H.B. 298 Enrolled

UNIFORM SECURITIES ACT AMENDMENTS
1997 GENERAL SESSION
STATE OF UTAH
Sponsor: Greg J. Curtis
AN ACT RELATING TO THE UNIFORM SECURITIES ACT; CLARIFYING WHEN AN
INVESTMENT IN A LIMITED LIABILITY COMPANY IS CONSIDERED TO BE A
SECURITY; PROVIDING THAT EXCHANGE EXEMPTIONS RELATING TO
NASDAQ ONLY APPLY TO NASDAQ NMS; EXEMPTING OPTION PLANS;
REDUCING THE NUMBER OF BOARD MEMBERS REQUIRED TO CONSTITUTE
A QUORUM; DESIGNATING THE FELONY PENALTIES; AND MAKING
TECHNICAL CHANGES TO ADDRESS NEW FEDERAL PROVISIONS.
This act affects sections of Utah Code Annotated 1953 as follows:
AMENDS:
61-1-3, as last amended by Chapter 161, Laws of Utah 1991
61-1-4, as last amended by Chapter 161, Laws of Utah 1991
61-1-5, as last amended by Chapter 161, Laws of Utah 1991
61-1-7, as last amended by Chapter 284, Laws of Utah 1983
61-1-13, as last amended by Chapter 158, Laws of Utah 1993
61-1-14, as last amended by Chapter 158, Laws of Utah 1993
61-1-15, as last amended by Chapter 284, Laws of Utah 1983
61-1-18.5, as last amended by Chapter 243, Laws of Utah 1996
61-1-21, as last amended by Chapter 216, Laws of Utah 1992
61-1-26, as last amended by Chapter 216, Laws of Utah 1992
ENACTS:
61-1-15.5, Utah Code Annotated 1953
Be it enacted by the Legislature of the state of Utah:
Section 1. Section 61-1-3 is amended to read:
61-1-3. Licensing of broker-dealers, agents, and investment advisers.
(1) It is unlawful for any person to transact business in this state as a broker-dealer or agent

unless the person is licensed under this chapter.
(2) (a) It is unlawful for any broker-dealer or issuer to employ or engage an agent unless the
agent is licensed. The license of an agent is not effective during any period when he is not
associated with a particular broker-dealer licensed under this chapter or a particular issuer.
(b) When an agent begins or terminates a connection with a broker-dealer or issuer, or begins
or terminates those activities which make him an agent, the agent as well as the broker-dealer or
issuer shall promptly notify the division.
(3) It is unlawful for any person to transact business in this state as an investment adviser
or as an investment adviser representative unless:
(a) the person is licensed under this chapter; or
(b) the person's only clients in this state are investment companies as defined in the
Investment Company Act of 1940, other investment advisers, federal covered advisers,
broker-dealers, banks, trust companies, savings and loan associations, insurance companies,
employee benefit plans with assets of not less than $1,000,000, and governmental agencies or
instrumentalities, whether acting for themselves or as trustees with investment control, or other
institutional investors as are designated by rule or order of the director; or
(c) the person has no place of business in this state and during [any period of 12 consecutive
months does not direct business communications in this state in any manner to more than five
clients, other than those specified in Subsection (b), whether or not the person or any of those to
whom the communications are directed is then present in this state] the preceding twelve-month
period has had not more than five clients, other than those specified in Subsection (3)(b), who are
residents of this state.
(4) (a) It is unlawful for any:
(i) person required to be licensed as an investment adviser [required to be licensed] under
this chapter to employ an investment adviser representative unless the investment adviser
representative is licensed under this chapter, provided that the license of an investment adviser
representative is not effective during any period when the person is not employed by an investment
adviser licensed under this chapter; or

- 2 -

(ii) federal covered adviser to employ, supervise, or associate with an investment adviser
representative having a place of business located in this state, unless such investment adviser
representative is licensed under this chapter or is exempt from licensing.
[(b) The license of an investment adviser representative is effective during the period when
the person is employed by an investment adviser licensed under this chapter.]
[(c)] (b) When an investment adviser representative required to be licensed under this
chapter begins or terminates employment with an investment adviser, [both] the investment adviser
[and the investment adviser representative] shall promptly notify the division.
(5) Except with respect to investment advisers whose only clients are those described under
Subsections (3)(b) or (3)(c), it is unlawful for any federal covered adviser to conduct advisory
business in this state unless such person complies with the provisions of Section 61-1-4.
Section 2. Section 61-1-4 is amended to read:
61-1-4. Licensing and notice filing procedure.
(1) (a) A broker-dealer, agent, investment adviser, or investment adviser representative must
obtain an initial or renewal license by filing with the division or its designee an application together
with a consent to service of process under Section 61-1-26.
(b) The application shall contain whatever information the division by rule requires
concerning such matters as:
(i) the applicant's form and place of organization;
(ii) the applicant's proposed method of doing business;
(iii) the qualifications and business history of the applicant; in the case of a broker-dealer
or investment adviser, the qualifications and business history of 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;
(iv) any injunction or administrative order or conviction of a misdemeanor involving a
security or any aspect of the securities business and any conviction of a felony; and
(v) the applicant's financial condition and history.
(c) The division may, by rule or order, require an applicant for an initial license to publish

- 3 -

an announcement of the application in one or more specified newspapers published in this state.
(d) Licenses or notice filings of broker-dealers, agents, investment advisers, and investment
adviser representatives shall expire on December 31 of each year.
(e) (i) If no denial order is in effect and no proceeding is pending under Section 61-1-6, a
license becomes effective at noon of the 30th day after an application is filed.
(ii) The division may by rule or order specify an earlier effective date and may by order defer
the effective date until noon of the 30th day after the filing of any amendment.
(iii) Licensing of a broker-dealer automatically constitutes licensing of only one partner,
officer, director, or a person occupying a similar status or performing similar functions as a licensed
agent of the broker-dealer.
(iv) Licensing of an investment adviser automatically constitutes licensing of only one
partner, officer, director, or a person occupying a similar status or performing similar functions.
(2) Except with respect to federal covered advisers whose only clients are those described
in Subsection 61-1-3(3)(b) or (c), a federal covered adviser shall file with the division, prior to acting
as a federal covered adviser in this state, a notice filing consisting of such documents as have been
filed with the Securities and Exchange Commission as the division by rule or order may require.
[(2)] (3) (a) [Every] Any applicant for an initial or renewal license as a broker-dealer or
agent shall pay a reasonable filing fee as determined under Section 61-1-18.4.
(b) Any applicant for an initial or renewal license as an investment adviser or investment
adviser representative who is subject to licensing under this chapter shall pay a reasonable filing fee
as determined under Section 61-1-18.4.
(c) Any person acting as a federal covered adviser in this state shall pay an initial and
renewal notice filing fee as determined under Section 61-1-18.4.
[(b)] (d) If the license or renewal is not granted or the application is withdrawn, the division
shall retain the fee.
[(3)] (4) A licensed broker-dealer or investment adviser may file an application for licensing
of a successor for the unexpired portion of the year. There shall be no filing fee.
[(4)] (5) The division may by rule or order require a minimum capital for licensed

