1     
SECURITIES EXEMPTION AMENDMENTS

2     
2015 GENERAL SESSION

3     
STATE OF UTAH

4     
Chief Sponsor: Brian M. Greene

5     
Senate Sponsor: ____________

6     

7     LONG TITLE
8     General Description:
9          This bill modifies securities provisions to address exemptions from certain registration
10     and disclosure requirements.
11     Highlighted Provisions:
12          This bill:
13          ▸     modifies an existing exemption to provide for an intrastate exemption from
14     registration and disclosure requirements;
15          ▸     modifies the division's authority with regard to the exemption;
16          ▸     addresses intrastate portals or websites; and
17          ▸     makes technical changes.
18     Money Appropriated in this Bill:
19          None
20     Other Special Clauses:
21          None
22     Utah Code Sections Affected:
23     AMENDS:
24          61-1-14, as last amended by Laws of Utah 2010, Chapter 218
25     

26     Be it enacted by the Legislature of the state of Utah:
27          Section 1. Section 61-1-14 is amended to read:

28          61-1-14. Exemptions.
29          (1) The following securities are exempt from Sections 61-1-7 and 61-1-15:
30          (a) a security, including a revenue obligation, issued or guaranteed by the United
31     States, a state, a political subdivision of a state, or an agency or corporate or other
32     instrumentality of one or more of the foregoing, or a certificate of deposit for any of the
33     foregoing;
34          (b) a security issued or guaranteed by Canada, a Canadian province, a political
35     subdivision of a Canadian province, an agency or corporate or other instrumentality of one or
36     more of the foregoing, or another foreign government with which the United States currently
37     maintains diplomatic relations, if the security is recognized as a valid obligation by the issuer
38     or guarantor;
39          (c) a security issued by and representing an interest in or a debt of, or guaranteed by, a
40     depository institution organized under the laws of the United States, or a depository institution
41     or trust company supervised under the laws of a state;
42          (d) a security issued or guaranteed by a public utility or a security regulated in respect
43     of its rates or in its issuance by a governmental authority of the United States, a state, Canada,
44     or a Canadian province;
45          (e) (i) a federal covered security specified in the Securities Act of 1933, Section
46     18(b)(1), 15 U.S.C. [Section] Sec. 77r(b)(1), or by rule adopted under that provision;
47          (ii) a security listed or approved for listing on another securities market specified by
48     rule under this chapter;
49          (iii) any of the following with respect to a security described in Subsection (1)(e)(i) or
50     (ii):
51          (A) a put or a call option contract;
52          (B) a warrant; or
53          (C) a subscription right on or with respect to the security;
54          (iv) an option or similar derivative security on a security or an index of securities or
55     foreign currencies issued by a clearing agency that is:
56          (A) registered under the Securities Exchange Act of 1934; and
57          (B) listed or designated for trading on a national securities exchange, or a facility of a
58     national securities association registered under the Securities Exchange Act of 1934;

59          (v) an offer or sale, of the underlying security in connection with the offer, sale, or
60     exercise of an option or other security that was exempt when the option or other security was
61     written or issued; or
62          (vi) an option or a derivative security designated by the Securities and Exchange
63     Commission under Securities Exchange Act of 1934, Section 9(b), 15 U.S.C. [Section] Sec.
64     78i(b);
65          (f) (i) a security issued by a person organized and operated not for private profit but
66     exclusively for religious, educational, benevolent, charitable, fraternal, social, athletic, or
67     reformatory purposes, or as a chamber of commerce or trade or professional association; and
68          (ii) a security issued by a corporation organized under Title 3, Chapter 1, General
69     Provisions Relating to Agricultural Cooperative Associations, and a security issued by a
70     corporation to which that chapter is made applicable by compliance with Section 3-1-21;
71          (g) an investment contract issued in connection with an employees' stock purchase,
72     option, savings, pension, profit-sharing, or similar benefit plan;
73          (h) a security issued by an investment company that is registered, or that has filed a
74     registration statement, under the Investment Company Act of 1940; and
75          (i) a security as to which the director, by rule or order, finds that registration is not
76     necessary or appropriate for the protection of investors.
77          (2) The following transactions are exempt from Sections 61-1-7 and 61-1-15:
78          (a) an isolated nonissuer transaction, whether effected through a broker-dealer or not;
79          (b) a nonissuer transaction in an outstanding security, if as provided by rule of the
80     division:
81          (i) information about the issuer of the security as required by the division is currently
82     listed in a securities manual recognized by the division, and the listing is based upon such
83     information as required by rule of the division; or
84          (ii) the security has a fixed maturity or a fixed interest or dividend provision and there
85     is no default during the current fiscal year or within the three preceding fiscal years, or during
86     the existence of the issuer and any predecessors if less than three years, in the payment of
87     principal, interest, or dividends on the security;
88          (c) a nonissuer transaction effected by or through a registered broker-dealer pursuant to
89     an unsolicited order or offer to buy;

