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First Substitute S.B. 151

Senator Benjamin M. McAdams proposes the following substitute bill:




Chief Sponsor: Benjamin M. McAdams

House Sponsor: Patrice M. Arent

             7      LONG TITLE
             8      General Description:
             9          This bill modifies the Utah Uniform Securities Act to address regulation of certain real
             10      estate transactions.
             11      Highlighted Provisions:
             12          This bill:
             13          .    modifies selected definitions;
             14          .    addresses scope of exclusion; and
             15          .    makes technical and conforming amendments.
             16      Money Appropriated in this Bill:
             17          None
             18      Other Special Clauses:
             19          None
             20      Utah Code Sections Affected:
             21      AMENDS:
             22          61-1-13, as last amended by Laws of Utah 2010, Chapter 379
             24      Be it enacted by the Legislature of the state of Utah:
             25          Section 1. Section 61-1-13 is amended to read:

             26           61-1-13. Definitions.
             27          (1) As used in this chapter:
             28          (a) "Affiliate" means a person that, directly or indirectly, through one or more
             29      intermediaries, controls or is controlled by, or is under common control with a person
             30      specified.
             31          (b) (i) "Agent" means an individual other than a broker-dealer who represents a
             32      broker-dealer or issuer in effecting or attempting to effect purchases or sales of securities.
             33          (ii) "Agent" does not include an individual who represents:
             34          (A) an issuer, who receives no commission or other remuneration, directly or
             35      indirectly, for effecting or attempting to effect purchases or sales of securities in this state, and
             36      who effects transactions:
             37          (I) in securities exempted by Subsection 61-1-14 (1)(a), (b), (c), or (g);
             38          (II) exempted by Subsection 61-1-14 (2);
             39          (III) in a covered security as described in Sections 18(b)(3) and 18(b)(4)(D) of the
             40      Securities Act of 1933; or
             41          (IV) with existing employees, partners, officers, or directors of the issuer; or
             42          (B) a broker-dealer in effecting transactions in this state limited to those transactions
             43      described in Section 15(h)(2) of the Securities Exchange Act of 1934.
             44          (iii) A partner, officer, or director of a broker-dealer or issuer, or a person occupying a
             45      similar status or performing similar functions, is an agent only if the partner, officer, director,
             46      or person otherwise comes within the definition of "agent."
             47          (iv) "Agent" does not include a person described in Subsection (3).
             48          (c) (i) "Broker-dealer" means a person engaged in the business of effecting transactions
             49      in securities for the account of others or for the person's own account.
             50          (ii) "Broker-dealer" does not include:
             51          (A) an agent;
             52          (B) an issuer;
             53          (C) a depository institution or trust company;
             54          (D) a person who has no place of business in this state if:
             55          (I) the person effects transactions in this state exclusively with or through:
             56          (Aa) the issuers of the securities involved in the transactions;

             57          (Bb) other broker-dealers;
             58          (Cc) a depository institution, whether acting for itself or as a trustee;
             59          (Dd) a trust company, whether acting for itself or as a trustee;
             60          (Ee) an insurance company, whether acting for itself or as a trustee;
             61          (Ff) an investment company, as defined in the Investment Company Act of 1940,
             62      whether acting for itself or as a trustee;
             63          (Gg) a pension or profit-sharing trust, whether acting for itself or as a trustee; or
             64          (Hh) another financial institution or institutional buyer, whether acting for itself or as a
             65      trustee; or
             66          (II) during any period of 12 consecutive months the person does not direct more than
             67      15 offers to sell or buy into this state in any manner to persons other than those specified in
             68      Subsection (1)(c)(ii)(D)(I), whether or not the offeror or an offeree is then present in this state;
             69          (E) a general partner who organizes and effects transactions in securities of three or
             70      fewer limited partnerships, of which the person is the general partner, in any period of 12
             71      consecutive months;
             72          (F) a person whose participation in transactions in securities is confined to those
             73      transactions made by or through a broker-dealer licensed in this state;
             74          (G) a person who is a principal broker or associate broker licensed in this state and
             75      who effects transactions in a bond or other evidence of indebtedness secured by a real or chattel
             76      mortgage or deed of trust, or by an agreement for the sale of real estate or chattels, if the entire
             77      mortgage, deed of trust, or agreement, together with all the bonds or other evidences of
             78      indebtedness secured thereby, is offered and sold as a unit;
             79          (H) a person effecting transactions in commodity contracts or commodity options;
             80          (I) a person described in Subsection (3); or
             81          (J) other persons as the division, by rule or order, may designate, consistent with the
             82      public interest and protection of investors, as not within the intent of this Subsection (1)(c).
             83          (d) "Buy" or "purchase" means a contract for purchase of, contract to buy, or
             84      acquisition of a security or interest in a security for value.
             85          (e) "Commission" means the Securities Commission created in Section 61-1-18.5 .
             86          (f) "Commodity" means, except as otherwise specified by the division by rule:
             87          (i) an agricultural, grain, or livestock product or byproduct, except real property or a