- 4 -

broker-dealers, subject to the limitations of Section 15 of the Securities Exchange Act of 1934, and
establish minimum financial requirements for investment advisers, subject to the limitations of
Section 222 of the Investment Advisers Act of 1940, which may include different requirements for
those investment advisers who maintain custody of or have discretionary authority over client funds
or securities and those investment advisers who do not.
[(5)] (6) (a) The division may by rule or order require licensed broker-dealers and investment
advisers who have custody of or discretionary authority over client funds or securities to post [surety
bonds and may by rule determine the conditions and the amounts of the bonds] bonds in amounts
as the division may prescribe, subject to the limitations of Section 15 of the Securities Exchange Act
of 1934 for broker-dealers and Section 222 of the Investment Advisers Act of 1940 for investment
advisers, and may determine their conditions.
(b) Any appropriate deposit of cash or securities may be accepted in lieu of any required
bond.
(c) No bond may be required of any licensee whose net capital, or in the case of an
investment adviser whose minimum financial requirements, which may be defined by rule, exceeds
[$30,000] the amounts required by the division.
(d) Every bond shall provide for suit on the bond by any person who has a cause of action
under Section 61-1-22 and, if the division by rule or order requires, by any person who has a cause
of action not arising under this chapter.
(e) Every bond shall provide that no suit may be maintained to enforce any liability on the
bond unless brought before the expiration of four years after the act or transaction constituting the
violation or the expiration of two years after the discovery by the plaintiff of the facts constituting
the violation, whichever expires first.
Section 3. Section 61-1-5 is amended to read:
61-1-5. Postlicensing provisions.
(1) (a) Every licensed broker-dealer and investment adviser shall make and keep such
accounts, correspondence, memoranda, papers, books, and other records as the division by rule
prescribes, except as provided in Section 15 of the Securities Exchange Act of 1934 in the case of

- 5 -

a broker-dealer and Section 222 of the Investment Advisers Act of 1940 in the case of an investment
adviser.
(b) All required records regarding an investment adviser shall be preserved for [three years
unless the division by rule prescribes otherwise for particular types of records] the period as the
division prescribes by rule or order.
(2) (a) Every licensed broker-dealer shall, within 24 hours after demand, furnish to any
customer or principal for whom the broker-dealer has executed any order for the purchase or sale of
any securities, either for immediate or future delivery, a written statement showing the time when,
the place where, and the price at which the securities were bought and sold.
(b) With respect to investment advisers, the division may require that certain information
be furnished or disseminated as necessary or appropriate in the public interest or for the protection
of investors and advisory clients.
(c) To the extent determined by the director, information furnished to clients or prospective
clients of an investment adviser [pursuant to] who would be in compliance with the Investment
Advisers Act of 1940 and the rules thereunder may be [used in whole or partial satisfaction of]
deemed to satisfy this requirement.
(3) Every licensed broker-dealer and investment adviser shall file financial reports as the
division by rule prescribes, except as provided in Section 15 of the Securities Exchange Act of 1934
in the case of a broker-dealer and Section 222 of the Investment Advisers Act of 1940 in the case
of an investment adviser.
(4) If the information contained in any document filed with the division is or becomes
inaccurate or incomplete in any material respect, the licensee or federal covered adviser shall
promptly file a correcting amendment if the document is filed with respect to a licensee, or when
such amendment is required to be filed with the Securities and Exchange Commission if the
document is filed with respect to a federal covered adviser, unless notification of the correction has
been given under Section 61-1-3.
(5) (a) All the records referred to in Subsection (1) are subject at any time or from time to
time to reasonable periodic, special, or other examinations by representatives of the division, within

- 6 -

or without this state, as the division deems necessary or appropriate in the public interest or for the
protection of investors.
(b) For the purpose of avoiding unnecessary duplication of examination, the division may
cooperate with the securities administrators of other states, the Securities and Exchange
Commission, and national securities exchanges or national securities associations registered under
the Securities Exchange Act of 1934.
Section 4. Section 61-1-7 is amended to read:
61-1-7. Registration before sale.
It is unlawful for any person to offer or sell any security in this state unless it is registered
under this chapter [or], the security or transaction is exempted under Section 61-1-14, or the security
is a federal covered security for which a notice filing has been made pursuant to the provisions of
Section 61-1-15.5.
Section 5. Section 61-1-13 is amended to read:
61-1-13. Definitions.
As used in this chapter:
(1) "Affiliate" means a person that, directly or indirectly, through one or more
intermediaries, controls or is controlled by, or is under common control with a person specified.
(2) "Agent" means any individual other than a broker-dealer who represents a broker-dealer
or issuer in effecting or attempting to effect purchases or sales of securities. "Agent" does not
include an individual who represents:
(a) an issuer, who receives no commission or other remuneration, directly or indirectly, for
effecting or attempting to effect purchases or sales of securities in this state, and who:
[(a)] (i) effects transactions in securities exempted by Subsection 61-1-14 (1)(a), (b), (c), (i),
or (j);
[(b)] (ii) effects transactions exempted by Subsection 61-1-14 (2); [or]
(iii) effects transactions in a covered security as described in Sections 18(b)(3) and
18(b)(4)(D) of the Securities Act of 1933; or
[(c)] (iv) effects transactions with existing employees, partners, officers, or directors of the