90          (d) a transaction between the issuer or other person on whose behalf the offering is
91     made and an underwriter, or among underwriters;
92          (e) a transaction in a bond or other evidence of indebtedness secured by a real or
93     chattel mortgage or deed of trust, or by an agreement for the sale of real estate or chattels, if the
94     entire mortgage, deed of trust, or agreement, together with all the bonds or other evidences of
95     indebtedness secured thereby, is offered and sold as a unit;
96          (f) a transaction by an executor, administrator, sheriff, marshal, receiver, trustee in
97     bankruptcy, guardian, or conservator;
98          (g) a transaction executed by a bona fide pledgee without a purpose of evading this
99     chapter;
100          (h) an offer or sale to one of the following whether the purchaser is acting for itself or
101     in a fiduciary capacity:
102          (i) a depository institution;
103          (ii) a trust company;
104          (iii) an insurance company;
105          (iv) an investment company as defined in the Investment Company Act of 1940;
106          (v) a pension or profit-sharing trust;
107          (vi) other financial institution or institutional investor; or
108          (vii) a broker-dealer;
109          (i) an offer or sale of a preorganization certificate or subscription if:
110          (i) no commission or other remuneration is paid or given directly or indirectly for
111     soliciting a prospective subscriber;
112          (ii) the number of subscribers acquiring a legal or beneficial interest therein does not
113     exceed 10;
114          (iii) there is no general advertising or solicitation in connection with the offer or sale;
115     and
116          (iv) no payment is made by a subscriber;
117          (j) subject to Subsection (6), a transaction pursuant to an offer by an issuer of its
118     securities to its existing securities holders, if:
119          (i) no commission or other remuneration, other than a standby commission is paid or
120     given directly or indirectly for soliciting a security holder in this state; and

121          (ii) the transaction constitutes:
122          (A) the conversion of convertible securities;
123          (B) the exercise of nontransferable rights or warrants;
124          (C) the exercise of transferable rights or warrants if the rights or warrants are
125     exercisable not more than 90 days after their issuance;
126          (D) the purchase of securities under a preemptive right; or
127          (E) a transaction other than one specified in Subsections (2)(j)(ii)(A) through (D) if:
128          (I) the division is furnished with:
129          (Aa) a general description of the transaction;
130          (Bb) the disclosure materials to be furnished to the issuer's securities holders in the
131     transaction; and
132          (Cc) a non-refundable fee; and
133          (II) the division does not, by order, deny or revoke the exemption within 20 working
134     days after the day on which the filing required by Subsection (2)(j)(ii)(E)(I) is complete;
135          (k) an offer, but not a sale, of a security for which a registration statement is filed under
136     both this chapter and the Securities Act of 1933 if no stop order or refusal order is in effect and
137     no public proceeding or examination looking toward such an order is pending;
138          (l) a distribution of securities as a dividend if the person distributing the dividend is the
139     issuer of the securities distributed;
140          (m) a nonissuer transaction effected by or through a registered broker-dealer where the
141     broker-dealer or issuer files with the division, and the broker-dealer maintains in the
142     broker-dealer's records, and makes reasonably available upon request to a person expressing an
143     interest in a proposed transaction in the security with the broker-dealer information prescribed
144     by the division under its rules;
145          (n) a transaction not involving a public offering;
146          (o) an offer or sale of "condominium units" or "time period units" as those terms are
147     defined in Title 57, Chapter 8, Condominium Ownership Act, whether or not to be sold by
148     installment contract, if the following are complied with:
149          (i) Title 57, Chapter 8, Condominium Ownership Act, or if the units are located in
150     another state, the condominium act of that state;
151          (ii) Title 57, Chapter 11, Utah Uniform Land Sales Practices Act;

