Bill Text: TX HB3425 | 2015-2016 | 84th Legislature | Introduced

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Bill Title: Relating to the creation of a intrastate investment market for purposes of trading securities issued under the intrastate crowdfunding exemption from federal securities laws.

Spectrum: Partisan Bill (Republican 1-0)

Status: (Introduced - Dead) 2015-04-01 - Left pending in committee [HB3425 Detail]

Download: Texas-2015-HB3425-Introduced.html

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By: Parker H.B. No. 3425

A BILL TO BE ENTITLED
AN ACT
relating to the creation of a intrastate investment market for
purposes of trading securities issued under the intrastate
crowdfunding exemption from federal securities laws.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. SHORT TITLE. This Act may be cited as the "Texas
Investment Market Exchange Act".
SECTION 2. Section 5, The Securities Act (Article 581-23-5,
Vernon's Texas Civil Statutes), is amended by adding subsection (W)
to read as follows:
(W) Creation of Stock Exchange for Securities financed
using the intrastate crowdfunding exemption or other exemption from
federal securities regulation.
(1) Definitions.
(a) "Texas Investment Market" means a person that
is a broker-dealer, is exempt from federal registration under
Section 15(A)(1) of the Securities Exchange Act of 1934, 15 USC §
780, and provides a market or exchange at which transactions in
securities that are sold or offered for sale pursuant to the
intrastate crowdfunding or other federal exemption from securities
regulation take place. As used in this subsection, "market" or
"exchange" includes an online market or exchange or any other
market or exchange operated through an internet portal.
(2) Coordination with federal securities laws. A Texas
investment market that trades securities that have been issued in
reliance on the intrastate crowdfunding or other exemption from
federal securities regulation must also meet all applicable
requirements of the Securities and Exchange Commission relating to
its establishment and operation.
(3) Texas Investment Market; Requirements
(a) Prohibited Activities.
(1) No person may transact business in this
State as a Texas Investment Market unless that person has
registered with the Securities Commission as a Texas Investment
Market.
(2) Disqualifications. A person is not
eligible to own, operate or otherwise manage a Texas Investment
Market if that person has been subject to one of the following
disqualifying events:
(A) has been convicted, within the 5
years preceding the offering, of any felony or misdemeanor (i) in
connection with the purchase or sale of any security; (ii)
involving the making of any false filing with the SEC or state
securities agency; or (iii) arising out of the conduct of the
business of an underwriter, broker, dealer, municipal securities
dealer, investment advisor or paid solicitor of securities;
(B) is subject to any order, judgment
or decree of any court of competent jurisdiction entered with the
5-year period preceding the offering, that at the time of such
filing, restrains or enjoins such person from engaging or
continuing to engage in any conduct or practice (i) in connection
with the purchase or sale of a security; (ii) involving the making
of any false filing with the SEC or a state securities agency; or
(iii) arising out of the conduct of the business of an underwriter,
broker, dealer, municipal securities dealer, investment advisor or
paid solicitor of purchasers of securities; and
(C) is subject to any agreed order,
final order, settlement agreement or other enforceable directive by
the SEC or a state securities agency entered with the 5-year period
preceding the offering, that at the time of such filing, restrains
or enjoins such person from engaging or continuing to engage in any
conduct or practice (i) in connection with the purchase or sale of a
security; (ii) involving the making of any false filing with the SEC
or a state securities agency; and (iii) arising out of the conduct
of the business of an underwriter, broker, dealer, municipal
securities dealer, investment advisor or paid solicitor of
purchasers of securities; and (iv) arising out of scienter-based
anti-fraud provisions in federal and state anti-fraud laws.
(3) A Texas Investment Market is prohibited
from engaging in the following activities:
(A) selling or otherwise distributing
to any third party personal identifying information of an
individual without his or her written consent;
(B) charging a fee for a securities
transaction conducted through the Texas Investment Market that
exceeds 5% of the value of the transaction, as determined by the
value passed from one user to another in exchange for that security;
(C) dealing in securities options, or
in securities from more than one class in an offering, without
obtaining written acknowledgement from each person involved in the
transaction relating to the nature of the securities transaction.
(4) It is unlawful for any person, in
connection with the organization and operation of a Texas
Investment Market, to directly or indirectly do any of the
following:
(A) employ a device, scheme, or
artifice to defraud;
(B) make an untrue statement of a
material fact or omit to state a material fact; or