- 7 -

issuer; or
(b) a broker-dealer in effecting transactions in this state limited to those transactions
described in Section 15(h)(2) of the Securities Exchange Act of 1934. A partner, officer, or director
of a broker-dealer or issuer, or a person occupying a similar status or performing similar functions,
is an agent only if he otherwise comes within this definition.
(3) "Broker-dealer" means any person engaged in the business of effecting transactions in
securities for the account of others or for his own account. "Broker-dealer" does not include:
(a) an agent;
(b) an issuer;
(c) a bank, savings institution, or trust company;
(d) a person who has no place of business in this state if:
(i) the person effects transactions in this state exclusively with or through:
(A) the issuers of the securities involved in the transactions;
(B) other broker-dealers; or
(C) banks, savings institutions, trust companies, insurance companies, investment companies
as defined in the Investment Company Act of 1940, pension or profit-sharing trusts, or other
financial institutions or institutional buyers, whether acting for themselves or as trustees; or
(ii) during any period of 12 consecutive months the person does not direct more than 15
offers to sell or buy into this state in any manner to persons other than those specified in Subsection
(3)(d)(i), whether or not the offeror or any of the offerees is then present in this state;
(e) a general partner who organizes and effects transactions in securities of three or fewer
limited partnerships, of which the person is the general partner, in any period of 12 consecutive
months;
(f) a person whose participation in transactions in securities is confined to those transactions
made by or through a broker-dealer licensed in this state;
(g) a person who is a real estate broker licensed in this state and who effects transactions in
a bond or other evidence of indebtedness secured by a real or chattel mortgage or deed of trust, or
by an agreement for the sale of real estate or chattels, if the entire mortgage, deed or trust, or

- 8 -

agreement, together with all the bonds or other evidences of indebtedness secured thereby, is offered
and sold as a unit;
(h) a person effecting transactions in commodity contracts or commodity options; or
(i) other persons as the division, by rule or order, may designate, consistent with the public
interest and protection of investors, as not within the intent of this subsection.
(4) "Buy" or "purchase" means every contract for purchase of, contract to buy, or acquisition
of a security or interest in a security for value.
(5) "Commodity" means, except as otherwise specified by the division by rule:
(a) any agricultural, grain, or livestock product or byproduct, except real property or any
timber, agricultural, or livestock product grown or raised on real property and offered or sold by the
owner or lessee of the real property;
(b) any metal or mineral, including a precious metal, except a numismatic coin whose fair
market value is at least 15% greater than the value of the metal it contains;
(c) any gem or gemstone, whether characterized as precious, semi-precious, or otherwise;
(d) any fuel, whether liquid, gaseous, or otherwise;
(e) any foreign currency; and
(f) all other goods, articles, products, or items of any kind, except any work of art offered
or sold by art dealers, at public auction or offered or sold through a private sale by the owner of the
work.
(6) "Commodity contract" means any account, agreement, or contract for the purchase or
sale, primarily for speculation or investment purposes and not for use or consumption by the offeree
or purchaser, of one or more commodities, whether for immediate or subsequent delivery or whether
delivery is intended by the parties, and whether characterized as a cash contract, deferred shipment
or deferred delivery contract, forward contract, futures contract, installment or margin contract,
leverage contract, or otherwise.
(a) Any commodity contract offered or sold shall, in the absence of evidence to the contrary,
be presumed to be offered or sold for speculation or investment purposes.
(b) (i) A commodity contract shall not include any contract or agreement which requires, and

- 9 -

under which the purchaser receives, within 28 calendar days from the payment in good funds any
portion of the purchase price, physical delivery of the total amount of each commodity to be
purchased under the contract or agreement.
(ii) The purchaser is not considered to have received physical delivery of the total amount
of each commodity to be purchased under the contract or agreement when the commodity or
commodities are held as collateral for a loan or are subject to a lien of any person when the loan or
lien arises in connection with the purchase of each commodity or commodities.
(7) (a) "Commodity option" means any account, agreement, or contract giving a party to the
option the right but not the obligation to purchase or sell one or more commodities or one or more
commodity contracts, or both whether characterized as an option, privilege, indemnity, bid, offer,
put, call, advance guaranty, decline guaranty, or otherwise.
(b) It does not include an option traded on a national securities exchange registered with the
United States Securities and Exchange Commission or on a board of trade designated as a contract
market by the Commodity Futures Trading Commission.
(8) "Director" means the director of the Division of Securities charged with the
administration and enforcement of this chapter.
(9) "Division" means the Division of Securities established by Section 61-1-18.
(10) "Executive director" means the executive director of the Department of Commerce.
(11) "Federal covered adviser" means a person who is registered under Section 203 of the
Investment Advisers Act of 1940 or is excluded from the definition of "investment adviser" under
Section 202(a)(11) of the Investment Advisers Act of 1940.
(12) "Federal covered security" means any security that is a covered security under Section
18(b) of the Securities Act of 1933 or rules or regulations promulgated thereunder.
[(11)] (13) "Fraud," "deceit," and "defraud" are not limited to their common-law meanings.
[(12)] (14) "Guaranteed" means guaranteed as to payment of principal or interest as to debt
securities, or dividends as to equity securities.
[(13)] (15) (a) "Investment adviser" means any person who, for compensation, engages in
the business of advising others, either directly or through publications or writings, as to the value

- 10 -

of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for
compensation and as a part of a regular business, issues or promulgates analyses or reports
concerning securities.
(b) "Investment adviser" also includes financial planners and other persons who, as an
integral component of other financially related services, provide the foregoing investment advisory
services to others for compensation and as part of a business or who hold themselves out as
providing the foregoing investment advisory services to others for compensation.
[(b)] (c) "Investment adviser" does not include:
(i) an investment adviser representative;
[(i)] (ii) a bank, savings institution, or trust company;
[(ii)] (iii) a lawyer, accountant, engineer, or teacher whose performance of these services is
solely incidental to the practice of his profession;
[(iii)] (iv) a broker-dealer or its agent whose performance of these services is solely
incidental to the conduct of [his] its business as a broker-dealer and who receives no special
compensation for them;
[(iv)] (v) a publisher of any bona fide newspaper, news column, news letter, news magazine,
or business or financial publication or service, of general, regular, and paid circulation, whether
communicated in hard copy form, or by electronic means, or otherwise, that does not consist of the
rendering of advice on the basis of the specific investment situation of each client;
[(v) a person whose advice, analyses, or reports relate only to securities exempted by
Subsection 61-1-14 (1)(a);]
[(vi) an investment advisor representative; or]
(vi) any person who is a federal covered adviser; or
(vii) such other persons not within the intent of [this] Subsection (15) as the division may
by rule or order designate.
[(14)] (16) "Investment adviser representative" means any partner, officer, director of, or a
person occupying a similar status or performing similar functions, or other individual, except clerical
or ministerial personnel, who:

