First Substitute H.B. 153

Representative Jim Bird proposes the following substitute bill:

1 SECURITIES AMENDMENTS
2 2007 GENERAL SESSION
3 STATE OF UTAH
4 Chief Sponsor: Jim Bird
5 Senate Sponsor: Kevin T. Van Tassell
6 Cosponsors:
7 DeMar Bud Bowman
8 Jack R. Draxler
9 Kevin S. GarnNeal B. Hendrickson
Christopher N. Herrod
Eric K. Hutchings
Steven R. MascaroPaul Ray
Stephen E. Sandstrom
Aaron Tilton 10
11 LONG TITLE
12 General Description:
13 This bill modifies provisions related to certain securities related disciplinary
14 proceedings.
15 Highlighted Provisions:
16 This bill:
17 . provides a process for nondepartmental hearing officers outside the Department of
18 Commerce to conduct certain securities related proceedings;
19 . increases the cap on the Securities Investor Education and Training Fund; and
20 . makes technical and conforming amendments.
21 Monies Appropriated in this Bill:
22 None
23 Other Special Clauses:
24 None
25 Utah Code Sections Affected:
26 AMENDS:

27 61-1-6, as last amended by Chapter 36, Laws of Utah 2003
28 61-1-12, as last amended by Chapter 133, Laws of Utah 1990
29 61-1-14, as last amended by Chapter 160, Laws of Utah 1997
30 61-1-15.5, as enacted by Chapter 160, Laws of Utah 1997
31 61-1-18.3, as enacted by Chapter 284, Laws of Utah 1983
32 61-1-18.5, as last amended by Chapter 176, Laws of Utah 2002
33 61-1-18.6, as enacted by Chapter 161, Laws of Utah 1987
34 61-1-18.7, as last amended by Chapter 256, Laws of Utah 2002
35 61-1-19, as last amended by Chapter 133, Laws of Utah 1990
36
37 Be it enacted by the Legislature of the state of Utah:
38 Section 1. Section 61-1-6 is amended to read:
39 61-1-6. Denial, suspension, revocation, cancellation, or withdrawal of license --
40 Sanctions.
41 (1) Subject to the requirements of [Subsections (2) and (3)] this section, the director,
42 by means of adjudicative proceedings conducted in accordance with Title 63, Chapter 46b,
43 Administrative Procedures Act, may issue an order:
44 (a) denying, suspending, or revoking [any] a license;
45 (b) barring or censuring [any] a licensee or any officer, director, partner, or person
46 occupying a similar status or performing similar functions for a licensee from employment with
47 a licensed broker-dealer or investment adviser;
48 (c) restricting or limiting a licensee as to any function or activity of the business for
49 which a license is required in this state;
50 (d) imposing a fine; or
51 (e) taking any combination of actions under Subsections (1)(a) through (d).
52 (2) (a) The director may [impose the sanctions] take an action described in Subsection
53 (1) if the director finds that:
54 (i) it is in the public interest; and [finds, with respect to the]
55 (ii) one of the following engaged in an act described in Subsection (2)(b):
56 (A) a person who is an applicant [or];
57 (B) a person who is a licensee [or, in the case of a broker-dealer or investment adviser,

58 any];
59 (C) a person who is a partner, officer, or director[, or any] of a broker-dealer or
60 investment adviser;
61 (D) a person occupying a similar status or performing similar functions[, or any] to a
62 partner, officer, or director of a broker-dealer or investment adviser; or
63 (E) a person directly or indirectly controlling the broker-dealer or investment adviser[,
64 that the person:].
65 (b) This Subsection (2) requires the director to find that a person described in
66 Subsection (2)(a)(ii):
67 [(a) has filed] (i) files an application for a license that, as of its effective date or as of
68 any date after filing in the case of an order denying effectiveness, [was]:
69 (A) is incomplete in any material respect; or [contained]
70 (B) contains any statement that [was] is, in light of the circumstances under which it
71 [was] is made, false or misleading with respect to any material fact;
72 [(b)] (ii) has willfully violated or willfully failed to comply with any provision of this
73 chapter or a predecessor act or any rule or order under this chapter or a predecessor act;
74 [(c)] (iii) was convicted, within the past ten years, of:
75 (A) any misdemeanor involving a security or any aspect of the securities business[,]; or
76 (B) any felony;
77 [(d)] (iv) is permanently or temporarily enjoined by any court of competent jurisdiction
78 from engaging in or continuing any conduct or practice involving any aspect of the securities
79 business;
80 [(e)] (v) is the subject of an order of the director [or any predecessor] denying,
81 suspending, or revoking a license as:
82 (A) a broker-dealer[,];
83 (B) an agent[,];
84 (C) an investment adviser[,]; or
85 (D) an investment adviser representative;
86 [(f)] (vi) is the subject of:
87 [(i)] (A) an adjudication or determination, within the past five years by a securities or
88 commodities agency or administrator of another state, Canadian province or territory, or a court

