seller become unable to perform, the commissioner may accept consolidated financial statements from the seller and such person;

(I) Any other information that the commissioner in the commissioner's discretion reasonably requires;

(J) A written statement signed and sworn to by the seller before a person qualified to administer oaths that the information contained in the documents filed pursuant to this subsection is true and correct; and

(K) A nonrefundable registration fee of four hundred dollars.

Sec. 5. Subsections (e) and (f) of section 36b-62 of the 2010 supplement to the general statutes are repealed and the following is substituted in lieu thereof (Effective from passage):

(e) Every seller proposing to sell or offer for sale a business opportunity in this state or from this state directly or through any person acting on an agency basis, as determined by reference to the principles of common law, shall file with the commissioner, in such form as the commissioner by regulation, adopted pursuant to section 36b-77, or order prescribes, an irrevocable consent appointing the commissioner to be the seller's attorney to receive service of any lawful process in any noncriminal suit, action or proceeding against the seller or the seller's successor, executor or administrator that arises under sections 36b-60 to 36b-80, inclusive, as amended by this act, or any regulation or order adopted or issued under said sections after the consent has been filed, with the same force and validity as if served personally on the person filing the consent. Service may be made by leaving a copy of the process in the office of the commissioner, but such service shall not be effective unless (1) the plaintiff, who may be the commissioner in a suit, action or proceeding instituted by the commissioner, forthwith sends notice of the service and a copy of the process by registered mail or certified mail, return receipt requested, or by any express delivery carrier that provides a dated delivery receipt, to the defendant or respondent at the defendant's or respondent's last address on file with the commissioner or takes other steps which are reasonably calculated to give actual notice, and (2) the plaintiff's affidavit of compliance with this subsection is filed in the case on or before the return day of the process, if any, or within such further time as the court allows.

(f) When any person, including any nonresident of this state, engages in conduct prohibited or made actionable by sections 36b-60 to 36b-80, inclusive, as amended by this act, or any regulation or order adopted or issued under said sections, and such person has not filed a consent to service of process under subsection (e) of this section and personal jurisdiction over such person cannot otherwise be obtained in this state, such conduct shall be considered equivalent to such person's appointment of the commissioner to be such person's attorney to receive service of any lawful process in any noncriminal suit, action or proceeding against such person or such person's successor, executor or administrator that grows out of such conduct and that is brought under said sections or any regulation or order adopted or issued under said sections, with the same force and validity as if served on such person personally. Service may be made by leaving a copy of the process in the office of the commissioner, but such service shall not be effective unless (1) the plaintiff, who may be the commissioner in a suit, action or proceeding instituted by the commissioner, forthwith sends notice of the service and a copy of the process by registered mail or certified mail, return receipt requested, or by any express delivery carrier that provides a dated delivery receipt, to the defendant or respondent at the defendant's or respondent's last known address or takes other steps which are reasonably calculated to give actual notice, and (2) the plaintiff's affidavit of compliance with this subsection is filed in the case on or before the return day of the process, if any, or within such further time as the court allows.

Sec. 6. Subdivision (22) of subsection (c) of section 36b-63 of the 2010 supplement to the general statutes is repealed and the following is substituted in lieu thereof (Effective from passage):

(22) If the business opportunity seller is required to secure a bond or establish a trust [deposit] account pursuant to section 36b-64, the document shall state either:

(A) "As required by Connecticut law, the seller has secured a bond issued by

....

(Name and address of surety company)

a surety company authorized to do business in this state. Before signing a contract to purchase this business opportunity, you should check with the surety company to determine the bond's current status," or

(B) "As required by Connecticut law, the seller has established a trust account

....

(Number of account)

with ....

(Name and address of bank or other financial institution)

before signing a contract to purchase this business opportunity, you should check with the bank or other [depository] financial institution to determine the current status of the trust account";

Sec. 7. Subsection (a) of section 36b-65 of the 2010 supplement to the general statutes is repealed and the following is substituted in lieu thereof (Effective from passage):

(a) The following business opportunities are exempt from subsection (a) of section 36b-62, [; section] sections 36b-63, as amended by this act, [and section] 36b-64, [; section] 36b-66 and subdivision (1) of section 36b-67: (1) (A) Subject to the provisions of subparagraph (B) of this subdivision, any business opportunity for which the initial payment made by the purchaser-investor per business opportunity does not exceed two hundred dollars, if no representations are made that the seller guarantees, either conditionally or unconditionally, that the purchaser-investor will derive income from the business opportunity. For purposes of this subparagraph, "initial payment" means the total amount the purchaser-investor becomes obligated to pay to the seller or to any third party either prior to or at the time of delivery of the products, equipment, supplies or services or within one year of the commencement of operation of the business by the purchaser-investor. If payment is over a period of time, "initial payment" includes the sum of the down payment and the total periodic payments. "Initial payment" does not include periodic payments where the amount or rate of the payment is based on net revenue or gross revenue generated by the business. (B) The commissioner may, by regulation, adopted pursuant to section 36b-77, or order as to any business opportunity or type of business opportunity or transaction exempt under subdivision (1)(A) of this subsection, modify, withdraw, further condition or waive such conditions, in whole or in part, conditionally or unconditionally, on a finding that such regulation or order is necessary and appropriate, in the public interest or for the protection of purchaser-investors; (2) any business opportunity sold in this state exclusively to purchaser-investors each of whom has a net worth of not less than one million dollars exclusive of principal residence, home furnishings, and personal automobiles; and (3) any other business opportunity that the commissioner by regulation, adopted pursuant to section 36b-77, or order may exempt, conditionally or unconditionally, if the commissioner finds that enforcement of all the provisions of sections 36b-60 to 36b-80, inclusive, as amended by this act, with respect to such business opportunity is not necessary to protect the public interest, and for the protection of purchaser-investors due to the limited character of the business opportunity, or because such business opportunity is, in the judgment of the commissioner, adequately regulated by federal law. The commissioner may by order deny, suspend or revoke any exemption with respect to a particular offering of one or more business opportunities in accordance with the provisions of section 36b-68. No order under this subsection may operate retroactively. No person may be considered to have violated any order issued under this subsection by reason of any offer or sale effected after the entry of such order if such person sustains the burden of proof that such person did not know, and in the exercise of reasonable care could not have known, of such order.

This act shall take effect as follows and shall amend the following sections:
Section 1	October 1, 2010	36b-15(a)
Sec. 2	from passage	36b-33(g) and (h)
Sec. 3	from passage	36b-61
Sec. 4	from passage	36b-62(b)
Sec. 5	from passage	36b-62(e) and (f)
Sec. 6	from passage	36b-63(c)(22)
Sec. 7	from passage	36b-65(a)

BA	Joint Favorable Subst.-LCO
JUD	Joint Favorable