- 11 -

(a) (i) is employed by or associated with an investment adviser[, except clerical or
ministerial personnel, who:] who is licensed or required to be licensed under this chapter; or
(ii) has a place of business located in this state and is employed by or associated with a
federal covered adviser; and
(b) does any of the following:
[(a)] (i) makes any recommendations or otherwise renders advice regarding securities
[directly to advisory clients];
[(b)] (ii) manages accounts or portfolios of clients;
[(c)] (iii) determines which recommendation or advice regarding securities should be given
[if that person is a member of the investment adviser's investment committee that determines general
investment advice to be given to clients or, if the investment adviser has no investment committee,
the person determines general client advice, but if there are more than five such persons, only the
supervisors of these persons are considered to be investment adviser representatives];
[(d)] (iv) solicits, offers, or negotiates for the sale of or sells investment advisory services;
or
[(e) immediately] (v) supervises employees who perform any of the foregoing.
[(15)] (17) (a) "Issuer" means any person who issues or proposes to issue any security or has
outstanding a security that it has issued.
(b) With respect to a preorganization certificate or subscription, "issuer" means the promoter
or the promoters of the person to be organized.
(c) With respect to:
(i) interests in trusts, including but not limited to collateral trust certificates, voting trust
certificates, and certificates of deposit for securities; or
(ii) shares in an investment company without a board of directors, "issuer" means the person
or persons performing the acts and assuming duties of a depositor or manager under the provisions
of the trust or other agreement or instrument under which the security is issued.
(d) With respect to an equipment trust certificate, a conditional sales contract, or similar
securities serving the same purpose, "issuer" means the person by whom the equipment or property

- 12 -

is to be used.
(e) With respect to interests in partnerships, general or limited, "issuer" means the
partnership itself and not the general partner or partners.
(f) With respect to certificates of interest or participation in oil, gas, or mining titles or leases
or in payment out of production under the titles or leases, "issuer" means the owner of the title or
lease or right of production, whether whole or fractional, who creates fractional interests therein for
the purpose of sale.
[(16)] (18) "Nonissuer" means not directly or indirectly for the benefit of the issuer.
[(17)] (19) "Person" means an individual, a corporation, a partnership, a limited liability
company, an association, a joint-stock company, a joint venture, a trust where the interests of the
beneficiaries are evidenced by a security, an unincorporated organization, a government, or a
political subdivision of a government.
[(18)] (20) "Precious metal" means the following, whether in coin, bullion, or other form:
(a) silver;
(b) gold;
(c) platinum;
(d) palladium;
(e) copper; and
(f) such other substances as the division may specify by rule.
[(19)] (21) "Promoter" means any person who, acting alone or in concert with one or more
persons, takes initiative in founding or organizing the business or enterprise of a person.
[(20)] (22) (a) "Sale" or "sell" includes every contract for sale of, contract to sell, or
disposition of, a security or interest in a security for value.
(b) "Offer" or "offer to sell" includes every attempt or offer to dispose of, or solicitation of
an offer to buy, a security or interest in a security for value.
(c) The following are examples of the definitions in Subsections (22)(a) and (b):
(i) any security given or delivered with or as a bonus on account of any purchase of a
security or any other thing, is part of the subject of the purchase, and has been offered and sold for

- 13 -

value;
(ii) a purported gift of assessable stock is an offer or sale as is each assessment levied on the
stock;
(iii) an offer or sale of a security that is convertible into, or entitles its holder to acquire or
subscribe to another security of the same or another issuer is an offer or sale of that security, and also
an offer of the other security, whether the right to convert or acquire is exercisable immediately or
in the future;
(iv) any conversion or exchange of one security for another shall constitute an offer or sale
of the security received in a conversion or exchange, and the offer to buy or the purchase of the
security converted or exchanged;
(v) securities distributed as a dividend wherein the person receiving the dividend surrenders
the right, or the alternative right, to receive a cash or property dividend is an offer or sale;
(vi) a dividend of a security of another issuer is an offer or sale; or
(vii) the issuance of a security under a merger, consolidation, reorganization,
recapitalization, reclassification, or acquisition of assets shall constitute the offer or sale of the
security issued as well as the offer to buy or the purchase of any security surrendered in connection
therewith, unless the sole purpose of the transaction is to change the issuer's domicile.
(d) The terms defined in Subsections [(20)] (22)(a) and (b) do not include:
(i) a good faith gift;
(ii) a transfer by death;
(iii) a transfer by termination of a trust or of a beneficial interest in a trust;
(iv) a security dividend not within Subsection [(20)] (22)(c)(v) or (vi);
(v) a securities split or reverse split; or
(vi) any act incident to a judicially approved reorganization in which a security is issued in
exchange for one or more outstanding securities, claims, or property interests, or partly in such
exchange and partly for cash.
[(21)] (23) "Securities Act of 1933," "Securities Exchange Act of 1934," "Public Utility
Holding Company Act of 1935," and "Investment Company Act of 1940" mean the federal statutes

- 14 -

of those names as amended before or after the effective date of this chapter.
[(22)] (24) (a) "Security" means any:
[(a)] (i) note;
[(b)] (ii) stock;
[(c)] (iii) treasury stock;
[(d)] (iv) bond;
[(e)] (v) debenture;
[(f)] (vi) evidence of indebtedness;
[(g)] (vii) certificate of interest or participation in any profit-sharing agreement;
[(h)] (viii) collateral-trust certificate;
[(i)] (ix) preorganization certificate or subscription;
[(j)] (x) transferable share;
[(k)] (xi) investment contract;
[(l)] (xii) burial certificate or burial contract;
[(m)] (xiii) voting-trust certificate;
[(n)] (xiv) certificate of deposit for a security;
[(o)] (xv) certificate of interest or participation in an oil, gas, or mining title or lease or in
payments out of production under such a title or lease;
[(p)] (xvi) commodity contract or commodity option; [or]
(xvii) interest in a limited liability company; or
[(q)] (xviii) in general, any interest or instrument commonly known as a "security," or any
certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee
of, or warrant or right to subscribe to or purchase any of the foregoing.
(b) "Security" does not include any:
(i) insurance or endowment policy or annuity contract under which an insurance company
promises to pay money in a lump sum or periodically for life or some other specified period; or
(ii) interest in a limited liability company in which the limited liability company is formed
as part of an estate plan where all of the members are related by blood or marriage, there are five or