             88      timber, agricultural, or livestock product grown or raised on real property and offered or sold
             89      by the owner or lessee of the real property;
             90          (ii) a metal or mineral, including a precious metal, except a numismatic coin whose fair
             91      market value is at least 15% greater than the value of the metal it contains;
             92          (iii) a gem or gemstone, whether characterized as precious, semi-precious, or
             93      otherwise;
             94          (iv) a fuel, whether liquid, gaseous, or otherwise;
             95          (v) a foreign currency; and
             96          (vi) all other goods, articles, products, or items of any kind, except a work of art
             97      offered or sold by art dealers, at public auction or offered or sold through a private sale by the
             98      owner of the work.
             99          (g) (i) "Commodity contract" means an account, agreement, or contract for the
             100      purchase or sale, primarily for speculation or investment purposes and not for use or
             101      consumption by the offeree or purchaser, of one or more commodities, whether for immediate
             102      or subsequent delivery or whether delivery is intended by the parties, and whether characterized
             103      as a cash contract, deferred shipment or deferred delivery contract, forward contract, futures
             104      contract, installment or margin contract, leverage contract, or otherwise.
             105          (ii) A commodity contract offered or sold shall, in the absence of evidence to the
             106      contrary, be presumed to be offered or sold for speculation or investment purposes.
             107          (iii) (A) A commodity contract may not include a contract or agreement that requires,
             108      and under which the purchaser receives, within 28 calendar days from the payment in good
             109      funds any portion of the purchase price, physical delivery of the total amount of each
             110      commodity to be purchased under the contract or agreement.
             111          (B) A purchaser is not considered to have received physical delivery of the total
             112      amount of each commodity to be purchased under the contract or agreement when the
             113      commodity or commodities are held as collateral for a loan or are subject to a lien of any
             114      person when the loan or lien arises in connection with the purchase of each commodity or
             115      commodities.
             116          (h) (i) "Commodity option" means an account, agreement, or contract giving a party to
             117      the option the right but not the obligation to purchase or sell one or more commodities or one
             118      or more commodity contracts, or both whether characterized as an option, privilege, indemnity,

             119      bid, offer, put, call, advance guaranty, decline guaranty, or otherwise.
             120          (ii) "Commodity option" does not include an option traded on a national securities
             121      exchange registered:
             122          (A) with the Securities and Exchange Commission; or
             123          (B) on a board of trade designated as a contract market by the Commodity Futures
             124      Trading Commission.
             125          (i) "Depository institution" is as defined in Section 7-1-103 .
             126          (j) "Director" means the director of the division appointed in accordance with Section
             127      61-1-18 .
             128          (k) "Division" means the Division of Securities established by Section 61-1-18 .
             129          (l) "Executive director" means the executive director of the Department of Commerce.
             130          (m) "Federal covered adviser" means a person who:
             131          (i) is registered under Section 203 of the Investment Advisers Act of 1940; or
             132          (ii) is excluded from the definition of "investment adviser" under Section 202(a)(11) of
             133      the Investment Advisers Act of 1940.
             134          (n) "Federal covered security" means a security that is a covered security under Section
             135      18(b) of the Securities Act of 1933 or rules or regulations promulgated under Section 18(b) of
             136      the Securities Act of 1933.
             137          (o) "Fraud," "deceit," and "defraud" are not limited to their common-law meanings.
             138          (p) "Guaranteed" means guaranteed as to payment of principal or interest as to debt
             139      securities, or dividends as to equity securities.
             140          (q) (i) "Investment adviser" means a person who:
             141          (A) for compensation, engages in the business of advising others, either directly or
             142      through publications or writings, as to the value of securities or as to the advisability of
             143      investing in, purchasing, or selling securities; or
             144          (B) for compensation and as a part of a regular business, issues or promulgates
             145      analyses or reports concerning securities.
             146          (ii) "Investment adviser" includes a financial planner or other person who:
             147          (A) as an integral component of other financially related services, provides the
             148      investment advisory services described in Subsection (1)(q)(i) to others for compensation and
             149      as part of a business; or