(C) engage in an act, practice, or
course of business that operates or would operate as a fraud or
deceit on another person.
(b) Registration.
(1) No less than sixty (60) days prior to
the offering of any securities for trade or sale, the Texas
Investment Market must pay an appropriate filing fee, file a
consent to service of process and file an application on a form and
in a manner approved by the Securities Commissioner. At a minimum,
the written application must contain the following information:
(A) the names, mailing addresses, and
telephone numbers of all individuals who serve as executive
officers of the Texas Investment Market or who are direct or
indirect owners of at least a 20% ownership interest in the Texas
Investment Market;
(B) the uniform resource locator
(URL), if applicable, used primarily by the Texas Investment Market
to effect transactions online;
(C) the rules that have been
established by the Texas Investment Market to provide for the
equitable allocation of reasonable dues, fees, and other charges
among its issuers, investors, and other persons using its
facilities; and
(D) any other information requested
by the Securities Commissioner to make a determination regarding
the registration application.
(2) In considering an application for
registration, the Securities Commissioner shall consider all of the
following factors:
(A) whether the Texas Investment
Market has the capacity to facilitate the transactions contemplated
in this subsection, the rules and orders of the Securities
Commissioner and the rules established by the Texas Investment
Market;
(B) whether any of the individuals
listed in the application have been disqualified pursuant to
subsection (b)(3)(a)(2) or for other good cause;
(C) whether the rules that have been
established by the Texas Investment Market to provide for the
equitable allocation of reasonable dues, fees, and other charges
among its issuers, investors, and other persons using its
facilities are in fact equitable;
(D) whether the rules established by
the Texas Investment Market provide for appropriate discipline for
users that violate its own rules, the rules and regulations of the
Board or this Article;
(E) whether the rules established by
the Texas Investment Market impose any burden of competition or
obstruction to a liquid intrastate securities market that is not
necessary or appropriate to further the purposes of this Article;
and
(F) whether the structure established
by the Texas Investment Market has been designed to (i) protect
against fraud and manipulative behavior, and (ii) to ensure that
its operations do not foster unfair discrimination among issuers,
investors and other persons that interact with the market.
(3) If the information contained in an
application that is filed under subsection (b)(1) is or becomes
inaccurate or incomplete in any material respect, the registrant
shall promptly file a correcting amendment to the application.
(c) Operation.
(1) The Texas Investment Market shall
establish and maintain commercially reasonable measures to limit
access to information concerning any transaction involving the
offer or sale of securities issued pursuant to the intrastate
crowdfunding exemption from securities regulation to Texas
residents;
(2) The Texas Investment Market shall
establish and maintain a secure method of communication through the
internet website that will permit issuers and investors to
communicate with one another;
(3) The Texas Investment Market shall
establish rules that provide for the equitable allocation of dues,
fees, and other charges among its issuers, investors, and other
persons using its facilities, that provide for appropriate
discipline of any person who violates it rules or the rules and
regulations of the Board, that protect against fraud and
manipulative behavior, and that ensure that its operations do not
unfairly discriminate among issuers, investors and other persons
interacting on the market;
(4) The Texas Investment Market shall
establish rules, practices and procedures that address the measures
that will be taken to verify Texas residency of the issuers and
investors engaging in the offer, sale and purchase of securities in
reliance on the intrastate crowdfunding exemption, to ensure that
individuals are not disqualified from trading securities pursuant
to federal and state securities laws or for other good cause, and
that issuers and investors are not insolvent;
(5) A written and electronic record of each
transaction conducted among users must be provided to each
purchaser and must be maintained by the Texas Investment Market for
a period of no less than seven (7) years after the date of the
transaction. In addition, the Texas Investment Market must make and
maintain the accounts, correspondence, memoranda, papers, books,
and other records required by rule or order of the Securities
Commissioner. These additional records shall be maintained in a
form of data storage established by the Securities Commissioner;
(6) By no later than the end of January of
each year, the Texas Investment Market must file a report with the
Securities Commissioner and post the report at the same time on its
internet site that includes a record of each transaction that was
initiated and each transaction that was concluded during the
previous calendar year; and