- 15 -

fewer members, or the person claiming this exception can prove that all of the members are actively
engaged in the management of the limited liability company. Evidence that members vote or have
the right to vote, or the right to information concerning the business and affairs of the limited
liability company, or the right to participate in management, shall not establish, without more, that
all members are actively engaged in the management of the limited liability company.
[(23)] (25) "State" means any state, territory, or possession of the United States, the District
of Columbia, and Puerto Rico.
[(24)] (26) "Working days" means 8 a.m. to 5 p.m., Monday through Friday, exclusive of
legal holidays listed in Section 63-13-2.
[(25)] (27) A term not defined in Section 61-1-13 shall have the meaning as established by
division rule. The meaning of a term neither defined in this section nor by rule of the division shall
be the meaning commonly accepted in the business community.
Section 6. Section 61-1-14 is amended to read:
61-1-14. Exemptions.
(1) The following securities are exempted from Sections 61-1-7 and 61-1-15:
(a) any security, including a revenue obligation, issued or guaranteed by the United States,
any state, any political subdivision of a state, or any agency or corporate or other instrumentality of
one or more of the foregoing, or any certificate of deposit for any of the foregoing;
(b) any security issued or guaranteed by Canada, any Canadian province, any political
subdivision of any Canadian province, any agency or corporate or other instrumentality of one or
more of the foregoing, or any other foreign government with which the United States currently
maintains diplomatic relations, if the security is recognized as a valid obligation by the issuer or
guarantor;
(c) any security issued by and representing an interest in or a debt of, or guaranteed by, any
bank organized under the laws of the United States, or any bank, savings institution, or trust
company supervised under the laws of any state;
(d) any security issued by and representing an interest in or a debt of, or guaranteed by, any
federal savings and loan association, or any building and loan or similar association organized under

- 16 -

the laws of any state and authorized to do business in this state;
(e) any security issued or guaranteed by any federal credit union or any credit union,
industrial loan association, or similar association organized and supervised under the laws of this
state;
(f) any security issued or guaranteed by any [railroad, other common carrier,] public utility[,]
or holding company which is [subject to the jurisdiction of the interstate commerce commission,]
a registered holding company under the Public Utility Holding Company Act of 1935 or a subsidiary
of such a company within the meaning of that act, or any security regulated in respect of its rates or
in its issuance by a governmental authority of the United States, any state, Canada, or any Canadian
province;
(g) any security listed on the National Association of Securities Dealers Automated
Quotation National Market System, the New York Stock Exchange, the American Stock Exchange,
or on any other stock exchange or medium approved by the division, except that the director may
at any time suspend or revoke this exemption for any particular stock exchange, medium, security,
or securities under Subsection [61-1-14] (4); any other security of the same issuer which is of senior
or substantially equal rank to any security so listed and approved by the director, any security called
for by subscription rights or warrants so listed or approved, or any warrant or right to purchase or
subscribe to any of the foregoing;
(h) (i) any security issued by any person organized and operated not for private profit but
exclusively for religious, educational, benevolent, charitable, fraternal, social, athletic, or
reformatory purposes, or as a chamber of commerce or trade or professional association; and
(ii) any security issued by a corporation organized under Title 3, Chapter 1, and any security
issued by a corporation to which the provisions of that chapter are made applicable by compliance
with the requirements of Section 3-1-21;
(i) a promissory note, draft, bill of exchange, or banker's acceptance that evidences an
obligation to pay cash within nine months after the date of issuance, exclusive of days of grace, or
a renewal of such an obligation that is likewise limited, or a guarantee of such an obligation or of
a renewal:

- 17 -

(i) issued in denominations of at least $50,000; and
(ii) either:
(A) receives a rating in one of the three highest rating categories from a nationally
recognized statistical rating organization; or
(B) the issuer satisfies requirements established by rule or order of the division;
(j) any investment contract issued in connection with an employees' stock purchase, option,
savings, pension, profit-sharing, or similar benefit plan;
(k) a security issued by an issuer registered as an open-end management investment
company or unit investment trust under Section 8 of the Investment Company Act of 1940, if:
(i) (A) the issuer is advised by an investment adviser that is a depository institution exempt
from registration under the Investment Advisers Act of 1940 or that is currently registered as an
investment adviser, and has been registered, or is affiliated with an adviser that has been registered,
as an investment adviser under the Investment Advisers Act of 1940 for at least three years next
preceding an offer or sale of a security claimed to be exempt under this subsection; and
(B) the adviser has acted, or is affiliated with an investment adviser that has acted as
investment adviser to one or more registered investment companies or unit investment trusts for at
least three years next preceding an offer or sale of a security claimed to be exempt under this
subsection; or
(ii) the issuer has a sponsor that has at all times throughout the three years before an offer
or sale of a security claimed to be exempt under this subsection sponsored one or more registered
investment companies or unit investment trusts the aggregate total assets of which have exceeded
$100,000,000;
(iii) in addition to Subsection (i) or (ii), the division has received prior to any sale exempted
herein:
(A) a notice of intention to sell which has been executed by the issuer which sets forth the
name and address of the issuer and the title of the securities to be offered in this state; and
(B) a filing fee as determined under Section 61-1-18.4;
(iv) in the event any offer or sale of a security of an open-end management investment