             150          (B) holds the person out as providing the investment advisory services described in
             151      Subsection (1)(q)(i) to others for compensation.
             152          (iii) "Investment adviser" does not include:
             153          (A) an investment adviser representative;
             154          (B) a depository institution or trust company;
             155          (C) a lawyer, accountant, engineer, or teacher whose performance of these services is
             156      solely incidental to the practice of the profession;
             157          (D) a broker-dealer or its agent whose performance of these services is solely
             158      incidental to the conduct of its business as a broker-dealer and who receives no special
             159      compensation for the services;
             160          (E) a publisher of a bona fide newspaper, news column, news letter, news magazine, or
             161      business or financial publication or service, of general, regular, and paid circulation, whether
             162      communicated in hard copy form, or by electronic means, or otherwise, that does not consist of
             163      the rendering of advice on the basis of the specific investment situation of each client;
             164          (F) a person who is a federal covered adviser;
             165          (G) a person described in Subsection (3); or
             166          (H) such other persons not within the intent of this Subsection (1)(q) as the division
             167      may by rule or order designate.
             168          (r) (i) "Investment adviser representative" means a partner, officer, director of, or a
             169      person occupying a similar status or performing similar functions, or other individual, except
             170      clerical or ministerial personnel, who:
             171          (A) (I) is employed by or associated with an investment adviser who is licensed or
             172      required to be licensed under this chapter; or
             173          (II) has a place of business located in this state and is employed by or associated with a
             174      federal covered adviser; and
             175          (B) does any of the following:
             176          (I) makes a recommendation or otherwise renders advice regarding securities;
             177          (II) manages accounts or portfolios of clients;
             178          (III) determines which recommendation or advice regarding securities should be given;
             179          (IV) solicits, offers, or negotiates for the sale of or sells investment advisory services;
             180      or

             181          (V) supervises employees who perform any of the acts described in this Subsection
             182      (1)(r)(i)(B).
             183          (ii) "Investment adviser representative" does not include a person described in
             184      Subsection (3).
             185          (s) "Investment contract" includes:
             186          (i) an investment in a common enterprise with the expectation of profit to be derived
             187      through the essential managerial efforts of someone other than the investor; or
             188          (ii) an investment by which:
             189          (A) an offeree furnishes initial value to an offerer;
             190          (B) a portion of the initial value is subjected to the risks of the enterprise;
             191          (C) the furnishing of the initial value is induced by the offerer's promises or
             192      representations that give rise to a reasonable understanding that a valuable benefit of some kind
             193      over and above the initial value will accrue to the offeree as a result of the operation of the
             194      enterprise; and
             195          (D) the offeree does not receive the right to exercise practical or actual control over the
             196      managerial decisions of the enterprise.
             197          (t) "Isolated transaction" means not more than a total of two transactions that occur
             198      anywhere during six consecutive months.
             199          (u) (i) "Issuer" means a person who issues or proposes to issue a security or has
             200      outstanding a security that it has issued.
             201          (ii) With respect to a preorganization certificate or subscription, "issuer" means the one
             202      or more promoters of the person to be organized.
             203          (iii) "Issuer" means the one or more persons performing the acts and assuming duties
             204      of a depositor or manager under the provisions of the trust or other agreement or instrument
             205      under which the security is issued with respect to:
             206          (A) interests in trusts, including collateral trust certificates, voting trust certificates, and
             207      certificates of deposit for securities; or
             208          (B) shares in an investment company without a board of directors.
             209          (iv) With respect to an equipment trust certificate, a conditional sales contract, or
             210      similar securities serving the same purpose, "issuer" means the person by whom the equipment
             211      or property is to be used.