89 of competent jurisdiction that the person has willfully violated:
90 (I) the Securities Act of 1933[,];
91 (II) the Securities Exchange Act of 1934[,];
92 (III) the Investment Advisers Act of 1940[,];
93 (IV) the Investment Company Act of 1940[,];
94 (V) the Commodity Exchange Act[,]; or
95 (VI) the securities or commodities law of any other state; or
96 [(ii)] (B) subject to Subsection (2)(c), an order:
97 (I) entered within the past five years by the securities administrator of any state or
98 Canadian province or territory or by the Securities and Exchange Commission denying or
99 revoking license as a broker-dealer, agent, investment adviser, or investment adviser
100 representative or the substantial equivalent of those terms [or is the subject of an order];
101 (II) of the Securities and Exchange Commission suspending or expelling the person
102 from a national securities exchange or national securities association registered under the
103 Securities Exchange Act of 1934[,]; or [is the subject of]
104 (III) that is a United States post office fraud order; [except that]
105 [(iii) the division may not commence agency action to revoke or suspend any license
106 under Subsection (2)(f) more than one year from the date of the order relied on, and the director
107 may not enter an order under Subsection (2)(f) on the basis of an order under another state's
108 law unless that order was based on facts that would currently constitute a ground for an agency
109 action under this section;]
110 [(g)] (vii) has engaged in dishonest or unethical practices in the securities business;
111 [(h)] (viii) is insolvent, either in the sense that liabilities exceed assets or in the sense
112 that obligations cannot be met as they mature, except that the director may not enter an order
113 against a broker-dealer or investment adviser under this Subsection (2)[(h)] (b)(viii) without a
114 finding of insolvency as to the broker-dealer or investment adviser;
115 [(i)] (ix) is not qualified on the basis of the lack of training, experience, and knowledge
116 of the securities business, except as otherwise provided in Subsection (6);
117 [(j)] (x) has failed reasonably to supervise [his] that person's:
118 (A) agents or employees if the person is a broker-dealer[,]; or [his]
119 (B) investment adviser representatives or employees if the person is an investment

120 adviser; or
121 [(k) has failed] (xi) fails to pay the proper filing fee within 30 days after being notified
122 by the division of a deficiency.
123 (c) (i) The division may not commence agency action to revoke or suspend a license
124 under Subsection (2)(b)(vi) more than one year from the day on which the order on which the
125 division relies is entered.
126 (ii) An order may not be entered under Subsection (2)(b)(vi) on the basis of an order
127 under another state's law unless that order is issued on the basis of facts that would constitute a
128 ground for an agency action under this section on the day on which the notice of agency action
129 is filed.
130 (3) (a) [Before the director may issue an] An order issued by the director under
131 Subsection (1) that does the following is subject to Subsection (3)(b):
132 (i) revokes any license;
133 (ii) bars or censures any licensee or any officer, director, partner, or person occupying a
134 similar status or performing similar functions for a licensee from employment with a licensed
135 broker-dealer or investment adviser; or
136 (iii) imposes a fine[,].
137 (b) Before the director may issue an order described in Subsection (3)(a), the Securities
138 [Advisory] Board shall:
139 [(a)] (i) review the order; and
140 [(b)] (ii) if a majority of the Securities [Advisory] Board approves the order, authorize
141 the director to issue [it] the order.
142 (4) The division may enter a denial order under Subsection (2)[(j) or (k)] (b)(x) or (xi),
143 but shall vacate the order when the deficiency [has been] is corrected.
144 (5) The division may not institute a suspension or revocation proceeding on the basis
145 of a fact or transaction known to [it] the division when the license became effective unless the
146 proceeding is instituted within [the next] 120 days of the day on which the license takes effect.
147 (6) The following provisions govern the application of Subsection (2)[(i)] (b)(ix):
148 (a) The director may not enter an order against a broker-dealer on the basis of the lack
149 of qualification of any person other than:
150 (i) the broker-dealer [himself] if [he] the broker-dealer is an individual; or

151 (ii) an agent of the broker-dealer.
152 (b) The director may not enter an order against an investment adviser on the basis of
153 the lack of qualification of any person other than:
154 (i) the investment adviser [himself] if [he] the investment adviser is an individual; or
155 (ii) an investment adviser representative.
156 (c) The director may not enter an order solely on the basis of lack of experience if the
157 applicant or licensee is qualified by training or knowledge.
158 (d) The director shall consider that:
159 (i) an agent who will work under the supervision of a licensed broker-dealer need not
160 have the same qualifications as a broker-dealer; and [that]
161 (ii) an investment adviser representative who will work under the supervision of a
162 licensed investment adviser need not have the same qualifications as an investment adviser.
163 (e) (i) The director shall consider that an investment adviser is not necessarily qualified
164 solely on the basis of experience as a broker-dealer or agent.
165 (ii) When the director finds that an applicant for a license as a broker-dealer is not
166 qualified as an investment adviser, the director may condition the applicant's license as a
167 broker-dealer upon the applicant's not transacting business in this state as an investment
168 adviser.
169 (f) (i) The division may by rule provide for examinations, which may be written or oral
170 or both, to be taken by any class of or all applicants.
171 (ii) The division may by rule or order waive the examination requirement as to a person
172 or class of persons if the division determines that the examination is not necessary for the
173 protection of investors.
174 (7) If the director finds that any licensee or applicant for a license is no longer in
175 existence, has ceased to do business as a broker-dealer, agent, investment adviser, or
176 investment adviser representative, or is subject to an adjudication of mental incompetence or to
177 the control of a committee, conservator, or guardian, or cannot be located after reasonable
178 search, the division may summarily cancel or deny the license or application according to the
179 procedures and requirements of Title 63, Chapter 46b, Administrative Procedures Act.
180 (8) (a) Withdrawal from license as a broker-dealer, agent, investment adviser, or
181 investment adviser representative becomes effective 30 days after receipt of an application to