152          (iii) Title 57, Chapter 19, Timeshare and Camp Resort Act; and
153          (iv) Title 70C, Utah Consumer Credit Code;
154          (p) a transaction or series of transactions involving a merger, consolidation,
155     reorganization, recapitalization, reclassification, or sale of assets, if the consideration for
156     which, in whole or in part, is the issuance of securities of a person or persons, and if:
157          (i) the transaction or series of transactions is incident to a vote of the securities holders
158     of each person involved or by written consent or resolution of some or all of the securities
159     holders of each person involved;
160          (ii) the vote, consent, or resolution is given under a provision in:
161          (A) the applicable corporate statute or other controlling statute;
162          (B) the controlling articles of incorporation, trust indenture, deed of trust, or
163     partnership agreement; or
164          (C) the controlling agreement among securities holders;
165          (iii) (A) one person involved in the transaction is required to file proxy or
166     informational materials under Section 14(a) or (c) of the Securities Exchange Act of 1934 or
167     Section 20 of the Investment Company Act of 1940 and has so filed;
168          (B) one person involved in the transaction is an insurance company that is exempt from
169     filing under Section 12(g)(2)(G) of the Securities Exchange Act of 1934, and has filed proxy or
170     informational materials with the appropriate regulatory agency or official of its domiciliary
171     state; or
172          (C) all persons involved in the transaction are exempt from filing under Section
173     12(g)(1) of the Securities Exchange Act of 1934, and file with the division such proxy or
174     informational material as the division requires by rule;
175          (iv) the proxy or informational material is filed with the division and distributed to all
176     securities holders entitled to vote in the transaction or series of transactions at least 10 working
177     days prior to any necessary vote by the securities holders or action on any necessary consent or
178     resolution; and
179          (v) the division does not, by order, deny or revoke the exemption within 10 working
180     days after filing of the proxy or informational materials;
181          (q) subject to Subsection (7), a transaction pursuant to an offer to sell securities of an
182     issuer if:

183          (i) the transaction is part of an issue in which [there are not more than 15 purchasers in
184     this state, other than those designated in Subsection (2)(h), during any 12 consecutive months;]
185     the issuer does not accept more than $5,000 from a non-accredited investor, and has no limit
186     for an accredited investor, as defined by Rule 501 of Securities Exchange Commission
187     Regulation D, 17 C.F.R. 230.501, except the total limit under Subsection (2)(q)(v);
188          [(ii) no general solicitation or general advertising is used in connection with the offer
189     to sell or sale of the securities;]
190          (ii) as part of the transaction, the issuer may offer, advertise, solicit, and sell the
191     security through the issuer's own efforts, the efforts of its owners, members, officers,
192     employees, and affiliates and may advertise through any medium, including television, radio,
193     newspaper, or the issuer's own or third party websites or portals;
194          (iii) no commission or [other similar] compensation based on the offering size or dollar
195     amount of the transaction is given, directly or indirectly, to a person other than a broker-dealer
196     or agent licensed under this chapter[, for soliciting a prospective purchaser in this state];
197          (iv) the seller reasonably believes that all the purchasers in this state are purchasing the
198     security for investment purposes; [and]
199          [(v) the transaction is part of an aggregate offering that does not exceed $1,000,000, or
200     a greater amount as prescribed by a division rule, during any 12 consecutive months;]
201          (v) the sum of all cash and other consideration to be received for sales of the securities
202     in a 12-month period does not exceed $2,000,000;
203          (vi) the transaction meets the requirements of Section 3(a)(11) of the Securities Act of
204     1933, 15 U.S.C. Sec. 77c(a)(11);
205          (vii) the purchaser is a resident of the state;
206          (viii) the issuer provides the following disclosures to a prospective purchaser of the
207     security:
208          (A) a description of the issuer's company, its entity type, and the address and phone
209     number of the issuer's principal office;
210          (B) the identity of the executive officers, directors, managing members, and other
211     persons occupying a similar status or performing similar functions in the name of and on behalf
212     of the issuer;
213          (C) the terms and conditions of the securities being offered, any outstanding securities