- 18 -

company is to be made more than 12 months after the date on which the notice and fee under
Subsection (iii) is received by the director, another notice and payment of the applicable fee shall
be required;
(v) for the purpose of this subsection, an investment adviser is affiliated with another
investment adviser if it controls, is controlled by, or is under common control with the other
investment adviser; and
(l) any security as to which the director, by rule or order, finds that registration is not
necessary or appropriate for the protection of investors.
(2) The following transactions are exempted from Sections 61-1-7 and 61-1-15:
(a) any isolated transaction, whether effected through a broker-dealer or not;
(b) any nonissuer transaction in an outstanding security, if as provided by rule of the
division:
(i) information about the issuer of the security as required by the division is currently listed
in a securities manual recognized by the division, and the listing is based upon such information as
required by rule of the division; or
(ii) the security has a fixed maturity or a fixed interest or dividend provision and there has
been no default during the current fiscal year or within the three preceding fiscal years, or during the
existence of the issuer and any predecessors if less than three years, in the payment of principal,
interest, or dividends on the security;
(c) any nonissuer transaction effected by or through a registered broker-dealer pursuant to
an unsolicited order or offer to buy;
(d) any transaction between the issuer or other person on whose behalf the offering is made
and an underwriter, or among underwriters;
(e) any transaction in a bond or other evidence of indebtedness secured by a real or chattel
mortgage or deed of trust, or by an agreement for the sale of real estate or chattels, if the entire
mortgage, deed of trust, or agreement, together with all the bonds or other evidences of indebtedness
secured thereby, is offered and sold as a unit;
(f) any transaction by an executor, administrator, sheriff, marshal, receiver, trustee in

- 19 -

bankruptcy, guardian, or conservator;
(g) any transaction executed by a bona fide pledgee without any purpose of evading this
chapter;
(h) any offer or sale to a bank, savings institution, trust company, insurance company,
investment company as defined in the Investment Company Act of 1940, pension or profit-sharing
trust, or other financial institution or institutional [buyer] investor, or to a broker-dealer, whether the
purchaser is acting for itself or in some fiduciary capacity;
(i) any offer or sale of a preorganization certificate or subscription if:
(i) no commission or other remuneration is paid or given directly or indirectly for soliciting
any prospective subscriber;
(ii) the number of subscribers acquiring any legal or beneficial interest therein does not
exceed ten; and
(iii) there is no general advertising or solicitation in connection with the offer or sale;
(j) any transaction pursuant to an offer by an issuer of its securities to its existing securities
holders, if:
(i) no commission or other remuneration, other than a standby commission is paid or given
directly or indirectly for soliciting any security holders in this state and the transaction constitutes
either:
(A) the conversion of convertible securities;
(B) the exercise of nontransferable rights or warrants;
(C) the exercise of transferable rights or warrants if the rights or warrants are exercisable not
more than 90 days after their issuance; or
(D) the purchase of securities under a preemptive right; and
(ii) the exemption created by Subsection (2)(j) is not available for an offer or sale of
securities to existing securities holders who have acquired their securities from the issuer in a
transaction in violation of Section 61-1-7;
(k) any offer, but not a sale, of a security for which registration statements have been filed
under both this chapter and the Securities Act of 1933 if no stop order or refusal order is in effect

- 20 -

and no public proceeding or examination looking toward such an order is pending;
(l) a distribution of securities as a dividend if the person distributing the dividend is the
issuer of the securities distributed;
(m) any nonissuer transaction effected by or through a registered broker-dealer where the
broker-dealer or issuer files with the division, and the broker-dealer maintains in his records, and
makes reasonably available upon request to any person expressing an interest in a proposed
transaction in the security with the broker-dealer information prescribed by the division under its
rules;
(n) any transactions not involving a public offering;
(o) any offer or sale of "condominium units" or "time period units" as those terms are
defined in the Condominium Ownership Act, whether or not to be sold by installment contract, if
the provisions of the Condominium Ownership Act, or if the units are located in another state, the
condominium act of that state, the Utah Uniform Land Sales Practices Act, the Utah Timeshare and
Camp Resort Act, and the Utah Uniform Consumer Credit Code are complied with;
(p) any transaction or series of transactions involving a merger, consolidation,
reorganization, recapitalization, reclassification, or sale of assets, if the consideration for which, in
whole or in part, is the issuance of securities of a person or persons, and if:
(i) the transaction or series of transactions is incident to a vote of the securities holders of
each person involved or by written consent or resolution of some or all of the securities holders of
each person involved;
(ii) the vote, consent, or resolution is given under a provision in:
(A) the applicable corporate statute or other controlling statute;
(B) the controlling articles of incorporation, trust indenture, deed of trust, or partnership
agreement; or
(C) the controlling agreement among securities holders;
(iii) (A) one person involved in the transaction is required to file proxy or informational
materials under Section 14 (a) or (c) of the Securities Exchange Act of 1934 or Section 20 of the
Investment Company Act of 1940 and has so filed;

- 21 -

(B) one person involved in the transaction is an insurance company which is exempt from
filing under Section 12(g)(2)(G) of the Securities Exchange Act of 1934, and has filed proxy or
informational materials with the appropriate regulatory agency or official of its domiciliary state;
or
(C) all persons involved in the transaction are exempt from filing under Section 12(g)(1) of
the Securities Exchange Act of 1934, and file with the division such proxy or informational material
as the division requires by rule;
(iv) the proxy or informational material is filed with the division and distributed to all
securities holders entitled to vote in the transaction or series of transactions at least ten working days
prior to any necessary vote by the securities holders or action on any necessary consent or resolution;
and
(v) the division does not, by order, deny or revoke the exemption within ten working days
after filing of the proxy or informational materials;
(q) any transaction pursuant to an offer to sell securities of an issuer if:
(i) the transaction is part of an issue in which there are not more than 15 purchasers in this
state, other than those designated in Subsection (2)(h), during any 12 consecutive months;
(ii) no general solicitation or general advertising is used in connection with the offer to sell
or sale of the securities;
(iii) no commission or other similar compensation is given, directly or indirectly, to a person
other than a broker-dealer or agent licensed under this chapter, for soliciting a prospective purchaser
in this state;
(iv) the seller reasonably believes that all the purchasers in this state are purchasing for
investment;
(v) the transaction is part of an aggregate offering that does not exceed $500,000, or a greater
amount as prescribed by a division rule, during any 12 consecutive months; and
(vi) the director, as to a security or transaction, or a type of security or transaction, may
withdraw or further condition this exemption or waive one or more of the conditions in Subsection
(q);