182 withdraw or within a shorter period of time as determined by the director, unless:
183 (i) a revocation or suspension proceeding is pending when the application is filed;
184 (ii) a proceeding to revoke or suspend or to impose conditions upon the withdrawal is
185 instituted within 30 days after the application is filed; or
186 (iii) additional information is requested by the division regarding the withdrawal
187 application.
188 (b) (i) If a proceeding described in Subsection (8)(a) is pending or instituted, the
189 director shall designate by order when and under what conditions the withdrawal becomes
190 effective.
191 (ii) If additional information is requested, withdrawal is effective 30 days after the
192 additional information is filed.
193 (c) (i) If no proceeding is pending or instituted, and withdrawal automatically becomes
194 effective, the director may initiate a revocation or suspension proceeding under this section
195 within one year after withdrawal [became] becomes effective.
196 (ii) The director shall enter any order under Subsection (2)(b) as of the last date on
197 which the license was effective.
198 (9) (a) As used in this section:
199 (i) "Board" means the Securities Board.
200 (ii) "Department" means the Department of Commerce.
201 (iii) "Nondepartmental hearing officer" means an individual appointed by the division
202 in accordance with this Subsection (9).
203 (iv) "Proceeding" means:
204 (A) an adjudicative proceeding brought under this section; or
205 (B) a proceeding conducted under Section 61-1-20 for an action against a licensee.
206 (b) (i) In a proceeding, a person who is the subject of the proceeding may make a
207 motion to the board requesting that a nondepartmental hearing officer be appointed to conduct
208 the proceeding in accordance with this section.
209 (ii) The person described in Subsection (9)(b)(i) shall make the motion by filing with
210 the division a written filing that includes:
211 (A) the name of the person;
212 (B) the proceeding for which the person is requesting the appointment of a

213 nondepartmental hearing officer; and
214 (C) support for the person's belief that there is a reasonable likelihood or potential that
215 without the appointment of a nondepartmental hearing officer, the proceeding could be biased.
216 (c) The board shall approve the appointment of a nondepartmental hearing officer if the
217 board finds that:
218 (i) the person requesting the appointment of a nondepartmental hearing officer
219 complies with Subsection (9)(b);
220 (ii) there is a reasonable basis for the person's belief that without the appointment of a
221 nondepartmental hearing officer, the proceeding could be biased; and
222 (iii) the request for the appointment of a nondepartmental hearing officer is not made
223 in bad faith including the motion not being filed to:
224 (A) harass;
225 (B) cause unnecessary delay; or
226 (C) cause needless increase in the cost of proceeding.
227 (d) If the board approves the appointment of a nondepartmental hearing officer, the
228 division shall appoint a nondepartmental hearing officer:
229 (i) before taking any further action with regard to the proceeding:
230 (ii) subject to the approval of the appointment by the board in accordance with a
231 procedure established by the division with the concurrence of the board; and
232 (iii) who is an individual who:
233 (A) is not an employee of the department;
234 (B) does not represent the:
235 (I) department as an attorney general or assistant attorney general; or
236 (II) division in accordance with Section 61-1-21.5 ; and
237 (C) unless agreed to in writing by the person requesting the nondepartmental hearing
238 officer, has never:
239 (I) been employed by the department; or
240 (II) represented the:
241 (Aa) department as an attorney general or an assistant attorney general; or
242 (Bb) division in accordance with Section 61-1-21.5 .
243 (e) A nondepartmental hearing officer appointed under this Subsection (9):

244 (i) conducts a proceeding on behalf of the director; and
245 (ii) shall submit to the director a report including:
246 (A) findings of fact;
247 (B) conclusions of law; and
248 (C) a recommended order.
249 (f) A decision of the board under this Subsection (9) may be appealed under this
250 chapter and Title 63, Chapter 46b, Administrative Procedures Act, only as part of an appeal of
251 an order issued by the director:
252 (i) under Subsection (1); or
253 (ii) to impose a sanction under Section 61-1-20 against a licensee.
254 Section 2. Section 61-1-12 is amended to read:
255 61-1-12. Denial, suspension, and revocation of registration.
256 (1) Upon approval by a majority of the Securities [Advisory] Board, the director, by
257 means of adjudicative proceedings conducted in accordance with Title 63, Chapter 46b, [the]
258 Administrative Procedures Act, may issue a stop order that denies effectiveness to, or suspends
259 or revokes the effectiveness of, any securities registration statement and may impose a fine if
260 [he] the director finds that the order is in the public interest and that:
261 (a) the registration statement, as of its effective date or as of any earlier date in the case
262 of an order denying effectiveness, or any amendment under Subsection 61-1-11 (10) as of its
263 effective date, or any report under Subsection 61-1-11 (9), is incomplete in any material respect,
264 or contains any statement that was, in the light of the circumstances under which it was made,
265 false or misleading with respect to any material fact;
266 (b) any provision of this chapter, or any rule, order, or condition lawfully imposed
267 under this chapter, [has been] is willfully violated, in connection with the offering, by:
268 (i) the person filing the registration statement;
269 (ii) the issuer, any partner, officer, or director of the issuer, any person occupying a
270 similar status or performing similar functions, or any person directly or indirectly controlling or
271 controlled by the issuer, but only if the person filing the registration statement is directly or
272 indirectly controlled by or acting for the issuer; or
273 (iii) any underwriter;
274 (c) subject to Subsection (5), the security registered or sought to be registered is the