214     of the company, the percentage ownership of the company represented by the offered securities
215     or the valuation of the company implied by the price of the offered securities, the price per
216     share, unit, or interest of the securities being offered, the general proposed use of the proceeds
217     of the offering, the reporting to be provided to purchasers, any restrictions on the transfer of the
218     securities being offered, and any anticipated future issuance of securities that may dilute the
219     value of the securities being offered;
220          (D) a description of any litigation, legal proceedings, or pending regulatory action
221     involving the issuer or the issuer's management;
222          (E) whether the issuer or any person affiliated with the issuer or offering is subject to
223     disqualification by rule contained in the Securities Act of 1933, 17 C.F.R. 230.262; and
224          (F) a narrative of any material or significant risk factors that might have a negative
225     effect on the securities being offered that includes the following statement: "In making an
226     investment decision, purchasers must rely on their own examination of the issuer and the terms
227     of the offering, including the merits and risks involved. These securities have not been
228     registered under federal or state law, nor have these securities been recommended or approved
229     by any federal or state regulatory authority. Furthermore, no government authority has
230     confirmed the accuracy or determined the adequacy of any disclosures pertaining to these
231     securities."; and
232          (ix) the issuer of the securities:
233          (A) is a business entity organized under the laws of this state authorized to do business
234     in the state;
235          (B) is not an investment company, as defined in the Investment Company Act of 1940,
236     either before or as a result of the offering;
237          (C) not less than 10 days before commencement of any solicitation or general
238     advertising of an offering of securities, files a one-page notification form created by the
239     division that is restricted to a description of the company, its entity type, the address and phone
240     number of its principal office, the identity of the executive officers, directors, managing
241     members, and other persons occupying a similar status or performing similar functions in the
242     name of and on behalf of the issuer, and the dollar amount of the offering; and
243          (D) not less than 10 days before the commencement of any solicitation or general
244     advertising of an offering of securities, and notwithstanding Section 61-1-18.4, pays a filing fee

245     to the division of $120;
246          (r) a transaction involving a commodity contract or commodity option;
247          (s) a transaction in a security, whether or not the security or transaction is otherwise
248     exempt if:
249          (i) the transaction is:
250          (A) in exchange for one or more outstanding securities, claims, or property interests; or
251          (B) partly for cash and partly in exchange for one or more outstanding securities,
252     claims, or property interests; and
253          (ii) the terms and conditions are approved by the director after a hearing under Section
254     61-1-11.1;
255          (t) a transaction incident to a judicially approved reorganization in which a security is
256     issued:
257          (i) in exchange for one or more outstanding securities, claims, or property interests; or
258          (ii) partly for cash and partly in exchange for one or more outstanding securities,
259     claims, or property interests;
260          (u) a nonissuer transaction by a federal covered investment adviser with investments
261     under management in excess of $100,000,000 acting in the exercise of discretionary authority
262     in a signed record for the account of others; and
263          (v) a transaction as to which the division finds that registration is not necessary or
264     appropriate for the protection of investors.
265          (3) A person filing an exemption notice or application shall pay a filing fee as
266     determined under Section 61-1-18.4.
267          (4) Upon approval by a majority of the commission, the director, by means of an
268     adjudicative proceeding conducted in accordance with Title 63G, Chapter 4, Administrative
269     Procedures Act, may deny or revoke an exemption specified in Subsection (1)(f) or (g) or in
270     Subsection (2) with respect to:
271          (a) a specific security, transaction, or series of transactions; or
272          (b) a person or issuer, an affiliate or successor to a person or issuer, or an entity
273     subsequently organized by or on behalf of a person or issuer generally and may impose a fine if
274     the director finds that the order is in the public interest and that:
275          (i) the application for or notice of exemption filed with the division is incomplete in a