(7) Bonding/Financial Assurance. The Texas
Investment Market must obtain and maintain appropriate bonding
and/or insurance to protect the issuers and investors trading
securities on its market, as specified by the Securities
Commissioner by rule.
(4) Right of Access to Records; Inspection. Any person
operating a Texas Investment Market shall keep and maintain records
relating to all sales and trades of securities made pursuant to and
in reliance on the intrastate crowdfunding or other exemption from
federal securities regulation and shall provide ready access to
these records to the Securities Commissioner upon request. The
Securities Commissioner has the authority to access, inspect, audit
and review any Texas Investment Market registered under this
subsection as well as all of its records during reasonable business
hours.
(5) Nothing in this exemption shall be construed to
alleviate any person from the anti-fraud provisions in the Act or
Board rules; nor shall such exemption be construed to provide
relief from any other provisions of this Article other than as
specifically stated
SECTION 4. The Securities Act (Article 581-13-1, Vernon's
Texas Civil Statutes) is amended to read as follows:
(A) The Commissioner, without notice, may inspect a
registered dealer, or registered investment advisor, issuer,
crowdfunding portal and Texas Investment Market subject to
regulation pursuant to Article 581-23-5(V)and (W) of the Act, as
necessary to ensure compliance with this Act and Board rules.
(B) The Commissioner, during regular business hours, may:
(1) enter the business premises of a registered
dealer, or registered investment adviser, any issuer and
crowdfunding portal subject to regulation pursuant to Article
581-23-5(V) of this Act and any Texas Investment Market subject to
regulation pursuant to Article 581-23-5(W) of this Act;
(2) examine and copy books and records pertinent to
the inspection.
(C) During the inspection, the dealer, investment advisor,
issuer, crowdfunding portal and Texas Investment Market shall:
(1) provide to the Commissioner or the Commissioner's
authorized representative immediate and complete access to the
person's office, place of business, files, safe, and any other
location in which books and records pertinent to the inspection are
located; and
(2) allow the Commissioner or the Commissioner's
authorized representative to make photostatic or electronic copies
of books or records subject to the inspection.
(D) A dealer, or investment advisor, issuer, crowdfunding
portal and Texas Investment Market may not charge a fee for copying
information under this section.
(E) Information obtained under this section and any
intra-agency or interagency notes, memoranda, reports, or other
communications consisting of advice, analyses, opinions, or
recommendations that are made in connection with the inspection are
confidential and may not be disclosed to the public or released by
the Commissioner except to the same extent provided for the release
or disclosure of confidential documents or other information made
or obtained in connection with an investigation under Section 28 of
this Act.
SECTION 5. The Securities Act (Article 581-33,Vernon's
Texas Civil Statutes) is amended by adding a new Section 581-33-4 to
read as follows:
Sec. 33-4. Civil Liability with respect to Sale of a
Security issued under the Intrastate Crowdfunding Exemption by a
Texas Investment Market.
(A) Liability of Issuers
(1) A person who offers or sells a security issued
under the intrastate crowdfunding exemption through a registered
Texas Investment Market in violation of the provisions set forth in
Section 581-23-5(W) is liable to the person buying the security,
who may sue either at law or in equity for rescission or for damages
if the buyer no longer owns the security.
(2) A person who offers or sells a security issued
under the intrastate crowdfunding exemption through a registered
Texas Investment Market by means of an untrue statement of a
material fact or an omission to state a material fact necessary in
order to make the statements made, in light of the circumstances
under which they are made, is liable to the person buying the
security, who may sue either at law or in equity for rescission, or
for damages if the buyer no longer owns the security.
(B) Survivability of Actions. Every cause of action under
this Act survives the death of any person who might have been a
plaintiff or defendant.
(C) Unenforceability of Illegal Contracts. No person who
has made or engaged in the performance of any contract in violation
of this Act or any rule, regulation or order adopted hereunder, or
who has acquired any purported right under any such contract with
knowledge of the facts by reason of which its making or performance
was in violation, may base any suit on the contract.
(D) Saving of Existing Remedies. The rights and remedies
provided by this Act are in addition to any other rights (including
exemplary or punitive damages) or remedies that may exist at law or
in equity.
SECTION 6. This Act takes effect immediately if it receives
a vote of two-thirds of all the members elected to each house, as
provided by Section 39, Article III, Texas Constitution. If this
Act does not receive the votes necessary for immediate effect, this
Act takes effect September 1, 2015.