             212          (v) With respect to interests in partnerships, general or limited, "issuer" means the
             213      partnership itself and not the general partner or partners.
             214          (vi) With respect to certificates of interest or participation in oil, gas, or mining titles or
             215      leases or in payment out of production under the titles or leases, "issuer" means the owner of
             216      the title or lease or right of production, whether whole or fractional, who creates fractional
             217      interests therein for the purpose of sale.
             218          (v) (i) "Life settlement interest" means the entire interest or a fractional interest in any
             219      of the following that is the subject of a life settlement:
             220          (A) a policy; or
             221          (B) the death benefit under a policy.
             222          (ii) "Life settlement interest" does not include the initial purchase from the owner by a
             223      life settlement provider.
             224          (w) "Nonissuer" means not directly or indirectly for the benefit of the issuer.
             225          (x) "Person" means:
             226          (i) an individual;
             227          (ii) a corporation;
             228          (iii) a partnership;
             229          (iv) a limited liability company;
             230          (v) an association;
             231          (vi) a joint-stock company;
             232          (vii) a joint venture;
             233          (viii) a trust where the interests of the beneficiaries are evidenced by a security;
             234          (ix) an unincorporated organization;
             235          (x) a government; or
             236          (xi) a political subdivision of a government.
             237          (y) "Precious metal" means the following, whether in coin, bullion, or other form:
             238          (i) silver;
             239          (ii) gold;
             240          (iii) platinum;
             241          (iv) palladium;
             242          (v) copper; and

             243          (vi) such other substances as the division may specify by rule.
             244          (z) "Promoter" means a person who, acting alone or in concert with one or more
             245      persons, takes initiative in founding or organizing the business or enterprise of a person.
             246          (aa) (i) Except as provided in Subsection (1)(aa)(ii), "record" means information that
             247      is:
             248          (A) inscribed in a tangible medium; or
             249          (B) (I) stored in an electronic or other medium; and
             250          (II) retrievable in perceivable form.
             251          (ii) This Subsection (1)(aa) does not apply when the context requires otherwise,
             252      including when "record" is used in the following phrases:
             253          (A) "of record";
             254          (B) "official record"; or
             255          (C) "public record."
             256          (bb) (i) "Sale" or "sell" includes a contract for sale of, contract to sell, or disposition of,
             257      a security or interest in a security for value.
             258          (ii) "Offer" or "offer to sell" includes an attempt or offer to dispose of, or solicitation of
             259      an offer to buy, a security or interest in a security for value.
             260          (iii) The following are examples of the definitions in Subsection (1)(bb)(i) or (ii):
             261          (A) a security given or delivered with or as a bonus on account of a purchase of a
             262      security or any other thing, is part of the subject of the purchase, and is offered and sold for
             263      value;
             264          (B) a purported gift of assessable stock is an offer or sale as is each assessment levied
             265      on the stock;
             266          (C) an offer or sale of a security that is convertible into, or entitles its holder to acquire
             267      or subscribe to another security of the same or another issuer is an offer or sale of that security,
             268      and also an offer of the other security, whether the right to convert or acquire is exercisable
             269      immediately or in the future;
             270          (D) a conversion or exchange of one security for another constitutes an offer or sale of
             271      the security received in a conversion or exchange, and the offer to buy or the purchase of the
             272      security converted or exchanged;
             273          (E) securities distributed as a dividend wherein the person receiving the dividend

             274      surrenders the right, or the alternative right, to receive a cash or property dividend is an offer or
             275      sale;
             276          (F) a dividend of a security of another issuer is an offer or sale; or
             277          (G) the issuance of a security under a merger, consolidation, reorganization,
             278      recapitalization, reclassification, or acquisition of assets constitutes the offer or sale of the
             279      security issued as well as the offer to buy or the purchase of a security surrendered in
             280      connection therewith, unless the sole purpose of the transaction is to change the issuer's
             281      domicile.
             282          (iv) The terms defined in Subsections (1)(bb)(i) and (ii) do not include:
             283          (A) a good faith gift;
             284          (B) a transfer by death;
             285          (C) a transfer by termination of a trust or of a beneficial interest in a trust;
             286          (D) a security dividend not within Subsection (1)(bb)(iii)(E) or (F); or
             287          (E) a securities split or reverse split.
             288          (cc) "Securities Act of 1933," "Securities Exchange Act of 1934," and "Investment
             289      Company Act of 1940" mean the federal statutes of those names as amended before or after the
             290      effective date of this chapter.
             291          (dd) "Securities Exchange Commission" means the United States Securities Exchange
             292      Commission created by the Securities Exchange Act of 1934.
             293          (ee) (i) "Security" means a:
             294          (A) note;
             295          (B) stock;
             296          (C) treasury stock;
             297          (D) bond;
             298          (E) debenture;
             299          (F) evidence of indebtedness;
             300          (G) certificate of interest or participation in a profit-sharing agreement;
             301          (H) collateral-trust certificate;
             302          (I) preorganization certificate or subscription;
             303          (J) transferable share;
             304          (K) investment contract;