- 22 -

(r) any transaction involving a commodity contract or commodity option; and
(s) any transaction as to which the division finds that registration is not necessary or
appropriate for the protection of investors.
(3) Every person filing an exemption notice or application shall pay a filing fee as
determined under Section 61-1-18.4.
(4) Upon approval by a majority of the Securities Advisory Board, the director, by means
of an adjudicative proceeding conducted in accordance with Title 63, Chapter 46b, Administrative
Procedures Act, may deny or revoke any exemption specified in Subsection (1)(g), (h), or (j) or in
Subsection (2) with respect to:
(a) a specific security, transaction, or series of transactions; or
(b) any person or issuer, any affiliate or successor to a person or issuer, or any entity
subsequently organized by or on behalf of a person or issuer generally and may impose a fine if he
finds that the order is in the public interest and that:
(i) the application for or notice of exemption filed with the division is incomplete in any
material respect or contains any statement which was, in the light of the circumstances under which
it was made, false or misleading with respect to any material fact;
(ii) any provision of this chapter, or any rule, order, or condition lawfully imposed under this
chapter has been willfully violated in connection with the offering or exemption by:
(A) the person filing any application for or notice of exemption;
(B) the issuer, any partner, officer, or director of the issuer, any person occupying a similar
status or performing similar functions, or any person directly or indirectly controlling or controlled
by the issuer, but only if the person filing the application for or notice of exemption is directly or
indirectly controlled by or acting for the issuer; or
(C) any underwriter;
(iii) the security for which the exemption is sought is the subject of an administrative stop
order or similar order, or a permanent or temporary injunction or any court of competent jurisdiction
entered under any other federal or state act applicable to the offering or exemption; the division may
not institute a proceeding against an effective exemption under this subsection more than one year

- 23 -

from the date of the order or injunction relied on, and it may not enter an order under this subsection
on the basis of an order or injunction entered under any other state act unless that order or injunction
was based on facts that would currently constitute a ground for a stop order under this section;
(iv) the issuer's enterprise or method of business includes or would include activities that are
illegal where performed;
(v) the offering has worked, has tended to work, or would operate to work a fraud upon
purchasers;
(vi) the offering has been or was made with unreasonable amounts of underwriters' and
sellers' discounts, commissions, or other compensation, or promoters' profits or participation, or
unreasonable amounts or kinds of options;
(vii) an exemption is sought for a security or transaction which is not eligible for the
exemption; or
(viii) the proper filing fee, if required, has not been paid.
(5) (a) No order under Subsection (4) may operate retroactively.
(b) No person may be considered to have violated Section 61-1-7 or 61-1-15 by reason of
any offer or sale effected after the entry of an order under this subsection if he sustains the burden
of proof that he did not know, and in the exercise of reasonable care could not have known, of the
order.
Section 7. Section 61-1-15 is amended to read:
61-1-15. Filing of sales literature.
The division may by rule or order require the filing of any prospectus, pamphlet, circular,
form letter, advertisement, or other sales literature or advertising communication addressed or
intended for distribution to prospective investors, including clients or prospective clients of an
investment adviser unless the security or transaction is exempted by Section 61-1-14 or is a federal
covered security.
Section 8. Section 61-1-15.5 is enacted to read:
61-1-15.5. Federal covered securities.
(1) The division by rule or order may require the filing of any of the following documents

- 24 -

with respect to a covered security under Section 18(b)(2) of the Securities Act of 1933;
(a) Prior to the initial offer of federal covered security in this state, a notice form as
prescribed by the division or all documents that are part of a federal registration statement filed with
the U.S. Securities and Exchange Commission under the Securities Act of 1933, together with a
consent to service of process signed by the issuer and a filing fee as determined under Section
61-1-18.4;
(b) After the initial offer of such federal covered security in this state, all documents that are
part of an amendment to a federal registration statement filed with the U.S. Securities and Exchange
Commission under the Securities Act of 1933, which shall be filed concurrently with the division;
(c) A report of the value of federal covered securities offered or sold in this state, together
with a filing fee as determined under Section 61-1-18.4; and
(d) A notice filing under this section shall be effective for one year and shall be renewed
annually in order to continue to offer or sell the federal covered securities for which the notice was
filed.
(2) With respect to any security that is a covered security under Section 18(b)(4)(D) of the
Securities Act of 1933, the division by rule or order may require the issuer to file a notice on SEC
Form D and a consent to service of process signed by the issuer no later than 15 days after the first
sale of such covered security in this state, together with a filing fee as determined under Section
61-1-18.4.
(3) The division by rule or order may require the filing of any document filed with the U.S.
Securities and Exchange Commission under the Securities Act of 1933, with respect to a covered
security under Section 18(b)(3) or (4) of the Securities Act of 1933, together with a filing fee as
determined under Section 61-1-18.4.
(4) Upon approval by a majority of the Securities Advisory Board, the director, by means
of adjudicative proceedings conducted in accordance with Title 63, Chapter 46b, Administrative
Procedures Act, may issue a stop order suspending the offer and sale of any federal covered security,
except a covered security under Section 18(b)(1) of the Securities Act of 1933, if the director finds
that the order is in the public interest and there is a failure to comply with any condition established

- 25 -

under this section.
(5) The division by rule or order may waive any or all of the provisions of this section.
Section 9. Section 61-1-18.5 is amended to read:
61-1-18.5. Securities Advisory Board established -- Appointment -- Duties --
Qualifications -- Terms -- Vacancies -- Meetings -- Conflicts of interest -- Expenses.
(1) (a) There is hereby established a Securities Advisory Board.
(b) Members of the board shall be appointed by the governor with the advice and consent
of the Senate.
(c) The board shall have the following duties:
(i) formulate and make recommendations to the director regarding policy and budgetary
matters;
(ii) submit recommendations regarding registration requirements and division rules;
(iii) formulate and make recommendations to the director regarding the establishment of
reasonable fees; and
(iv) generally act in an advisory capacity to the director with respect to the exercise of his
duties, powers, and responsibilities.
(2) (a) The Securities Advisory Board shall be comprised of five members who shall be
appointed in accordance with the following:
(i) two members from the securities brokerage community who have at least five years prior
experience in securities matters;
(ii) one member from the securities section of the Utah Bar Association;
(iii) one member who is an officer or director of a corporation not subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934; and
(iv) one member from the public at large who has no active participation in the securities
business.
(b) No member may serve more than two consecutive terms.
(3) (a) Except as required by Subsection (b), as terms of current board members expire, the
governor shall appoint each new member or reappointed member to a four-year term.