275 subject of an administrative stop order or similar order, or a permanent or temporary injunction
276 of any court of competent jurisdiction entered under any other federal or state act applicable to
277 the offering; [except that the division may not commence agency action against an effective
278 registration statement under this subsection more than one year from the date of the order or
279 injunction relied on, and it may not enter an order under this subsection on the basis of an order
280 or injunction entered under the securities act of any other state unless that order or injunction
281 was based on facts that would currently constitute a ground for a stop order under this section;]
282 (d) the issuer's enterprise or method of business includes or would include activities
283 that are illegal where performed;
284 (e) the offering [has worked] works or [tended] tends to work a fraud upon purchasers
285 or would so operate;
286 (f) the offering [has been] is or would be made with unreasonable amounts of
287 underwriters' and sellers' discounts, commissions, or other compensation, or promoters' profits
288 or participation, or unreasonable amounts or kinds of options;
289 (g) when a security is sought to be registered by notification, it is not eligible for such
290 registration;
291 (h) when a security is sought to be registered by coordination, there [has been] is a
292 failure to comply with the undertaking required by Subsection 61-1-9 (2)(d); or
293 (i) the applicant or registrant [has failed] fails to pay the proper filing fee.
294 (2) The director may enter an order under this section, but may vacate the order if [he]
295 the director finds that the conditions that prompted its entry have changed or that it is otherwise
296 in the public interest to do so.
297 (3) The director may not issue a stop order against an effective registration statement
298 on the basis of a fact or transaction known to the division when the registration statement
299 became effective unless the proceeding is instituted within [the next] 120 days after the day on
300 which the registration statement becomes effective.
301 (4) [No] A person may not be considered to have violated Section 61-1-7 or 61-1-15 by
302 reason of any order or sale effected after the entry of an order under this section if that person
303 proves by a preponderance of the evidence that [he] the person did not know, and in the
304 exercise of reasonable care could not have known, of the order.
305 (5) (a) The division may not commence agency action against an effective registration

306 statement under Subsection (1)(c) more than one year from the date on which the order or
307 injunction relied on to commence the agency action is entered.
308 (b) The division may not enter an order under Subsection (1)(c) on the basis of an order
309 or injunction entered under the securities act of any other state unless that order or injunction is
310 issued on the basis of facts that would constitute a ground for a stop order under this section on
311 the day on which the order is issued under Subsection (1)(c).
312 Section 3. Section 61-1-14 is amended to read:
313 61-1-14. Exemptions.
314 (1) The following securities are exempted from Sections 61-1-7 and 61-1-15 :
315 (a) any security, including a revenue obligation, issued or guaranteed by the United
316 States, any state, any political subdivision of a state, or any agency or corporate or other
317 instrumentality of one or more of the foregoing, or any certificate of deposit for any of the
318 foregoing;
319 (b) any security issued or guaranteed by Canada, any Canadian province, any political
320 subdivision of any Canadian province, any agency or corporate or other instrumentality of one
321 or more of the foregoing, or any other foreign government with which the United States
322 currently maintains diplomatic relations, if the security is recognized as a valid obligation by
323 the issuer or guarantor;
324 (c) any security issued by and representing an interest in or a debt of, or guaranteed by,
325 any bank organized under the laws of the United States, or any bank, savings institution, or
326 trust company supervised under the laws of any state;
327 (d) any security issued by and representing an interest in or a debt of, or guaranteed by,
328 any federal savings and loan association, or any building and loan or similar association
329 organized under the laws of any state and authorized to do business in this state;
330 (e) any security issued or guaranteed by any federal credit union or any credit union,
331 industrial loan association, or similar association organized and supervised under the laws of
332 this state;
333 (f) any security issued or guaranteed by any public utility or holding company which is
334 a registered holding company under the Public Utility Holding Company Act of 1935 or a
335 subsidiary of such a company within the meaning of that act, or any security regulated in
336 respect of its rates or in its issuance by a governmental authority of the United States, any state,

337 Canada, or any Canadian province;
338 (g) (i) any security listed on the National Association of Securities Dealers Automated
339 Quotation National Market System, the New York Stock Exchange, the American Stock
340 Exchange, or on any other stock exchange or medium approved by the division, except that the
341 director may at any time suspend or revoke this exemption for any particular stock exchange,
342 medium, security, or securities under Subsection (4);
343 (ii) any other security of the same issuer which is of senior or substantially equal rank
344 to any security [so] listed and approved by the director[,]; or
345 (iii) any security called for by subscription rights or warrants so listed or approved, or
346 any warrant or right to purchase or subscribe to any of the foregoing;
347 (h) (i) any security issued by any person organized and operated not for private profit
348 but exclusively for religious, educational, benevolent, charitable, fraternal, social, athletic, or
349 reformatory purposes, or as a chamber of commerce or trade or professional association; and
350 (ii) any security issued by a corporation organized under Title 3, Chapter 1, General
351 Provisions Relating to Agricultural Cooperative Associations, and any security issued by a
352 corporation to which the provisions of that chapter are made applicable by compliance with the
353 requirements of Section 3-1-21 ;
354 (i) a promissory note, draft, bill of exchange, or banker's acceptance that evidences an
355 obligation to pay cash within nine months after the date of issuance, exclusive of days of grace,
356 or a renewal of such an obligation that is likewise limited, or a guarantee of such an obligation
357 or of a renewal:
358 (i) issued in denominations of at least $50,000; and
359 (ii) either:
360 (A) receives a rating in one of the three highest rating categories from a nationally
361 recognized statistical rating organization; or
362 (B) the issuer satisfies requirements established by rule or order of the division;
363 (j) any investment contract issued in connection with an employees' stock purchase,
364 option, savings, pension, profit-sharing, or similar benefit plan;
365 (k) a security issued by an issuer registered as an open-end management investment
366 company or unit investment trust under Section 8 of the Investment Company Act of 1940, if:
367 (i) (A) the issuer is advised by an investment adviser that is a depository institution