276     material respect or contains a statement which was, in the light of the circumstances under
277     which it was made, false or misleading with respect to a material fact;
278          (ii) this chapter, or a rule, order, or condition lawfully imposed under this chapter has
279     been willfully violated in connection with the offering or exemption by:
280          (A) the person filing an application for or notice of exemption;
281          (B) the issuer, a partner, officer, or director of the issuer, a person occupying a similar
282     status or performing similar functions, or a person directly or indirectly controlling or
283     controlled by the issuer, but only if the person filing the application for or notice of exemption
284     is directly or indirectly controlled by or acting for the issuer; or
285          (C) an underwriter;
286          (iii) subject to Subsection (8), the security for which the exemption is sought is the
287     subject of an administrative stop order or similar order, or a permanent or temporary injunction
288     or a court of competent jurisdiction entered under another federal or state act applicable to the
289     offering or exemption;
290          (iv) the issuer's enterprise or method of business includes or would include activities
291     that are illegal where performed;
292          (v) the offering has worked, has tended to work, or would operate to work a fraud upon
293     purchasers;
294          (vi) the offering is or was made with unreasonable amounts of underwriters' and sellers'
295     discounts, commissions, or other compensation, or promoters' profits or participation, or
296     unreasonable amounts or kinds of options;
297          (vii) an exemption is sought for a security or transaction that is not eligible for the
298     exemption; or
299          (viii) the proper filing fee, if required, has not been paid.
300          (5) (a) An order under Subsection (4) may not operate retroactively.
301          (b) A person may not be considered to have violated Section 61-1-7 or 61-1-15 by
302     reason of an offer or sale effected after the entry of an order under this Subsection (5) if the
303     person sustains the burden of proof that the person did not know, and in the exercise of
304     reasonable care could not have known, of the order.
305          (6) The exemption created by Subsection (2)(j) is not available for an offer or sale of a
306     security to an existing securities holder who has acquired the holder's security from the issuer

307     in a transaction in violation of Section 61-1-7.
308          (7) As to a security, a transaction, or a type of security or transaction, the division
309     may[: (a) withdraw or further condition the exemption described in Subsection (2)(q); or (b)]
310     waive one or more of the conditions described in Subsection (2)(q).
311          (8) (a) The director may not institute a proceeding against an effective exemption under
312     Subsection (4)(b) more than one year from the day on which the order or injunction on which
313     the director relies is issued.
314          (b) The director may not enter an order under Subsection (4)(b) on the basis of an order
315     or injunction entered under another state act unless that order or injunction is issued on the
316     basis of facts that would constitute a ground for a stop order under this section at the time the
317     director enters the order.
318          (9) An intrastate portal or website described in Subsection (2)(q) through which an
319     offer or sale of securities under Subsection (2)(q) is made is not subject to the broker-dealer,
320     investment advisor, or investment adviser representative registration requirements under this
321     chapter if the intrastate portal or website:
322          (a) does not offer investment advice or recommendations;
323          (b) is a business entity organized under the laws of Utah and authorized to do business
324     in the state;
325          (c) acts as a conduit for money invested by purchasers of issuer securities, and does not
326     hold, manage, or possess purchaser money or securities;
327          (d) does not receive compensation based on the offering size or dollar amount of the
328     transaction, but may charge the issuer and receive a reasonable fee for services such as the
329     posting and processing of the offering, vetting an issuer, advertising the website, verifying
330     resident status of a potential purchaser, processing transactions, or other similar acts;
331          (e) files a simple one-page notification form with the division before advertising or
332     posting its first offering that is a one-time filing and is restricted to a description of the
333     company, its entity type, the address and phone number of its principal office, the identity of
334     the executive officers, directors, managing members, and other persons occupying similar
335     status or performing similar functions in the name of and on behalf of the company;
336          (f) notwithstanding Section 61-1-18.4, pays a one-time filing fee of $250 to the
337     division before advertising or posting its first offering; and

338          (g) prominently displays on the intrastate portal or website in clear language a notice to
339     potential purchasers that the website is intended only for residents of this state.






Legislative Review Note
     as of 11-13-14 2:36 PM


Office of Legislative Research and General Counsel