             305          (L) burial certificate or burial contract;
             306          (M) voting-trust certificate;
             307          (N) certificate of deposit for a security;
             308          (O) certificate of interest or participation in an oil, gas, or mining title or lease or in
             309      payments out of production under such a title or lease;
             310          (P) commodity contract or commodity option;
             311          (Q) interest in a limited liability company;
             312          (R) life settlement interest; or
             313          (S) in general, an interest or instrument commonly known as a "security," or a
             314      certificate of interest or participation in, temporary or interim certificate for, receipt for,
             315      guarantee of, or warrant or right to subscribe to or purchase an item listed in Subsections
             316      (1)(ee)(i)(A) through (R).
             317          (ii) "Security" does not include:
             318          (A) an insurance or endowment policy or annuity contract under which an insurance
             319      company promises to pay money in a lump sum or periodically for life or some other specified
             320      period;
             321          (B) an interest in a limited liability company in which the limited liability company is
             322      formed as part of an estate plan where all of the members are related by blood or marriage, or
             323      the person claiming this exception can prove that all of the members are actively engaged in the
             324      management of the limited liability company; or
             325          (C) (I) a whole long-term estate in real property;
             326          (II) an undivided fractionalized long-term estate in real property that consists of 10 or
             327      fewer owners; or
             328          (III) an undivided fractionalized long-term estate in real property that consists of more
             329      than 10 owners if, when the real property estate is subject to a management agreement:
             330          (Aa) the management agreement permits a simple majority of owners of the real
             331      property estate to not renew or to terminate the management agreement at the earlier of the end
             332      of the management agreement's current term, or 180 days after the day on which the owners
             333      give notice of termination to the manager;
             334          (Bb) the management agreement prohibits, directly or indirectly, the lending of the
             335      proceeds earned from the real property estate or the use or pledge of its assets to a person or

             336      entity affiliated with or under common control of the manager; and
             337          (Cc) the management agreement complies with any other requirement imposed by rule
             338      by the Real Estate Commission under Section 61-2f-103 .
             339          (iii) For purposes of Subsection (1)(ee)(ii)(B), evidence that members vote or have the
             340      right to vote, or the right to information concerning the business and affairs of the limited
             341      liability company, or the right to participate in management, may not establish, without more,
             342      that all members are actively engaged in the management of the limited liability company.
             343          (ff) "State" means a state, territory, or possession of the United States, the District of
             344      Columbia, and Puerto Rico.
             345          (gg) (i) "Undivided fractionalized long-term estate" means an ownership interest in real
             346      property by two or more persons that is a:
             347          (A) tenancy in common; or
             348          [(B) any other legal form of undivided estate in real property including:]
             349          [(I)] (B) a fee estate;
             350          [(II) a life estate; or]
             351          [(III) other long-term estate.]
             352          (ii) "Undivided fractionalized long-term estate" does not include a joint tenancy.
             353          (hh) "Whole long-term estate" means a person owns or persons through joint tenancy
             354      own real property through[: (i)] a fee estate[;].
             355          [(ii) a life estate; or]
             356          [(iii) other long-term estate.]
             357          (ii) "Working days" means 8 a.m. to 5 p.m., Monday through Friday, exclusive of legal
             358      holidays listed in Section 63G-1-301 .
             359          (2) A term not defined in this section shall have the meaning as established by division
             360      rule. The meaning of a term neither defined in this section nor by rule of the division shall be
             361      the meaning commonly accepted in the business community.
             362          (3) (a) This Subsection (3) applies to[: (i)] the offer or sale of a real property estate
             363      exempted from the definition of security under Subsection (1)(ee)(ii)(C)[; or].
             364          [(ii) the offer or sale of an undivided fractionalized long-term estate that is the offer of
             365      a security.]
             366          (b) A person who, directly or indirectly receives compensation in connection with the

             367      offer or sale as provided in this Subsection (3) of a real property estate is not an agent,
             368      broker-dealer, investment adviser, or investment adviser representative under this chapter if
             369      that person is licensed under Chapter 2f, Real Estate Licensing and Practices Act, as:
             370          (i) a principal broker;
             371          (ii) an associate broker; or
             372          (iii) a sales agent.
             373          [(4) The list of real property estates excluded from the definition of securities under
             374      Subsection (1)(ee)(ii)(C) is not an exclusive list of real property estates or interests that are not
             375      a security.]

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