368 exempt from registration under the Investment Advisers Act of 1940 or that is currently
369 registered as an investment adviser, and has been registered, or is affiliated with an adviser that
370 has been registered, as an investment adviser under the Investment Advisers Act of 1940 for at
371 least three years next preceding an offer or sale of a security claimed to be exempt under this
372 Subsection (1)(k); and
373 (B) the adviser has acted, or is affiliated with an investment adviser that has acted as
374 investment adviser to one or more registered investment companies or unit investment trusts
375 for at least three years next preceding an offer or sale of a security claimed to be exempt under
376 this Subsection (1)(k); or
377 (ii) the issuer has a sponsor that has at all times throughout the three years before an
378 offer or sale of a security claimed to be exempt under this Subsection (1)(k) sponsored one or
379 more registered investment companies or unit investment trusts the aggregate total assets of
380 which have exceeded $100,000,000;
381 (iii) in addition to Subsection (1)(k)(i) or (ii), the division has received prior to any sale
382 exempted [herein] by this Subsection (1)(k):
383 (A) a notice of intention to sell which has been executed by the issuer and which sets
384 forth the name and address of the issuer and the title of the securities to be offered in this state;
385 and
386 (B) a filing fee as determined under Section 61-1-18.4 ;
387 (iv) in the event any offer or sale of a security of an open-end management investment
388 company is to be made more than 12 months after the date on which the notice and fee under
389 Subsection (1)(k)(iii) is received by the director, another notice and payment of the applicable
390 fee shall be required;
391 (v) for the purpose of this Subsection (1)(k), an investment adviser is affiliated with
392 another investment adviser if [it] the investment adviser controls, is controlled by, or is under
393 common control with the other investment adviser; and
394 (l) any security as to which the director, by rule or order, finds that registration is not
395 necessary or appropriate for the protection of investors.
396 (2) The following transactions are exempted from Sections 61-1-7 and 61-1-15 :
397 (a) any isolated transaction, whether effected through a broker-dealer or not;
398 (b) any nonissuer transaction in an outstanding security, if as provided by rule of the

399 division:
400 (i) information about the issuer of the security as required by the division is currently
401 listed in a securities manual recognized by the division, and the listing is based upon such
402 information as required by rule of the division; or
403 (ii) the security has a fixed maturity or a fixed interest or dividend provision and there
404 has been no default during the current fiscal year or within the three preceding fiscal years, or
405 during the existence of the issuer and any predecessors if less than three years, in the payment
406 of principal, interest, or dividends on the security;
407 (c) any nonissuer transaction effected by or through a registered broker-dealer pursuant
408 to an unsolicited order or offer to buy;
409 (d) any transaction between the issuer or other person on whose behalf the offering is
410 made and an underwriter, or among underwriters;
411 (e) any transaction in a bond or other evidence of indebtedness secured by a real or
412 chattel mortgage or deed of trust, or by an agreement for the sale of real estate or chattels, if the
413 entire mortgage, deed of trust, or agreement, together with all the bonds or other evidences of
414 indebtedness secured thereby, is offered and sold as a unit;
415 (f) any transaction by an executor, administrator, sheriff, marshal, receiver, trustee in
416 bankruptcy, guardian, or conservator;
417 (g) any transaction executed by a bona fide pledgee without any purpose of evading
418 this chapter;
419 (h) any offer or sale to a bank, savings institution, trust company, insurance company,
420 investment company as defined in the Investment Company Act of 1940, pension or
421 profit-sharing trust, or other financial institution or institutional investor, or to a broker-dealer,
422 whether the purchaser is acting for itself or in some fiduciary capacity;
423 (i) any offer or sale of a preorganization certificate or subscription if:
424 (i) no commission or other remuneration is paid or given directly or indirectly for
425 soliciting any prospective subscriber;
426 (ii) the number of subscribers acquiring any legal or beneficial interest therein does not
427 exceed ten; and
428 (iii) there is no general advertising or solicitation in connection with the offer or sale;
429 (j) any transaction pursuant to an offer by an issuer of its securities to its existing

430 securities holders, if:
431 (i) no commission or other remuneration, other than a standby commission is paid or
432 given directly or indirectly for soliciting any security holders in this state and the transaction
433 constitutes [either]:
434 (A) the conversion of convertible securities;
435 (B) the exercise of nontransferable rights or warrants;
436 (C) the exercise of transferable rights or warrants if the rights or warrants are
437 exercisable not more than 90 days after their issuance; or
438 (D) the purchase of securities under a preemptive right; and
439 (ii) the exemption created by Subsection (2)(j) is not available for an offer or sale of
440 securities to existing securities holders who have acquired their securities from the issuer in a
441 transaction in violation of Section 61-1-7 ;
442 (k) any offer, but not a sale, of a security for which registration statements have been
443 filed under both this chapter and the Securities Act of 1933 if no stop order or refusal order is
444 in effect and no public proceeding or examination looking toward such an order is pending;
445 (l) a distribution of securities as a dividend if the person distributing the dividend is the
446 issuer of the securities distributed;
447 (m) any nonissuer transaction effected by or through a registered broker-dealer where
448 the broker-dealer or issuer files with the division, and the broker-dealer maintains in [his] the
449 broker-dealer's records, and makes reasonably available upon request to any person expressing
450 an interest in a proposed transaction in the security with the broker-dealer information
451 prescribed by the division under its rules;
452 (n) any transactions not involving a public offering;
453 (o) any offer or sale of "condominium units" or "time period units" as those terms are
454 defined in [the] Title 57, Chapter 8, Condominium Ownership Act, whether or not to be sold
455 by installment contract, if the [provisions of the Condominium Ownership Act] following are
456 complied with:
457 (i) Title 57, Chapter 8, Condominium Ownership Act, or if the units are located in
458 another state, the condominium act of that state[, the];
459 (ii) Title 57, Chapter 11, Utah Uniform Land Sales Practices Act[, the];
460 (iii) Title 57, Chapter 19, Utah Timeshare and Camp Resort Act[,]; and [the]