- 26 -

(b) Notwithstanding the requirements of Subsection (a), the governor shall, at the time of
appointment or reappointment, adjust the length of terms to ensure that the terms of commission
members are staggered so that approximately half of the board is appointed every two years.
(4) (a) When a vacancy occurs in the membership for any reason, the replacement shall be
appointed for the unexpired term.
(b) All members shall serve until their respective successors are appointed and qualified.
(5) The board shall meet at least quarterly on a regular date to be fixed by the board and at
such other times at the call of the director or any two members of the board. [Four members] A
majority of the board shall constitute a quorum for the transaction of business. Actions of the board
shall require a vote of a majority of those present.
(6) Each member of the board shall, by sworn and written statement filed with the
Department of Commerce and the lieutenant governor, disclose any position of employment or
ownership interest that the member has with respect to any entity or business subject to the
jurisdiction of the division. This statement shall be filed upon appointment and must be
appropriately amended whenever significant changes occur in matters covered by the statement.
(7) (a) Members shall receive no compensation or benefits for their services, but may receive
per diem and expenses incurred in the performance of the member's official duties at the rates
established by the Division of Finance under Sections 63A-3-106 and 63A-3-107.
(b) Members may decline to receive per diem and expenses for their service.
Section 10. Section 61-1-21 is amended to read:
61-1-21. Penalties for violations.
(1) A person is guilty of a third degree felony who willfully violates any provision of this
chapter except Sections 61-1-1 and 61-1-16, or who willfully violates any rule or order under this
chapter, or who willfully violates Section 61-1-16 knowing the statement made to be false or
misleading in any material respect[, shall upon conviction be fined not more than $10,000 or
imprisoned not more than five years, or both].
(2) A person who willfully violates Section 61-1-1 [shall upon conviction be]:
(a) [fined not more than $10,000 or imprisoned not more than five years or both if,] is guilty

- 27 -

of a third degree felony if, at the time the crime was committed, the property, money, or thing
unlawfully obtained or sought to be obtained was worth $10,000 or less;
(b) [fined not more than $20,000 or imprisoned not more than 10 years or both if,] is guilty
of a second degree felony if, at the time the crime was committed, the property, money, or thing
unlawfully obtained or sought to be obtained was worth more than $10,000.
(3) No person may be imprisoned for the violation of any rule or order if he proves that he
had no knowledge of the rule or order.
Section 11. Section 61-1-26 is amended to read:
61-1-26. Scope of the act -- Service of process.
(1) Section 61-1-1, Subsection 61-1-3 (1), Sections 61-1-7, 61-1-15.5, 61-1-17, and 61-1-22
apply to persons who sell or offer to sell when:
(a) an offer to sell is made in this state; or
(b) an offer to buy is made and accepted in this state.
(2) Section 61-1-1, Subsection 61-1-3 (1), and Section 61-1-17 apply to persons who buy
or offer to buy when:
(a) an offer to buy is made in this state; or
(b) an offer to sell is made and accepted in this state.
(3) For the purposes of this section, an offer to sell or to buy is made in this state whether
or not either party is then present in this state, when the offer:
(a) originates from this state; or
(b) is directed by the offeror to this state and received at the place to which it is directed, or
at any post office in this state in the case of a mailed offer.
(4) For the purposes of this section, an offer to sell or to buy is accepted in this state when
acceptance:
(a) is communicated to the offeror in this state; and
(b) has not previously been communicated to the offeror, orally or in writing, outside this
state, and acceptance is communicated to the offeror in this state, whether or not either party is then
present in this state, when the offeree directs it to the offeror in this state reasonably believing the

- 28 -

offeror to be in this state and it is received at the place to which it is directed or at any post office
in this state in the case of a mailed acceptance.
(5) An offer to sell or to buy is not made in this state when:
(a) the publisher circulates or there is circulated on his behalf in this state any bona fide
newspaper or other publication of general, regular, and paid circulation which is not published in this
state, or which is published in this state but has had more than 2/3 of its circulation outside this state
during the past 12 months; or
(b) a radio or television program originating outside this state is received in this state.
(6) Section 61-1-2 and Subsection 61-1-3 (3), as well as Section 61-1-17 so far as investment
advisers are concerned, apply when any act instrumental in effecting prohibited conduct is done in
this state, whether or not either party is then present in this state.
(7) (a) Every application for registration under this chapter and every issuer 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 division, in such form as it prescribes by rule, an irrevocable consent
appointing the division or the director to be his attorney to receive service of any lawful process in
any noncriminal suit, action, or proceeding against him or his successor, executor, or administrator
which arises under this chapter or any rule or order hereunder after the consent has been filed, with
the same force and validity as if served personally on the person filing the consent.
(b) A person who has filed such a consent in connection with a previous registration or
notice filing need not file another.
(c) Service may be made by leaving a copy of the process in the office of the division, but
it is not effective unless the plaintiff, who may be the division in a suit, action, or proceeding
instituted by it, sends notice of the service and a copy of the process by registered mail to the
defendant or respondent at his last address on file with the division, and 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.
(8) (a) When any person, including any nonresident of this state, engages in conduct
prohibited or made actionable by this chapter or any rule or order hereunder, and he has not filed a

- 29 -

consent to service of process under Subsection (7) and personal jurisdiction over him cannot
otherwise be obtained in this state, that conduct shall be considered equivalent to his appointment
of the division or the director to be his attorney to receive service of any lawful process in any
noncriminal suit, action, or proceeding against him or his successor executor or administrator which
grows out of that conduct and which is brought under this chapter or any rule or order hereunder,
with the same force and validity as if served on him personally.
(b) Service may be made by leaving a copy of the process in the office of the division, but
it is not effective unless the plaintiff, who may be the division in a suit, action, or proceeding
instituted by it, sends notice of the service and a copy of the process by registered mail to the
defendant or respondent at his last known address or takes other steps which are reasonably
calculated to give actual notice, and 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.
(9) When process is served under this section, the court, or the director shall order such
continuance as may be necessary to afford the defendant or respondent reasonable opportunity to
defend.

- 30 -