461 (iv) Title 70C, Utah [Uniform] Consumer Credit Code[ are complied with];
462 (p) any transaction or series of transactions involving a merger, consolidation,
463 reorganization, recapitalization, reclassification, or sale of assets, if the consideration for
464 which, in whole or in part, is the issuance of securities of a person or persons, and if:
465 (i) the transaction or series of transactions is incident to a vote of the securities holders
466 of each person involved or by written consent or resolution of some or all of the securities
467 holders of each person involved;
468 (ii) the vote, consent, or resolution is given under a provision in:
469 (A) the applicable corporate statute or other controlling statute;
470 (B) the controlling articles of incorporation, trust indenture, deed of trust, or
471 partnership agreement; or
472 (C) the controlling agreement among securities holders;
473 (iii) (A) one person involved in the transaction is required to file proxy or
474 informational materials under Section 14 (a) or (c) of the Securities Exchange Act of 1934 or
475 Section 20 of the Investment Company Act of 1940 and has so filed;
476 (B) one person involved in the transaction is an insurance company which is exempt
477 from filing under Section 12(g)(2)(G) of the Securities Exchange Act of 1934, and has filed
478 proxy or informational materials with the appropriate regulatory agency or official of its
479 domiciliary state; or
480 (C) all persons involved in the transaction are exempt from filing under Section
481 12(g)(1) of the Securities Exchange Act of 1934, and file with the division such proxy or
482 informational material as the division requires by rule;
483 (iv) the proxy or informational material is filed with the division and distributed to all
484 securities holders entitled to vote in the transaction or series of transactions at least ten working
485 days prior to any necessary vote by the securities holders or action on any necessary consent or
486 resolution; and
487 (v) the division does not, by order, deny or revoke the exemption within ten working
488 days after filing of the proxy or informational materials;
489 (q) any transaction pursuant to an offer to sell securities of an issuer if:
490 (i) the transaction is part of an issue in which there are not more than 15 purchasers in
491 this state, other than those designated in Subsection (2)(h), during any 12 consecutive months;

492 (ii) no general solicitation or general advertising is used in connection with the offer to
493 sell or sale of the securities;
494 (iii) no commission or other similar compensation is given, directly or indirectly, to a
495 person other than a broker-dealer or agent licensed under this chapter, for soliciting a
496 prospective purchaser in this state;
497 (iv) the seller reasonably believes that all the purchasers in this state are purchasing for
498 investment;
499 (v) the transaction is part of an aggregate offering that does not exceed $500,000, or a
500 greater amount as prescribed by a division rule, during any 12 consecutive months; and
501 (vi) the director, as to a security or transaction, or a type of security or transaction, may
502 withdraw or further condition this exemption or waive one or more of the conditions in
503 Subsection (2)(q);
504 (r) any transaction involving a commodity contract or commodity option; and
505 (s) any transaction as to which the division finds that registration is not necessary or
506 appropriate for the protection of investors.
507 (3) Every person filing an exemption notice or application shall pay a filing fee as
508 determined under Section 61-1-18.4 .
509 (4) Upon approval by a majority of the Securities [Advisory] Board, the director, by
510 means of an adjudicative proceeding conducted in accordance with Title 63, Chapter 46b,
511 Administrative Procedures Act, may deny or revoke any exemption specified in Subsection
512 (1)(g), (h), or (j) or in Subsection (2) with respect to:
513 (a) a specific security, transaction, or series of transactions; or
514 (b) any person or issuer, any affiliate or successor to a person or issuer, or any entity
515 subsequently organized by or on behalf of a person or issuer generally and may impose a fine if
516 [he] the director finds that the order is in the public interest and that:
517 (i) the application for or notice of exemption filed with the division is incomplete in
518 any material respect or contains any statement which was, in the light of the circumstances
519 under which it was made, false or misleading with respect to any material fact;
520 (ii) any provision of this chapter, or any rule, order, or condition lawfully imposed
521 under this chapter [has been] is willfully violated in connection with the offering or exemption
522 by:

523 (A) the person filing any application for or notice of exemption;
524 (B) the issuer, any partner, officer, or director of the issuer, any person occupying a
525 similar status or performing similar functions, or any person directly or indirectly controlling or
526 controlled by the issuer, but only if the person filing the application for or notice of exemption
527 is directly or indirectly controlled by or acting for the issuer; or
528 (C) any underwriter;
529 (iii) subject to Subsection (6), the security for which the exemption is sought is the
530 subject of an administrative stop order or similar order, or a permanent or temporary injunction
531 or any court of competent jurisdiction entered under any other federal or state act applicable to
532 the offering or exemption; [the division may not institute a proceeding against an effective
533 exemption under this subsection more than one year from the date of the order or injunction
534 relied on, and it may not enter an order under this subsection on the basis of an order or
535 injunction entered under any other state act unless that order or injunction was based on facts
536 that would currently constitute a ground for a stop order under this section;]
537 (iv) the issuer's enterprise or method of business includes or would include activities
538 that are illegal where performed;
539 (v) the offering [has worked, has tended] works, tends to work, or would operate to
540 work a fraud upon purchasers;
541 (vi) the offering [has been] is or was made with unreasonable amounts of underwriters'
542 and sellers' discounts, commissions, or other compensation, or promoters' profits or
543 participation, or unreasonable amounts or kinds of options;
544 (vii) an exemption is sought for a security or transaction which is not eligible for the
545 exemption; or
546 (viii) the proper filing fee, if required, [has] is not [been] paid.
547 (5) (a) [No] An order under Subsection (4) may not operate retroactively.
548 (b) [No] A person may not be considered to have violated Section 61-1-7 or 61-1-15 by
549 reason of any offer or sale effected after the entry of an order under [this] Subsection (4) if [he]
550 the person sustains the burden of proof that [he] the person did not know, and in the exercise of
551 reasonable care could not have known, of the order.
552 (6) (a) The division may not institute a proceeding against an effective exemption
553 under Subsection (4)(b)(iii) more than one year from the day on which the order or injunction

554 relied on in instituting the proceeding is entered.
555 (b) The division may not enter an order under Subsection (4)(b)(iii) on the basis of an
556 order or injunction entered under any other state act unless that order or injunction is issued on
557 the basis of facts that would constitute a ground for a stop order under this section at the time
558 the order is issued under Subsection (4)(b)(iii).
559 Section 4. Section 61-1-15.5 is amended to read:
560 61-1-15.5. Federal covered securities.
561 (1) The division by rule or order may require the filing of any of the following
562 documents with respect to a covered security under Section 18(b)(2) of the Securities Act of
563 1933:
564 (a) prior to the initial offer of federal covered security in this state, a notice form as
565 prescribed by the division or all documents that are part of a federal registration statement filed
566 with the U.S. Securities and Exchange Commission under the Securities Act of 1933, together
567 with a consent to service of process signed by the issuer and a filing fee as determined under
568 Section 61-1-18.4 ;
569 (b) after the initial offer of such federal covered security in this state, all documents
570 that are part of an amendment to a federal registration statement filed with the U.S. Securities
571 and Exchange Commission under the Securities Act of 1933, which shall be filed concurrently
572 with the division;
573 (c) a report of the value of federal covered securities offered or sold in this state,
574 together with a filing fee as determined under Section 61-1-18.4 ; and
575 (d) a notice filing under this section shall be effective for one year and shall be
576 renewed annually in order to continue to offer or sell the federal covered securities for which
577 the notice was filed.
578 (2) With respect to any security that is a covered security under Section 18(b)(4)(D) of
579 the Securities Act of 1933, the division by rule or order may require the issuer to file a notice
580 on SEC Form D and a consent to service of process signed by the issuer no later than 15 days
581 after the first sale of such covered security in this state, together with a filing fee as determined
582 under Section 61-1-18.4 .
583 (3) The division by rule or order may require the filing of any document filed with the
584 U.S. Securities and Exchange Commission under the Securities Act of 1933, with respect to a

585 covered security under Section 18(b)(3) or (4) of the Securities Act of 1933, together with a
586 filing fee as determined under Section 61-1-18.4 .
587 (4) Upon approval by a majority of the Securities [Advisory] Board, the director, by
588 means of adjudicative proceedings conducted in accordance with Title 63, Chapter 46b,
589 Administrative Procedures Act, may issue a stop order suspending the offer and sale of any
590 federal covered security, except a covered security under Section 18(b)(1) of the Securities Act
591 of 1933, if the director finds that the order is in the public interest and there is a failure to
592 comply with any condition established under this section.
593 (5) The division by rule or order may waive any or all of the provisions of this section.
594 Section 5. Section 61-1-18.3 is amended to read:
595 61-1-18.3. Information obtained by division -- Use for personal benefit prohibited
596 -- Disclosure.
597 (1) It is unlawful for any of the division's employees, a nondepartmental hearing officer
598 appointed under Section 61-1-6, or any member of the Securities [Advisory] Board to use for
599 personal benefit any nonpublic information which is filed with or obtained by the division. [No
600 provision of this]
601 (2) This chapter [authorizes] does not authorize the division or any of its officers or
602 employees to disclose any such information except among themselves or when necessary or
603 appropriate in a proceeding or investigation under this chapter.
604 (3) No provision of this chapter either creates or derogates from any privilege [which]
605 that exists at common law or otherwise when documentary or other evidence is sought under
606 subpoena directed to the division or any of its employees.
607 Section 6. Section 61-1-18.5 is amended to read:
608 61-1-18.5. Securities Board established -- Appointment -- Duties -- Qualifications
609 -- Terms -- Vacancies -- Meetings -- Conflicts of interest -- Expenses.
610 (1) (a) There is hereby established a Securities [Advisory] Board.
611 (b) Members of the board shall be appointed by the governor with the consent of the
612 Senate.
613 (c) The board shall have the following duties:
614 (i) comply with Subsection 61-1-6 (9) with regard to the appointment of a
615 nondepartmental hearing officer;

616 [(i)] (ii) formulate and make recommendations to the director regarding policy and
617 budgetary matters;
618 [(ii)] (iii) submit recommendations regarding registration requirements and division
619 rules;
620 [(iii)] (iv) formulate and make recommendations to the director regarding the
621 establishment of reasonable fees; and
622 [(iv)] (v) generally act in an advisory capacity to the director with respect to the
623 exercise of [his] the director's duties, powers, and responsibilities.
624 (2) (a) The Securities [Advisory] Board shall be comprised of five members who shall
625 be appointed in accordance with the following:
626 (i) two members from the securities brokerage community who have at least five years
627 prior experience in securities matters;
628 (ii) one member from the securities section of the Utah Bar Association;
629 (iii) one member who is an officer or director of a corporation not subject to the
630 reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934; and
631 (iv) one member from the public at large who has no active participation in the
632 securities business.
633 (b) No member may serve more than two consecutive terms.
634 (3) (a) Except as required by Subsection (3)(b), as terms of current board members
635 expire, the governor shall appoint each new member or reappointed member to a four-year
636 term.
637 (b) Notwithstanding the requirements of Subsection (3)(a), the governor shall, at the
638 time of appointment or reappointment, adjust the length of terms to ensure that the terms of
639 commission members are staggered so that approximately half of the board is appointed every
640 two years.
641 (4) (a) When a vacancy occurs in the membership for any reason, the replacement shall
642 be appointed for the unexpired term.
643 (b) All members shall serve until their respective successors are appointed and
644 qualified.
645 (5) The board shall meet at least quarterly on a regular date to be fixed by the board
646 and at such other times at the call of the director or any two members of the board. A majority

647 of the board shall constitute a quorum for the transaction of business. Actions of the board
648 shall require a vote of a majority of those present.
649 (6) Each member of the board shall, by sworn and written statement filed with the
650 Department of Commerce and the lieutenant governor, disclose any position of employment or
651 ownership interest that the member has with respect to any entity or business subject to the
652 jurisdiction of the division. This statement shall be filed upon appointment and must be
653 appropriately amended whenever significant changes occur in matters covered by the
654 statement.
655 (7) (a) [Members shall receive no] A member of the board may not receive
656 compensation or benefits for [their] the member's services, but may receive per diem and
657 expenses incurred in the performance of the member's official duties at the rates established by
658 the Division of Finance under Sections 63A-3-106 and 63A-3-107 .
659 (b) [Members] A member may decline to receive per diem and expenses for [their] the
660 member's service.
661 Section 7. Section 61-1-18.6 is amended to read:
662 61-1-18.6. Procedures -- Adjudicative proceedings.
663 The [Division of Securities] division and any nondepartmental hearing officer
664 appointed under Section 61-1-6 shall comply with [the procedures and requirements of] Title
665 63, Chapter 46b, Administrative Procedures Act, in [its] adjudicative proceedings of the
666 division.
667 Section 8. Section 61-1-18.7 is amended to read:
668 61-1-18.7. Funding of securities investor education and training.
669 (1) There is created a restricted special revenue fund known as the "Securities Investor
670 Education and Training Fund" to provide revenue for educating the public and the securities
671 industry as provided in this section.
672 (2) All money received by the state by reason of civil penalties ordered and
673 administrative fines collected pursuant to this chapter shall be deposited in the Securities
674 Investor Education and Training Fund, and subject to the requirements of Title 51, Chapter 5,
675 Funds Consolidation Act.
676 (3) The special revenue fund may include any fines collected by the division after July
677 1, 1989, pursuant to voluntary settlements or administrative orders.

678 (4) (a) The fund shall earn interest.
679 (b) All interest earned on fund monies shall be deposited into the fund.
680 (5) Notwithstanding Title 63, Chapter 38, Budgetary Procedures Act, the director may
681 use special revenue fund monies, upon concurrence of the Securities [Advisory] Board and the
682 executive director of the Department of Commerce, in a manner consistent with the duties of
683 the division under this chapter and only for any or all of the following and the expense of
684 providing them:
685 (a) education and training of Utah residents in matters concerning securities laws and
686 investment decisions, by publications or presentations;
687 (b) education of registrants and licensees under this chapter, by:
688 (i) publication of this chapter and rules and policy statements and opinion letters of the
689 division; and
690 (ii) sponsorship of seminars or meetings to educate registrants and licensees as to the
691 requirements of this chapter; and
692 (c) investigation and litigation.
693 (6) If the balance in the fund exceeds [$100,000] $250,000 at the close of any fiscal
694 year, the excess shall be transferred to the General Fund.
695 Section 9. Section 61-1-19 is amended to read:
696 61-1-19. Investigations authorized.
697 (1) (a) The division [in its discretion] may make any public or private investigations
698 within or without this state as [it] the division considers necessary to determine whether any
699 person has violated, is violating, or is about to violate any provision of this chapter or any rule
700 or order [hereunder] under this chapter.
701 (b) To aid in the enforcement of this chapter or in the prescribing of rules and forms
702 [hereunder] under this chapter, the division may require or permit any person to file a statement
703 in writing, under oath or otherwise as to all the facts and circumstances concerning the matter
704 to be investigated.
705 (c) The division may publish information concerning any violation of this chapter or
706 the violation of any rule or order [hereunder] under this chapter.
707 (2) For the purpose of any investigation or proceeding under this chapter, the division
708 [or], any employee designated by [it] the division, or a nondepartmental hearing officer

709 appointed under Section 61-1-6 may:
710 (a) administer [oaths and affirmations] an oath or affirmation;
711 (b) subpoena [witnesses] a witness and compel [their] the attendance of a witness;
712 (c) take evidence; and
713 (d) require the production of any books, papers, correspondence, memoranda,
714 agreements, or other documents or records relevant or material to the investigation.